Federal Circuit Concludes Sales and Marketing Expenses Are To Be Included In Economic Prong Analysis At The ITC

This week, the U.S. Court of Appeals for the Federal Circuit lowered barriers that one must overcome to enforce patents at the U.S. International Trade Commission (ITC). The ITC often proves to be an effective forum to enforce claims for patent infringement by products that are imported into the United States because, when proper claims are proven, the ITC will issue remedial orders that prevent infringers from further importation of infringing products. And, as compared to many district courts, the ITC operates according to a very fast schedule.

Patent owners must prove at the ITC that there is a domestic industry relating to patented products, which involves two prongs of analysis: First, the “technical prong” requires that the patent holder (or its licensee) has a domestic product that practices the patent, and second, the “economic prong” requires that the patent holder (or, again, its licensee) has made a significant or substantial domestic investment relating to that product. One way that a patent owner meets the economic prong is by showing “significant employment of labor or capital” with respect to the patented product under 19 U.S.C. Section 1337(a)(3)(B).

This week’s decision reversed the ITC’s prior practice of excluding domestic expenses for sales and marketing activities from this Section B showing. Previously, the ITC would not consider such expenses because the ITC deemed those activities to be insufficiently related to a patent’s claims. Further, the ITC typically excluded expenses for warehousing, distribution or quality control efforts toward the Section B showing, as it considered these activities to be indistinguishable from those of a mere importer.

But this week, in Lashify, Inc. v. Int’l Trade Comm’n, the Federal Circuit determined that the ITC’s practice was based on an inaccurate statutory interpretation. No. 2023-1245, 2025 WL 699368 (Fed. Cir. Mar. 5, 2025). At the ITC, Lashify had presented evidence of such expenses, but the ITC excluded them from its economic prong analysis. The Federal Circuit instructed the ITC, on remand, to count expenses for labor and capital even when they relate to sales, marketing, warehousing, quality control or distribution activity. This holding increases patent holders’ options to meet the economic prong at the ITC. In an earlier case, the Federal Circuit noted that, if such activities contributed toward a domestic industry showing, “few importers would fail the test of constituting a domestic industry.” Schaper Mfg. Co. v. U.S. Int’l Trade Comm’n, 717 F.2d 1368, 1373 (Fed. Cir. 1983). The Federal Circuit’s prediction in Schaper suggests the new statutory interpretation will expand the domestic industry prong so far as to capture the activities of patent owners who import their own products from abroad.

The Lashify decision indicates that the Federal Circuit exercised its “independent judgment” to interpret the statute, following the Supreme Court’s repudiation of the Chevron doctrine in Loper Bright. Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024). This decision may herald tighter review by the Federal Circuit in the ITC’s application of 19 U.S.C. Section 1337(a)(3)(B).