Federal Circuit upholds ITC's broad authority to block importation of infringing goods

The Federal Circuit has ruled that the United States International Trade Commission (ITC) – the federal agency that investigates and issues orders regarding imported goods that infringe intellectual property rights, among other things – may block the importation of goods that do not infringe a patent at the time of entry into the U.S. but that are later used in an infringing manner by customers in the U.S. Issued en banc (i.e. as a full court), the ruling reverses an earlier Federal Circuit panel opinion holding that there must be infringement at the time of importation.

CAN THE ITC BLOCK GOODS THAT DO NOT INFRINGE?

Patent law distinguishes between “direct” and “indirect” infringement of a patent. In the case of method patents, direct infringement occurs when someone performs all of the steps of a patented method himself or herself. Indirect infringement occurs when someone induces or contributes to direct infringement of a patent by another, for instance, by an integrator or an end user. Indirect infringement by inducement can occur in some instances where one party provides a product to another along with instructions directing the other to use the product in an infringing manner. Notably, there is no indirect infringement by one party unless and until the other party infringes the patent directly.

When it comes to importation, a product might not actually infringe any patent when it enters the U.S., but may later be used in an infringing manner within the U.S. Section 337 of the Tariff Act of 1930 makes it unlawful to import “articles that infringe” a valid U.S. Patent. In Suprema, Inc. v. International Trade Commission, the question was whether Section 337 authorizes the ITC to block the importation of goods that, after import, “are used by the importer to directly infringe at the inducement of the goods’ seller.” The ITC argued that it can block such goods, and the Federal Circuit ultimately agreed.

THE ITC'S EXCLUSION OF INFRINGING FINGERPRINT SCANNERS

At issue in the case were fingerprint scanners manufactured in Korea by Suprema, Inc., imported into the U.S. by Mentalix, Inc., and then sold by Mentalix, together in bundles with its own custom software that operates the scanners, to customers in the U.S. Importantly, Suprema ships each scanner with an instruction manual explaining how to write programs that implement the scanner’s functionality.

Cross Match Technologies, Inc. filed a complaint with the ITC, alleging infringement of patents that it owns that relate to biometric imaging technology. The ITC investigated, and found that Suprema was inducing Mentalix to perform an infringing method. More specifically, the ITC found that Mentalix had directly infringed the patent at issue through its integration of the scanners and its custom software, and that Suprema had actively encouraged and facilitated Mentalix’s activities and that it believed there to be a high probability that the scanners were covered by Cross Match’s patents. On the basis of its findings, the ITC excluded several Supreme scanners from import into the United States.

THE RULING: THE ITC ACTED WITHIN ITS AUTHORITY

On appeal, a panel of the Federal Circuit initially ruled against the ITC, reasoning that the statute requires infringement to be ascertained at the time of importation. Upon rehearing en banc, the Federal Circuit reversed the decision based on an application of the framework established by the United States Supreme Court in Chevron USA, Inc. v. Natural Resources Defense Council, Inc. (1984), which requires deference to an administrative agency’s reasonable interpretation of a statute. The Federal Circuit found that the ITC’s interpretation of Section 337 was reasonable, explaining:

The Commission’s interpretation recognizes that the acts necessary for induced infringement, including acts of direct infringement, may not occur simultaneously at the time of importation. In many cases, such acts cannot occur at the time of importation. In that context, the Commission’s interpretation that Section 337 grants it authority to prevent importation of articles that have been part of inducement as an unfair trade act is consistent with the statutory phrase “articles that infringe.”

The opinion states that the ITC’s interpretation is consistent with the “fundamental purpose” of the Tariff Commission to “prevent a diverse array of unfair methods of competition in the importation of goods.” It also emphasizes that “the practical consequence would be an open invitation to foreign entities . . . to circumvent Section 337 by importing articles in a state requiring post-importation combination or modification before direct infringement could be shown.” The Court reversed the earlier ruling and remanded. Three judges dissented.

WHAT THE RULING TELLS US

The Suprema opinion is noteworthy at two levels. First, it makes clear that the importation of goods can be blocked if the goods are later to be used in an infringing manner in the U.S. at the inducement of the seller. This is helpful for U.S. patent holders facing unfair competition from sellers and importers seeking to skirt the boundaries of indirect infringement through a narrow reading of Section 337. Second, the opinion exhibits a high degree of deference to the ITC and a willingness to broadly construe its statutory authority to police unfair trade.