USITC Asks En Banc Federal Circuit for Power to Block Imports Whose Distribution Induce Infringement in the US

by Dennis Crouch

Suprema, Inc. and Mentalix v. US International Trade Commission and Cross Match Tech. (Fed. Cir. 2013/2014)

Image of Finger Print Scanner PatentThe US International Trade Commission (USITC) is a branch of the US Government that offers an alternative forum for patent enforcement. There are a number of benefits to pursuing an action in the USITC as well as a number of quirks. Importantly, the USITC has no authority to award damages for patent infringement — rather, the sole available award is an exclusion order that would block infringing imports.

Here, Cross Match’s asserted patent covers a fingerprint-scan methodology that includes both hardware and software.  In this case, the hardware is manufactured abroad and imported by Suprema and then, once in the US, combined by Mentalix with the software to make a product used to infringe. Of importance, the imported hardware does not – by itself – directly infringe the patent. However, the USITC found that Suprema was liable for inducing infringement under 35 U.S.C. 271(b).

On appeal, the Federal Circuit reversed – holding instead that the USITC’s power only extends to block articles that are themselves infringing at the point of importation. The result for this case is that the inducement theory of infringement could not stand because the direct infringement that is predicate for an inducement holding was not occurring until after importation. Oddly, however, the majority did find that the USITC may still have power when the cause of action is contributory infringement rather than inducement. This distinction was based upon the notion that inducement is focused on the “conduct of the inducer” and “is untied to an article.”  Judge O’Malley penned the Federal Circuit opinion and was joined by Judge Prost.

Writing in dissent, Judge Reyna argued that the majority opinion “overlooks the Congressional purpose of Section 337, the long established agency practice … of conducting unfair trade investigations based on induced patent infringement, and related precedent by [the Federal Circuit] confirming this practice.”  Judge Reyna provided a full-page long string citation of decisions where the USITC issued exclusion orders based upon an inducement theory where the direct infringement occurred post-importation.

Now, both the USITC and the patentee Cross Match have petitioned the Federal Circuit for a rehearing en banc and the Court has offered some signal that it is interested in the case (requesting briefing from the accused infringers).

In the en banc request, the US Government makes an interesting argument that the Federal Circuit precedent is contradicted by the Supreme Court’s decision in MGM v. Grokster, 545 U.S. 913 (2005) as well as the Federal Circuit’s decision in Standard Oil v. Nippon Shokubai Kagaku Kogyo, 754 F.2d 345, 348 (Fed. Cir. 1985). The Grokster case is a copyright case, but is directly applicable for a number of reasons, including the fact that the USITC statute at issue also provides jurisdiction over cases involving imports that infringe US copyrights.

The basic notion from Grokster is that inducement is infringement, and that culpability can attach well before the later direct infringement by another.  In Standard Oil, Judge Rich wrote that inducement attaches “as of the time the [inducing] acts were committed, not at some future date.”  Of course, the inducement doctrine has been significantly tightened since Judge Rich’s time. And the language of Grokster is not as direct and on-point as the US ITC suggests. Still, the government and Suprema (as discussed below) make a strong case that the original panel decision is wrong.

Suprema similarly argues that the decision is contrary to the statutory text. In particular, (1) the statute does not require a full cause-of-action for infringement at the time of importation and (2) the notion that inducement is “untied” from the actual infringing article “is fundamentally flawed.”  The first of these arguments seems to be a clear winner – since the statute particularly provides authority against “the sale within the United States after importation.”

I suspect this case will be moving forward. It will be interesting to see whether the original panel retracts its opinion or whether the en banc court is forced to act.

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37 thoughts on “USITC Asks En Banc Federal Circuit for Power to Block Imports Whose Distribution Induce Infringement in the US

  1. Haven’t read the petition yet, but if was my impression on reading the first opinion that it was right. At the time of importation, no infringement of any kind had take place.

    1. One framework for thinking about the ITC exclusion orders could be prior appropriation water rights. In that system traditionally employed by much of the western United States, rights were allocated to flow of water rather than to individual water droplets. Here, we might say that the patentee has a right to control (or at least exclude) the flow of infringement and the ITC has the power to act only at a particular point in the flow.

      1. Riparian rights seems like a lousy framework to use, seeing as they are not even universal across the East-West landscape.

      2. Dennis, The imported scanners were neither infringing, nor did they contribute to infringement. They were staple items of commerce.

        Grokster involved the distribution of a software tool that could be used to infringe. The analogous part here is the specially programmed computer that one of the importers customers make using an SDK from the maker of the scanners. That computer with that software would infringe under 217(c). The scanner still would not, it being a staple.

        By analogy, assume a patented lamp and chimney combination, but where the chimney is generic. The original contributory infringement case held there to be contributory infringement on sale of such lamps, the lamp having all the novel features, where the end user would directly infringe by adding the chimney.

        Now, what would happen if the patent owner requested an exclusion order against the importation of chimneys? That’s right, they would be laughed at, even if the importer knew the chimneys would be used in an infringement.

        The position advanced here by the FTC is so contrary to the requirements of the law as to be farcical.

        1. Ned, do you recognize the creation of a new machine with ONLY the addition of software with your comment of “That computer with that software would infringe under 217(c). The scanner still would not, it being a staple.…?

            1. You are quite missing the point Ned of the, um, Point of Novelty in the new machine.

              Old machine and staple of commerce: X
              New machine and protected by patent law: X plus software.

              Clearly, software is nothing more than a manufacture and a machine component – think rivets, tires and bullets.

            2. Anon, I can understand what you talking about in this case. Clearly the facts are that there is an infringement when a programmed computer with special software is used with the scanners. There is no infringement otherwise. However the scanners themselves are staple items of commerce, as are the computers.

            3. Take that next step Ned – there is a real, factual and legal difference between the staple of commerce and that staple with the added manufacture and machine component of software.

              Real – not abstract.

              Tell me again – even as I allow you to use the “Point of Novelty“…

              Please stop running away.

            4. How do you get to a real, physical and legal difference, from “X” to “X + S” if, as you would have it, S is not real but only abstract?

              How does “oldbox” obtain a new capability that “oldbox” did not have prior to “oldbox” being changed to “newbox” with the configuration of a manufacture and machine component of software?

              Simple questions that go to the heart of the software patent eligibility question – long asked and long unanswered by the anti-software Curse-saders in any honest manner.

              See Nazomi. See Alappat.

            5. 4.1.2.1.1.2 is not an answer Ned.

              You need to integrate the legal logic that you are on the cusp of back into your overall position.

              Your follow through is respectfully requested (no matter how annoying it may be to you to realize that you have been so wrong for so long).

  2. Dennis:

    “The result for this case is that the inducement theory of infringement could not stand because the direct infringement that is predicate for an inducement holding was not occurring until after infringement.”

    I think you meant “…until after importation.”

  3. meh, for what reason would they need this power?

    I mean, they can already bring a normal action right? Why the push to do all this at the USITC instead of just normally?

    1. 6, getting an ITC import exclusion order can have the effect of a product injunction for the many U.S. products now made abroad. Getting a normal injunction from a D.C. patent suit [alternatively or in parallel] is usually slower, and sometimes now not possible for non-competitors since the Sup. Ct. eBay decision.
      As for getting en banc Fed. Cir. re-reviews in general, their rarity may be enhanced by the inherent background concern for the number of their Sup. Ct. unanimous reversals in recent years as well as the extra work they require?

      1. “6, getting an ITC import exclusion order can have the effect of a product injunction for the many U.S. products now made abroad. Getting a normal injunction from a D.C. patent suit [alternatively or in parallel] is usually slower, and sometimes now not possible for non-competitors since the Sup. Ct. eBay decision.”

        I appreciate your rundown of their normal powers. I’m asking why they’d need the new power they’re arguing for.

      1. BTW “or imports into the United States” was only added to 35 U.S.C. 271 [along with “offers to sell”] to be another act of direct infringement as of 1/1/96.

      2. “6 – I think that your complaint goes to the entire purpose of the USITC”

        Partially. But also it just seems like they’re just making a (likely illegal) power grab, which everyone knows is anathema around these parts of the interbuts.

        “i.e., what is the purpose of this alternative adjudication forum?”

        I kind of get what the purpose is, to stop items from being imported that would infringe so x patentee doesn’t have to deal with them already being here (esp back in the day when transportation wasn’t so cheap). Though I don’t know the history of how it came to be that way. Probably just another congressional afterthought.

        1. 6, the purpose of the ITC is to allow American industry to block unfair imports. Patent infringement is considered to be unfair. It is also unfair when products are manufactured abroad by processes that would infringe in the United States and then are imported.

          I personally do not think that the ITC should be blocking imports of staple items of commerce.

          1. Ned,

            Without agreeing or disagreeing with your view of the blocking imports of staple items of commerce, you must realize that your view on software cannot stand in light of your view that the software-less items are different things than the item purely plus software.

            There is no way to square this conflict. This difference is real and not abstract.

            Time to come to the table of intellectual honesty and admit that your anti-software crusade cannot stand with law as it stands today and facts as they are.

          2. You have run away from Nazomi long and hard. You have ignored the Grand Hall experiment for too long. You have misrepresented the take away from Alappat too long.

            Time for you to admit that software is a manufacture and machine component in its own right.

            1. Anon, your complaints about Grand Hall, Alappat, and now Nazomi are just a bit ridiculous. Anybody and everybody who reads this blog post knows that I have answered your questions on these cases with meticulous and patient citations and reasoning, except for Nazomi where I asked you to tell me what in your opinion where the facts in the case.

              In contrast, for however long I have asked you to tell me what the facts and Alappat were, you have consistently refused to do so, and have consistently answered this question with an observation that you have previously answered the question when you never have answered the question. Everybody reading this blog knows this.

              May I politely suggest that you drop this with me, because it is annoying.

            2. Anon, your complaints about Grand Hall, Alappat, and now Nazomi are just a bit ridiculous

              Not.
              At.
              All.

              What is ridiculous is that you remain quiet to the valid points raised. What is ridiculous is your refusal to admit my superior position and incorporate that position into your posts.

              Now you want to have ‘ridiculous’ not the fact that you refuse to engage these points, but that I attempt to have you address them. LOL – that’s like saying “anon, you are right, but I want to continue to be wrong, so just let me be.”

              You have not answered the questions, as the dodge of “I can’t get by the fact situation” is NOT an answer to Nazomi. I have told you repeatedly to use the FACT that software is equivalent to firmware and is equivalent to hardware in the Nazomi case. In the immediate thread, you see quite clearly the difference in a new machine being SOLELY software. You have NEVER addressed the controlling law of the exceptions to the printed matter doctrine as that serves to provide the legal basis of software as a manufacture, and you refuse to acknowledge the copyright analogy of necessarily having structure. And you continue to misrepresent the takeaway from Alappat. Those are not answers.

              Until you come to the table and acknowledge these points I will NOT be quiet to the real fact that you refuse to incorporate these valid points into your posts and mantras and crusades.

              May I politely suggest that you stop the posts that do not take into account these valid points, and you will remove the ability of me to point out that your posts are based in fallacy. Your ad nauseam fallacies are FAR FAR FAR more annoying. Change, and such, b>clearly would be a win-win. Face it – I have the better position. There is no reason for me to stop and every reason for you to incorporate the valid points I have presented See Sun Tzu.

            3. anon, proved to everyone here that you are not a phony and tell us what the facts are in Alappat, and then quote the language you rely on for the holding you say is there. Quote it.

            4. Ned – stop running away.

              Our detailed Alappat discussions are of record. Prove that you are not a phony and address the points as I have implored you to do.

          3. Ok, unfair competition, interesting. But it doesn’t seem to really support the instant contentions made by the ITC about their needing new powas.

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