By Eric Schweibenz
On November 29, 2016, ALJ Thomas B. Pender issued the public version (dated November 10, 2016) of the Final Initial Remand Determination on Remand (“RID”) of no violation in Certain Sleep-Disordered Breathing Treatment Systems and Components Thereof (Inv. No. 337-TA-890).

By way of background, the investigation is based on a complaint filed by ResMed Corporation, ResMed Incorporated, and ResMed Limited (collectively, “ResMed”) alleging violation of Section 337 by Respondents BMC Medical Co., Ltd., 3B Medical, Inc., and 3B Products, L.L.C. (collectively, “BMC”) in the importation and/or sale of certain sleep-disordered breathing treatment systems and components thereof that infringe one or more claims of various patents. See our July 22, 2013 and August 20, 2013 posts for more details on the complaint and the Notice of Investigation, respectively. On August 22, 2014, ALJ Pender issued a notice of his Initial Determination (“ID:) finding a violation of Section 337 with respect to U.S. Patent Nos. 7,178,527 (“the ’527 patent”); 7,950,392 (“the ’392 patent”); 7,997,267 (“the ’267 patent”); 7,341,060 (“the ’060 patent”); 8,312,883 (“the ’883 patent”); and RE 44,453 (“the ’453 patent”). ALJ Pender further determined that there was no violation with respect to U.S. Patent No. 7,926,487 (“the ’487 patent”). See our August 25, 2014 post for more details regarding the ID. On December 23, 2014, the Commission affirmed the finding of a violation of Section 337 for several of the asserted patents and issued (1) a limited exclusion order and (2) cease-and-desist orders directed to the domestic respondents. See our December 30, 2014 post for more details regarding the Commission’s determination.

According to the RID, BMC filed a notice of appeal in the Federal Circuit, seeking review of the Commission’s domestic industry determination. The Commission moved to remand BMC’s appeal in light of intervening domestic industry precedent in Lelo Inc. v. Int’l Trade Comm’n, 786 F.3d 879 (Fed. Cir. 2015). The court granted the Commission’s remand motion, after which the Commission issued an order remanding the investigation back to ALJ Pender to (1) apply the Federal Circuit’s intervening domestic industry precedent in Lelo to the existing record with respect to the ’527, ’392, ’267, ’060, and ’883 patents (collectively, “the Mask Patents”), and (2) issue the RID on violation. The products that were stipulated to practice the Mask Patents are masks for CPAP therapy to treat breathing problems, such as sleep apnea.

ResMed did not brief domestic industry for the ’060 and ’883 patents, and thus the ALJ found that ResMed conceded a lack of quantitative significant for the domestic investments behind these patents. ResMed argued that the ID had found its domestic industry investments with respect to the Mask Patents to be qualitatively significant, but made no finding regarding quantitative significance. ResMed also asserted that Lelo altered the test for domestic industry in that domestic industry cannot be based solely on qualitative factors, but that Lelo did not alter the result of the investigation because its expenditures relating to its Mask Patents are also quantitatively significant. BMC, on the other hand, contended that the record does not support a finding of domestic industry as to the ’527, ’392, and ’267 patents (collectively, “the Remaining Mask Patents”). BMC suggested that under Lelo, generic purchase prices of domestic components should not be considered when those expenditures were not allocated to the statutory categories of “plant,” “equipment,” “labor,” or “capital.” Further, BMC mentioned that the Federal Circuit rejected the use of qualitative factors to compensate for a lack of quantitative significance of alleged domestic investments, and recounted how the court in Lelo held that purchase prices for U.S. components which are less than five percent of the total raw cost of the domestic industry product are insignificant. The Commission Investigative Staff took the position that the record established that ResMed’s investments are qualitatively significant.

Based on the parties’ submissions, ALJ Pender found that ResMed failed to show that the investments it has made under Section 337(a)(3)(A) and (b) are significant. Two issues in particular were implicated by Lelo. The first issue is whether the expenditures toward the domestically-supplied components (plastic tubing, foam rubber, and hook-and-loop fasteners) should be counted towards subsections (A) and (B) of the statute. The ALJ found that the evidence in the record signaled some level of domestic investment tied to the purchase of these components by ResMed, but ultimately Lelo instructs that it be disregarded. The second issue is whether the investment and employment amounts calculated are quantitatively significant, as opposed to solely qualitatively significant, under either of subsections (A) or (B). Based on the evidence in the record, ALJ Pender did not find that ResMed’s domestic investments under either subsection (A) or (B) are significant, and further, stated that his finding would not be any different if ResMed’s investments in the domestically-supplied plastic tubing, foam rubber, and hook-and-loop fasteners had been included in the analysis. Accordingly, the ALJ determined that no violation of Section 337 occurred.