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On December 13, 2013, the United States Court of Appeals for the Federal Circuit held that a limited exclusion order under Section 337 may not be predicated on a theory of induced infringement when the subject imported product did not directly infringe before or at importation.  The decision departs from settled ITC jurisprudence and may significantly limit the ability of method patent holders to seek relief under Section 337.

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In a groundbreaking decision, the U.S. Court of Appeals for the Federal Circuit recently held that a limited exclusion order under Section 337 may not be predicated on a theory of induced infringement when the subject imported product did not directly infringe before or at importation.

The case involves certain method patent claims relating to particular implementations of fingerprint image capture and processing.  In the underlying investigation, Cross Match Technologies, Inc. alleged that Suprema, Inc. (a South Korean company that manufactures and imports hardware and software for scanning fingerprints) and Mentalix, Inc. (a domestic importer of Suprema scanners) violated Section 337 by importing articles that infringe certain Cross Match patents.  Cross Match alleged that the method claims at issue were infringed when Suprema’s scanners are used in combination with Mentalix’s scanners.

The Commission held that Mentalix directly infringed a Cross Match patent method claim by using its own software with imported Suprema scanners and that Suprema had induced the direct infringement by Mentalix.  The Commission accordingly issued a limited exclusion order directed to certain scanning devices imported “by or on behalf of Suprema or Mentalix” and issued a cease and desist order directed to Mentalix.

On appeal, Suprema argued that it did not import any “articles that infringe” as required under Section 337(a)(1)(B)(i).  Rather, the accused devices are imported scanners which, as Cross Match itself conceded, do not directly infringe at the time of importation.  Suprema claimed that the theory of induced infringement did not adequately connect the fact of importation to the ultimate infringement because the combined of the imported scanners with domestically developed software did not occur until post-importation.

The Federal Circuit agreed and held that an exclusion order based on a violation of Section 337 “may not be predicated on a theory of induced infringement where no direct infringement occurs until post-importation.”1  The panel reasoned that the ITC’s authority under Section 337 was premised on the “importation,” “sale for importation,” or “sale within the United States after importation” of “articles that … infringe a valid and enforceable United States patent.”2 To determine whether imported goods are “articles that…infringe,” the court looked to Section 271(b) of the U.S. patent law which defines induced patent infringement as “actively induc[ing] infringement of a patent.”  Although it acknowledged that the “intent of the inducer”3 is relevant to this inquiry, the court concluded that “[t]o prevail on inducement, ‘the patentee must show, first that there has been direct infringement.’”4 Stated differently, induced infringement under 271(b) does not occur until there has been a direct infringement.5

Because Section 337 applies only to “articles that . . . infringe” at the time of importation, and because inducement is not completed until there has been a direct infringement, the court held that the ITC could not rely on a theory of induced infringement as sole grounds for banning the importation of articles that are not infringing at the time of importation.  Consequently, the panel held that the ITC lacked the authority to enter an exclusion order directed to Suprema’s scanners based solely on Suprema’s purported induced infringement of the method patent claims at issue.

Importantly, the majority opinion would still allow U.S. patent holders to seek remedies under Section 337 based on a contributory infringement theory, so long as the accused product is not capable of non-infringing uses.6

In a wide-ranging dissent, Judge Reyna argued the majority’s decision would allow importers to circumvent Section 337 by reserving final assembly of infringing articles until after importation and, more broadly, would enable importers to circumvent almost all forms of method patent infringement not involving product-by-process claims.  The majority answered these concerns in a single footnote, describing its ruling as “narrower than the dissent asserts” and indicating that the ITC retains authority under Section 337 to direct US Customs officials to seize products where the infringement is direct or contributory.

The case is Suprema, Inc. and Mentalix, Inc. v. International Trade Commission, No. 2012-1170 (Fed. Cir. Dec. 13, 2013)