En Banc Federal Circuit Considers Significant Limit on ITC Authority to Bar Staple Products

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By Tony Dutra

Feb. 5 — The Federal Circuit, sitting en banc, debated Feb. 5 whether the term “articles that infringe” used in Section 337 of the Tariff Act limits the International Trade Commission's authority to bar imported products that, by themselves, do not infringe a patent.

The issue in the case is ostensibly limited to inducement of infringement: The scanner product here is arguably a “staple” product that can be used for noninfringing purposes and infringes a patented method claim only when specific software—installed by a U.S. importer—enables specific use of the scanner.

However, the discussion went further, with some members of the court indicating that the statute may prevent the ITC from considering infringement of method patents in general or even, though much less likely, considering contributory infringement.

And application of the court's decision here to the electronic communications environment—where arguably there are no “articles that infringe”—is waiting in the wings.

“Many in the community that practices before the ITC were concerned after the Federal Circuit’s decision in Kyocera and other decisions began to chip away at the ITC’s authority,” according to James B. Altman of Foster, Murphy, Altman and Nickel P.C., Washington, commenting on the packed courtroom. “I think many of those practitioners came out in force today out of concern that the court might go further here.”

“While there are a relatively limited number of law firms specializing in practice before the ITC, many operating companies rely on opportunities for enforcement through Section 337 exclusion orders,” he told Bloomberg BNA.

ITC Can Only Block ‘Articles That Infringe.'

Cross Match Technologies Inc. is sole assignee of three patents (U.S. Patent Nos. 5,900,993; 7,203,344; and 7,277,562) on optical scanning devices used for fingerprint capture and recognition. Korea-based Suprema exports RealScan scanners to the U.S. to Mentalix Inc. of Plano, Texas, which adds software called FebSubmit.

The ITC initiated an investigation at Cross Match's request to consider an exclusion order that would bar importation of the RealScan devices. At issue in the case at this point is method claim 19 of the '344 patent, which is infringed only when someone uses a computer, with FebSubmit installed on it, connected to a RealScan scanner.

The Federal Circuit panel considered as a threshold issue whether a Section 337 violation, under 19 U.S.C. §1337(a)(1)(B)(i), may be predicated on induced infringement, 35 U.S.C. §271(b), when the corresponding direct infringement is post-importation.

The majority, quoting Section 337(a)(1), held that the ITC's authority here extends to “(B) The importation into the United States, the sale for importation, or the sale within the United States after importation by the owner, importer, or consignee, of articles that—(i) infringe a valid and enforceable United States patent.”

And exclusion orders, governed by Section 337(d), must be directed to “the articles concerned,” the court said, which “would be, of course, the aforementioned ‘articles that … infringe a valid and enforceable United States patent' ” (742 F.3d 1350, 109 U.S.P.Q.2d 1006, (Fed. Cir. 2013).

The majority said that Sections 271(a) and (c) of the Patent Act define articles that infringe, and the corresponding standards for infringement “must be met at or before importation in order for the articles to be infringing when imported.”

In dissent, Judge Jimmie V. Reyna said, “My problem with the majority's opinion is that it ignores that Section 337 is a trade statute designed to provide relief from specific acts of unfair trade, including acts that lead to the importation of articles that will result in harm to a domestic industry by virtue of infringement of a valid and enforceable patent.”

Briefing Debate Shows Broad Concerns

The court granted the ITC's and Cross Match's motions for en banc rehearing on May 13, thus putting Suprema back in the appellant role, trying to overturn the commission's decision in favor of Cross Match.

Microsoft and another high tech group led by Dell Inc. filed amicus briefs arguing that the panel was correct; the American Intellectual Property Law Association and Intellectual Property Owners Association disagreed with the high tech firms and echoed the panel dissent. 

Darryl M. Woo of Fenwick & West LLP, San Francisco, filed Suprema's brief and argued on behalf of the appellant. Clark S. Cheney of the ITC's Office of the General Counsel filed the commission's brief, and Maximilian A. Grant of Latham & Watkins LLP, Washington, filed a brief on behalf of Cross Match as intervenor.

The three were joined at oral argument by Mark R. Freeman of the Appellate Staff of the U.S. Department of Justice's Civil Division.

All 10 members of the court sitting en banc—Judge Kimberly A. Moore did not participate in the vote on en banc rehearing and was absent from the argument—asked questions of the parties. Chief Judge Sharon Prost and Judge Kathleen M. O'Malley were in the panel majority and appeared to be no less sure of their arguments here. Judge Evan J. Wallach appeared to align himself with Reyna's dissent, indicating that the court is likely to be split.

Interpreting ‘Articles That Infringe.'

The debate about whether the phrase “articles that infringe” can possibly apply to conduct—that is, inducement—dominated the discussion. Woo's interpretation was straightforward, given the plain meaning of the word “articles.”

The opposing view was perhaps presented best in the U.S. government's amicus brief, which said that, “in enacting Section 337(a)(1)(B)(i), Congress necessarily expected and intended that the Commission would interpret ‘articles that … infringe' in a manner that appropriately translates the domestic in personam liability provisions of the Patent Act into the in rem framework of exclusion proceedings under the Tariff Act.”

Freeman presented the case for that argument when answering questions by Judges Todd M. Hughes, Timothy B. Dyk, Alan D. Lourie and Richard G. Taranto. He noted that the phrase has no meaning under Section 271 of the Patent Act either, with direct infringement defined as activities—makes, uses, offers to sell, sells or imports any patented invention—and not articles.

“Congress intended the commission in the first instance to ascribe conduct from the patent law to the article. It had to do that,” he said to Dyk. “The only question ought to be whether it is reasonable of [the ITC] to conclude that [articles to be barred] are those for which liability could be imposed under the Patent Act.”

Dyk, however, repeatedly attempted to limit the history of ITC-related court decisions related to inducement when the article in question has no substantial noninfringing uses or is distributed with instructions that, if followed, would result in infringement.

Once one acknowledges that the commission can remedy the situation where instructions are included, Freeman said, one is in the realm of allowing the commission to determine intent. He saw no difference from that determination and the commission's determination here.

Does Enforcement Mechanism Matter?

Woo pushed the view that Suprema's scanners had substantial noninfringing uses, effectively denying that this case fell into one of Dyk's two scenarios where liability would lie. However, Judge Pauline Newman indicated that she would not agree to such a bright line exception.

Suprema and Cross Match presented different contentions as to the percentage of Suprema's sales to Mentalix. Grant argued that it was 95 percent while Woo gave the impression that it was a staple article with multiple uses and, presumably, sales channels.

Dyk and O'Malley said that did not matter if the ITC's exclusion order went beyond Mentalix's infringement. Former district court Judge O'Malley was particularly disturbed that the ITC exclusion order, to the extent it barred scanners that were ultimately sold for noninfringing uses, went beyond what a district court could do.

However, Newman wanted Woo to respond to the 95 percent figure. “We always draw lines based on numbers,” she said after Woo echoed the sentiment that it shouldn't matter. It's important for us to consider “where the balance shifts.”

Cheney's 15 or so minutes at the podium were focused on whether—whatever the right percentage was—the ITC exclusion order, which is enforced by Customs and Border Protection, can adequately identify only those scanners to be used by Mentalix or another infringer.

“I was surprised that so much of the argument focused on the mechanics of enforcing an ITC exclusion order,” Altman—who authored the AIPLA's amicus brief—said. “There is a long history of the Customs Service doing so successfully, and the commission and Customs have developed a number of mechanisms that were referenced during the argument—such as certifications, commission advisory opinions, and Customs rulings—for addressing any disagreements or difficulties.”

In fact, Wallach dismissed his colleagues' concerns about enforcement—Prost was specifically concerned that the Federal Circuit had no authority to review a border patrol action—by noting that Suprema, should it feel that Customs was excluding noninfringing articles, could go to the Court of International Trade to complain. The CIT is certainly reviewable by this court, he said.

Cheney appeared frustrated with the line of questioning when he finally acknowledged that the Federal Circuit could remand for a fine-tuned exclusion order, but he insisted the court should still affirm the ITC's authority to make the inducement decision.

Altman told Bloomberg BNA afterward that seemed to make more sense.

“I would have thought that the right answer, if there were such [exclusion order] difficulties, would be to remand to the commission to resolve any enforcement problems, not to throw out the entire remedy,” he said.

Not the Last Word on Issue?

Judge Raymond T. Chen brought up a “hypothetical,” which Cheney called out as a real, second case before the court—apparently ClearCorrect Operating LLC v. ITC.

The case bypasses the exclusion order problem because infringement occurs after an electronic transmission is sent to a U.S. The “articles” in question in that case, therefore, are the transmissions themselves. And Chen wanted to know whether the ITC had the same view on that scenario as it did with Suprema.

Cheney would only say, “The commission would not issue an exclusion order extending the patent laws of the United States.”

To contact the reporter on this story: Tony Dutra in Washington at adutra@bna.com

To contact the editor responsible for this story: Tom P. Taylor at ttaylor@bna.com

For argument audio, go to http://www.cafc.uscourts.gov/oral-argument-recordings/search/audio.html and enter Appeal No. 2012-1170.