Federal Circuit: Section 337 Allow ITC to Stop “Induced” Infringement, Says En Banc Opinion; Four Judges Dissent

The question of whether the United States International Trade Commission may exclude from entry, under Section 337 of the Tariff Act, goods which might be the subject of “induced” patent infringement claims may be headed to the United States Supreme Court, following a sharply divided en banc decision of the United States Court of Appeals for the Federal Circuit is any indication.

In the fascinating case of Suprema Inc./Mentalix Inc. v. US International Trade Commission, No. 2012-1170 (August 10, 2015) the Federal Circuit, by a 6-4 vote, ruled that the ITC could exclude non-infringing goods from entry under Section 337,  based on a determination that they might be used after importation to infringe patents. The dissenting judges held that the ITC’s power is limited to addressing “articles that infringe” at the time of importation, and could not reach the situation presented.

Suprema produced and shipped fingerprint scanners, which did not infringe any U.S. patents. The scanners were delivered with a non-infringing software tool kit, which purchasers of the scanners could use to design application software. Mentalix, a purchaser of the scanners, was accused of using the software toolkit to produce operating programs which infringed patents owned by the domestic complainant, Cross Match Technologies. 

Cross Match filed a complaint under Section 337 with the ITC back in 2010, seeking to have Suprema’s canners excluded from entry into the United States.  The ITC concluded that it had the power to issue a limited exclusion order barring the importation of Suprema scanners sold to Mentalix.  An appeal to the Federal Circuit followed. 

In 2012, a merits panel of the Federal Circuit, by a 2-1 margin, reversed the Commission, holding that the agency’s power under Section 337 has a temporal limitation, and only extends to “articles that infringe” one or more U.S. patents at the time of importation.  Since no infringing items were present at the time of importation, the Court concluded that Section 337 did not provide a remedy. 

The Federal Circuit agreed to rehear the appeal en banc. 

Six of the judges on the en banc panel, in a majority opinion written by Judge Jimmie Reyna, voted to reverse the merit panel’s decision, holding that the ITC did have the power to exclude a non-infringing article when it becomes an instrument of “inducement” of actual patent infringement.  The court noted that the ITC’s ability to take action under Section 337 in cases of induced infringement had been upheld by the courts on several occasions.  It also found that the question of whether the ITC had the power to exclude a non-infringing item which might be used to induce actual patent infringement was not addressed in the text of  Section 337.  Using the two-step analysis set out in Chevron Inc. v. Natural Resources Defense Council, the majority concluded that, Congress not having spoken directly to the issue, the ITC’s interpretation that it had power to act under Section 337 was “reasonable” and should be upheld. 

Four dissenting judges, in an opinion written by Judge Joan O’Malley, took a sharply different view.  They argued that Section 337, as a statute, was firmly limited by the language which Congress used to empower the ITC.  Since a 1988 amendment to the law, the Commission has had the power to exclude “articles that infringe” a patent.  This language, the dissenters held, contained a temporal limitation requiring there to be articles which actually infringe a patent, at the time of importation, in order for Section 337 to be invoked.  Furthermore, since Section 337 is aimed at excluding infringing goods from entry into the United States, the dissenters claimed that the infringement must exist at the time of importation.  In this case, since neither the scanners nor the software kits infringed any patents at the time of importation, Section 337 could not be used to exclude them. 

Because Section 337 orders are enforced by Customs, the enforcing Customs agents would be put to the nearly-impossible task of determining, at the time of entry, whether a given scanner might be used for an infringing application (or, to infringe a method patent) after importation.

The dissenters noted that the patent holder had a remedy for induced actual infringement under the Patent Act, and could bring suit in the United States District Courts to enjoin such infringement and to seek damages therefor.  Indeed, the patentee does not suffer any actual injury until the actual infringement occurs, and the courts are the appropriate forum for addressing such injury. Attempting to let the ITC determine whether, at the time of importation, there may be some future intent to use the “staple” items (fingerprint scanners) as an instrument of infringement, would expand the Commission’s powers beyond those granted by Congress, and would place an almost impossible burden on Customs agents who are charged with enforcing Section 337 orders at the nation’s borders. 

One of the dissenters, Judge Timothy Dyk, wrote separately to take issue with the majority’s argument that Section 337 had been used in the past to combat induced infringement.  He pointed out that, in every past case, a non-infringing staple article had been imported along with the instructions for infringement.  In this case, however, neither the imported scanners nor the instructions infringed at the time of importation.

While the majority saw the commission’s interpretation as a reasonable way to close a loophole in patent enforcement, the dissenters viewed it as an improper policy determination, and attempt to expand the commission’s powers beyond those expressly granted by Section 337.  As the Commission’s Section 337 powers come increasingly into public debate—next on the horizon is whether the commission can block electronic transmissions of infringing instructions—it seems quite possible that the US Supreme Court may take the Suprema case as an opportunity to clarify the ITC’s powers under this import and trade remedy statute.