Section 337 Gets a Makeover: Federal Circuit Expands Economic Domestic Industry Criteria

The U.S. Court of Appeals for the Federal Circuit (“Federal Circuit”) recently issued a landmark decision in Lashify, Inc. v. International Trade Commission,¹ expanding what expenditures count to prove the economic prong of the domestic industry requirement, in a move that could significantly impact companies involved in Section 337 investigations before the U.S. International Trade Commission (“ITC”). The Federal Circuit vacated the ITC’s denial of relief for patent infringement claims related to eyelash extension products, finding that the ITC applied an incorrect legal standard for the economic prong of the domestic industry requirement. The decision clarifies the scope and application of the economic prong of the domestic industry requirement, which is a key element of Section 337 investigations, and could open the doors to greater numbers of ITC complainants.

Background on Section 337

The ITC is a federal agency with the authority to adjudicate cases involving unfair trade practices related to the importation of products into the U.S. One of the most common types of ITC cases is a Section 337 investigation, which is based on Section 337 of the Tariff Act of 1930. Section 337 declares unlawful the importation, sale, or distribution of products that infringe a valid and enforceable U.S. patent, trademark, copyright, or other intellectual property right.² Section 337 also provides relief against such importation, but only if an industry in the U.S., relating to the articles protected by the intellectual property right, exists or is in the process of being established. This is known as the domestic industry requirement, which has two independent components: the economic prong and the technical prong.

The economic prong requires that there be an industry in the U.S. that involves significant investment in plant and equipment, significant employment of labor or capital, or substantial investment in the exploitation of the intellectual property right, such as engineering, research and development, or licensing. The technical prong requires that the industry relate to the articles actually protected by the asserted intellectual property right, which usually means that the complainant’s domestic industry products must practice a claim of the asserted patent.

The ITC has become a popular venue for intellectual property disputes, and filings in 2024 were up over 40% from filings in 2023.³ Section 337 investigations differ from district court litigation in several ways. For example, Section 337 investigations can be:

• Faster: Section 337 investigations are statutorily required to be completed as early as practicable, typically within 15 to 18 months from the filing of the complaint. District court litigation often takes two to three years or longer to reach a final judgment.

• Broader: The ITC acts pursuant to in rem jurisdiction over products imported into the U.S. that are accused of infringing as opposed to personal jurisdiction over the defendant(s) and subject matter jurisdiction over the action.

• Stronger: Section 337 investigations cannot award money damages, but instead issue broad exclusion orders that bar infringing products from entering the U.S., regardless of the identity of the importer. District court litigation can award money damages, but injunctions preventing the sale or distribution of infringing products are relatively rare and are limited by the four-factor test established by the Supreme Court in eBay Inc. v. MercExchange, LLC.⁴ Section 337 investigations can also result in cease and desist orders that stop the sale of infringing products already in the U.S., or consent orders that bind the respondents to certain terms and conditions. So, despite a lack of money damages, a Section 337 investigation can result in tremendous business disruption.

Lashify’s ITC Case

In Lashify, the complainant alleged that certain importers of eyelash extension products were violating Section 337 by infringing its patents related to the manufacture of lash extensions.⁵ The ITC denied Lashify any relief, ruling that Lashify failed to satisfy the economic prong of the domestic industry requirement.⁶

Specifically, the ITC rejected Lashify’s evidence that it had established “significant employment of labor or capital” with respect to its products. Because Lashify manufactures its products abroad before shipping them to customers, Lashify attempted to show domestic labor and capital costs related to sales, marketing, warehousing, quality control, and distribution.⁷ But the ITC excluded warehousing, quality-control, and distribution expenses because they were either “no more than what a normal importer would perform upon receipt,” or because there were “no additional steps required to make these products saleable” upon arrival to the United States.⁸ And the ITC threw out sales and marketing expenses because they were not tied to other qualifying expenditures.⁹ Upon a petition for review, a split Commission agreed, reasoning that “it is well settled that sales and marketing activities alone cannot satisfy the domestic industry requirement” and agreeing that the other expenses were akin to those of a mere importer.¹⁰

Federal Circuit’s Decision

In a significant shift, the Federal Circuit held that the ITC misinterpreted the domestic industry requirement by wrongfully excluding those expenses from satisfying the economic prong of the domestic industry requirement. Citing the Supreme Court’s decision in Loper Bright Enterprises v. Raimondo, the Federal Circuit exercised “independent judgment” and found that the ITC failed to tie its position to the statutory text of Section 337.¹¹ Specifically, the Federal Circuit rejected the ITC’s position that (i) sales and marketing activities alone cannot satisfy the economic prong, and (ii) warehousing, quality control, and distribution activities cannot satisfy the economic prong if the products are manufactured outside the U.S. and no additional steps occur in the U.S.

The Federal Circuit emphasized that the plain language of the statute explicitly covers “labor” and “capital” without limitation on the enterprise to which those items are put or what enterprise function they serve.¹² It thus does not exclude or discount any significant employment of labor or capital, so long as it is related to the protected articles. The Federal Circuit further found that this expansive approach squares with the legislative history of the 1988 amendment, the Commission’s practice before that amendment, and a pre-amendment Federal Circuit decision, all of which support the conclusion that Congress did not intend to exclude “certain enterprise functions,” e.g., sales, marketing, warehousing, quality control, and distribution.¹³

Concluding, the Federal Circuit vacated the decision and remanded with clear instructions for a simplified approach, calling for a “holistic review of all relevant considerations” and directing that the commission “must count Lashify’s employment of labor and capital even when they are used in sales, marketing, warehousing, quality control, or distribution” with respect to the economic prong.

What This Means for the Future

Pre-Lashify, establishing the economic prong of the domestic industry requirement proved challenging for companies without substantial manufacturing operations in the U.S., regardless of whether they were otherwise heavily invested in U.S.-based operations. Lashify’s broader view of what counts as “employment of labor or capital” will likely expand the universe of complainants with domestic industries qualifying them for ITC investigations, thus expanding access to this increasingly popular alternative to traditional litigation and opening the door for more companies to seek relief through the ITC, even if they do not have substantial manufacturing operations in the U.S. And while this decision concerned a patent investigation, the ITC also covers products covered by copyrights, trademarks, and mask works—it remains to be seen whether this decision may thus expand ITC access for intellectual property holders on the whole.

V&E is well-versed in the ITC litigation and continues to assist clients in their intellectual property litigation strategies before district courts, the United States Patent and Trademark Office, and the ITC, and will closely monitor how the ITC complements this decision and consider its impact on corporate intellectual property strategies.

¹ No. 2023-1245, 2025 WL 699368, at *13 (Fed. Cir. Mar. 5, 2025).

² 19 U.S.C. § 1337(a).

³ https://www.witlegal.com/insights/report/2024-in-review-key-itc-insights-report/.

⁴ 547 US 388 (2006).

⁵ Lashify, 2025 WL 699368, at *1.

⁶ The ITC also found that Lashify had not satisfied the technical prong for one of the asserted patents, which issue was appealed and the Federal Circuit straightforwardly affirmed by upholding the ITC’s construction of certain claim terms. Id. at *12-13.

⁷ Id. at *1, *5.

⁸ Id. at *5.

⁹ Id.

¹⁰ Id. at *5-6.

¹¹ Id. at *6-9.

¹² Id.

¹³ Schaper Manufacturing Co. v. United States International Trade Commission, 717 F.2d 1368, 1372–73
(Fed. Cir. 1983).

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.