On December 13, 2013, a divided Federal Circuit panel reversed the U.S. International Trade Commission and held that the section 337 statute does not authorize the ITC to adjudicate any investigation under which the theory of infringement is based on induced infringement and the underlying direct infringement does not occur until after importation of the articles the exclusion order would bar. The Federal Circuit indicated that such inducement cases may be brought only to the district courts. Suprema, Inc. and Mentalix, Inc. v. International Trade Commission and Cross Match Technologies, Inc., No. 2012-1170.

Cross Match filed a complaint with the ITC charging infringement of a method claim of its patent. The patent contains claims drawn to methods used by an optical scanning system to detect fingerprint images and fingerprint quality. The ITC held that U.S. respondent Mentalix directly infringed method claim of the patent when it imported and then combined Korean respondent Suprema’s fingerprint scanning products with its own software and that Suprema induced that infringement. Accordingly, the ITC issued a limited exclusion order and a cease and desist order. (Inv. No. 337-TA-720)

On appeal, the Federal Circuit majority (Judges Prost and O’Malley) saw things differently. They noted that “[t]he accused devices are imported scanners which Cross Match concedes do not directly infringe the method of claim of the patent at the time of importation.” The majority also noted that Cross Match does not dispute that the scanners have substantial non-infringing uses and that Suprema contends that other customers have put them to such non-infringing uses. The Court majority held, “The Commission’s authority under § 1337(a)(1)(B)(i) reaches ‘articles that … infringe a valid and enforceable United States patent’ at the time of importation. Because there can be no induced infringement unless there has been an act of direct infringement, however, there are no ‘articles … that infringe” at the time of importation when direct infringement has yet to occur. The Commission’s exclusion order must be revised, accordingly, to bar only those articles that infringe a claim or claims of an asserted patent at the time of importation.” (Emphasis added.)

In dissent, Judge Reyna stated that he could not join the majority’s narrow reading of section 337 and its decision “to negate the Commission’s statutory authority to stop induced infringement at the border.” The dissent concluded that for purposes of section 337 liability, there is “no distinction between importing an article that meets all limitations of an apparatus claim as it crosses the border, and actively inducing infringement by importing an article and encouraging another to use that article to practice a patented method.” The dissent further states that the majority opinion is inconsistent with long-established Federal Circuit case law and that it also “overlooks the practical realities of international trade.”

The Federal Circuit’s decision may have a significant impact on the ITC’s authority to issue exclusion orders where imported products do not infringe until after importation. In that regard, the majority concluded that under the facts presented here, whether Mentalix directly infringed, and whether Suprema induced that infringement, could be determined only by federal district court and not the ITC. While the majority believes that its opinion is narrowly written and will not materially impact the ITC, that point of view is not shared by the dissent. The decision deserves close attention, so en banc review could be helpful.