Full Federal Circuit Vacates Panel Decision In Suprema And Grants Petitions For Rehearing En Banc

by Cadwalader, Wickersham & Taft LLP

As we reported last month, the International Trade Commission and Cross Match Technologies, Inc. petitioned for a panel rehearing and a rehearing en banc of the Federal Circuit’s December decision in Suprema v. International Trade Commission.1  In that decision, the panel concluded that the ITC lacks authority to enter an exclusion order to remedy the induced infringement of a method claim that is practiced after the article that performs the method is imported into the United States.   The panel determined that infringement at the time of importation is required to violate Section 337, and that infringement after importation is insufficient to provoke the remedies codified in Section 337.

The full Court has now acted on the ITC and Cross Match petitions by deciding to grant en banc review of the panel decision.  As a result, the December panel opinion and judgment have been vacated, and the appeal has been reinstated.

In Suprema, a split panel of the Federal Circuit vacated the exclusionary remedy in Certain Biometric Scanning Devices, Inv. No. 337-TA-720, by holding that “an exclusion order based on a violation of 19 U.S.C. §1337(a)(1)(B)(i) may not be 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.”2  In his dissent from the panel decision, Judge Reyna, who specialized in trade law in private practice before joining the Court in 2011, said that the panel decision “has created a fissure in the dam of the U.S. border through which circumvention of Section 337 will ensue.”3  Particularly, Judge Reyna criticized the majority for “legaliz[ing] the most common and least sophisticated form of circumvent[ing]” ITC exclusion orders — importing articles in a disassembled state.4

In its Combined Petition for Panel Rehearing and Rehearing En Banc, the ITC argued that “the panel not only overturned decades of commission practice affirmed by the courts, but also upended the law of induced infringement.”5  The ITC’s petition made four points in opposition to the split panel’s holding: (1) the panel’s holding that infringement under Section 271(b) “is untied to an article” contradicts Supreme Court precedent in Grokster6 and Federal Circuit precedent including Crystal Semiconductor Corp.7 and Mentor H/S, Inc.;8 (2) the panel’s holding that liability for induced infringement does not attach at the time of importation contradicts Supreme Court precedent in Grokster and Federal Circuit precedent in Standard Oil;9 (3) the panel’s holding ignores Congressional endorsement of the Commission’s interpretation of its statute and fails to give required deference to the Commission; and (4) the panel misinterpreted the Commission’s remedial orders in this case as a “ban [on the] importation of articles which may or may not later give rise to direct infringement”,10 because the panel confused the question of an appropriate remedy under 19 U.S.C. §1337(d) with the question of liability under 19 U.S.C. § (a)(1)(B)(i).11

Cross Match’s petition said that the panel’s decision “drastically curtails” the reach of Section 337 and “strips the agency of the ability to enforce the statute” in many common circumstances.12  Cross Match argued that the majority ruling “creates a gaping hole in the ITC’s authority” and “permits foreign importers to induce domestic infringement with impunity.”13  Cross Match further argued that, for example, importers of high-tech devices that infringe only after being loaded with certain software can evade ITC authority by importing the devices without software and then actively instructing domestic partners how to assemble and use them after importation.14

In response, Suprema argued that the petitioners’ concerns about the ITC’s ability to enforce Section 337 against the class of imports at issue were “dramatically overblown.”15  Suprema noted that, even if the ITC lacks authority, patent owners can still sue in district court.16  Suprema further argued that the case was properly decided based on the facts before the panel, which involved staple articles that had substantial non-infringing uses, rather than the hypothetical circumvention feared by Cross Match.17

By deciding that the appeal warrants en banc consideration, the Federal Circuit will almost certainly look closely at Section 337’s statutory scheme to determine the scope of the ITC’s authority when it comes to articles that are placed into an infringing state after they are imported into the United States.  Perhaps, the Court will also have a chance to consider Judge Reyna’s warning that the panel’s ruling has created a loophole that may allow accused infringers to avoid the ITC’s reach.

Patent litigants should continue to track this case as it develops.  The Federal Circuit’s en banc decision in this case will be important to understand for those either engaged in or contemplating ITC litigation premised on a theory of the induced infringement of a method claim.

1   Suprema v. Int’l Trade Comm’n, No. 2012-1170, slip op.  (Fed. Cir. December 13, 2013).

2   Id. at 4.

3   Id. Reyna Dissent at 4-5 (Reyna, J., concurring-in-part and dissenting-in-part).

4   Id. at 13.

5   Appellee ITC’s Combined Petition for Panel Rehearing and Rehearing En Banc at 7 (Feb. 21, 2014).

6   Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 545 U.S. 913, 940 n.13 (2005) (“the distribution of a product can itself give rise to liability where evidence shows that the distributor intended and encouraged the product to be used to infringe”).

7   Crystal Semiconductor Corp. v. TriTech Microelectronics Int’l, Inc., 246 F.3d 1336, 1351 (Fed. Cir. 2001) (foreign manufacturer’s “acts in connection with selling its chip . . . constitute active inducement”).

8   Mentor H/S, Inc. v. Med. Device Alliance, Inc., 244 F.3d 1365, 1379 (Fed. Cir. 2001) (defendant liable for induced infringement because it sold the device with the intention that doctors would use it to perform the patented method).


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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