On Aug. 10, 2015, the Federal Circuit issued a much-anticipated opinion confirming the authority of U.S. International Trade Commission (“ITC” or “the Commission”) to stop importation of articles which are used, after importation, in direct infringement induced by the seller.
In Certain Biometric Scanning Devices, Components Thereof, Associated Software, and Products Containing the Same, Inv. No. 337-TA-720, complainant Cross Match Technologies Inc. accused respondents Suprema, Inc. and Mentalix, Inc. of violating Section 337 based on infringement of method and apparatus claims. Suprema manufactured and imported biometric scanners and a software development kit (SDK) that could be used to develop software for use with the scanners. Mentalix distributed the imported Suprema scanners along with software developed using Suprema’s SDK. The method claim at issue was directed to a method for capturing and processing a fingerprint image. The apparatus claims were directed to an optical scanning system.
The International Trade Commission determined that several Suprema scanners directly infringed the method claim when used with the SDK kits and Mentalix’s software. Mentalix directly infringed the method claim through integration of its software with the Suprema scanners and SDK kits and the subsequent use of the combination in the United States in a manner that performed each step of the method claim. The Commission also found that Suprema had willfully blinded itself to the infringing nature of Mentalix’s activities which Suprema had actively encouraged. Thus, Suprema had aided and abetted Mentalix’s infringement and had induced Mentalix’s direct infringement of the method claim. The Commission therefore found violations of Section 337 and issued a limited exclusion order to exclude the Suprema biometric scanners from the United States. Suprema appealed to the Federal Circuit. With respect to the method claim, Suprema argued that the imported optical scanners do not infringe at the time they are imported and that they may never directly infringe after importation because they have non-infringing alternative uses.
On Dec. 13, 2013, a divided Federal Circuit panel vacated the ITC’s infringement determination, holding that the ITC may not issue an exclusion order based on a violation of Section 337 “predicated on a theory of induced infringement under 35 U.S.C. § 271(b) where direct infringement does not occur until after importation of the articles the exclusion order would bar.” The panel majority found that the statutory language of Section 337 requires that the article must infringe at the time of importation to fall within the jurisdiction of the ITC.
This controversial panel decision was subsequently vacated by the Federal Circuit, and an en banc hearing was held on Feb. 5, 2015. The key issue for the en banc hearing was: “whether goods qualify as ‘articles that infringe’ when the Commission has found that such goods were used, after importation, to directly infringe by the importer at the inducement of the goods’ seller.”
Several amicus briefs were submitted. The U.S. Attorney General submitted an amicus brief in support of the Commission’s interpretation of Section 337. The amicus briefs submitted by the American Intellectual Property Law Association, Intellectual Property Owners Association, International Trade Commission Trial Lawyers Association, Nokia Corporation, and Nokia USA, Inc also supported the Commission’s interpretation. Supporters of the ITC expressed concerns about the panel decision creating “an enforcement loophole allowing foreign manufacturers, who may be beyond the jurisdiction of the district courts, to circumvent the ITC’s authority and purpose.” On the other hand, a number of software and electronics companies, such as Microsoft Corp., Dell Inc., Adobe Systems, Inc., Ford Motor Co., Hewlett-Packard Co., LG Display Co., Ltd., LG Electronics, Inc., Netflix, Inc., Samsung Electronics Co., Ltd., SAP America, Inc., and Google Inc., asked the en banc Court to reaffirm the panel decision limiting the ITC’s authority to the exclusion of articles that are infringing at the time of importation.
Section 337, in pertinent part, provides that: “Subject to paragraph (2), the following are unlawful . . . the importation into the United States, the sale for importation, or the sale within the United States after importation . . . of articles that infringe a valid and enforceable United States patent.” 19 U.S.C. §1337(a)(1)(B)(i) (emphasis added).
The en banc Court examined the Commission’s interpretation of the above-quoted statutory language pursuant to Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). Under the Chevron framework, an agency’s construction of a statute which it administers is entitled to deference if Congress has not spoken to the precise question at issue and the agency’s answer is based on a permissible construction of the statute. Here, the majority found: (a) Congress has not provided an unambiguous interpretation of the phrase “articles that infringe” because “[a]n ‘article’ cannot infringe under any subsection of § 271”; and (b) the Commission’s interpretation is reasonable because it is “consistent with the statutory text, policy, and legislative history of Section 337.”
The majority reasoned that, even though liability for inducement must be predicated on a finding of direct infringement, “direct infringement commonly occurs after the inducement” but “[l]iability for inducement nevertheless attaches as of the time of the inducing activity.” Similarly, the Commission’s interpretation of “articles that infringe” recognizes “the acts necessary for induced infringement, including acts of direct infringement, may not [or cannot] occur simultaneously at the time of importation.” The majority also found the Commission’s interpretation consistent with Section 337(a)(1)(B)’s “sale … after importation” language which “distinguishes the unfair trade act of importation from infringement by defining as unfair the importation of an article that will infringe, i.e., be sold, ‘after importation.’”
Judge O’Malley submitted an extensive dissenting opinion in which Judges Prost, Lourie, and Dyk joined. The dissent finds it troubling for the Commission to “bar the importation of articles of commerce that may or may not be later used by third parties to infringe a method patent, based only on the putative intent of the importer.” To the dissent, the language of the statute is unambiguous—Congress did not “grant the Commission the power to issue an exclusion order on the basis of the importer’s intent to induce possible infringement after importation.” Nor does the dissent see any support for the Commission’s position in the legislative history, historical commission practice, or modern commission practice, or based on equitable considerations. The dissent believes the majority and ITC’s supporters have overstated the danger “that the plain language of the statute might leave a porous border hospitable to infringers.” In a separate dissenting opinion, Judge Dyk further points out that “in prior cases, the Commission banned staple articles for importation on an inducement theory only in circumstances where inducing instructions were imported alongside an article that was ultimately used to directly infringe in the United States.”
The Federal Circuit’s en banc decision confirms that enforcement of method-of-use claims is still viable at the ITC. In an ITC investigation based on indirect infringement, a complainant need not establish that the act of direct infringement occurs at or before importation, or that the imported product can only be used in an infringing manner. Even goods having non-infringing alternative uses may be excluded from the United States if they are intended for infringing uses after importation, at the inducement of the goods’ seller. Thus, where an accused article has the potential of being used in post-importation infringement, it is important for the parties, during both the violation and enforcement phases, to prove the intended use of the article after its importation.
This decision may not be the last word on the issue. This is the type of question that could be considered by the Supreme Court given the split in the en banc panel and the importance of the issue.