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By Tony Dutra
Aug. 10 — Companies that rely on the International Trade Commission's enforcement of U.S. patents against product imports got a big win in a ruling today by the full Federal Circuit.
The court's 6-4 decision to overturn a prior ruling by a three-judge panel means that U.S. patent owners can use the ITC to stop “articles” at the border even if those products, by themselves, don't infringe any patents, but infringement occurs after the goods are used in a particular way once they are inside U.S. borders.
Patent holder Cross Match Technologies Inc. won this round. The decision upheld the ITC's import ban on Korea-based Suprema Inc.'s RealScan line of fingerprint scanners.
The specific ruling in the case was that the ITC can stop scanners that are ultimately configured for a particular use and sold in the U.S. by Mentalix Inc. But the ITC's exclusion order here, according to one dissent at least, effectively bars all Suprema imports, “even those that ultimately may never be used to infringe.”
The ruling affects “a $140 million per year market for Cross Match,” according to a press release from the law firm that represented the company.
Suprema is likely to petition the U.S. Supreme Court to overturn the decision. Unless the high court reinstates the panel decision, the panel has more to do. In rejecting the ITC's authority in general, the panel did not actually decide whether Mentalix's implementation infringed or whether Suprema had the intent to induce infringement.
The decision is also a setback for Microsoft Corp. in a dispute with Motorola Mobility. That case has substantially similar facts, involving Microsoft's importation of Xbox devices that are subsequently configured in the U.S.
Motorola Mobility LLC v. Int'l Trade Comm'n, No. 2013-1518, was stayed by the Federal Circuit pending the outcome in Suprema.
The opinion also comes one day before oral argument at the Federal Circuit on a related case with even greater implications: Does the ITC's authority extend to electronic communications when the “article” ultimately used to infringe in the U.S. is software that was written overseas?
Copyright stakeholder groups have joined the fray in ClearCorrect Operating LLC v. Int'l Trade Comm'n, No. 2014-1527, showing the overlap between intellectual property protection for software.
The case centered on the term “articles that infringe” used in Section 337 of the Tariff Act. A 2-1 panel majority held that the plain language of that phrase means that products must be assessed for infringement as they reach U.S. borders. 742 F.3d 1350
Judge Jimmie V. Reyna—who came to the court as a highly regarded, non-patent ITC attorney—dissented to that ruling and wrote the majority opinion now. He in essence rephrased the question to be act-focused instead of patent-focused: “[D]oes the importation of such goods qualify as an unfair trade act under Section 337?”
Under 35 U.S.C. §271, articles don't infringe, the court said; actions infringe. That creates ambiguity in the statute, leaving it to the ITC, first, to try to resolve that ambiguity.
The Federal Circuit is thus bound to give deference to the ITC's interpretation if it is reasonable, the court said, under Chevron U.S.A. Inc. v. Natural Resources Defense Council Inc., 467 U.S. 837 (1984).
The court judged the reasonableness of the ITC's judgment as to inducement to infringe a method patent: Suprema's scanner product is arguably a “staple” product that can be used for noninfringing purposes; it infringes Cross Match's patented method claim only after Suprema induces Mentalix to install software enabling a specific use of the scanner.
First, the court said, Section 337 clearly did not exclude inducement under Section 271(b). If the ITC is to exercise authority over induced infringement then, the court said, it was reasonable for the commission to take into consideration that inducement “may not occur simultaneously at the time of importation.”
Second, the court said, the ITC has been making inducement determinations since 1980. Congress has not reined in the ITC on that point, the court said, and in fact Congress has generally expanded the commission's authority since then.
Judge Kathleen M. O'Malley wrote the original panel majority opinion and this time wrote a dissenting opinion joined by three other judges.
According to the dissent, “the majority crafts patent policy where it believes there is a loophole ripe for abuse.”
O'Malley criticized the majority for manufacturing ambiguity in the statute when no such ambiguity exists.
She said instead that Congress clearly meant to focus on “articles” for actions at the border, deliberately leaving “use”—which would invoke method claims—out of the statute.
And, she said, there is no loophole in any case, since Cross Match had an option: Sue Mentalix in the U.S. for direct infringement of the method claim at issue.
“But an ITC investigation is very fast compared to nearly every district court,” David Maiorana of Jones Day, Cleveland, told Bloomberg BNA in an e-mail.
“You will typically be in trial nine months from institution of the investigation, compared to two years for most district courts,” he said. “That speed, coupled with (1) the threat of an exclusion order, and (2) a bench trial before a very experience patent judge rather than a jury, make the ITC a much more preferred venue than district court.”
Judge Timothy B. Dyk wrote a separate dissent to reinforce a sentence in O'Malley's dissent on the difference between Suprema and prior ITC cases on the question.
Those earlier cases always involved products shipped with instructions which, if followed, would lead to infringement. With no such evidence here, Dyk said, the ITC's exclusion order—effectively barring even those Suprema scanners not headed to Mentalix—was overbroad.
“The ITC is currently working on measures to make enforcement of its remedial orders easier and more transparent,” Maiorana said, disputing that comment.
“The ITC believes that it is not over-reaching here because would-be importers can provide a certification that its products will not be used in an infringing manner,” he said. “Although this raises complicated issues highlighted by the dissent, the Commission is accustomed to handling disputes regarding the scope of its remedial orders.”
The outcome will be especially relevant to any imported product sold to U.S. users where the user performs the last step to make it operational—typically by downloading software.
Microsoft and another high tech group led by Dell Inc. are likely to be disappointed by the result. The companies filed briefs defending the panel decision.
Dell's brief was also signed by Adobe Systems, Ford, Google, Hewlett-Packard, LG Electronics, Netflix, Samsung and SAP America
Mobile phone maker Nokia came out on opposite side, perhaps reflecting the difference in the size of the patent portfolio Nokia—compared to Samsung—claims in that industry.
And application of the court's decision here to the electronic communications environment—delivery via the Internet, for example—is up next in ClearCorrect, where the “articles” in question are the transmissions themselves.
Support for the ITC's interpretation that it has authority over data transmissions came from copyright owner stakeholders in briefs filed by the Association of American Publishers and jointly by the Motion Picture Association of America and the Recording Industry Association of America.
In contrast, the Business Software Alliance filed a brief arguing that the ITC's authority did not extend beyond physical goods.
ClearCorrect is set for oral argument Aug. 11.
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. Suprema exports RealScan scanners to the U.S. to Mentalix 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.
Darryl M. Woo of Fenwick & West LLP, San Francisco, represents Suprema. Maximilian A. Grant of Latham & Watkins LLP, Washington, represents Cross Match. Clark S. Cheney of the ITC's Office of the General Counsel represented the commission. Mark R. Freeman of the appellate staff of the U.S. Department of Justice's Civil Division also argued in the case.
Judge Kimberly A. Moore did not participate in the case at any point. Judge Kara F. Stoll could have
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