Extraterritorial Reach of U.S. Patent Laws Uncertain

by

John M. Carson and Phillip A. Bennett*

Presented at the 2nd Annual Asia Conference

In recent years, several areas of U.S. patent law have been clarified by court decisions from the United States Supreme Court and from the United States Court of Appeals for the Federal Circuit, the intermediate court which hears the vast majority of patent law appeals in the United States. For example, the Supreme Court's Festo decision clarified many of the unresolved questions about the applicability of the doctrine of equivalents. More recently, the Federal Circuit helped to clarify the proper approach to determining the meaning of patent claim language in Phillips v. AWH. Although these decisions have been criticized in some quarters, they have helped provide certainty regarding the scope and application patent laws in the United States. Unfortunately, as certain areas have become more settled, other areas of patent law have not. One such area is the extraterritorial reach of the United States patent infringement statute.

Patent infringement in the United States is governed by the infringement statute codified at 35 U.S.C. § 271. Section 271 generally provides that any person who makes, uses, sells, or offers to sell a patented invention without authorization may be held liable as an infringer. Section 271 has several subparts that define specific acts of infringement under the statute. Subsection (a) defines the standard for acts of infringement arising within the United States by providing that anyone who “without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefor, infringes the patent.”

Traditionally, patent infringement as defined at common law and in section 271 did not cover infringement occurring outside the borders of the United States. Thus, companies engaging in non-U.S. activities felt a degree of insulation from the reach of the U.S. patent laws. In 1972, the United States Supreme Court reaffirmed this notion by holding in Deepsouth Packing Co. v. Laitram, that 35 U.S.C. § 271(a) could not be applied when unassembled components of a patented combination were exported for final assembly in foreign countries. In response to the Deepsouth decision, which interpreted section 271(a) to not confer any extraterritorial effect, Congress amended the statute to include section 271(f), which is generally directed to the exportation, from the United States, of components of patented inventions.

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* Mr. Carson is a partner, and Mr. Bennett is an associate, at Knobbe Martens Olson & Bear LLP. The authors may be contacted at jcarson@kmob.com or +1.619.687.8632 and phillip.bennett@kmob.com or +1.619.525.8326, respectively. The views of the authors are not necessarily shared by the law firm.

In 1988, Congress further expanded the extraterritorial reach of the patent infringement under section 271 by adopting the provisions of the Process Patent Amendments Act at 35 U.S.C. section 271(g). Section 271(g) provides patent owners with the right to exclude others from using, offering for sale, or selling within the United States, or importing into the United States, products made by a claimed process or method.

With the advent of the “global economy,” the interpretation of these statutes becomes more relevant and applicable to companies doing worldwide business. For example, some companies now develop and manufacture products using teams located in multiple countries. Other companies provide and use systems which are deployed across national boundaries. These types of activities have led to an increasing number of U.S. patent owners seeking to assert their patent rights against activities taking place outside the borders of the United States. Thus, in recent years, U.S. courts have had numerous opportunities to interpret and apply section 271 to these new types of business arrangements. Unfortunately, recent decisions in the Federal Circuit regarding the extraterritorial effect of the section 271 have created a degree of uncertainty among legal practitioners as to the correct application of the statute to cross-border activities.

Some cases have narrowly interpreted extraterritorial reach of sections 271(f) and 271(g). For example, in 2003, the Federal Circuit held in Bayer v. Housey Pharmaceuticals, that section 271(g) does not apply to the importation of “intangible information.” In 2004, the court narrowly construed the applicability of section 271(f) in Pellegrini v. Analog Devices, holding that the word “component” under section 271(f) does not include plans or instructions for patented items to be manufactured abroad. Thus, under Pellegrini, infringement under section 271(f) would seem to apply only to the export of actual components included in a physical device.

In 2005, however, Federal Circuit decisions, including two involving Microsoft Corporation, called into question the broad applicability of Pellegrini and Bayer to software patents. In Eolas v. Microsoft, the court held that section 271(f) could apply to method claims, and stated that the statute did not limit section 271(f) to structural or physical components. This holding seemed difficult to square with the opinion expressed in Pellegrini that section 271(f) did not apply to instructions. Next, in AT&T v. Microsoft, the court reaffirmed the Eolas opinion, holding that the term “component” under section 271(f) applied to method claims, and further held that software copied abroad from a master copy supplied from the United States also fell within the scope of the statute. Following the Microsoft decisions, the court applied this same interpretation of section 271(f) to chemical technology, holding in Union Carbide v. Shell Oil that the exportation of a catalyst used in a patented method for producing a chemical product fell within the scope of the statute.

Most recently in NTP v. Research in Motion, the Court seemed to retreat from the broad application of section 271(f) found in Microsoft and Union Carbide, and held instead that section 271(f) did not apply to the method claims at issue in the case. The court also found that section 271(a), despite its language indicating it covered only activities occurring “within the United States,” found that Research in Motion’s Blackberry service infringed NTP’s patents under section 271(a) even though key components of the service were located outside the United States.

NTP v. Research in Motion also addressed at length the application and scope of section 271(g). In particular, the court focused on the question of whether “wireless electronic mail” specially formatted by a patented process could be a “product” under section 271(g). NTP argued that the term “product” as used in section 271(g) should be broadly defined as being anything that is patentable subject matter. The court rejected this interpretation of the statute, and instead reaffirmed its holding in Bayer v. Housey that section 271(g) reaches only processes that produce physical articles, and further held that the production or transmission of “information” cannot be considered a physical article.

Although the extraterritorial reach of the infringement statute remains unclear, one thing is certain – until either the courts or the U.S. Congress provides a clear indication of the precise extraterritorial reach of section 271, the international business community must proceed cautiously and carefully monitor the state of the law for further developments.

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Section 271(f) reads, in part, as follows:

(1) Whoever without authority supplies or causes to be supplied in or from the United States all or a substantial portion of the components of a patented invention … in such manner as to actively induce the combination of such components outside of the United States in a manner that would infringe the patent … [is] an infringer.

(2) Whoever without authority supplies or causes to be supplied in or from the United States any component of a patented invention that is especially made or especially adapted for use in the invention and not a staple article or commodity of commerce suitable for substantial noninfringing use, where such component is uncombined in whole or in part, knowing that such component is so made or adapted and intending that such component will be combined outside of the United States in a manner that would infringe the patent if such combination occurred within the United States, shall be liable as an infringer.

Section 271(g) reads as follows:

(g) Whoever without authority imports into the United States or offers to sell, sells, or uses within the United States a product which is made by a process patented in the United States shall be liable as an infringer, if the importation, offer to sell, sale, or use of the product occurs during the term of such process patent. In an action for infringement of a process patent, no remedy may be granted for infringement on account of the noncommercial use or retail sale of a product unless there is no adequate remedy under this title for infringement on account of the importation or other use, offer to sell, or sale of that product. A product which is made by a patented process will, for purposes of this title, not be considered to be so made after—

(1) it is materially changed by subsequent processes; or

(2) it becomes a trivial and nonessential component of another product.