Suprema, Inc v. ITC Federal Circuit En Banc Decision

Yesterday, in a split decision, the en banc Federal Circuit issued its ruling in Suprema, Inc. v. International Trade Commission, No. 2012-1170. Reversing the panel decision, the en banc Federal Circuit held that the International Trade Commission has authority under 19 U.S.C. § 1337 to issue exclusionary orders to remedy induced infringement where the direct infringement does not occur until after the article is imported into the United States.    

Key Takeaways

• Returns authority to ITC to broadly remedy induced infringement
• Prevents “loophole” allowing importers to circumvent infringement claims by splitting infringing products into multiple parts and separately importing those parts
• Maintains ITC’s broad power to stop unlawful trade acts based on patent infringement

Background

As previously summarized in our alert regarding the en banc hearing itself, this case originated when the patent owner, Cross Match Technologies, Inc., filed a patent infringement complaint against Suprema, Inc. and Mentalix, Inc. at the U.S. International Trade Commission pursuant to Section 337 of the Tariff Act of 1930, codified at 19 U.S.C. § 1337. Suprema is a Korean-based company that manufactures fingerprint scanners in Korea that are then imported into the United States. Mentalix, Inc. is a Texas-based supplier of fingerprint scanning systems that purchases Suprema’s scanners, integrates its own software into the scanners in the United States, and thereafter sells the combined scanner/software product to end users.

Cross Match’s complaint alleged that the sale of Suprema’s fingerprint scanners combined with Mentalix’s software infringed method claims directed to the capture and processing of fingerprint images. The ITC investigation that ensued was captioned Certain Biometric Scanning Devices, Components Thereof, Associated Software, and Products Containing the Same, Inv. No. 337-TA-720. Ultimately, the ITC determined that the accused combination sold by Mentalix directly infringed the asserted claims and that Suprema induced this infringement. The ITC issued exclusionary orders prohibiting the importation of Suprema’s scanners and the sale by Mentalix of the accused combination in the United States.

In the Federal Circuit’s original decision on appeal, a split panel held that a violation of 19 U.S.C. § 1337 cannot be predicated on a theory of induced infringement where direct infringement does not occur until after the importation of the articles at issue. Suprema, Inc. v. ITC, 742 F.3d 1350 (Fed. Cir. 2013). In the panel’s view, Section 337’s language, “articles that infringe,” is a temporal requirement and infringement must be measured at the time of importation. Thus, the statute authorizes the ITC to issue remedial orders based on induced infringement only if the requisite direct infringement occurs before or at the time of importation. This decision, however, was vacated by the full court in May 2014, when it granted en banc rehearing and reinstated the appeal.  

Opinion of the Court

Circuit Judge Reyna, writing for the court, held that the ITC has power to issue exclusionary orders for induced infringement where the requisite direct infringement occurs after importation.

To reach this conclusion, the court applied to Section 337’s “articles that infringe” the two-step deference-determination framework set forth in Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984):

1. Has Congress directly spoken to the precise issue? No, the shorthand phrase “articles that infringe” does not unambiguously exclude inducement of post-importation infringement. The court provided several bases for its determination. First, Section 337’s use of the word “infringe” broadly refers to direct, contributory and induced infringement under 35 U.S.C. § 271. Second, there is no clear evidence that the phrase “articles that infringe” is limited to any particular type of infringement. Third, there is textual uncertainty in the phrase because 35 U.S.C. § 271 dictates that a person’s actions—not an article itself—results in infringement. Fourth, the present-tense use of the verb “infringe” does not unambiguously exclude inducing post-importation infringement. This present-tense language could satisfied by the indirect infringer’s acts. Fifth, excluding inducement of post-importation infringement would be at odds with the pre-1994 version of § 271(a), which did not include “importing” as an infringing act. Finally, the panel misread the “articles” in Section 337(a)(1)(B)(i) (“articles that . . . infringe ”) and 337(d)(1) (ITC’s authority to issue exclusion order as to “the articles concerned”) as referring to the same “articles.” The former refers to articles that have already been imported, whereas the latter prevents future articles from being imported.

2. Was the ITC’s interpretation reasonable? Yes, the ITC’s interpretation is consistent with both the statutory text and the legislative history. Regarding the statutory text, liability for inducement must be based on a finding of direct infringement. Although direct infringement typically occurs after inducement, liability for inducement attaches at the time of the inducing activity, so long as the direct infringement eventually occurs. The ITC’s interpretation recognizes that acts necessary for inducement (e.g., direct infringement) may not occur—and often cannot occur—until after importation. Further, Section 337(a)(1)(B)(i) defines as unlawful “the sale of goods within the United States after importation . . . of articles that . . . infringe,” thus distinguishing the act of importation from infringement by defining as unfair the importation of an article that will subsequently infringe. Regarding the legislative history, it consistently shows that Congress intended to vest the ITC with broad enforcement authority to remedy unfair trade acts. Moreover, for over three decades, Congress has allowed the ITC to investigate and take action under Section 337 based on induced infringement.

Dissenting Opinions

Circuit Judge O’Malley, joined by Prost, Lourie, and Dyk, dissented. According to the dissent, Section 337 is unambiguous and fails to provide the ITC with authority to issue remedial orders based on inducement if the direct infringement occurs post-importation. The statutory text and legislative history are clear. Both “articles” and “infringe” are well-defined. The former is “[g]enerally, a particular article or thing.” The latter is defined by Congress in 35 U.S.C. § 271. The surrounding statutory text does not add ambiguity. The use of the present tense verbs, “importation” and “sale,” supports the finding that infringement is tied to the date of importation. Further, there is no harm until an infringing use occurs, which only happens after importation for method claims like the ones at issue in this action. The ITC has no power to prevent importation of non-infringing goods on the basis of what a customer might do with the goods to make them infringing. This is particularly true for “staple” goods like the scanners here. What the customer might do is a consideration for district courts, not the ITC.

Circuit Judge Dyk wrote separately to emphasize how the ITC’s inducement theory in this action differs from its own prior practice. In particular, there was no finding that instructions that induced infringement were imported alongside the scanners.