On August 10, 2015, the en banc United States Court of
Appeals for the Federal Circuit held that articles that do not
directly infringe until after they have been imported into the
United States may nonetheless qualify as "articles ... that
infringe" that can be excluded from entry by the United States
International Trade Commission pursuant to 19 U.S.C.
§ 1337. Suprema, Inc. v. U.S. Int'l Trade
Comm'n, No. 2012-1170, slip op. (Fed. Cir. Aug. 10, 2015).
Under the facts of this case, importation of a
device that is programmed after importation is subject to ITC
relief, as programmed, based on induced infringement of method
claims.
The decision confirms that direct infringement of patented methods
and indirect infringement based on active inducement remain viable
theories for seeking relief under Section 337. And the decision
reaffirms the rights of United States intellectual property rights
holders, who can pursue aggressive unfair trade remedies against
domestic acts of infringement that use imported articles,
consistent with the Commission's longstanding practice and its
mandate to protect intellectual property rights at United States
borders. But, because Supreme Court review of the Suprema
decision remains possible, this may not be the last word on the
subject.
Background
Section 337 is one of several United States trade laws directed to
unfair import practices. Among other things, Section 337 defines
certain unlawful acts relating to articles imported into the United
States that infringe a United States patent, specifically
"[t]he importation into the United States, the sale for
importation, or the sale within the United States after importation
... of articles that ... infringe a valid and enforceable
United States patent...." 19 U.S.C.
§ 1337(a)(1)(B)(i) (emphasis added). Patent holders
seeking relief under Section 337 may file a complaint with the
Commission, and the Commission then determines whether to institute
an investigation based thereon. If the Commission finds a
violation, it may issue prospective relief, including exclusion
orders that direct United States Customs and Border Protection
("Customs") to bar infringing articles from entry into
the United States, as well as cease and desist orders that prohibit
domestic distribution of infringing articles.
The Suprema investigation started as a typical Section 337
case, in which the patent holder sought relief against a foreign
manufacturer and a domestic importer of infringing products.
Complainant Cross Match Technologies, Inc. ("Cross
Match") owns the rights to several patents relating to
fingerprint scanning technology, including United States Patent No.
7,203,344 ("'344 patent"). In its May 2010 complaint,
Cross Match accused respondents Suprema, Inc. ("Suprema")
and Mentalix, Inc. ("Mentalix") of violating Section 337
through their activities relating to certain fingerprint scanners
imported into the United States, which Cross Match alleged to
infringe its patent rights. Suprema, a Korean company, manufactured
scanners and sold them to Mentalix, an American company. Suprema
also supplied a software development kit ("SDK") for
creating customized operating software. Mentalix bought scanners
from Suprema and imported them into the United States. Then,
Mentalix programmed the scanners using the SDK, and resold them in
the United States.
In June 2010, the Commission instituted a Section 337 investigation
based on Cross Match's complaint. The presiding Administrative
Law Judge ("ALJ") found that the accused fingerprint
scanners, when programmed by Mentalix in the United States using
Suprema's software kit, practiced all of the limitations of one
method claim recited in the '344 patent. Based on that
infringement finding, the ALJ issued an Initial Determination of a
violation of Section 337, and recommended issuance of a limited
exclusion order that barred Suprema's accused scanners from
entry into the United States. The ALJ also issued a cease and
desist order preventing Mentalix from distributing the scanners in
the United States.
In June 2011, the Commission reviewed the ALJ's Initial
Determination regarding direct and indirect infringement of the
'344 patent. The Commission found that Mentalix directly
infringed the '344 patent by programming Suprema's scanners
and then using them inside the United States. The Commission also
found that Suprema knew of (or was willfully blind to) the
existence of the '344 patent, and actively induced
Mentalix's direct infringement when it collaborated "with
Mentalix to import the scanners and to help adapt Mentalix's []
software to work with Suprema's imported scanners and SDK to
practice ... the '344 patent." (Slip op. at 10.) The
Commission determined that the appropriate relief was a limited
exclusion order covering the infringing scanners, related software,
and products containing the same that were made outside the United
States by or on behalf of the respondents. Suprema and Mentalix
appealed.
In December 2013, a divided panel of the Federal Circuit vacated
the Commission's findings of infringement. The majority
decision, authored by Judge O'Malley, held that the statutory
language of Section 337—specifically, "articles ... that
infringe"—imposes "a temporal requirement and that
infringement must be measured at the time of importation."
Suprema, Inc. v. U.S. Int'l Trade Comm'n, 742 F.3d
1350, 1363 (Fed. Cir. 2013). Because the accused scanners were not
programmed with the infringing software at the time of importation,
the majority held that they did not qualify as "articles ...
that infringe" under Section 337 and the Commission had no
power to issue an order excluding them from entry into the United
States based on induced infringement. Id. at 1357. Cross
Match and the Commission petitioned for rehearing en banc,
which the Federal Circuit granted. The Federal Circuit received
numerous supporting briefs, including briefs from the Department of
Justice supporting the Commission's interpretation of Section
337) as well as briefs from various amici supporting either
party.
The Majority Decision
The en banc court focused on "whether goods qualify
as 'articles that infringe' when the Commission has found
that such goods were used, after importation, to directly infringe
by the importer at the inducement of the goods' seller."
(Slip op. at 13.) If so, then the Commission's entry of a
limited exclusion order directed to Suprema's scanners was
within its statutory authority under Section 337.
Six of the participating Federal Circuit judges (Judge Reyna, who
authored the opinion, was joined by Judges Newman, Wallach,
Taranto, Chen, and Hughes) sided with the Commission and its
interpretation of Section 337. Four judges dissented, and two did
not participate. The majority approached the question of statutory
construction under the well-established framework of Chevron,
U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467
U.S. 837 (1984), which governs review of an agency's
interpretation of its statutory authority. Under Chevron,
the first inquiry is "whether Congress has directly spoken to
the precise question at issue." 467 U.S. at 842. If so, then
the analysis stops. Id. at 842-43. If not, the next step
is to ask "whether the agency's answer [to the question
presented] is based on a permissible construction of the
statute." Id. at 843. Under the second
Chevron inquiry, the agency's construction is given
deference; its "interpretation governs in the absence of
unambiguous statutory language to the contrary or unreasonable
resolution of language that is ambiguous." United States
v. Eurodif S.A., 555 U.S. 305, 316 (2009) (citation
omitted).
The majority answered the first Chevron
inquiry—whether Congress has expressly spoken on the issue at
hand by drafting the statute in terms of "articles
that infringe"—in the negative because "the
shorthand phrase ... does not unambiguously exclude inducement of
post-importation infringement." (Slip op. at 15.) The phrase
"articles that infringe" creates textual uncertainty,
said the majority. On one hand, Section 337 provides that
"articles," i.e., things, are infringing subject matter.
On the other hand, the statutes that define what constitutes patent
infringement refer to a person's actions with respect
to a "patented invention" (which encompasses both
articles and methods under 35 U.S.C. § 101). For example,
the Patent Act defines direct infringement as follows:
"[W]hoever without authority makes, uses, offers to sell, or
sells any patented invention, within the United States or imports
into the United States any patented invention during the term of
the patent therefor, infringes the patent." 35 U.S.C.
§ 271(a); see also § 271(b)
("Whoever actively induces infringement of a patent shall be
liable as an infringer."); § 271(c) ("Whoever
offers to sell or sells ... a component of a patented machine ...
shall be liable as an infringer."). The majority thus rejected
the argument that the statutory reference to "articles"
in Section 337 necessarily excludes induced infringement of a
patented method under 35 U.S.C. § 271(b); to the
contrary, "[t]he word 'infringe' does not narrow
Section 337's scope to any particular subsections of [35
U.S.C.] § 271." (Slip op. at 15.)
The majority also held that the present-tense language of Section
337 ("articles that infringe") does not suggest
that Section 337 requires that direct or indirect infringement
occur at the time of importation. Direct infringement is a
necessary predicate for indirect infringement liability; however,
direct infringement typically occurs after an act of contributory
infringement, and there is no dispute that Section 337 encompasses
at least contributory infringement. Thus, Section 337 could just as
easily be read to reach activities post-importation, including
induced infringement. To hold otherwise would run afoul of the
contemporaneous language of 35 U.S.C. § 271(a) when
Section 337 was amended in 1988, which defined patent infringement
only by reference to the acts of making, using, or selling a
patented invention in the United States. None of those acts could
possibly occur at the time of importation, which meant that
"articles that infringe" necessarily referred to
post-importation activities.
Finally, the majority reasoned that the Commission's statutory
authority to issue prospective relief as to "the articles
concerned" under Section 337(d)(1) did not limit the scope of
Section 337 to articles at the time of importation. Although the
original panel found that the reference to "the articles
concerned" referred to the same "articles that
infringe" specified in Section 337(a), the majority held that
"the 'articles' of subsections (a) and (d)(1) are not
the same." (Id. at 19.) Simply put, the
"articles that infringe" under Section 337(a) have
already been imported and establish the basis for a determination
that Section 337 has been violated, while Section 337(d)(1)
authorizes the Commission to fashion prospective relief against
future imports of "the articles concerned."
(Id.)
The majority then turned to step two of the Chevron
framework and held that the Commission's interpretation of
Section 337 to encompass acts of induced infringement of patented
methods was reasonable. Starting with the statutory text, it was
reasonable to read "articles that infringe" to reach
post-importation acts of indirect infringement because "[i]n
many cases, such acts cannot occur at the time of
importation." (Id. at 20.) This interpretation
accords with the text of Section 337 as a whole, which expressly
contemplates post-importation acts of infringement, such as the
"sale ... after importation" specified in Section
337(a)(1)(B). See also 19 U.S.C. § 1337(f)
(authorizing the Commission to issue cease and desist orders that
apply to purely domestic acts).
The legislative and administrative history of Section 337 further
supported the Commission's interpretation, because Congress
endowed the Commission with broad remedial authority and the
Commission has consistently exercised such authority. When Congress
enacted the predecessor to Section 337 in 1922, it explained that
it was broadly directed to "unfair methods of
competition" and was "broad enough to prevent every
type and form of unfair practice....." (Slip op. at 21-22
(citation omitted).) Then, when Congress enacted Section 337 in
1930, it reaffirmed the Commission's broad authority, noting
that the language relating to unfair trade practices was
"broad and inclusive and should not be limited to, or by,
technical definitions of those types of acts." (Id.
at 22 (citation omitted).) And even though Congress made
significant substantive amendments to Section 337 in 1988, it did
not narrow the scope of the Commission's authority. Quite the
contrary, the 1988 amendments expanded the scope of Section 337 by
eliminating the requirement that a complainant must show an injury
to its domestic industry.
Pursuant to this broad authorization to remedy unfair trade acts,
the Commission has consistently exercised its authority over
post-importation acts, and the Federal Circuit has generally
affirmed that practice. For almost 40 years the Commission has
consistently found that inducement to infringe a patent under 35
U.S.C. § 271(b) qualified as a violation of Section 337.
(Id. at 22 & n.6 (collecting cases).) And the Federal
Circuit has affirmed a determination that induced infringement may
form a basis for a Section 337 violation in several cases, such as
Young Eng'rs Inc. v. Int'l Trade Comm'n, 721
F.2d 1305 (Fed. Cir. 1983), Vizio, Inc. v. Int'l Trade
Comm'n, 605 F.3d 1330 (Fed. Cir. 2010), and Emcore
Corp. v. Int'l Trade Comm'n, 449 F. App'x 918
(Fed. Cir. 2011). Moreover, carving out exceptions to Section 337
for method patents and induced infringement would not only run
counter to long-standing Commission practice but also create
obvious loopholes that could be exploited to avoid the reach of
Section 337. (Id. at 25.)
Judge Dyk's Dissent
Although Judge Dyk joined in Judge O'Malley's separate dissent, he wrote a brief separate opinion distinguishing the facts of Suprema from prior cases involving Section 337 violations regarding induced infringement. The key difference, in Judge Dyk's view, was that Suprema's scanners were noninfringing "staple" articles at the time of importation; some of them may be converted into infringing scanners while others may not, all depending on subsequent actions. Judge Dyk was troubled by the broad scope of the Commission's remedial order, which excluded all of Suprema's scanners even though only some of them would result in direct infringement in the United States when Mentalix programmed them in a particular way. In previous cases, however, the Commission had found Section 337 violations when inducing instructions accompanied an article during importation. According to Judge Dyk, "[i]t is a far different matter where, as here, any inducement is separate from the importation, and the articles as imported may or may not ultimately be used to directly infringe a method claim when combined with software post-importation." (Dyk Dissent at 3.) Accordingly, in his view, the Commission did not have the authority to exclude all of the scanners based on a theory that some of them may later be put to uses that directly infringe.
Judge O'Malley's Dissent
Judge O'Malley wrote the principal dissent, which was joined by
all of the other dissenters (Chief Judge Prost and Judges Lourie
and Dyk). She focused on the uncertainty of the ultimate direct
infringement post-importation, and the tenuous authority to exclude
imports "based only on the putative intent of the
importer." (O'Malley Dissent at 1.) And she rejected the
broad arguments regarding unfair trade policy as a basis for
expanding Commission authority that, in her view, does not extend
to post-importation acts. She read Section 337 as limited to
articles that infringe at the time of importation; patent holders
seeking remedies for post-importation infringement may avail
themselves of district court actions under 35 U.S.C.
§ 271(a).
Judge O'Malley disagreed with the majority's analysis of
Section 337 under Chevron. She believed that under the
first Chevron inquiry, the language of Section 337 clearly
reflected Congressional intent to "exclude liability ... for
induced infringement of a method claim that is not directly
infringed, if at all, until after importation." (Id.
at 3.) The plain language of the statute, "articles
that infringe," refers to physical objects. She later noted
that "'[t]he patented invention' of § 271(a)
is the equivalent to the 'article' in
§ 1337(a)(1)(B)(i)" and conceded that the analogy
breaks down for patented methods, but pointed to the
Commission's finding that Section 337 does not apply to
post-importation conduct that [directly] infringes method
claims." (Id. at 11, citing In the Matter of
Certain Electronic Devices with Image Processing Systems,
Components Thereof, and Products Containing Same, Inv. No.
337-TA-724, 2012 WL 3246515, at *12 (Dec. 21, 2011).)
Judge O'Malley also relied on the surrounding statutory
context, which defined Section 337 violations in terms of
importation, sale for importation, or sale after importation,
suggesting that "[i]t is objects which are imported or sold,
not methods." (Id. at 5.) The point of importation
was "the cornerstone of liability," a fact reaffirmed by
the use of the present tense throughout Section 337. (Id.)
Thus, in her opinion, actionable Section 337 "infringement is
tied, not just to a physical object, but to the date of
importation." (Id. at 6.) Exceptions to this rule
were set forth expressly in the statute, and were limited to
"sale[s]" of infringing imported articles in the United
States, as opposed to methods, which can only be "used."
Moreover, uses of patented processes prior to importation were
called out in Section 337(a)(1)(B)(ii); the very existence of that
provision indicates that Congress did not intend for Section 337 to
encompass intangible patented methods. She further rejected the
majority's reliance on the language of 35 U.S.C.
§ 271 in 1988 (when Section 337 underwent substantial
amendment) because Section 337 explicitly covers sale of an article
within the United States after importation.
Limiting Section 337 to physical articles that infringe at the time
of importation makes practical sense, according to Judge
O'Malley. The patent holder is not harmed by the importation of
noninfringing products, and if and when any domestic infringement
arises, the patent holder may seek relief in the district courts.
But allowing patent holders to seek relief under Section 337 for
induced infringement was problematic because, at the time of
importation, the "articles ... that infringe" do not yet
exist. Such an interpretation, according to Judge O'Malley,
would allow the Commission to exclude noninfringing articles based
solely on the intent of the importer to cause infringement at a
later time. This also created practical issues for Customs agents,
who are charged with determining which of Suprema's imported
scanners "may later be used by some Suprema customers in an
infringing manner and, as to those, for which customers Suprema has
acted with an improper intent to induce that infringement."
(Id. at 9.)
Judge O'Malley also disagreed with the majority's review of
the legislative and administrative history of Section 337. The
focus of Section 337 and its predecessors has always been on unfair
methods of competition or unfair acts, including importation of
"articles ... that infringe." The 1988 amendments to
Section 337 were unrelated to whether Section 337 reaches induced
infringement; they merely removed the requirement that a
complainant must show a substantial injury to its domestic injury
to make out a claim of a Section 337 violation. Broad statements
about strengthening the Commission's authority to investigate
and remedy unfair trade practices do not shed light on the issue of
whether Congress specifically intended that the Commission exclude
noninfringing articles based on the importer's intent.
Nor did the Commission's historical practice support the
majority's opinion. The pre-1988 cases cited as precedent for
exclusion orders based on induced infringement did not involve
orders that were exclusively based on inducement. Rather, those
cases involved articles that were not staple articles suitable for
noninfringing uses. And more modern cases all involved fact
patterns meaningfully different from the case at bar, in which
inducing instructions accompanied the imported articles and were
present at the time of importation. According to Judge
O'Malley, "the only consistent agency practice was the
agency's failure to assert § 337 against
importers of staple goods based solely on the intent to induce
infringement of method claims post-importation." (Id.
at 21.)
Judge O'Malley noted the majority's concern about "a
porous border hospitable to infringers[]" that might be
created under a narrow interpretation of Section 337. (Id.
at 25.) The majority, she argued, overlooked the fact that a patent
holder can seek relief for domestic acts of direct infringement in
the district courts. Accordingly, the fact that the Commission
might lack the power to address some particular forms of
infringement did not deprive patent holders of effective relief and
"would not open a porous border for all kinds of nefarious
actors." (Id. at 26.) By deferring to the expansive
views of the Commission (an executive agency), the majority
threatened the balance of power between Congress, the courts, and
the executive. The courts should not disturb the limits Congress
placed on the Commission's authority; to the extent the
industry felt that Section 337 was too narrowly crafted, the
appropriate place to expand it is Congress, not the courts.
Finally, Judge O'Malley pointed out that the majority's
opinion had problematic implications because it "grant[ed] the
Commission the power to hold up staple goods." (Id.
at 28.) That is, noninfringing articles that could be used in
infringing or noninfringing ways may be indiscriminately barred
from entry into the United States. To the extent that the articles
are never used for infringing purposes, their exclusion, in Judge
O'Malley's view, exceeds the scope of the Commission's
authority.
Potential Impact
The immediate impact of Suprema is clear: Section 337
covers all forms of patent infringement specified by 35 U.S.C.
§ 271(a)-(c). The Suprema decision reduces
potential uncertainty over the viability of method patents and
induced infringement claims in Section 337 investigations. It also
makes it more difficult for infringers to dodge Section 337 by
importing noninfringing products with the intention of providing
separate inducement instructions later.
By confirming the Commission's authority to investigate and
remedy potential Section 337 violations, the Suprema
decision provides a significant boost for United States
intellectual property rights holders. The Commission offers many
advantages compared to district court litigation, including a
statutory mandate to complete investigations at the earliest
practicable time, the availability of exclusive relief that is
enforced by Customs, and broad, in rem jurisdiction. For
rights holders who can demonstrate a domestic industry utilizing
the affected IP, and who are seeking to stop unfair competition
from infringing imports, the Commission provides an important forum
that is complementary in nature to the district courts, which move
at a slower pace, have different remedial powers, and more
restricted jurisdictional authority. The Commission also presents
unique practical advantages in the post-AIA era of inter
partes review proceedings before the Patent Trial and Appeal
Board. The Commission rarely stays investigations pending United
States Patent and Trademark Office review proceedings, while
district courts often issue such stays.
The Suprema decision is also noteworthy because of the
sharp split among the Federal Circuit judges, with only a slight
majority of judges participating (constituting only half of the
court's active judges) endorsing the Commission's
interpretation of Section 337. Many of the newest Federal Circuit
appointees sided with the Commission, while several of the
court's veterans dissented. And two judges—Judges Moore
and Stoll (the latter the newest addition to the Federal Circuit)
did not participate in the decision. Perhaps this is a sign that
the Federal Circuit may show increased deference to the Commission
in the coming years. In any event, this may not be the last word on
the subject: The diverging views set forth in the lengthy majority
and dissent opinions could signal that another Federal Circuit
decision is ripe for a petition for a writ of certiorari to the
Supreme Court.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
