On March 5, 2025, the United States Court of Appeals for the Federal Circuit issued a precedential opinion that will change the way the U.S. International Trade Commission addresses the threshold “domestic industry requirement” in Section 337 unfair import investigations. In Lashify, Inc. v. International Trade Commission, the Federal Circuit vacated the ITC’s determination that complainant Lashify’s domestic expenses relating to sales, marketing, warehousing, quality control, and distribution of its foreign-manufactured products could not be counted as domestic labor and capital investments under the economic prong of the domestic industry requirement, finding that the plain language of the ITC’s enabling statute did not exclude these categories of investments from the calculation. This precedent, combined with the Federal Circuit’s recent guidance in Wuhan Healthgen Biotechnology Corp. v. ITC, may open the doors of the ITC to more potential Section 337 complainants and simplify the domestic industry analysis for many already litigating there.
The Threshold Domestic Industry Requirement
Not every entity injured by unfair acts or practices in import trade may file a complaint under Section 337 of the Tariff Act of 1930 (19 U.S.C. § 1337). A precondition for relief under the statute is satisfaction of the so-called domestic industry requirement, which has two prongs: economic and technical. The “economic prong” requires that there be in existence, or in the process of being established, an industry in the United States pertaining to an asserted patent (or other intellectual property right), while the “technical prong” requires that the industry relate to the articles protected by the asserted patent. For the economic prong, Section 337(a)(3) identifies three independent ways a complaint may show the required industry exists: “(A) significant investment in plant and equipment; (B) significant employment of labor or capital; or (C) substantial investment in its exploitation, including engineering, research and development, or licensing”—all of which must be in the United States. While these categories—added in a 1988 amendment to Section 337—are seemingly broad on their face, the ITC has long determined that certain domestic expenses such as sales, marketing, distribution, and warehousing are not sufficient to satisfy the economic prong, even if they might otherwise fall under one of the statutory categories.
Lashify’s Complaint and the ITC’s Underlying Decision
The ITC’s decision in the underlying investigation leading to the Federal Circuit’s decision followed that pattern. Lashify is an American company with headquarters and employees in the United States who distributes, markets, and sells artificial eyelash extensions and related products. While Lashify has certain R&D and sales/distribution-related activities in the United States, its products are manufactured abroad and imported into the United States before shipment to domestic customers. In its Section 337 complaint, Lashify asserted a utility patent, covering heat-fused lash extensions, and two design patents, covering ornamental designs for a storage cartridge and an applicator for artificial eyelash extensions, against several respondents.
The presiding administrative law judge issued an Initial Determination finding no violation of Section 337 in part because Lashify did not satisfy the economic prong of the domestic industry requirement for any of its asserted patents. When evaluating whether Lashify had established “significant employment of labor or capital,” under Section 337(a)(3)(B), the ALJ excluded Lashify’s warehousing, quality control, and distribution expenses, reasoning that there were “no additional steps required to make these products saleable” upon arrival into the United States, and the quality control measures were “no more than what a normal importer would perform upon receipt.” And because “Lashify did not meet its burden to establish significant qualifying expenses in other areas,” sales and marketing expenditures were also excluded.
Lashify petitioned the full ITC for review of the ALJ’s findings, and a split Commission agreed with the ALJ’s decision on the economic prong. The majority reasoned that sales and marketing activities alone cannot satisfy the domestic industry requirement and that expenses related to warehousing, quality control, and distribution (regardless of their magnitude), are akin to the same expenses when incurred by “mere importers.” The dissent, however, argued that the language of Section 337 contains no basis for excluding such activities from the domestic industry calculus.
The Federal Circuit
During oral argument held in January 2025, the ITC faced probing questions from the panel of Federal Circuit judges, with one remarking that the ITC’s interpretation of the statute “makes no sense.” These lines of questioning foretold the court’s decision, with the Federal Circuit on March 5 vacating the Commission’s determination as to the economic prong of the domestic industry requirement and remanding for further proceedings. Applying the Supreme Court’s recent decision in Loper Bright Enterprises and relying heavily on the plain language of Section 337, the Federal Circuit held that the categories of “labor” and “capital” in Section 337 do not include any implicit limitation as to what said labor or capital is expended on—“there is no carveout [in Section 337(a)(3)(B)] of employment of labor or capital for sales, marketing, warehousing, quality control, or distribution,” and that there is no requirement that such expenditures must be accompanied by significant employment for other functions, such as manufacturing. Lashify, slip op. at 17.
The Federal Circuit further clarified that Section 337(a)(3)(B) allows a complainant to satisfy the economic prong of the domestic industry requirement by “showing employment of a large enough stock of accumulated goods or of a significant amount of human activity for producing goods or providing the services in demand in an economy.” Id. at 18-19. Any such “stock of accumulated goods” need not be manufactured domestically, and “human activity,” even when employed for sales, marketing, warehousing, quality control, or distribution, is not excluded from labor. Id. at 19. Addressing the specific actions at issue, the Federal Circuit noted that (i) “warehousing” involves holding “a stock of accumulated goods,” (ii) ensuring that products of desired quality are provided to customers (i.e., warehousing, quality control, and distribution) involves “providing the services in demand,” and (iii) sales and market efforts also involve “providing the services in demand.” Id.
Though the ITC had argued that the legislative history of the 1988 amendments and prior Federal Circuit precedent supported its decision not to count sales, marketing, and distribution activities as part of the domestic industry, the court rejected these arguments. It explained that various comments in the legislative history and proposed language regarding sales and marketing were not germane to the particular language of Section 337(a)(3)(B) at issue here and undermined rather than supported the ITC’s position. Id. at 20-25. And the ITC’s reliance on the Federal Circuit’s pre-1988 precedent in Schaper Mfg. v. ITC was not persuasive, as it both addressed pre-1988 statutory language and was cited by Congress as an example of the ITC’s “inconsistent and narrow” treatment of the domestic industry requirement. Id. at 25-26.
Potential Impacts of the Federal Circuit’s Decision
The Federal Circuit’s decision in Lashify is the most important appellate decision on the domestic industry requirement in at least a decade. For litigants in the ITC, the domestic industry analysis may be simplified in many cases—those long accustomed to having to deduct or de-allocate sales and marketing expenses from the domestic industry calculus will no longer need to do so. But allowing complainants to count domestic sales, marketing, and distribution activities likely opens the ITC’s doors to many more complainants both large and small and may lead to a significant increase in the number of ITC investigations. While the holding of Lashify is technically limited to the language of Section 337(a)(3)(B) involving “labor and capital,” the same reasoning may also apply to the other statutory categories such as “plant and equipment.” See id. at 18 (discussing similarity between the language at issue). Any substantial increase in investigations may come with renewed attention on Capitol Hill, however—the ITC has been the subject of repeated proposed legislation over the years by those concerned over potential abuse of the system. Finally, the next battlefield in the domestic industry requirement may shift from which expenses can count to the evaluation of the expenses themselves. To satisfy the economic prong, investments must be “significant” or “substantial.” As the Federal Circuit recently reinforced in Wuhan Healthgen Biotechnology Corp. v. ITC, a “domestic industry cannot hinge on a threshold dollar value or require a rigid formula; rather, the analysis requires a holistic review of all relevant considerations that is very context dependent.” Just as quantitatively small investments may in some circumstances nonetheless be “significant,” it is possible that even large amounts of certain investments (e.g., sales, marketing, or distribution activities) may be deemed “insignificant” to the domestic industry products and therefore insufficient to satisfy the domestic industry requirement.
