En Banc Federal Circuit to Review ITC’s Power over Induced Infringement

By Dennis Crouch

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

Although the USITC handles plenty of patent cases, it actually derives its power from the Tariff Act, 19 U.S.C. § 1337(a)(1)(B). That provision indicates that the government agency can prohibit the import or sale-after-import of “articles . . . that (i) infringe a valid and enforceable United States patent” The Tariff Act does not further define patent infringement and so the ITC has generally referred to Section 271 of the Patent Act for guidance.  As with district court patent litigation, ITC merits decisions are also appealed to the Court of Appeals for the Federal Circuit.

Here, Cross Match’s asserted patent covers a fingerprint-scan methodology that includes both hardware and software components. 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 that judgment — 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 it requires both additional steps to complete the infringement as well as a particular mens rea. 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. Judge Reyna wrote in dissent.

The ITC and Patentee both filed petitions for re hearing en banc and the Federal Circuit has now granted those petitions. The questions presented are as follows

Cross Match asks:

Whether the United States International Trade Commission (“ITC”) has authority to find a Section 337 violation—and issue an exclusion or cease and desist order—where it finds that an importer actively induced infringement of a patented invention using its imported articles but the direct infringement occurred post-importation.

Cross Match argues that the question is largely answered by Young Eng’rs, Inc. v. ITC, 721 F.2d 1305 (Fed. Cir. 1983); Vizio, Inc. v. ITC, 605 F.3d 1330 (Fed. Cir. 2010); and Disabled Am. Veterans v. Sec’y of Veterans Affairs, 419 F.3d 1317 (Fed. Cir. 2005).

The USITC asks:

(1) Did the panel contradict Supreme Court precedent in Grokster and precedents of this Court when it held that infringement under 35 U.S.C. § 271(b) “is untied to an article”?

(2) Did the panel contradict Supreme Court precedent in Grokster and this Court’s precedent in Standard Oil when it held that there can be no liability for induced infringement under 35 U.S.C. § 271(b) at the time a product is imported because direct infringement does not occur until a later time?

(3) When the panel determined the phrase “articles that . . . infringe” in 19 U.S.C. § 1337(a)(1)(B)(i) does not extend to articles that infringe under 35 U.S.C. § 271(b), did the panel err by contradicting decades of precedent and by failing to give required deference to the U.S. International Trade Commission (“the Commission”) in its interpretation of its own statute?

(4) Did the panel misinterpret the Commission’s order as a “ban [on the] importation of articles which may or may not later give rise to direct infringement” when the order was issued to remedy inducement of infringement and when the order permits U.S. Customs and Border Protection to allow importation upon certification that the articles are not covered by the order?

The USITC argues that these questions are fully answered (in its favor) by Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 545 U.S. 913, 940 n.13 (2005); Standard Oil Co. v. Nippon Shokubai Kagaku Kogyo Co., 754 F.2d 345, 348 (Fed. Cir. 1985) (Rich, J.); Crystal Semiconductor Corp. v. TriTech Microelectronics Int’l, Inc., 246 F.3d 1336, 1351 (Fed. Cir. 2001); Vizio, Inc. v. Int’l Trade Comm’n, 605 F.3d 1330, 1343-44 (Fed. Cir. 2010); The Young Engineers, Inc. v. U.S. Int’l Trade Comm’n, 721 F.2d 1305, 1310, 1317 (Fed. Cir. 1983); Chevron U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837, 843 (1984); and Enercon GmbH v. Int’l Trade Comm’n, 151 F.3d 1376, 1381 (Fed. Cir. 1998).

The accused infringers here argued that the fingerprint scanning hardware they are importing are simple staple goods that cannot themselves infringe even if their intended use is infringing.

Documents:

In many ways, this is another divided infringement inducement case. The Supreme Court is currently deciding that issue in Akamai and a decision is expected within the next four weeks.  The Federal Circuit may do well to delay its briefing in this case until Akamai is decided.

= = = = =

Parallel Process: Despite its “international” name, the USITC is actually a branch of the U.S. government charged with protecting U.S. industry and U.S. goals in international trade.  The USITC’s jurisdiction focuses solely on border-crossing issues and, in the patent context, investigates infringing imports.  It turns out that district courts can also block the importation of infringing goods.  There are some differences in remedy and process, but the basic patent policy question is whether the additional parallel procedure offered by the USITC fills an important gap in district court adjudication. And, if so, why does that gap exist?

Administrative Law: Moving from patent policy, the issues here also focus on a continued power struggle between the various branches of government. One question here is the level of deference that should be given to the USITC in carrying out its mandate.

– Dennis

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.

Files:

 

Global-Tech v. SEB: Respondent and Additional Amicus Briefs

By Jason Rantanen

In Global-Tech v. SEB, the Supreme Court is addressing the state of mind requirement for inducement of infringement.  The petitioner, along with several amicus briefs filed in support, argues that inducement should require that the accused intend to infringe the patent, and that the accused infringer must know of the patent being infringed.  Earlier Patently-O discussions of those briefs are available here and here.

Last week, the respondent (SEB) filed its briefs.  SEB argues that there is no basis for requiring evidence that the accused party possess actual knowledge of the patent; rather, inducement must require a lower state of mind standard than both 35 U.S.C. § 271(c) (contributory infringement) and willful infringement, a standard that is met by Pentalpha's conduct.  In the alternative, SEB argues that Pentalpha's conduct constituted willful blindness, which SEB contends is a form of constructive knowledge and thus is sufficient for inducement.  In addition, SEB argues that the Court should affirm because all the damages were attributable to Pentalpha's direct infringement and because, through it's finding of willful infringement, the jury necessarily found that Pentalpha had actual knowledge of the patent.

Several amicus curiae have also filed briefs in support of the respondent, all arguing that inducement should require only intent to cause the acts as opposed to some form of scienter with respect to whether those acts infringe a patent.  Among these is the brief of a group of law professors led by Professor Ted Sichelman, argues that inducement should require only specific intent to cause the infringing acts – not some form of scienter with respect to whether the acts infringed a patent.  The brief supports this argument by looking to tort and criminal law, pointing out that in those contexts it is not necessary for the accused to know that that the acts violate a legal duty – only that the accused intend to cause the acts themselves. It also argues that prior to the 1952 Patent Act, no court (with one exception as dicta), held that indirect infringement required knowledge of the patent.  Thus, the brief argues, while inducement of infringement should require specific intent to further the acts of direct infringement, it did not traditionally – and should not – require any form of knowledge of whether those acts infringe a patent. 

Oral Argument is set for Wednesday, February 23, 2011.

SEB's Brief:

Amicus Briefs in Support of Respondent:

Note: I understand additional briefs may have been filed, including one on behalf of several companies and PhRMA, that do not appear on the ABA site.  This post will be updated when those briefs are available.

Liability for Future Indirect Infringement

By Jason Rantanen

In an earlier post, I summarized the Federal Circuit's affirmance of a preliminary injunction prohibiting Apotex from marketing its generic version of AstraZeneca's budesonide in AstraZeneca LP v. Apotex, Inc

The majority's discussion of inducement of infringement in this case is particularly interesting because it deals with inducement of infringement in the context of future acts, as opposed to damages for past inducement – and when dealing with future infringement, it's unclear whether an intent element should apply to indirect infringement at all.

Apotex Had Specific Intent to Cause Infringement
In its opinion affirming the district court's preliminary finding of inducement, the Federal Circuit rejected Apotex's argument that it lacked specific intent to cause infringement, concluding that Apotex knew about potential infringement problems posed by its label but nevertheless decided to proceed nonetheless.  Similarly unpersuasive to the court was Apotex's argument that it lacked specific intent because the FDA required it to include the pivotal titration language.  The majority pointed out that Apotex had a variety of options besides proceeding in the face of a risk of an infringement suit, including waiting until the patents expire, challenging infringement and validity, and formally appealing the FDA's denial of Apotex's proposed labeling amendment.  Given these circumstances, the court concluded that Apotex had the necessary specific intent to cause inducement.

Is Intent to Cause Infringement Even Relevant When Dealing With the Future?
The court's ruling, however, could be supported in another way: by concluding that inducement with respect to future acts of infringement does not require the patentee to establish that the accused party posessed "specific intent" to infringe the patent.   This is because when dealing with the future, there will necessarily be a court finding that the relevant third party conduct infringes. Inherent in the court's determination is the conclusion that once-daily use of Apotex's product – the use that the court concluded would result from Apotex's label – infringes AstraZeneca's patents.   In other words, once the court made this determination, AstraZeneca conclusively knew1 that patients taking its medication in a manner that it intended (i.e.: once daily) would infringe the method claims, and therefore continuing to engage in that conduct would satisfy the requrements of specific intent.  That Apotex may not want to infringe the patents is beside the point: its knowledge that the third party's conduct infringes, coupled with an intent to cause that conduct, is all that is required for this element of inducement, and for future acts those requirements would automatically be met. 

I'm not the first to identify this issue – Professor Timothy Holbrook made it few years back as well.  See Timothy Holbrook, The Intent Element of Induced Infringement, 22 SANTA CLARA COMPUTER & HIGH TECH. L.J. 399, 406 (2006).  Nevertheless, this is an instance where the argument that inducement of future infringement does not require the patent holder to prove specific intent to infringe could have been raised, and the parties apparently did not.

1 Note that this case involved a preliminary injunction, and thus the court's findings were necessarily non-final.  Thus one could argue that Apotex did not "know" that the future conduct would infringe despite the district court's preliminary determination of infringement because it could be subject to later change.   However, as in many pharmaceutical patent cases, the lower court's determination was made following substantial briefing and argument (along with a five-day hearing), and its reasoning was affirmed on appeal.  Furthermore, even in the preliminary injunction context, the focus should not be on the question of what Apotex thought in the past about infringement, but rather whether it would be substantially certain that the third party conduct would infringe in the future – an analysis that collapses into the district court's determination on the question of infringement.

Federal Circuit: Failure to Obtain Non-Infringement Opinion May Serve As Evidence of Intent to Induce Infringement

Broadcom v. Qualcomm (Fed. Cir. 2008)

A California jury found Qualcomm liable for infringing or inducing infringement of three Broadcom patents covering 3G mobile phone technology. (US Pat. Nos. 6,847,686, 5,657,317, and 6,389,010). On appeal, the Federal Circuit has invalidated one of the patents, but left the judgment and injunction standing.

Seagate and Inducement: Like willfulness, inducing infringement requires proof of culpability. In Seagate, the Federal Circuit altered the standard for willful infringement – making it more difficult for a patentee to obtain treble damages. Consequently, in the willfulness context, there is no longer an “affirmative duty of due care” to avoid infringement. Here, Qualcomm argued (unsuccessfully) that the evidence available to prove inducement should be changed as well.

More generally, the defendant argued that it could not be liable for inducement if it was not liable for willfulness because the specific intent standard for inducement is greater than the recklessness associated with willful infringement. On appeal, the Federal Circuit rejected these arguments – finding the inducement standards unchanged and finding that inducement may be found even when willfulness is absent. The crux of the holding may be that the “specific intent” requirement of inducement is not so specific. Under the leading inducement case DSU v. JMS, proof of inducing infringement requires evidence that the accused “intended to cause the acts that constitute the direct infringement,” and that the accused “kn[ew] or should have known [that] its action would cause the direct infringement.”

The evidentiary argument was whether – for its inducement decision – the jury could consider Qualcomm’s decision to seek advice of counsel as circumstantial evidence of intent. The appellate panel saw such evidence as fair game.

“Because opinion-of-counsel evidence, along with other factors, may reflect whether the accused infringer “knew or should have known” that its actions would cause another to directly infringe, we hold that such evidence remains relevant to the second prong of the intent analysis. Moreover, we disagree with Qualcomm’s argument and further hold that the failure to procure such an opinion may be probative of intent in this context. It would be manifestly unfair to allow opinion-of-counsel evidence to serve an exculpatory function, as was the case in DSU itself, see 471 F.3d at 1307, and yet not permit patentees to identify failures to procure such advice as circumstantial evidence of intent to infringe. Accordingly, we find no legal error in the district court’s jury instructions as they relate to inducement.”

Too Broad: Prosecutors are typically careful to ensure that claims will be given a broad interpretation during litigation. If the claim is too broad, however, it will likely be found invalid. Here, Broadcom’s ‘686 patent digital video signal processor. The district court found that a ‘global controller’ was required for operation of the processor, but the Federal Circuit could not find that limitation in the claims or any justification from the specification. Without that limitation, the claim was invalid as anticipated.

Broadcom’s argument for a narrow interpretation was based on its discussion of prior art admissions in the specification – arguing that its admitted prior art would invalidate a broad claim. The Federal Circuit did not reject that contention per se. Rather, the court rejected Broadcom’s version because the company had failed to show that its admitted prior art would actually anticipate the broad claim. “Because Broadcom has not demonstrated that “every limitation” of claim 1 is found in this reference, its self-invalidating argument must fail.”

Late Claim Construction: Claim construction can happen at any stage of a case. Here, however, Qualcomm did not request a construction of the “network” term found in the ‘317 patent until after the jury had returned its verdict. On appeal, the Federal Circuit agreed with the lower court that Qualcomm had waived its right to demand construction of that term. “We agree that Qualcomm cannot be allowed to create a new claim construction dispute following the close of the jury trial.”

‘Qualcomm’s eleventh-hour attempt to litigate a newly minted claim construction controversy falls squarely within our holding in Eli Lilly & Company v. Aradigm Corporation, where a party “never requested that the district court construe any terms in [the relevant claim] and never offered a construction of [that claim],” but rather “[o]nly after the presentation of all of the evidence to the jury . . . even suggest[ed] that claim construction might be helpful to determine the proper scope of the claimed invention.” 376 F.3d 1352, 1360 (Fed. Cir. 2004).’

Injunctions: District courts issue injunctions while sitting ‘in equity.’ This typically gives the court discretionary power to shape and craft relief in a way that best achieves the right result. Here, the district court pushed enforcement of the injunction back to January 31, 2009. In the meantime, Qualcomm pays mandatory damages and Broadcom has now power to stop continued infringement in this period.

In the appeal, Broadcom argued that, under eBay, no permanent injunction should be awarded. In particular, Qualcomm had licensed its patents to Verizon for money – indicating that monetary relief is adequate and because the injunction will disrupt (non-Verizon) CDMA carriers (hardship) and will also be tough on the public. On appeal, the appellate panel rejected those arguments and instead found that the district court acted within its proper discretion by issuing the injunction order. (more to come on injunction order)

Notes:

  • In the parallel Broadcom v. ITC, last week the Federal Circuit vacated the ITC’s non-infringement finding of another Broadcom patent. The ITC will reconsider that issue.

A third parallel case, Kyocera v. ITC, is pending appeal at the Federal Circuit. In that case, the cell phone companies are appealing the ITC’s exclusion order regarding yet another Broadcom patent.

Inducement Requires Knowledge of The Patent and Culpable Mens Rea

PatentlyO2006017DSU Medical v. JMS (Fed. Cir. 2006) (en banc)

The interesting portion of this opinion rests in Section III.B, where the CAFC convened an en banc panel to clarify that “inducement” of infringement requires intent to induce actual infringement, which necessarily requires knowledge of the patent.

Section 271(b) of the Patent Act spells out the tort: “Whoever actively induces infringement of a patent shall be liable as an infringer.”

Applying the language of Grokster, the CAFC clarified that in patent cases, “the intent requirement for inducement requires more than just intent to cause the acts that produce direct infringement. . . . [I]nducement requires evidence of culpable conduct, directed to encouraging another’s infringement.”  According to the court, this culpable conduct requires knowledge of the patent and an intent to induce infringement of the patent.

As Kevin Noonan has noted, the distinction in this case is that “there was evidence (an opinion of counsel and testimony from corporate officials) that the defendant believed that the accused behavior was not infringement. Thus, CAFC said the evidence supported the trial court’s finding that the defendant did not intend to induce infringement, which was the mens rea required for liability under 35 USC 271(b).”