On August 10, 2015, the full US Court of Appeals for the Federal Circuit issued its en bancopinion in Suprema, Inc. v. ITC, which overturned an earlier panel decision and confirmed, by a 6–4 vote, that the International Trade Commission (ITC) has jurisdiction over allegations of induced infringement.

The Federal Circuit found that because Section 337 does not directly address the issue of whether the ITC can exclude articles that infringe only after importation, the ITC’s interpretation of the statute as giving it jurisdiction over such post-importation infringement should be given deference. This decision is particularly important for cases involving the software and high-tech industries, which often rely heavily on induced infringement allegations.

Background

On May 11, 2010, Cross Match Technologies, Inc. filed a complaint at the ITC accusing Mentalix, a domestic importer of fingerprint scanners, of infringing claim 19 of its US Patent No. 7,203,344 (“the ‘344 patent”), and accusing Suprema, the Korean developer of the imported scanners, of inducing Mentalix’s infringement. Claim 19 of the ‘344 patent is directed to “[a] method for capturing and processing a fingerprint image.” Mentalix imports Suprema fingerprint scanners and incorporates them with certain Mentalix-developed software post-importation. Cross Match contended that method claim 19 is infringed when Suprema’s scanners are used in combination with Mentalix software after importation into the United States.[1] The Commission found that Mentalix’s operation of its software on the scanners after importation directly infringes claim 19, and that Suprema induced Mentalix’s direct infringement by actively encouraging incorporation of Mentalix’s software with its scanners.

Mentalix and Suprema appealed to the Federal Circuit, which overturned the ITC’s decision, finding that there was no infringement because a violation of § 337 “may not be predicated on a claim of induced infringement where the attendant direct infringement of the claimed method does not occur until post-importation.”[2] The Federal Circuit panel noted that the Commission’s authority to adjudicate matters of patent infringement extends to “articles that—infringe” a US patent, and analyzed infringement based on the state of the scanners as they crossed the border into the United States, stating that “[t]he 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.”[3] Because direct infringement of the method claim did not occur until after importation, the scanners were outside the reach of § 337. This holding greatly curtailed the Commission’s authority to find induced infringement in cases involving method claims, as such claims are generally infringed post-importation.

The panel decision was controversial, and caused public uncertainty regarding whether or not allegations of indirect infringement could be successful at the ITC. Though the decision only explicitly applied to induced infringement and method claims, it was seen as potentially having a much greater impact because of its focus on analyzing products at the time of importation, as products that induce infringement or infringe method or process claims rarely do so at the moment they cross the border. The en banc opinion recognized the extensive impact of the panel opinion, explaining that it “effectively eliminated trade relief under Section 337 for induced infringement and potentially for all types of infringement of method claims.”[4]

The parties asked for a rehearing en banc, and several amicus briefs were submitted on both sides. The Department of Justice filed a brief supporting the ITC, while Google and Microsoft filed briefs supporting Suprema. On February 5, 2015 the en banc Federal Circuit heard oral argument. For a discussion of the specific arguments of each party, and the parties’ briefs, see here.

The En Banc Opinion

On August 10, 2015, the Federal Circuit issued its en banc opinion, written by Judge Reyna. Judge O’Malley authored a dissenting opinion which was joined by Judges Prost, Lourie, and Dyk, and Judge Dyk also authored a separate dissenting opinion. The majority opinion relies on an analysis under the Chevron framework and holds that because the statute itself does not answer the question of whether the ITC has jurisdiction over goods that infringe only after importation, deference should be given to the Commission’s reasonable interpretation of Section 337 as giving the Commission authority over goods that infringe post-importation.

The opinion begins by discussing the importance that international trade has had to the United States since its inception, explaining that Section 337 was “enacted by Congress to stop at the border the entry of goods, i.e., articles, that are involved in unfair trade practices.”[5]The Court further explained that the central question of the appeal was whether “articles that infringe” include goods that are used in an infringing manner post-importation at the inducement of the seller.[6]

To answer this question, the Court conducted a Chevron analysis. The Chevron framework is used to determine what deference a reviewing court should give to an agency’s construction of a statue it administers,[7] and has two steps. First, the reviewing court must determine “whether Congress has directly spoken to the precise question at issue.”[8] If Congress has spoken to the issue, the inquiry ends and Congress’s guidance is followed. But, if Congress has not addressed the issue, the court must determine “whether the agency’s answer [to the precise question at issue] is based on a permissible construction of the statute.”[9]

Under step one of the Chevron framework, the Federal Circuit stated that the term “articles that infringe” does not narrow the term to exclude inducement or post-importation infringement, but instead introduces textual uncertainty.[10] Because Congress has not provided “unambiguous resolution” of the issue at hand, the Court proceeded to the secondChevron step.

Under Chevron step two, the Federal Circuit found that the Commission’s interpretation of Section 337 was reasonable because it was “consistent with the statutory text, policy, and legislative history of Section 337.”[11] Specifically, the Court found that “Section 337 contemplates that infringement may occur after importation.”[12] The Court also found the Commission’s interpretation consistent with the legislative history of Section 337, noting that Section 337 was meant, like its precursor Section 316, to be “broad enough to prevent every type and form of unfair practice,”[13] and that for decades the Federal Circuit has “affirmed the Commission’s determination that a violation of Section 337 may arise from an act of induced infringement.”[14] In deciding that the Commission’s interpretation of the statute in this case was entitled to deference, the Court emphasized that this deference was not unusual, as the Court “has consistently deferred to the Commission.”[15]

The Federal Circuit additionally emphasized that from its creation the ITC was designed to address a wide array of unfair methods of competition, and that the terms “unfair methods of competition” and “unfair acts” were meant to be “broad and inclusive and should not be limited to, or by, technical definitions of those types of acts.”[16] The en banc Court also strongly rejected the panel opinion, stating that:

The technical interpretation adopted by the panel weakens the Commission’s overall ability to prevent unfair trade acts involving infringement of a U.S. patent. The panel’s interpretation of Section 337 would eliminate relief for a distinct unfair trade act and induced infringement. There is no basis for curtailing the Commission’s gap-filling authority in that way. Indeed, the practical consequence would be an open invitation to foreign entities (which might for various reasons not be subject to a district court injunction) to circumvent Section 337 by importing articles in a state requiring post-importation combination or modification before direct infringement could be shown.[17]

Dissents

The decision, however, was not unanimous. Judge O’Malley authored one dissent, which was joined by Chief Judge Prost, Judge Lourie, and Judge Dyk. Judge Dyk also filed his own separate dissent.

The dissent authored by Judge O’Malley argued that there is no ambiguity in the statute and that the legislative history and historical Commission practice support the panel’s disposition. The dissent first turned to the language of the statute and argued that Congress “explicitly chose to exclude liability under § 1337 for induced infringement of a method claim that is not directly infringed, if at all, until after importation.”[18] The dissent criticized the majority for failing to identify an actual ambiguity in the statute, stating that the term “articles” has a well-defined legal definition as a physical object, and explaining that it is objects that are imported, not methods.[19] The dissent further stated that basing an exclusion order on the importer’s intent is improper, arguing that if Congress had meant to grant to the Commission the power to prevent importation based on the importer’s intent, “it would have said so.”[20] The dissent also criticized the majority’s use of the legislative history of Section 337 to support its position, arguing that Congress’s removal in 1988 of the requirement of showing substantial injury to the domestic industry did not remove the focus on the “articles” as imported, but instead was intended to eliminate a “cumbersome and costly” aspect of seeking an exclusion order.[21]

Turning to historical Commission practice, the dissent argued that the majority points to no precedent showing a history of Commission practice consistent with the majority’s interpretation of the statute.[22] With respect to enforcement, the dissent also stated that:

Congress did not intend for Customs agents to need to decipher an importer’s intent to induce infringement at some later date. It, instead, avoided such an unworkable construct by requiring the Commission to issue exclusion orders based on the infringing nature of the article itself.[23]

Judge Dyk wrote a separate dissenting opinion “to emphasize the difference between this case and prior Section 337 cases at the [ITC], and how starkly the Commission’s theory of induced infringement differs from its own past practice.”[24] Judge Dyk explained that “in prior cases, the Commission banned staple articles for importation on an inducement theory only in circumstances where inducing instructions were imported alongside [the] article,” and stated that it was a far different situation in this case where any inducement is separate from the importation, arguing that Section 337 does not allow the Commission to exclude all of a certain item from importation where only some of the items may be used in an infringing manner post-importation.[25]

Conclusion

The panel decision was controversial and caused public uncertainty regarding whether or not any allegations of indirect infringement would be successful at the ITC. It also caused other commentators to worry that the ITC’s jurisdiction was contracting and that it might lose its place as one of the preeminent forums for patent litigation. Indeed, had the decision been upheld, it would have offered infringers a significant loophole by allowing them to evade findings of infringement by undertaking the majority of a patented method overseas and then completing one small step post-importation. It also would have significantly reduced the ability of the owners of computer, software, and Internet patents to take advantage of the ITC, as such patents often rely on method claims, or are infringed indirectly. This decision firmly answers these concerns by strongly affirming that the ITC has full jurisdiction over products that infringe either directly or indirectly, including those that only infringe after importation. It also puts potential infringers on notice that they cannot evade ITC jurisdiction by performing the majority of the patented steps outside of the United States and having the final step performed either inside the United States or by the end user.

Finally, this case also implies that the Federal Circuit views the ITC’s jurisdiction broadly, which may have important ramifications for both upcoming cases and proposed causes of action before the ITC. Since the Federal Circuit’s affirmance of the ITC’s exclusion order based on trade secrets in Tianrui Group Co. v. ITC,[26] commentators have wondered what other causes of action—beyond the traditional allegations of patent, trademark, and copyright infringement—could be brought at the ITC. The breadth of the ITC’s jurisdiction was raised again by the pending ClearCorrect v. ITC case, which questions whether the ITC has jurisdiction over digital imports, and thus could address subjects such as pirated movies, books, and software. Indeed, the Federal Circuit panel which heard the ClearCorrect case asked the parties to submit briefs on the impact of the Suprema decision on the ClearCorrect case. In this context, the fact that in the Suprema decision the full Federal Circuit emphasized that the ITC was intended to have broad jurisdiction to address any unfair trade practices, and that the Federal Circuit has traditionally deferred to the ITC regarding the interpretation of its statute, is particularly important and may be an important signal that the Federal Circuit will view favorably expanded causes of action at the ITC, including digital importation.