By Eric Schweibenz
On February 21, 2012, ALJ Theodore R. Essex issued the public version of Order No. 34 (dated February 6, 2012) granting Complainant Microsoft Corporation’s (“Microsoft”) motion for summary determination that it satisfies the economic prong of the domestic industry requirement in Certain Handheld Electronic Computing Devices, Related Software, And Components Thereof (Inv. No. 337-TA-769).

According to the Order, Microsoft relied on its investments in its Windows Phone 7 products as well as the investments of its licensee, Amazon.com, in the Kindle 3 e-reader product, arguing that these investments in plant and equipment, significant employment of labor and capital, and substantial investments in the exploitation of the asserted patents through engineering and research and development each independently meet the economic prong of the domestic industry requirement.  More specifically, Microsoft pointed to its investments to develop Windows Phone 7 and integrate it on original equipment manufacturer’s mobile devices to satisfy the economic prong for U.S. Patent Nos. 5,778,372 (the ‘372 patent), 5,889,522 (the ‘522 patent), 6,339,780 (the ‘780 patent) and 6,891,551 (the ‘551 patent), and asserted that its Mobil Group provided engineering, research, development, design, integration, stabilization, commercialization and continued support of Microsoft’s mobile operations systems, services and software, including Windows Phone 7, since 2008 at Microsoft’s headquarters in Redmond, Washington.  Microsoft contended that Amazon.com’s investments in the Kindle 3 e-reader satisfied the economic prong with respect to U.S. Patent No. 6,957,233 (the ‘233 patent).

Respondents Barnes & Noble, Inc. and barnesandnoble.com LLC (collectively, “Barnes & Noble”) opposed the motion, arguing that (1) subsections (A) and (B) of § 1337(a)(3) are limited to manufacturing activities and neither Microsoft, HTC (maker of Microsoft’s Windows Phone 7 domestic product, the HTC Surround) nor Amazon.com make the domestic industry products in the U.S.; (2) Microsoft failed to show that Amazon.com’s investments are “significant” or “substantial” within the meaning of subsection (C); (3) the domestic industry products have been discontinued and cannot meet the domestic industry requirement; and (4) Microsoft improperly supplemented its response to Barnes & Noble’s domestic industry interrogatory after filing the motion.  The Commission Investigative Staff supported Microsoft’s motion.

Viewing the evidence in a light most favorable to Barnes & Noble, ALJ Essex found that Microsoft had satisfied the economic prong under subsections (A) and (B) for the ‘372, ‘522 and ‘551 patents based on investments in plant and equipment, labor and capital, and domestic tax costs related to the Mobile Group with respect to its domestic industry product running Windows Phone 7.  The ALJ also found that the economic prong was satisfied under subsections (A) and (B) for the ‘233 patent based on Amazon.com’s activities, including the floor space dedicated to Kindle 3 products, investments in facilities and hardware related to the Kindle 3, and investments in labor with respect to the Kindle generally and the Kindle 3 specifically.  Further, ALJ Essex found that Microsoft met the economic prong under subsection (C) for all five patents at issue, and rejected Barnes and Noble’s assertions that Microsoft could not satisfy the economic prong based on investment in only one component (the operating system) of the article, that Microsoft was required to apportion its investment based on the relative amount of sales in the U.S. and overseas, and that the HTC Surround and Kindle 3 were discontinued based soley on uncorroborated “eleventh-hour internet page printouts.”  Finally, the ALJ found that Barnes & Noble failed to specifically indentify new information or theories in Microsoft’s late supplementation of its contention interrogatory that prejudiced Barnes & Noble in any significant way.