On February 5, 2015, the Federal Circuit sat en banc and heard oral argument after vacating a panel decision in Suprema, Inc. v. Int’l Trade Comm’n, 742 F.3d 1350 (Fed. Cir. 2013).  The panel decided that the ITC lacks statutory 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 full Court appeared split during oral arguments, and is expected to issue its decision by sometime this summer.  Ultimately, the final disposition of the en banc Court may have a significant impact on the ITC’s jurisdiction — particularly on the viability of assertions of inducement of method claim infringement.

Procedural Background

The litigation began in May 2010 when Cross Match Technologies, Inc. (Cross Match) filed a complaint at the ITC alleging that Mentalix, Inc. (Mentalix), a domestic importer of fingerprint scanners, infringed its method claims directed to the capture and processing of fingerprint images.  The complaint additionally alleged that Suprema, Inc. (Suprema), a Korean developer of the imported scanners, induced Mentalix’s infringement.

The Commission found that Suprema induced infringement despite the fact that the direct infringement took place after the scanners were imported into the United States and subsequently combined with Mentalix’s proprietary software.  The Commission accordingly issued an exclusion order preventing importation of the accused scanners into the United States.  The Commission did find, however, that Suprema’s scanners did not infringe Cross Match’s patent when combined with software developed by other customers.

On appeal, a split panel of the Federal Circuit vacated the exclusion order, 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 where no direct infringement occurs until post-importation.”  Suprema, 742 F.3d at 1353.

On May 13, 2014, the Federal Circuit granted the ITC’s and Cross Match’s petitions for rehearing en banc.  As a result, the panel opinion and judgment were vacated and the appeal was reinstated.  On February 5, 2015, the full Federal Circuit heard oral argument.

Oral Argument

Attorneys representing Suprema, the Commission, Cross Match, and the United States made arguments before the Court.  The questions posed by the judges were focused in three areas:

1)   interpretation of the phrase “articles that — infringe” in § 337(a)(1)(B)(i), and whether it is ambiguous in light of the relationship between Section 337 and 35 U.S.C. § 271;

2)   if ambiguous, whether the Commission’s interpretation of the phrase to include induced infringement is reasonable and thus entitled to Chevron deference; and

3)   whether an enforceable exclusion order can be formulated that allows for the importation of scanners meant for non-infringing uses.

Suprema argued that the interpretation of the phrase “articles that — infringe” in Section 337 of the statute requires that there be an infringing article at the time of importation, not simply an act that induces another’s infringement.  In response to questions regarding the trade law nature of Section 337 and its relationship with § 271, Suprema argued that unlike direct infringement under § 271(a) and contributory infringement under § 271(c), which (like Section 337) refer to an “article,” inducement of infringement under § 271(b) is defined solely by reference to the conduct of the alleged inducer.  Therefore, the authority of Section 337 cannot extend to the conduct proscribed in § 271(b) where the acts of underlying direct infringement occur post-importation.

Conceding that neither Section 337 nor § 271 define the phrase “articles that — infringe,” Suprema asserted that the phrase is not ambiguous.  But even if it is ambiguous, Suprema argued that the Commission’s interpretation is unreasonable because it runs counter to the statutory language by effectively eliminating the term “that infringe” from the phrase and replacing it with “used to infringe.”  Suprema also stated that a staple article suitable for substantial non-infringing use cannot be an infringing article proscribed in Section 337, and that Suprema only imports staple articles.

The Commission and Cross Match disagreed, arguing that the phrase “articles that — infringe” refers to both direct and indirect infringement.  They asserted that Suprema’s argument that infringement under § 271(b) is not tied to products contradicts both Supreme Court and Federal Circuit precedent.  The two parties also argued that the Commission’s interpretation of Section 337 is consistent with the overriding purpose of the Tariff Act as a trade remedy and is supported by the ITC’s longstanding tradition of exclusion under Section 337 based on inducement of infringement by imported articles.  Therefore, Chevron deference should apply to the Commission’s interpretation of the statute if the Court decides the phrase is ambiguous.  Notably though, a number of the judges raised questions during oral argument concerning whether the past cases cited to support the alleged ITC’s longstanding practice deal with staple articles that have substantial non-infringing uses.

The United States, amicus curiae in this case, also briefly argued that the Commission’s interpretation of Section 337 is appropriate in light of the history and purpose of the Tariff Act and is entitled to Chevron deference.

As for the ability to effectively formulate and enforce an exclusion order that allows for the importation of scanners used for non-infringing uses, the parties again had diverging views.  Suprema argued that: 1) the Commission’s exclusion order prohibited all scanners without reference to post-importation use; 2) even if the Commission attempted to make a distinction it would be impossible to enforce; and 3) the Commission’s finding of induced infringement was based on willful blindness, not specific intent.

The Commission and Cross Match argued that 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).  They argued that if the Court’s concern is that the Commission’s remedial order in this case bans the importation of articles that may or may not later give rise to direct infringement, then the Court could vacate and remand the decision to the Commission so that the Commission could tailor a selective order that would ensure exclusion of only the infringing scanners.  The Commission and Cross Match also noted that the vast majority of Suprema’s accused scanners were destined for Mentalix’s software pairing, and, thus, would be infringing.  In addition, the Commission and Cross Match stated that no scanners had been turned away at Customs to date under the current exclusion order, and should Suprema disagree with the subsequently-narrowed order they could file a protest with a Customs specialist.  Finally, it was noted that Suprema also has the ability to request an advisory opinion from the Commission should it require further clarification.

Potential Outcomes

The Federal Circuit may conclude, as the panel did, that the ITC lacks authority over induced infringement of method claims when direct infringement occurs after importation.  As a few judges noted, if the Court holds that the statute should be given a narrow interpretation to authorize a remedy only for articles that infringe “at the time of importation,” it may later be argued that the ITC lacks authority to remedy infringement of method of use claims or even contributory infringement claims.  This extension of the argument may have significant implications for the scope of the ITC’s remedial authority.

Alternatively, the Court may conclude that congressional intent regarding “articles that — infringe” is ambiguous with respect to induced infringement.  If so, then the Court would proceed to the second step of the Chevron analysis and determine whether the Commission reasonably included induced infringement in its interpretations of “articles that — infringe.”  Here, the Court may decide that the Commission’s interpretation was reasonable and continue to allow the Commission in appropriate circumstances to remedy infringement of method claims based on a theory of induced infringement.  It is also possible though that the Court may determine that the Commission’s interpretation of the statute to authorize exclusionary orders directed to prohibit the importation of non-infringing staple articles of commerce was unreasonable, particularly in light of a number of judges’ concern regarding Customs’ practical enforcement of an ITC exclusion order directed to non-infringing staple items of commerce when imported.

Finally, although it is possible, it is uncertain whether the Court will remand the case to the Commission to tailor the remedy order.

The uncertainty for patent owners contemplating the assertion of inducement of method claim infringement will continue until the full Federal Circuit resolves the Suprema case.  As we have from the start, we will continue to report significant developments to the case as it proceeds though to its final decision.