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En Banc Federal Circuit Hears Oral Argument on USITC Jurisdiction over Induced Infringement

The en banc Federal Circuit on January 5, 2015, heard oral argument on whether the U.S. International Trade Commission has jurisdiction to issue exclusion orders in Section 337 cases that are based on complaints of induced patent infringement under 35 U.S.C. §271(b). Suprema, Inc. v. Int’l Trade Comm’n, Fed. Cir., No. 2012‐1170, en banc oral argument 1/5/2015.

On review is an ITC order excluding imports of non-infringing fingerprint scanners that are used after importation with software to infringe the complainant’s method patent. The intense argument focused on whether the statutory phrase “articles that infringe” in Section 337 is satisfied where the patent claim at issue is to a method rather than an article, and where the underlying direct infringement for inducement occurs after importation.

Background

Section 337 in part defines as an unlawful activity the “importation into the United States … of articles that … infringe a valid and enforceable United States patent.” 19 U.S.C. §1337(a)(1)(B)(i).

Cross Match, the assignee of patents relating to fingerprint scanning, complained to the ITC that Suprema, a Korean scanner maker, was importing scanners to Mentalix, a U.S. company that infringed its method patent when it used its software with the Suprema scanners. The ITC agreed and entered an exclusion order for the Suprema scanners based on its finding that they induced Mentalix to infringe method claims in Cross Match’s patents.

The Federal Circuit panel reversed, ruling that the imported scanners could not be “articles that infringe” under Section 337 because the direct infringement—the necessary predicate for a finding of induced infringement—occurred after importation, not before. The en banc Court vacated that panel decision and granted Suprema’s petition for rehearing on May 13, 2014.

Judge Lourie

At the January 5 oral argument, Judge Lourie questioned the ITC’s contention that its exclusion order is correctly based on a finding that Suprema's imported scanners are “articles that infringe,” explaining that the infringed patent in this case is on a method, not an article. Darryl Michael Woo, counsel for Mentalix Incorporated and Suprema, Inc., agreed. He added that the scanners also cannot be infringing because they are staple articles of commerce capable of many non-infringing uses. Judge Lourie pointed out, however, that staple articles of commerce are not addressed in the inducement statute at Section 271(b), but instead are part of the contributory infringement provisions of Section 271(c). Woo also pointed out that Section 271(b) cannot be the basis for the exclusion order because that inducement provision addresses only conduct, not articles.

Judge Lourie asked Clark S. Cheney, counsel for the ITC, how there could be an infringing article in this case where the allegedly infringed claim was to a method. Cheney replied that the ITC finding was that there was an unfair trade practice based on the importation of articles that infringe on the rights of the inventor. Which occurred after importation, Judge Lourie added.

Cheney maintained that district courts commonly find inducement under similar circumstances. He noted that it is no defense to an inducement charge to say that no infringement occurred until after the inducing conduct. The basis of the ITC investigation in this case was a complaint that scanners were being imported and combined with PCs in the United States to infringe the method claim, Cheney explained.

Maximilian A. Grant, representing the patent owner Cross Match, responded to Judge Lourie’s question by pointing out that, if the phrase “articles that infringe” is strictly applied to hold that method claims are not actionable under Section 337, the same logic would preclude Section 337 liability for any Section 271 infringement. That is, limiting that phrase to “articles” would eliminate Section 271(a) and (c) liability, as well as Section 271(b) liability, because they are all addressed to conduct rather than articles.

Judge O’Malley

Judge O’Malley observed that Section 337 was amended in 1988 to remove the requirement of proving injury to a domestic industry for an exclusion order based on patent infringement, and pointed out that new language refers to sale or importation but not “use.” She noted that the ITC has said that the articles must infringe at the time of importation, and asked if it is now backing away from that position.

Cheney said no. While there is a temporal issue in this appeal, he pointed out that numerous Suprema scanners had already been imported and combined with Mentalix software before the adjudication began. It is true that no infringement can result simply from selling an article that may be used to perform a claimed method, Cheney admitted. However, to engage in that conduct with the intent that the buyer use the article to infringe another’s patent violates Section 271(b), he argued. The article used in that process, he said, is an “article that infringes.”

Judge O’Malley noted that Section 271(b) does not say that acts of inducement are acts of infringement; instead it creates a fiction by saying, once there’s direct infringement, the inducer will be “treated” as an infringer, she explained, which is very different from referring to “articles that infringe.”

Cheney responded that the legislative history for Section 271(b) is clear: those who induce infringement are infringers. He cited comments by the late Judge Giles Rich, a participant in the drafting of the Patent Act of 1952, who said inducement liability was not meant to be any different from liability for ordinary infringement. Nor does consideration of the intent element for inducement place this unfair trade practice outside the scope of Section 337, according to Cheney. He said the Customs Service adjudicates all kinds of importation unfair trade practices involving intent, from criminal charges to tortious interference with business relations.

Judge O’Malley acknowledged that the cases relied on by the ITC and the patent owner refer “articles that infringe” in the context of indirect infringement, but she said the articles in those cases had no substantial non-infringing uses. Grant disputed the suggestion that the meaning of “articles that infringe” is confined to articles with no substantial non-infringing uses. He pointed out that the Supreme Court’s copyright inducement decision in Grokster said the violation is not just the importation itself, but includes the distribution of a tool intended for infringing uses. If “articles that infringe” is narrowly defined as suggested, that definition would rule out Section 337 relief not only for induced infringement but for contributory infringement as well, he argued.

What is the ambiguity in the legislative phrase “articles that infringe” that leads to Chevron deference, Judge O’Malley asked. Grant contended that Section 337 unambiguously covers the unfair trade practice in this case. But to the extent there is an ambiguity, it arises from the suggestion that the 1988 amendments to Section 337 eliminated the relief sought here. According to Grant, relief for imports used in an infringing method was available prior to the 1988 amendments, and those amendments only strengthened Section 337 coverage by eliminating the requirement of showing domestic injury for patent violations.

In response to Judge O’Malley’s suggestion that the patent owner has adequate injunctive relief from district courts for the claimed induced infringement, Grant said that ITC relief is different in important ways from district court relief, adding that Congress specifically intended this remedy for U.S. patent holders. While a district court could enjoin the Suprema-Mentalix transaction, it could not block imports to alternate distributors, which is the very benefit of an in rem border exclusion from the ITC, according to Grant.

Judge Dyk

Judge Dyk observed that the cases cited by the ITC as precedent for its jurisdiction in this case either involve articles with no substantial non-infringing use or involve instructions packaged with the imported article that detail the infringing use. While the direct infringement in both situations occurred after importation, it was still possible to determine the infringement from examining the article itself without gathering extrinsic evidence. The difference here, he said, is that, because the products do have non-infringing uses, it’s necessary to look beyond the product to decide when infringing or non-infringing uses would occur later. Judge Dyk asked Cheney how the order would avoid excluding scanners that would not be part of an infringing use.

Cheney said that is part of the enforcement process carried out by Customs, which will exclude Suprema scanners going to Mentalix unless there is a certification by Suprema that the scanners are not intended for the infringing uses. Judge Prost noted that the certification determination is in the discretion of the Customs officials and questioned the appropriateness of delegating the legal decision to them. Cheney pointed out that any importer whose goods are turned away at the border can file a protest with Customs, and that decision is reviewable by the Court of International Trade. He explained that Customs employs patent attorneys and engineers and uses scientific equipment to help them make these determinations. In any event, he added, that issue goes to the enforcement part of the process, which would be better addressed with a remand for a more appropriate remedy than with a redefinition of the Section 337 violation.

What if someone imports 1,000 non-infringing bicycles, but some of them are combined with a particular tire to make them infringing at the time of purchase, Judge Dyk asked. Could all of the bicycles be excluded? They could not, Cheney answered, because that scenario–the importation of a substantially non-infringing bicycles–would not constitute infringement. He said the difference in this case, however, is the intent and collaboration between Mentalix which is demonstrated by substantial evidence.

Suppose there was an intent to tell some purchasers that the bicycle and tire could be combined to be infringing, Judge Dyk followed up. Would all of the bicycles be excluded? You could exclude the bicycles from the importer with the intent to cause the infringement. Even if that happens in some small number of cases, Judge Dyk asked? Yes, Cheney replied, if bicycle seller intends to infringe because there is Section 271 liability when that occurs.

Judge Dyk questioned the ITC practice of finding liability and excluding articles with substantial non-infringing uses by looking to conduct beyond what is presented by the imported article itself. Grant said that would also be the practice where the ITC had to distinguish between imported articles that have been licensed and those that had not been licensed. He added that the issues raised by Judge Dyk have nothing to do with finding a violation, the issue before the court, and everything to do with the appropriateness of the remedy.

But this standard is very broad, Judge Dyk observed. The ITC is saying it can grant a remedy where an article may be put to an infringing use after it’s imported, even if the article itself may not infringe. Grant objected, saying that is not the standard. The exclusion order is limited to infringing articles under the facts, he explained, which in this case show that the percentage of scanners that went to Mentalix for an infringing use was in excess of 95 percent.

Would it make a difference if the imports to Mentalix were 1 percent, Judge Dyk asked? No, Grant answered. So the ITC can bar all imports where 99 percent of imports are non-infringing and only 1 percent might be used in an infringement, is that right, Judge Dyk asked? Not where 1 percent “might be used” to infringe, but where they will be so used, as determined with certifications through Customs. It is no different from suing 10 respondents, getting an infringement finding and exclusion order for all 10, and 9 of them get licenses. The exclusion order still applies, and the 9 would come in under a certification. The culpable intent involved under Section 271(b) should make enforcement by the ITC more important, not less important, Grant said.

Mark R. Freeman, of the Justice Department, took his turn at the question Judge Dyk had posed to the other attorneys in this case: doesn’t the use of the word “article” imply that you must determine the infringement by looking at the article rather than looking at it with some other conduct by the importer that is outside of the importation?

Freeman answered no, explaining that it is common for the ITC to decide a Section 337 case by looking outside of the article itself, as for example with the importation of unpatented products made overseas by means of a patented process. It is impossible to determine the process by which a product is made simply by looking at the product alone, he added.

Judge Dyk said he doesn’t mean finding infringement by simply glancing at the article, but rather by considering the article and its history. You shouldn’t have to look beyond the article for intent or actions by the importer, he maintained. Looking at the history of the article will inherently require the Customs official to look beyond the article at hand, according to Freeman. As for looking for intent, that inquiry is commonplace for the ITC anytime it has to adjudicate claims involving business torts, antitrust violations, or passing off. He also pointed out that the scope of the exclusion order is expressly confined to articles that infringe. A sale by Suprema to me, Freeman remarked, would not infringe because there is no evidence of an intentional scheme to induce direct infringement.

The phrase “articles that infringe” is not drawn from and has no meaning under Section 271, according to Freeman, and Congress intended the ITC in the first instance to ascribe conduct from the patent laws to the articles. It was the ITC’s judgment in the first instance to decide how to do that, and the only question is in this case is whether it reasonably concluded that “articles that infringe” means those articles for which liability could be imposed under the patent act.

Judges Reyna, Chen and Taranto 

Judge Reyna asked all of the attorneys to comment on the reasonableness of the ITC interpretation of Section 337 in the context of Chevron deference. He also asked about the enforcement of an exclusion order, and the opportunities to protest the enforcement by the Customs Service.

Judge Chen responded to comments that Section 271(b) is addressed only to conduct by noting that the statute targets use of articles in that direct infringement is what must be induced. He also pressed the attorneys to state whether the 1988 amendments the scope of Section 337 coverage, and the answers he got were mixed.

Judge Taranto considered the “articles that infringe” phrase to be outside the language of the Patent Act, and sought some responses on the reasonableness of the ITC “translation” of the phrase. He particularly wanted to know if the phrase had any historical usage in the context of indirect infringement or method claims.

To hear an audio recording of the oral argument, click here.