Federal Circuit Restricts ITC Remedies for Induced Infringement

John Kong | January 14, 2014

Suprema and Mentalix v Int’l Trade Comm’n – CAFC Opinion

Decided December 13, 2013

Prost; O’Malley; Reyna.  Opinion by O’Malley; Dissent by Reyna.

 

Summary:

The CAFC found that the ITC cannot issue an exclusion order based solely on induced infringement under circumstances in which the underlying direct infringement of an asserted method patent necessarily does not take place until after importation of the contested article.  Where direct infringement does not exist or occur before or during importation, the ITC does not have the authority to remedy acts of induced infringement alone, under such circumstances where direct infringement of the claimed method of the asserted patent occurs post-importation: the imported goods are not, in and of themselves, infringing articles before or while they are being imported into the U.S.  While the Court’s majority emphasizes the circumstance-specific implications of its decision, the dissenting opinion by Circuit Judge Reyna raises concern that the distinctions articulated by the Court would, in effect, overturn decades of practice by the ITC conducting Section 337 investigations into respondents who actively induce post-importation infringement by their products, and similarly allow for infringers to circumvent ITC authority, accordingly.

Details:

The respondent Suprema, a Korean company, imports fingerprint scanners into the US.  Another respondent Mentalix, a Texas-based integrator, loads software onto Suprema’s fingerprint scanners.  The programmed fingerprint scanners directly infringe the asserted ‘344 method claims.

Although the ALJ had not considered induced infringement in the Initial Determination, the Commission sua sponte held that Suprema had induced Mentalix’s direct infringement via willful blindness to the ‘344 patent and to Mentalix’s infringing actions, as well as by having encouraged Mentalix through collaboration amounting to direct infringement.

The majority in this Federal Circuit panel, however, decided that the language of the statutory authority under Section 337(a)(1)(B)(i)’s is directed to “articles that…infringe,” which the Court proceeded to interpret as being focused on whether or not the articles infringed on the asserted patent at the time of their importation.  The Court held that this requisite focus on the infringing nature of the goods at the time of their importation—rather than a finding of intent to induce later infringement—negated the authority of the Commission to issue an exclusion order, which can only be based on violations of goods that infringe a patent when they are imported.

The Court points out that, in contrast to 35 USC 271(a) (direct infringement) and 271(c) (contributory infringement) which both focus on the imported article, the induced infringement provision, 35 USC 271(b), focuses on an inducing party and the inducer’s intent, and not on the article itself.  The unlawful inducing conduct is not tied to any particular article until direct infringement occurs.  Therefore, in the context of induced infringement, the Court finds that there are no infringing articles until direct infringement has occurred, and thus the direct infringement itself is a necessary prerequisite for the Commission to exert its Section 337(a)(1)(B)(i) authority.

The majority went to great efforts to limit the holding to the circumstances of this case, distinguishing the situation in Kyocera Wireless Corp v. Int’l Trade Comm’n.  In Kyocera, the Commission’s reliance on induced infringement was supported by its exclusion order targeting manufacturers who integrated programmed chips into their devices outside the U.S., prior to importation of those then infringing devices into the U.S.  The exclusion order in Kyocera was thus directed at goods which embodied direct infringement at the time of their importation.  From this distinction, the Court emphasizes that an exclusion order must rely on an act of direct infringement, and cannot only rely on induced infringement—much less only on the importer’s intent to induce infringement with respect to goods which may or may not become directly infringing after importation

In the present case, Cross Match, a Florida-based fingerprint acquisition technology provider, concedes that Suprema’s fingerprint scanners also have significant valid, non-infringing uses; and that Suprema’s customers have put them to such non-infringing commercial uses in the U.S.  The Court argues that such potential ambiguity regarding the nature of the use of the imported goods would create unrealistic and possibly absurd enforcement problems for the US Customs and Border Protection (CBP) in having to attempt to determine whether a particular shipment of goods will or will not ultimately be used in an infringing manner in the US.  By contrast, a determination of contributory infringement, where there are no substantial non-infringing uses, is relatively straightforward.    The dissent, here, counters by noting that in issuing exclusion orders, the Commission regularly allows the inclusion of a certification provision, whereby an importer may certify that the specific goods that they are importing are intended to be put only to non-infringing uses, and are thus exempt from the order.

Further, in the dissenting opinion, Judge Reyna noted at least 15 Commission decisions going back to the 1980s in which Section 337 violations based on induced infringement involved circumstances in which there was no direct infringement until after importation had taken place.  The Federal Circuit has affirmed at least 3 of these decisions.  Also, the dissent construes Section 337 as a trade statute whose purpose is to provide relief for acts of unfair trade, “including acts that lead to the importation of articles that will result in harm to a domestic industry by virtue of infringement of a valid and enforceable U.S. patent.”  There is no Congressional history showing any such intended limitation on the authority of the Commission to any particular subset of infringing acts.  The ITC’s in rem jurisdiction over goods intended to be sold in the U.S. is satisfied by the demonstration of at least one instance of induced infringement leading to direct infringement in the U.S.

To Judge Reyna, the majority’s holding provides an effective loophole enabling the circumvention of border enforcement against patent infringement, whereby importers can import disassembled components and reserve final assembly inside the US to avoid the statutory reach of the ITC.  This would be directly contrary to the en banc ruling in Akamai v. Limelight (Fed Cir 2012) stating that “there is no reason to immunize the inducer from liability for indirect infringement simply because the parties have structured their conduct so that no single defendant has committed all the acts necessary to give rise to liability.”  This would also be contrary to the legislative history behind Section 337 whereby “one who aids and abets an infringement is likewise an infringer.”

 

PROSECUTION TIPS

Claim drafting should consider the various potential product configurations during importation.

 

LITIGATION TIPS

Unless a rehearing en banc is granted or unless this case goes up to the Supreme Court, importers of computers, tablets, smartphones, and other programmable electronic device may rejoice in avoiding ITC Section 337 violations based on induced infringement, if direct infringement does not occur until certain software is loaded after importation into the US.  Importers may also consider Judge Reyna’s disassembly suggestions to avoid induced infringement liability at the ITC.

 

 

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