08.12.2015 Divided Federal Circuit Says U.S.I.T.C. May Exclude Indirectly Infringing Items By: Joshua B. Brady

The U.S. International Trade Commission (ITC) is a powerful tool for enforcing intellectual property rights.[1] The U.S. Court of Appeals for the Federal Circuit recently expanded that power – at least for the time being, holding that the ITC may block items from importation for actively inducing infringement, even if the items themselves do not infringe.[2] In this case, Mentalix directly infringed the Cross Match Technologies patent when it combined a software system with scanners imported from Suprema. Because Suprema knew that the scanners would likely infringe, but failed to seek a freedom to operate opinion of counsel, Suprema was liable for actively inducing Mentalix’s direct infringement, and the ITC ordered a halt to Suprema’s imports. The decision increases a patent holder’s reach and ability to enforce patent claims, and serves to remind importers about the importance of diligent freedom to operate opinions.

In this case, Cross Match Technologies filed a petition asserting that Suprema and Mentalix imported scanners that, when combined with software in the United States, infringed a Cross Match Technologies patent. The ITC first determined that Mentalix directly infringed the Cross Match Technologies patent within the United States. Then the ITC concluded that Suprema was liable for actively inducing Mentalix’s direct infringement because Suprema was aware of a high probability that its scanners would infringe a Cross Match Technologies patent when combined with the Mentalix software, but was “willfully blind” because Suprema did not engage patent counsel to search for and analyze any applicable patents.

Suprema and Mentalix appealed whether the ITC’s authority extended to infringement through active inducement. Although a Federal Circuit panel concluded that Section 337 did not give the ITC power to issue an exclusion order for induced infringement, an en banc panel of the Federal Circuit sided with the ITC. Noting that Section 337 uses the term “infringement,” which under the patent infringement statute (35 U.S.C. § 271(b) and (c)) includes direct and indirect infringement, the majority opinion decided that Section 337 was unclear on whether it applied to direct and indirect infringement, and deferred to the ITC’s interpretation as a reasonable reading of Section 337 in view of the patent infringement statute and legislative history.

As a result, Federal Circuit added considerable scope to the ITC’s exclusionary power. In particular, patent holders may now rely on patents claiming methods of using an article or combinations of articles in ITC proceedings.

It’s also worth noting that Judge Reyna’s decision issued from a narrow 6-4 panel majority, and two judges (Moore and Stoll) did not participate. We expect Suprema and Mentalix to petition the Supreme Court for a writ of certiorari to review the Federal Circuit’s decision. 

For the time being, the expanded scope of the ITC’s power increases the burden on parties involved in importing items to be diligent with freedom to operate investigations. Failure to perform a reasonable patent search and analysis may subject an importer to liability for indirect infringement, through either or both of contributory infringement and active inducement. Identifying and obtaining clearance over relevant patents is critical to competing in the United States.

[1] Under the Tariff Act of 1930 (19 U.S.C. § 1337, or “Section 337”), the ITC may deny “articles that … infringe a valid and enforceable U.S. patent” from entering the United States. Typically, a corporation with U.S. domestic industry petitions the ITC to investigate whether an imported item infringes an intellectual property right, such as a patent right or a trade secret. If the ITC institutes an investigation, then the investigation proceeds similar to a case in federal court. The domestic corporation (e.g., a patent holder) and the would-be importer may participate and present evidence on infringement and patent validity. The ITC may issue an order excluding infringing items from entry, which gives patent holders a powerful tool for enforcing intellectual property rights.
[2] On its face, Section 337 does not specify whether the ITC’s jurisdiction covers both direct patent infringement and indirect patent infringement. A direct infringer has made, used, sold, offered to sell, or imported an infringing invention. An indirect infringer either (1) provides a component that, while not itself infringing, has specific use in an infringing machine or composition (“contributory infringement”), or (2) encourages, aids, or causes another to infringe a patent (“active inducement”). The ITC broadly interpreted Section 337 as precluding both direct and indirect infringement.