Federal Circuit Reaffirms International Trade Commission’s Authority Over Induced Patent Infringement

Kaminski_Jeffri_LRFeatured Expert Contributor – Intellectual Property (Patents)

Jeffri A. Kaminski, Venable LLP

The U.S. Court of Appeals for the Federal Circuit sitting en banc has reaffirmed the International Trade Commission’s (ITC) longstanding authority for remedying inducement infringement. The ITC authority was called into question, and in fact overruled, by an earlier panel decision in the same case. The court sitting en banc in Suprema v. ITC voted 6-4 to overturn the panel’s decision limiting the circumstances under which the ITC could issue an exclusion order for induced infringement. The en banc decision closes a loophole for induced infringement and provides certainty on the issue.

By way of background, Suprema is company that manufactures fingerprint scanners in Korea. The fingerprint scanners are imported and sold to Mentalix in the U.S. Mentalix writes custom software for controlling the scanners. It then bundles its software with the scanners and resells the bundled product within the U.S.

Cross Match filed a complaint with the ITC that the bundled product was infringing its patent. The ITC determined that the combination of the scanners from Suprema and the software from Mentalix directly infringed Cross Match’s patent. The ITC issued an order prohibiting the sale of the combined scanner and software in the U.S. The ITC also determined that Suprema induced the infringement of Cross Match’s patent and issued an order prohibiting the importation of the Suprema scanners into the U.S.

Suprema appealed this decision to the Federal Circuit. A split panel overturned the ITC decision and held that the Section 337 language “articles that infringe” is a temporal requirement and that infringement must be determined at the time the article is imported into the U.S. Accordingly a theory of induced infringement where the direct infringement does not occur until after importation cannot be an infringing article at the time of importation. The ITC can only issue an exclusion order if the direct infringement occurs before the time of infringement.

Patent owners were concerned with the panel decision because it departed from prior ITC practice. Under the panel’s reasoning, liability for induced infringement may be avoided by splitting an infringing product into different, non-infringing parts, and then importing those parts into the U.S. The parts may then be re-assembled in the U.S. into an infringing product. As the parts themselves do not infringe at the time of importation, there can be no remedy at the ITC for induced infringement under the panel decision.

The Federal Circuit used the two-step framework set forth in Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc. to determine if the ITC’s interpretation is correct. The first step is determining “whether Congress has directly spoken to the precise question at issue.” If the answer is yes, then the inquiry ends, and effect must be given to Congress’ unambiguous intent. If the answer is no, the second question is “whether the agency’s answer [to the precise question at issue] is based on a permissible construction of the statute.”

Under the first step, the court determined that the shorthand phrase “articles that infringe” does not unambiguously exclude inducement of post-importation infringement. Therefore the court had to turn to the second step under Chevron.

Under the second step, the ITC’s interpretation “prevails if it is a reasonable construction of the statute, whether or not it is the only possible interpretation or even the one a court might think best.” The en banc Federal Circuit determined that the ITC’s decision was reasonable as it was consistent with the plain language of the statute. Liability for induced infringement must be based on a finding of direct infringement. Such liability for inducement nevertheless attaches as of the time of the inducing activity, provided that direct infringement eventually occurs. In addition, the ITC’s decision was consistent with congressional intent and legislative history. The court found that Congress has repeatedly emphasized the broad scope of enforcement powers granted to the ITC. Since at least 1980, the ITC was making determinations that inducing infringement could be remedied by an exclusion order—a practice that Congress has allowed to occur until today.

With this decision, the Federal Circuit has restored certainty and the status quo for interpretation of induced infringement at the ITC.

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