Federal Circuit Upholds ITC’s Broad Definition of Induced Infringement

August.12.2015

​Earlier this week, an en banc Federal Circuit interpreted the scope of Section 337 of the Tariff Act (19 U.S.C. § 1337), which proscribes importation of "articles that infringe" a U.S. patent. (Suprema, Inc. v. International Trade Commission, Case No. 2012-1170.) The Federal Circuit held that the statute allows the U.S. International Trade Commission ("ITC") to block products from being imported when the products might induce infringement of a U.S. patent after they are imported, even though the products as imported don't directly infringe the patent. In a 6-4 decision, the Federal Circuit overturned a 2013 opinion in which a three-judge panel of the Court ruled that Section 337 only covers products that directly infringe at the time of importation. That earlier panel's ruling, sweeping in its scope, de facto eliminated relief under Section 337 for acts of induced infringement. Its reach also appeared to affect the availability of relief for contributory infringement at the ITC. The new en banc Federal Circuit decision reverts to the old rule permitting the ITC to exclude products capable of inducing infringement, and should be of particular interest to owners and accused infringers of method patents.

In May 2010, Cross Match Technologies, Inc. ("Cross Match") filed a complaint with the ITC, alleging that Suprema, Inc., a Korean company, infringed Cross Match patents directed to fingerprint scanning devices. Suprema makes fingerprint scanners and sells them to Mentalix, Inc., a U.S. company. Suprema's fingerprint scanners are designed to be operated by computers containing custom-developed software, but Suprema does not make or sell this software. Instead, it ships each scanner with a "software development kit" ("SDK") and an instruction manual that enable developers to create custom programs for controlling the scanner. Mentalix uses Suprema's SDK to write custom software to control and operate the scanners, and then bundles its software with the scanners and resells the bundle within the United States. It was undisputed that Suprema's scanners alone did not infringe any Cross Match patent, except when bundled with Mentalix's software.

The ITC instituted an investigation into Cross Point's allegations. After a hearing, the Administrative Law Judge ("ALJ") found that, when paired with specific software, several of Suprema's scanners infringed Cross Match patents. The ALJ recommended issuance of a limited exclusion order barring importation of the infringing scanners. Upon review of the ALJ's Determination, the Commission agreed that Mentalix's use and sale of certain Suprema scanners with bundled software constituted direct infringement. Further, the Commission agreed that Suprema's importation of scanners, SDKs and instruction manuals met the elements of indirect infringement, in part based on a showing of Suprema's "willful blindness" to infringement. The Commission issued a Limited Exclusion Order and a Cease and Desist Order covering infringing scanners and associated software.[1]

Suprema and Mentalix appealed to the Federal Circuit. The three-judge panel, in a divided opinion, vacated the Commission's findings that Mentalix directly infringed any Cross Point patent and that Suprema induced infringement. According to the three-judge panel's opinion, the "articles that infringe" language in Section 337 is a temporal requirement, to be measured at the time of importation. It found the Commission lacked authority to issue an exclusion order for imported products accused of inducing infringement because such products are "not in an infringing state upon importation." Cross Point petitioned for re-hearing en banc, and the Federal Circuit agreed to en banc review, leading to this week's ruling.[2]

Writing for the Federal Circuit's en banc majority, Judge Reyna explained that Section 337 "is an enforcement statute enacted by Congress to stop at the border the entry of goods, i.e., articles, that are involved in unfair trade practices." The en banc majority, applying deference under standards governing review of agency decision-making, approved the Commission's conclusion that Section 337 permitted enforcement actions for induced infringement caused by importing products that infringe directly only after importation has occurred. It decided the Commission had correctly interpreted the "articles that infringe' language of Section 337 to be ambiguous about when the direct infringement must occur relative to importation. It also decided the Commission had provided a "permissible construction" of the statutory language in holding that Section 337 reaches inducement, noting that for 35 years the Commission had consistently interpreted the scope of inducement under Section 337 to be predicated upon direct infringement that did not occur until after importation. In contrast, "the three-judge panel's interpretation of Section 337 would eliminate relief for a distinct unfair trade act and induced infringement. The practical consequence would be an open invitation to foreign entities to circumvent Section 337 by importing articles in a state requiring post-importation combination or modification before direct infringement could be shown." The en banc majority concluded the Commission had reasonably interpreted "articles that infringe" to encompass "products "used by an importer to directly infringe post-importation as a result of the sellers' inducement."

Judge O'Malley authored a dissenting opinion which three other judges joined. The dissenters believed the law "unambiguously" failed to provide the ITC with the authority to bar importation of products that can induce infringement, leaving the Commission without power "to enter an exclusion order on the basis of infringement of a method claim when the underlying direct infringement occurs post-importation."

The Federal Circuit's en banc opinion is particularly relevant to ITC proceedings where method patents, especially software method patents, are asserted. If the patentee can prove the elements of inducement, including an accused infringer's knowledge of infringement flowing from importation of products that induce practice of the patented methods in the U.S., this decision makes clear the Commission can issue an exclusion order against the inducing products. 
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[1] The Limited Exclusion Order allowed persons seeking to import scanners potentially subject to the Order to certify, to the satisfaction of U.S. Customs and Border Protection, that the scanners would not ultimately be used to infringe.

[2] Numerous technology companies weighed in on the merits of the dispute during the en banc review, many of them submitting amicus briefs favoring the three-judge panel's majority opinion. The Department of Justice also submitted an amicus brief, supporting the ITC's interpretation of Section 337.