Trade Courts Update for Week of September 16, 2015

United States Court of International Trade


Countervailing Duty Results Sustained

In Yantai Xinke SteelStructure Co., Ltd. v. United States, Court No. 10-239, plaintiff Yantai Xinke Steel Structure Co., Ltd. (“Xinke” or “plaintiff”) moved for judgment on the agency record, challenging the Final Determination of Commerce in Certain Steel Grating from the People’s Republic of China, 75 Fed. Reg. 32,362 (Dep’t of Commerce June 8, 2010) (final affirmative countervailing duty determination), and accompanying Issues and Decision Memorandum (“Issues & Dec. Mem.”) (collectively, “Final Determination”). This was one in a series of cases that challenge the United States Department of Commerce’s (“Commerce” or the “Department”) ability to apply the countervailing duty laws to imports from a nonmarket economy country1 that were also subject to antidumping duties.

During the investigation, Commerce tried to determine whether producers and exporters of steel grating from the PRC received inputs from the government of the PRC (“PRC government”) for less than adequate remuneration during the POI. Commerce preliminarily found eleven programs from which Ningbo Jiulong Machinery Co., Ltd. (“Jiulong”), the sole mandatory responded selected,  had received a benefit to be countervailable during the preliminary phase of its investigation. After taking the eleven programs into account, Commerce preliminarily calculated a total net countervailable subsidy rate for Jiulong of 7.44 percent ad valorem, which also constituted the all-others rate that was preliminarily assigned to Xinke. The Department then sought further information regarding the identities of the producers of the hot-rolled steel and steel wire rod inputs used in the manufacture of Jiulong’s subject merchandise in order to determine whether the PRC government provided these inputs (i.e., goods, such as hot-rolled steel and steel wire rod) for less than adequate remuneration. Commerce asked Jiulong to provide the mill test certificates that it received with its purchases wire rod and hot-rolled steel from its suppliers. Issues & Dec. Mem. at IV. Jiulong produced documents it claimed were the mill test certificates provided by its suppliers, but the Department determined that “the documents provided by . . . Jiulong contained material discrepancies, were unreliable, contained large duplications of data, and were unverifiable. . . . Jiulong itself [also] admitted that the mill test certificates that it received from its suppliers had been fabricated.”

Slip Op. at pg. 7. Based on its conclusion that Jiulong had “significantly impeded” the investigation by submitting unreliable mill test certificates, the Department used “adverse facts available” (“AFA”) to determine Jiulong’s rate. Thus, in the Final Determination, the Department constructed a countervailing duty rate for Jiulong by assigning an ad valorem percentage of 44.91 percent to the hot-rolled steel input provided by the PRC government and an ad valorem percentage of 15.31 percent to the wire rod provided by the PRC government. The resulting countervailing duty rate, with other adjustments not at issue here, was 62.46 percent ad valorem, which also served as the all-others rate, and was thus also the rate assigned to Xinke. See Final Determination, 75 Fed. Reg. at 32,364. However, the Department did not apply adverse facts available to other subsidy programs under investigation.

Plaintiff challenged the extent to which the Department applied adverse inferences in the calculation of the steel input subsidies received by Jiulong and its rate, which was in turn assigned to Xinke as the all-others rate. Plaintiff argued that, although Commerce was unable to determine the identity of Jiulong’s steel input suppliers, it did not make a finding that the purchase prices of Jiulong’s steel inputs were inaccurate. Thus according to plaintiff, Commerce should have used these purchase prices as part of its less-than-adequate-remuneration analysis without applying AFA because it did not find these purchase prices to be deficient, and because it had used Xinke’s other financial information in its calculations for other aspects of the Final Determination.  However, the court did not agree. When Commerce further determined that a party failed to cooperate to the best of its ability by failing to comply with the Department’s requests for information, it “may use an inference that is adverse to the interests of that party in selecting from among the facts otherwise available,” to determine that party’s countervailing duty rate. 19 U.S.C. § 1677e(b) Here, it was undisputed that, by supplying inaccurate mill test certificates, Jiulong failed to cooperate to the best of its ability during the investigation and that necessary information was missing from the record, thereby warranting the use of AFA to calculate Jiulong’s countervailing duty rate. Moreover, contrary to plaintiff’s assertions, Commerce made a specific finding as part of its Final Determination that the deficiencies in Jiulong’s mill test certificates did not undermine significant other data critical to the Department’s countervailing duty calculation to such an extent that it was unable to calculate an accurate subsidy for Jiulong. Thus, even though there were no deficiency findings as to Juilong’s info, Commerce determined that the unconfirmed data did not undermine other necessary data for the countervailing duty calculation. For all these reasons, the court affirmed the use AFA to calculate Jiulong’s CVD rate.


United States Court of Appeals for the Federal Circuit

Willful Blindness and Direct Infringement Found by En Banc Court

In Suprema, Inc. and Mentalix, Inc. v. Cross Match Technologies, Inc. and International Trade Commission, Court No. 2102-1170 (September 14, 2015),  the en banc Court reinstated the original Federal Circuit panel’s (“the panel”) decisions regarding the ‘562 and 993 patent, and vacated the panel decision regarding the 344 patent.   As background to this decision, Appellee Cross Match Technologies, Inc. (“Cross Match”) asserted that Appellants Suprema, Inc. and Mentalix, Inc. violated section 337 by infringing the ’344 patent, the ’562 patent, and the ’993 patent. See generally Suprema I, 742 F.3d at 1352-56; Suprema, Inc. v. ITC, 2015 U.S. App. LEXIS 13929, *4-13 (Fed. Cir. Aug. 10, 2015) (en banc) (“Suprema II”).  The Commission found claim 19 of the ’344 patent infringed by the combination of certain of Suprema’s scanners RealScan-10, RealScan-D, RealScan- 10F, and RealScan-DF (collectively, the “accused products”)) and Software Development Kit (“SDK”) with the “segmentation” feature of Mentalix Inc.’s FedSubmit software. The Commission concluded that Mentalix directly infringed claim 19 of the ’344 patent and that Suprema had induced that infringement. The Commission determined that the asserted claims of the ’562 patent were not infringed, however. The Commission further found that Suprema’s RealScan-10 and RealScan- 10F scanners directly infringed claims 10, 12, and 15 of the ’993 patent, and that Appellants failed to prove the asserted claims of the ’993 patent invalid as obvious. Based on these findings, on October 24, 2011, the Commission issued a limited exclusion order directed to certain scanning devices imported “by or on behalf of Suprema or Mentalix” and issued a cease and desist order directed to Mentalix only.  See Certain Biometric Scanning Devices, Components Thereof, Associated Software, and Products Containing Same, USITC Inv. No. 337-TA-720, Pub. No. 4366, Limited Exclusion Order ¶ 1 (Feb. 2013).

On appeal, a panel of this Court affirmed the Commission’s non-infringement ruling regarding the ’562 patent, and also affirmed the Commission’s finding of infringement with regard to the ’993 patent.  However, the panel vacated the Commission’s infringement finding on the ’344 patent, holding that “an exclusion order based on a violation of § 1337(a)(1)(B)(i) may not be predicated on a theory of induced infringement where no direct infringement occurs until post-importation.” Id. Accordingly, the original panel did not reach the merits of the Commission’s willful blindness or direct infringement findings on the ’344 patent. Id.

The Federal Circuit granted an en banc rehearing and vacated the panel decision. Suprema ,Inc. v. ITC, 2014 U.S. App. LEXIS 10124, at *1-2. The en banc Court reversed the panel’s holding as it related to the ’344 patent, and upheld the Commission’s interpretation that 19 U.S.C. § 1337 covers “importation of goods that, after importation, are used by the importer to directly infringe at the inducement of the goods’ seller.” Suprema II, at *3-4 (Fed. Cir. Aug. 10, 2015).

Because the original panel’s decision was vacated, the en banc Court reinstated findings regarding the non-infringement of the ‘562 patent and the infringement of the ‘993 patent.  The majority of this opinion addressed direct infringement and willful blindness of the ‘344 patent.

As to the direct infringement to claim 19 of the ‘344 patent, the en banc panel finds substantial evidence to support direct infringement. Step (e) of claim 19 required “detecting a fingerprint area based on a concentration of black pixels in the binarized fingerprint image.” The Commission found that this limitation was practiced based on the accused products’ source code, and based on expert testimony regarding the accused products. The evidence demonstrated that the functions find concentrations of black pixels in a fingerprint image, and then put a ‘bounding box’ around it. By drawing a box around the fingerprints, the Commission concluded that the accused functions detect a fingerprint area. The Commission’s conclusions were consistent with the teachings of the ’344 patent, which instruct that a common method of detecting fingerprint area is by drawing a bounding box around the fingerprints.  Step (f) of claim 19 required “detecting a fingerprint shape based on an arrangement of the concentrated black pixels in an oval-like shape in the binarized fingerprint image.” The Commission construed step (f) to mean “identifying concentrations of black pixels, which have oval-like shapes, to determine individual fingerprint areas and shapes.” The Commission found that claim 19 covers products that detect fingerprint shape through detecting concentrations of black pixels within the identified bounded area. The en banc Court found that substantial evidence supported the Commission’s initial finding that step (f) was infringed by the accused products’ detection of concentrations of black pixels, whether or not the system defines the outlines of an oval.

As for willful blindness by Suprema, the en banc Court determined from the entirety of the circumstances, that the Commission’s conclusion regarding induced infringement was supported by substantial evidence.  Namely, it was found that Suprema engaged in extensive market research to identify Cross Match’s patents, and Suprema obtained the same technology and equipment necessary to claim 19 of the ‘344 patent. The Commission also found that, in developing the accused products, Suprema was well-aware of competitor products, of Cross Match’s prominence in the fingerprint scanner market, and of Cross Match’s relevant ’562 Patent.  Particularly, the Commission found evidence of Suprema’s efforts in aiding and abetting Mentalix to adapt Mentalix’s FedSubmit software to work with Suprema’s imported scanners and SDK to practice claim 19 of the ’344 patent. Based on the totality of Suprema’s actions which evidenced the high probability that Cross Match’s scanner technology was patented, and further evidenced its deliberate actions to avoid learning of that fact, the Commission found that Suprema acted with willful blindness.  Because of all this evidence, the en banc court found in favor of the Commission’s original findings.