Full Federal Circuit Empowers ITC to Block Non-Infringing Imports Based on Seller's Downstream Inducement | Practical Law

Full Federal Circuit Empowers ITC to Block Non-Infringing Imports Based on Seller's Downstream Inducement | Practical Law

In Suprema, Inc. v. International Trade Commission, a sharply divided, en banc panel of the US Court of Appeals for the Federal Circuit reversed its earlier panel decision and held that the ITC may issue an exclusion order to block importation of articles under 19 U.S.C. § 1337 where there is no direct infringement at the time of importation but where the seller induces a third party to use the articles in an infringing manner after importation.

Full Federal Circuit Empowers ITC to Block Non-Infringing Imports Based on Seller's Downstream Inducement

by Practical Law Intellectual Property & Technology
Published on 11 Aug 2015 • USA (National/Federal)
In Suprema, Inc. v. International Trade Commission, a sharply divided, en banc panel of the US Court of Appeals for the Federal Circuit reversed its earlier panel decision and held that the ITC may issue an exclusion order to block importation of articles under 19 U.S.C. § 1337 where there is no direct infringement at the time of importation but where the seller induces a third party to use the articles in an infringing manner after importation.
On August 10, 2015, in Suprema, Inc. v. International Trade Commission, a sharply-divided en banc panel of the US Court of Appeals for the Federal Circuit reversed its previous majority panel decision and upheld the ITC's interpretation of 19 U.S.C. § 1337 (Section 337), which bans importation of "articles that infringe" a valid US patent (No. 2012-1170, (Fed. Cir. Aug. 10, 2015)). The decision broadens the ITC's power to exclude certain imports by holding that Section 337 covers articles that do not directly infringe at the time of importation, but instead are used by third parties to directly infringe a claimed method after importation at the inducement of the articles' seller. The Federal Circuit reasoned that the ITC's interpretation was reasonable because it was consistent with Section 337's text and Congress's broad mandate to the ITC to safeguard US commercial interests at the border.
The case involves the following parties:
  • Cross Match Technologies, Inc., the owner of US Patent No. 7,203,344 ('344 patent), which includes the claim at issue on appeal (claim 19) directed to a method for capturing and processing a fingerprint image.
  • Suprema, Inc., a Korean company that manufactures hardware for scanning fingerprints, including its RealScan line of fingerprint scanners. To function, the scanners must be connected to a computer installed with custom-developed software. Although Suprema does not make or sell the software, it ships a software development kit (SDK) and instruction manual that third parties may use to develop custom programs for controlling Suprema's scanners.
  • Mentalix, Inc., an American company that buys and imports Suprema scanners and writes custom software using Suprema's SDK to control and operate the scanners.
In 2010 Cross Match filed a complaint with the ITC alleging, among other things, that Suprema and Mentalix violated Section 337 by importing scanners that were used to infringe claim 19 of the '344 patent. An administrative law judge (ALJ) found that several of Suprema's scanners directly infringed claim 19 when combined with Mentalix's software and recommended the ITC issue an exclusion order relating to those scanners. The ITC reviewed the ALJ's Final Initial Determination and issued an exclusion order based on its findings that:
  • Mentalix had directly infringed claim 19 by integrating its software with the Suprema scanners and SDK and using them in the US.
  • Suprema induced Mentalix to infringe claim 19 because Suprema willfully blinded itself to Mentalix's infringing activities and collaborated with Mentalix to import and adapt Mentalix's software to work with Suprema's scanners.
The parties appealed and in 2013 a majority panel vacated the exclusion order and the ITC's claim 19 infringement findings. The court held that under Section 337, infringement must be measured at the time of importation. For more on the 2013 Federal Circuit decision, see Legal Update, Section 337 Limits ITC's Authority to Issue Exclusion Order When Direct Infringement is Post-Importation: Federal Circuit.
The Federal Circuit granted en banc review and reversed its previous majority panel decision in a 6-4 decision over a vigorous dissent. Applying the well-known, two-prong Chevron standard for reviewing agency statutory interpretation, the Federal Circuit held that the ITC's interpretation of Section 337 was entitled to Chevron deference because:
  • Congress had not unambiguously answered the question of whether Section 337's "articles that infringe" language covers articles that would infringe after importation based on the seller's inducement.
  • The ITC's interpretation of Section 337 was reasonable because:
    • the interpretation is consistent with the statutory text;
    • section 337 imposes liability for post-importation sales and therefore allows the ITC to consider post-importation acts; and
    • Congress provides the ITC broad authority to regulate unfair trade practices and safeguard US commercial interests.
The majority further reasoned that to interpret Section 337 not to cover the conduct at issue would provide an "open invitation" for foreign entities to circumvent Section 337 by importing articles in a state requiring post-importation modification before direct infringement occurs.
Judge O'Malley with Chief Judge Prost and Judges Lourie and Dyk issued a lengthy dissenting opinion, noting that:
  • The majority's application of Chevron deference to the ITC's interpretation of "articles that infringe" is not appropriate because the language is unambiguous and is limited to physical objects that infringe at the time of importation.
  • While Section 337 specifically addresses post-importation sales, it is intentionally silent on post-importation use.
  • The cases that the majority relies on are distinguishable in that none bases an exclusion order solely on a finding of an intent to induce possible later infringement.
  • The majority's ruling will be unworkable to customs agents who will have to guess the importer's intent to determine if there may be downstream infringement.
Judge Dyk issued a separate dissent, stating that:
  • Suprema's scanners and SDK are capable of substantially non-infringing use and may or may not ultimately be used to infringe claim 19.
  • In the past, the ITC has banned articles for importation only where inducing instructions were imported alongside the article, which was not the case here.
The Federal Circuit's en banc reversal is significant in that it closes a potential loophole to Section 337 liability for foreign entities that import non-infringing articles but then provide third parties instruction or assistance to use them in an infringing manner. As the majority notes, this may be particularly significant for foreign entities not subject to a district court injunction.
For more on ITC Section 337 investigations, see Practice Notes, ITC Section 337 Patent Investigations: Overview and ITC Section 337 Investigations: Pre-suit Considerations, which reflect the Federal Circuit's en banc Suprema decision.