Realtek Seeks ITC Decision DivX Can’t Satisfy Section 337 Patent Probe Rules

Realtek wants “expedited consideration” of the domestic industry requirement because a ruling against DivX “will likely avoid unnecessary and burdensome litigation,” said the filing. Complainants in Section 337 investigations must demonstrate a domestic industry exists by showing significant U.S. investment in “plant and equipment,” plus “labor or capital,” to produce goods that patents they assert in their complaints actually protect, say ITC rules. DivX can’t do that because its case “relies exclusively” on licensee Element Electronics and its allegedly questionable LCD TV assembly operations in Winnsboro, South Carolina, said the chipmaker. Element and DivX didn’t comment Monday.

Contrary to DivX arguments in its Sept. 10 complaint (login required) that Element continues to make “significant and substantial” investments in Winnsboro assembling TVs embedded with DivX-patent-protected video processors, the FTC investigated Element “and concluded that it significantly overstated the work it performed in the U.S.,” said Realtek. “It found, and Element was forced to concede, that many of Element’s products did NOT qualify as ‘Assembled in USA.’” The filing references a previously unpublicized Alliance for American Manufacturing petition from November 2014 to “enjoin” Element's “false, deceptive, and misleading" made-in-America claims as the “cornerstone” of a "national campaign."

Winnsboro TV assembly “consists of nothing more” than Element employees removing Chinese-made TV kits from their boxes, fitting them with Chinese-made motherboards using pneumatic screwdrivers, and reboxing them for shipment to retail, said the petition. Element also “misrepresents” that its entire TV line is assembled in South Carolina when it also sources many finished sets from China, it said.

Element ultimately satisfied the FTC that its U.S. assembly claims were “valid” because the assembled TVs were “substantially transformed” in Winnsboro under Customs and Border Protection classification rules, the agency wrote the company in May 2015. Element did run afoul of FTC oversight when it tried duping the public into believing all its sets sold through Walmart and other big-box retailers were built in South Carolina, said the agency. To “avoid deceiving consumers,” the FTC ordered Element to “clarify” its website to show that some, not all, Element TVs were assembled in Winnsboro. Once Element complied, FTC staff “decided not to pursue this investigation any further,” said the agency. But the FTC advised Element that ending the probe "should not be construed as a determination that there was no violation” of FTC Act Section 5 prohibitions against unfair competition.

Whether to equate TV assembly with manufacturing was a sensitive issue in a May 2018 Section 301 hearing, when finished TVs from China briefly faced possible List 1 tariff exposure. Trump administration officials at the hearing questioned Jonathan King, TCL North America vice president-legal affairs, about the plausibility of TV makers shifting set production to the U.S. to escape the Chinese tariffs. “The notion that TV manufacturing can move” easily from place to place or even to the U.S. “is simply not feasible,” responded King.

“I would caution you that assembling is not manufacturing,” King told his questioners, without citing Element by name. “These companies offer a low number of assembly jobs with no technology or value added, and the very TVs they are assembling are actually manufactured in China.” Element General Counsel David Baer responded days later that TV assembly “is an important aspect of the manufacturing process” (see 1805170067).