April 2014: ITC Litigation Update

by Quinn Emanuel Urquhart & Sullivan, LLP
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Inducement in the ITC Following Suprema? A split Federal Circuit panel held in Suprema, Inc. v. ITC (Dec. 13, 2013) that an exclusion order issued by the International Trade Commission (“ITC”) under Section 337 “may not be predicated on a theory of induced infringement . . . where direct infringement does not occur until after importation of the articles the exclusion order would bar.” Id. at 4. Rather, an exclusion order can “bar only those articles that infringe . . . at the time of importation.” Id.

In the underlying investigation, the ITC found that Korean respondent Suprema manufactures and imports fingerprint scanners into the United States. After importation, a domestic respondent Mentalix installs software onto the scanners. Complainant Cross Match alleged that this combination of hardware and software infringed its patent, including several method claims. The ITC agreed, finding that because Suprema was willfully blind to Cross Match’s patent and actively encouraged Mentalix to install software on the Suprema scanners, Suprema induced infringement of Cross Match’s patent claims.

Suprema appealed the ITC’s decision to the Federal Circuit, arguing that its imported scanners infringe only after they are domestically combined with Mentalix’s software. Suprema thus contended that because the imported scanners do not infringe the asserted method claims at the time they are imported, there can be no violation within the meaning of Section 337.

The Federal Circuit panel majority agreed with Suprema, reasoning that because the ITC’s authority only extends to “the importation, sale for importation, or sale within the U.S. after importation,” the correct interpretation of Section 337 is that the ITC is “powerless to remedy acts of induced infringement” when the underlying direct infringement occurs post-importation. Id. at 13. According to the majority, the “focus is on the infringing nature of the articles at the time of importation, not on the intent of the parties with respect to the imported goods.” Id. at 16. On that basis, the majority vacated the ITC’s induced infringement determination, reasoning as follows: Direct infringement is a prerequisite for induced infringement, and because Suprema’s scanners did not directly infringe at the moment of importation, it follows that no induced infringement could have occurred at the moment of importation.

In a strongly-worded dissent, Judge Reyna stated that the majority’s interpretation of Section 337 will harm US patent holders because it enables circumvention of the ITC’s authority to halt unfair acts at the border. In particular, “an importer could import disassembled components of a patented machine, or import an article capable of performing almost all of the steps of a patented method, but reserve final assembly of the last part or performance of the last step for the end-user in the United States and, under the majority’s holding, fall outside the [ITC’s] statutory reach because direct infringement would not have occurred until after importation. . . . Section 337 should not be interpreted in a manner that enables this form of circumvention.” Dissent at 11-12. Expanding on its example, the dissent finds that “the majority legalizes the most common and least sophisticated form of circumvention, importation of the article in a disassembled state.” Dissent at 13.

The dissent further contends that the majority’s holding leaves contributory infringement as the only possible way of enforcing method-of-use claims at the ITC. Notably, the dissent does not discuss whether contributory infringement is an effective way of enforcing method patents at the ITC. It remains to be seen how and to what extent the Suprema decision will impact the viability, effectiveness, and popularity of the ITC as a forum for litigating method claims. Perhaps the current Suprema decision will be short-lived and have no effect at all. Indeed, on February 21, 2014, the ITC filed a petition for panel rehearing and rehearing en banc.

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Quinn Emanuel Urquhart & Sullivan, LLP
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