Federal Circuit Agrees to Rehear Dispute over ITC Powers

Federal Circuit Agrees to Rehear Dispute over ITC Powers Toytoy, via Wikimedia Commons International Trade Commission headquarters in Washington.

The U.S. International Trade Commission’s claim to fame is its unique ability to ban the importation of products that infringe U.S. patents. So an appeals court caused something of a stir in patent circles last year when it restricted the ITC’s power to issue import bans in certain cases.

Now lawyers at Latham & Watkins and the ITC have won a chance to reverse that ruling. In a one-page order issued on Tuesday, the U.S. Court of Appeals for the Federal Circuit agreed to an en banc rehearing in a case brought by Latham’s client, the U.S. biometrics company Cross Match Technologies Inc. The order gives Cross Match a second shot at convincing the court that it’s entitled to a wide-ranging ITC import ban on fingerprint scanners made by Suprema Inc., a Korean rival.

The ITC granted Cross Match a highly coveted import ban back in 2011. But a three-judge Federal Circuit panel limited the ban in a 2-1 decision issued in December 2013. The court held that in cases alleging so-called induced infringement, the ITC can only ban products that are directly infringing U.S. patents at the time of importation, which isn’t the case with Suprema’s scanners.

Some ITC practitioners are relieved to see the Federal Circuit reconsidering. “The majority decision carved out a substantial chunk of the ITC’s authority,” said Kecia Reynolds, a Goodwin Procter partner and a former ITC staff attorney. “It created a huge loophole for would-be infringers to circumvent the jurisdiction of the ITC.”

After Suprema imported its fingerprint scanners unto the U.S., its U.S.-based customers were able to upload their own proprietary software onto them. One such customer is Texas-based Mentalix Inc.

Cross Match sued both Suprema and Mentalix at the ITC in 2010, alleging they infringed multiple patents on fingerprint scanning software and hardware. Cross Match is represented by a Latham & Watkins team including Maximilian Grant, Bert Reiser and Clement Naples.

In 2011 the ITC ruled that Mentalix directly infringed one of the patents at issue. The ITC also found Suprema liable for inducing that infringement, concluding that the company “was aware of the likelihood that the scanner products it was developing would be covered by Cross Match’s patent.” Based on that finding, the ITC issued a limited import ban, or exclusion order, covering scanners Suprema imported into the U.S.

In its decision last year, the Federal Circuit partially lifted the exclusion order. The court held that the ITC lacks authority under its enabling statute, Section 337 of the Tariff Act, to issue exclusion orders premised on a theory of induced infringement where the direct infringement occurs after importation. In a dissent, Federal Circuit Judge Jimmie Reyna wrote that his colleagues had effectively empowered foreign manufacturers to sell infringing devices, as long as they “reserve final assembly of the last part or performance of the last step for the end-user in the United States.”

Nokia Corp. filed an amicus brief supporting Cross Match’s motion for the en banc rehearing. In a brief of its own, the ITC also urged intervention by the full court.

Fenwick & West partner Darryl Woo, who represents Suprema and Mentalix, said in an interview that the backlash against the Federal Circuit’s ruling has been overblown. He argues that the panel decision was based on a straightforward reading of the Tariff Act. “We don’t read anything into the rehearing,” he said, adding that he “welcomes the opportunity” to poke holes in Cross Match’s underlying infringement theory.

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