United States: ITC Lacks Authority To Issue Exclusion Orders Based On Theory Of Induced Infringement Where Underlying Direct Infringement Occurs Postimportation

In Suprema, Inc. v. International Trade Commission, Nos. 12-1170, -1026, -1124 (Fed. Cir. Dec. 13, 2013), the Federal Circuit vacated a cease and desist order, vacated a limited exclusion order barring importation of optical scanning devices in part, and remanded so that the ITC's order could be revised to bar only a subset of the scanners-at-issue that infringed at the time of importation. The Court affirmed a separate ITC order refusing to find a violation of § 337 with respect to some of the same optical scanners.

Cross Match Technologies, Inc. ("Cross Match") filed a complaint in the ITC asserting that Suprema, Inc. ("Suprema") and Mentalix, Inc. ("Mentalix") violated 19 U.S.C. § 1337(a)(1)(B)(i) by importing articles infringing U.S. Patent Nos. 7,203,344 ("the '344 patent"); 7,277,562 ("the '562 patent"); and 5,900,993 ("the '993 patent"), which are directed to an optical scanning system for fingerprint image capturing and processing. Specifically, Cross Match alleged that Suprema, a Korean company, marketed and imported scanners and software development kits, which Mentalix, a domestic company, imported into the United States and then integrated with its own software. The ITC concluded that Suprema's scanners, when combined with Mentalix's software, directly infringed one of the method claims of the '344 patent and that Suprema induced that infringement. The ITC further found that some of Suprema's scanners directly infringed certain claims of the '993 patent. The ITC, however, found no infringement of the '562 patent. Further, the ITC determined that the '993 patent was not invalid as obvious over the prior art. Based upon these findings, the ITC issued an exclusion order identifying Suprema's induced infringement as a basis for the § 337 violation, which was directed to both Suprema and Mentalix, and also issued a cease and desist order directed only to Mentalix.

Suprema appealed the ITC's findings that it violated § 337 by infringement of the '344 patent and that certain products imported by Suprema infringed the '993 patent. Cross Match cross-appealed the ITC's determination that certain claims of the '562 patent were not infringed by either Suprema's scanners or the use of those scanners with Mentalix's software.

"[A]n 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 under 35 U.S.C. § 271(b) where direct infringement does not occur until after importation of the articles the exclusion order would bar." Slip op. at 4.

On appeal, the Federal Circuit agreed with Suprema's argument that it did not import "articles that infringe" within the meaning of § 337(a)(1)(B)(i) because the scanners were not infringing at the time of importation. To reach its conclusion, the Court rested on principles of statutory construction. Specifically, the Court looked to 19 U.S.C. § 1337(a) to highlight that the ITC's statutory authority is premised on the "importation," "sale for importation," or "sale within the United States after importation" "of articles that . . . infringe." Slip op. at 16 (quoting 19 U.S.C. § 1337(a)(1)(B)(i)). The Court noted that the focus, therefore, of the ITC's authority is on the infringing nature of the product at the time of importation, divorced from any intent on behalf of the importer to infringe after importation.

The Court also parsed through the language of § 271 for guidance, which the Court noted provides the basis for § 1337 regulation of unfair trade practices. Specifically, the Court explained that, unlike direct and contributory infringement under § 271(a) and (c), which are tied to infringing "articles," induced infringement under § 271(b) is not, but rather is tethered to the intent of the person actively encouraging infringement. The Court reasoned that, based on the nature of the conduct prohibited in § 271(b) and the authority of § 337, § 337 does not apply to conduct prohibited in § 271(b) where the acts of underlying direct infringement occur after importation. Based on the facts of the case, the Court explained that the ITC lacked authority to exclude Suprema's scanners based on a theory of induced infringement of the method claims of the '344 patent. In a footnote, the majority responded that its ruling is not as broad as Judge Reyna's opinion dissenting-in-part implies. The majority clarified, "[V]irtually all of the mischief the dissent fears can be addressed by the ITC via resort to § 271(a) or § 271(c), or even to § 271(b) where the direct infringement occurs pre-importation." Id. at 21 n.4.

In addressing Cross Match's argument that the Federal Circuit has recognized induced infringement as a viable theory on which to base exclusion, the Court distinguished Kyocera Wireless Corp. v. International Trade Commission, 545 F.3d 1340 (Fed. Cir. 2008), and Alloc, Inc. v. International Trade Commission, 342 F.3d 1361 (Fed. Cir. 2003). Noting that the issue presently before it had never been previously presented or decided, the Court relied on the fact that the ITC's authority was not challenged in Kyocera or Alloc and, therefore, the cases were "uninformative" on the issue of whether the ITC has the statutory authority to predicate an exclusion order on induced infringement. Slip op. at 23.

The Court dismissed the parties' reliance on In re Certain Electronic Devices, Inv. No. 337-TA-724, 2012 WL 3246515 (ITC Dec. 21, 2011), in which the issue was raised finding that the language referencing the ITC's authority was dicta. In any event, the Court reasoned, Certain Electronic Devices was not necessarily inconsistent with its present ruling because that case also focused on the infringing nature of the product at the time of importation, which the Court adopted in its ruling in this case. Therefore, the Court vacated the portion of the ITC's order addressing Suprema's scanners and declined to address the ITC's findings that Mentalix directly infringed the '344 patent and whether Suprema induced that infringement.

The Federal Circuit then turned to Suprema's challenge to the ITC's determination that certain products Suprema imports infringe the '993 patent. As to the ITC's finding that the '993 patent claims excluded "non-lens elements," the Court upheld the ITC's construction and rejected Suprema's argument that the written description disavowed nonlens elements. Considering Suprema's obviousness defense, the Court agreed with the ITC that Suprema failed to sufficiently prove obviousness because U.S. Patent No. 3,619,060 ("the '060 patent") provided insufficient motivation for one skilled in the art to seek the data disclosed in U.S. Patent No. 5,615,051 ("the '051 patent") or conversely to substitute the lens disclosed in the '051 patent with the lens disclosed in the '060 patent. As a result, the Court affirmed the ITC's infringement and obviousness findings as to the '993 patent and left intact the exclusion order regarding Suprema's scanners.

With respect to Cross Match's cross-appeal, the Court affirmed the ITC's construction and noninfringement finding of the '562 patent. The issue on appeal concerned the meaning of the claim term "capture," which the ITC construed according to Cross Match's proposed construction. Based on CrossMatch's construction, the ALJ and ITC found that Suprema's products did not infringe because they did not perform all the steps of the claimed process. On appeal, Cross Match challenged the construction, however, arguing that Suprema's scanner did not have to perform all the steps of the claimed process but rather needed only be "involved in that process." In noting Cross Match's "difficult position" in arguing against its own claim construction, the Court affirmed the ITC's construction based on the claim language. Slip op. at 38. The Court ultimately concluded that the ALJ's noninfringement finding with respect to the '562 patent was supported by substantial evidence because Suprema's scanners could not have performed the claimed process based on the scanner's function.

Accordingly, the Court affirmed-in-part, vacated-in-part, and remanded-in-part the related appeals of the ITC's rulings.

Acknowledging agreement with the majority's disposition in all other respects, Judge Reyna dissented-in-part and disagreed with the majority's ruling with respect to the ITC's authority to predicate orders on induced infringement. Judge Reyna argued that the majority's holding creates a "fissure in the dam of the U.S. border" by overlooking congressional intent to remedy specific acts of unfair trade, including acts based on induced infringement. Reyna Dissent at 4-5. Resting his argument on the characterization of § 337 as a trade statute, Judge Reyna argued that temporally limiting the ITC's authority to exclude products that only infringe preimportation precludes the ITC from fully carrying out its mandate to remedy § 337 violations of infringing activity that occur within the United States. In other words, Judge Reyna argued that the ITC's authority extends to exclude products that will eventually violate § 337 after importation. Judge Reyna also disagreed with the majority's application of § 271 in this context.

Judges: Prost, O'Malley (author), Reyna (concurring-in-part and dissenting-in-part)

[Appealed from ITC]

This article previously appeared in Last Month at the Federal Circuit, January, 2014

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