Important Decisions on the Scope of the ITC's Authority

08 March 2016 IP Litigation Current Blog

In the latter half of 2015, the Federal Circuit in Suprema v. ITC and ClearCorrect v. ITC issued two decisions addressing the scope of the International Trade Commission’s (“ITC”) authority to exclude infringing articles.  In Suprema v. ITC (2012-1170) (en banc), the Federal Circuit ruled that the ITC’s authority included the authority to address induced infringement, where the underlying act of direct infringement occurred after importation.  Meanwhile, in ClearCorrect v. ITC (2014-1527), a panel of the Federal Circuit held that the ITC did not have the authority to ban electronic transmissions of data into the United States.

Suprema v. ITC

Section 337 prohibits “[t]he 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 . . . .”  19 U.S.C. § 1337(a)(1)(B)(i).  At issue, was whether the ITC had the authority to exclude importation of goods when the seller induces the importer to directly infringe after importation (i.e., after the goods have entered the United States).  The ITC had interpreted Section 337 as giving it the authority to ban the importation of goods that are being used to induce infringement, even if the underlying act of direct infringement occurs after importation.

The case addresses an appeal from the ITC’s final determination in Certain Biometric Scanning Devices, Components Thereof, Associated Software, and Products Containing the Same (Inv. No. 337-TA-720), which found a violation of Section 337 by respondents Suprema, Inc., and Mentalix, Inc.  In May 2010, Cross Match Technologies, Inc. filed a complaint with the ITC, alleging infringement of four patents owned by Cross Match.  While Cross Match alleged infringement of four patents, only a single claim of one patent, U.S. Patent 7,203,344 (“the ’344 patent”), is relevant to the 2015 en banc decision in Suprema v. ITC.  The claim-at-issue is a method claim directed to a method for capturing and processing a fingerprint image.   After finding a violation, the ITC issued a limited exclusion order that covered the infringing scanners and software.

In finding a violation, the ITC concluded that Suprema induced Mentalix to infringe the ’344 patent.  Suprema is a Korean company that manufactures fingerprint scanning devices, which it sells to Mentalix.  The scanners are not standalone devices, but rather must be connected to a computer and can only be used after specialized software is loaded onto the computer.  This software is created by Mentalix using a software development kit provided by Suprema.   Importantly, the steps of the method claim can only be performed after the software has been installed on the scanner, i.e., infringement can only occur after the scanners have been sold to Mentalix and imported into the United States, thereby making Mentalix the sole direct infringer.  Id.  While Suprema was not a direct infringer, in the ITC’s view, it was an indirect infringer, because it “‘willfully blinded’ itself to the infringing nature of Mentalix’s activities” and took deliberate steps to avoid learning of Mentalix’s infringing activities.   After concluding that Suprema was an indirect infringer, the ITC went on to issue a limited exclusion order.

In December 2013, a divided panel of the Federal Circuit vacated the ITC’s finding of a violation due to induced infringement, because “such imports are not in an infringing state upon importation” Id. at 10-11.  In doing so, the majority reasoned that the phrase “articles that infringe” imposes a temporal requirement that limits the ITC’s authority to evaluating infringement at the time of importation.

The Federal Circuit granted en banc review, however, and in the 2015 en banc opinion, the Court held that pursuant to Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), it was appropriate to defer to the ITC’s interpretation of the phrase “articles that infringe.”  With respect to the first part of the Chevron inquiry, the Court found “that Congress has not directly answered whether goods qualify as ‘articles that infringe’ when the ITC has found that an importer used such goods, after importation, to directly infringe at the inducement of the goods’ seller.”  Suprema at 19. The Federal Circuit thus upheld the ITC’s exclusion order.

ClearCorrect v. ITC

Meanwhile, a couple months later in ClearCorrect v. ITC, the Federal Circuit, in a split-panel decision, held that the ITC lacked the authority to issue exclusion orders against purely electronic transmissions of digital data.  The only issue on appeal was whether a digital image could be considered an “article” as described in 19 U.S.C. § 1337(a) (neither infringement nor invalidity were at issue in the decision).  The Court held that the ITC’s jurisdiction did not extend to purely electronic transmissions of digital data.

The technology pertained to “the production of orthodontic appliances, also known as aligners.”  ClearCorrect at 5.  ClearCorrect US would begin the manufacturing process for the aligners by scanning physical models of a patient’s teeth in the United States.  Id.  This model would be used to create a digital image of the patient’s teeth that would then be sent to ClearCorrect Pakistan. ClearCorrect Pakistan would then modify the digital image to create final tooth positions.  ClearCorrect Pakistan would then send this modified digital image back to ClearCorrect US.  Accordingly, “the only purported ‘article’ found to have been imported was digital data that was transferred electronically, i.e., not digital data on a physical medium such as a compact disk or thumb drive.”  Id. at 11.

In addressing this question, the majority opinion of Chief Judge Prost, again, applied the Supreme Court’s two-part Chevron framework.  Id. at 12. With respect to the first-part of the Chevron framework, the Court found that there was no ambiguity that “articles” only includes “material things” and does not include electronic transmissions of digital data.  Id. at 12-13. Despite finding that Congress’s intent as to the definition of “articles” was “unambiguous,” the Court proceeded to hold that the ITC’s definition of “articles” was also unreasonable.  Id. at 31.  Accordingly, the Court vacated the ITC’s issuance of an exclusion order.

Implications of the Decisions

While it remains to be seen if the Federal Circuit will review the ClearCorrect decision en banc,[1] if the decision stands, it seems that the critical aspect of determining whether the ITC has jurisdiction over an accused product is whether the accused product is tied to a physical medium that is imported into the United States.  In Suprema, the Court approved the ITC’s exclusion of Cross Match’s scanners, which were physical objects that were imported through traditional ports of entry, even though they were not yet capable of performing all of the infringing steps.  Meanwhile, in ClearCorrect, ClearCorrect’s accused digital images were pure digital files, and the Court even noted that “the only purported ‘article’ found to have been imported was digital data that was transferred electronically, i.e., not digital data on a physical medium such as a compact disk or thumb drive.”  ClearCorrect at 11.  Consequently, in cases involving patents pertaining to digital data, it may be necessary to consider how the digital data arrives in the United States and whether a theory of indirect infringement can be alleged that would tie the digital data to physical media that could be subject to an exclusion order.

[1] On January 27, 2016, the Commission and the complainant, Align Technology, Inc., both petitioned for a rehearing en banc.

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