UK: Extraterritorial Reach of US Patent Law

Last Updated: 9 March 2006
Article by Koos Rasser

Now that individual Member States of the European Union have given up some of their sovereignty, the extraterritorial jurisdiction of patent judges is a point that merits serious debate.

As the United States is not a member of anything that even approaches the EU in terms of level of cooperation, one might not expect the issue to play much of a role in US court practice. Yet the US patent statute provides a basis for extraterritorial reach, and recent decisions of the Court of Appeals for the Federal Circuit (CAFC) have expanded and solidified that reach. In addition, the CAFC has been called upon to decide whether the US District Courts have subject matter jurisdiction over the alleged infringement of a foreign patent.

Extraterritorial Reach of the US Patent Statute

35 USC 271(f) was enacted in 1984 to close a loophole that had come to the fore in Deepsouth Packing v Laitram Corp, 406 U.S. 518 (1972), where the defendant successfully avoided infringement liability. The defendant manufactured an infringing product in the US that was sold in an overseas market. However, the components for this product were shipped as a kit of parts that were then assembled outside of the US. The Supreme Court held that the overseas assembly of the infringing product avoided infringement because it took place outside the US. Congress disliked the outcome in Deepsouth and subsequently amended the patent statute by adding section 271(f) to 35 USC.

The section consists of two subsections, 271(f)(1) and 271(f)(2). Section 271(f)(2) reads as follows:

"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 non-infringing use, where such component is uncombined in whole or 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(f)(1) provides a parallel provision for staple articles where the assembly is directed or encouraged from the US by the defendant.

Until recently, these provisions were applied only to situations where the "components" were pieces of hardware such as machinery parts, etc. This situation has changed in light of a series of CAFC decisions in 2005.

In Eolas v Microsoft, 399 F. 3rd 1325 (Fed. Cir. 2005), Microsoft was found to have infringed an Eolas patent for opening thirdparty applications (or "plug-ins") within a browser. When it came to assessing damages, the patentee asserted that overseas sales of the software should be included in the damages calculation. In the US, Microsoft created golden master disks that were shipped to overseas computer manufacturers who then used these disks to install the infringing software on the hard drives of their computers.

The CAFC sided with the patentee. In an opinion by Judge Rader, the CAFC panel held that "every component of every form of invention deserves the protection of 35 USC 271(f)". The subject matter of a software patent is typically a source code incorporated into some tangible medium. By providing the source code, Microsoft provided a "component" of the patented invention within the meaning of Section 271(f).

Only a few months later, the CAFC revisited the issue in AT&T v Microsoft, 414 F, 3d 1366 (Fed. Cir. 2005). On very similar grounds, the CAFC concluded that Microsoft was liable for oversees production of copies of the infringing software as a result of having provided the master disks to the foreign manufacturers. Interestingly, Judge Rader this time dissented – expressing his dismay with the majority opinion:

"This court’s expansion of [US law] to offer protection to foreign markets from foreign competitors distorts both the language and the policy of the statute."

This is an interesting quote. The result in AT&T is clearly the logical result from the ruling in Eolas. Yet Judge Rader, who was the author of the unanimous decision in Eolas, does not appear ready to take this small extra step. The reason appears to be his unease with the power that it gives US courts over foreign activities.

In Union Carbide v Shell, 425 F.3d 1366, Judge Rader again wrote for the majority. The defendant in this case was found to have infringed a US patent on a chemical process. The patentee tried to collect damages for oversees infringement on the basis that Shell had supplied the catalyst for use in the process from the US. The CAFC found Shell liable for the foreign infringement:

"This case… presents an even stronger basis [than the Eolas case] for applying 271(f) because Shell supplies all of its catalysts from the United States directly to foreign affiliates. Shell’s foreign affiliates do not copy these catalysts and use the copies in a foreign process, but instead use the catalysts supplied by Shell directly in their processes."

There can be no doubt that the CAFC decisions in these three recent cases have put new teeth into 35 USC 271(f).

Also in 2005, the CAFC decided the BlackBerry case – NTP, Inc. v Research in Motion, Ltd., 418 F. 3d 1282 (Fed. Cir. 2005). Research in Motion (RIM) argued that it did not infringe NTP’s patents because an essential component of the accused system, a relay server, was located in Canada. The context of this issue was Section 271(a) that states, "It shall be an infringement to make, use, sell… within the United States". On the face of it, this section does not provide a basis for extraterritorial reach. However, the CAFC looked at the meaning of the term "use" and came to the following definition:

"The use of a claimed system under section 271(a) is the place at which the system as a whole is put into service, i.e., the place where control of the system is exercised and beneficial use of the system obtained."

Under this definition, the apparatus and system claims were found to be infringed (the required control was deemed to be exercised by RIM’s US customers when they used their handheld devices in the US).

By contrast, the CAFC concluded that a process is only "used" in the US if all process steps are carried out in the US. Therefore, NTP’s method claims were found not to be infringed. There was also no infringement under 271(f) because:

"RIM’s supply of the BlackBerry handheld devices… to its customers in the United States is not the statutory "supply" of any "component" steps for combination into NTP’s patented methods."

Enforcing Foreign Patents in a US Court

There is no statutory basis for a US court to have subject matter jurisdiction over the infringement of a foreign patent. The issue comes up in cases where the US court has personal jurisdiction over the parties as a result of alleged infringement in the US of a US patent, and where the patentee alleges that the same product (or process) infringes parallel foreign patents.

The issue has recently been brought to the fore by a ruling in Voda v Cordis, 2004 WL 3392022 (W.D. Okla.). Mr Voda brought suit against Cordis for alleged infringement of three US patents. He later sought leave to amend the complaint to assert that Cordis was also infringing his Canadian and European patents.

The United States District Court for the Western District of Oklahoma granted the motion. This ruling went up to the CAFC, which has invited amicus briefing on the following issues:

  1. Does a US district court have the authority to decide a claim of infringement of a patent issued by another country?
  2. If so, under what circumstances, if any, should a US district court exercise that authority?

There are two earlier court of appeals cases dealing with these issues. In Ortman v Stanray Corporation, 371 F. 2d 154 (7th Cir. 1967), the court decided that such jurisdiction was possible. It put much weight on the fact that the pivotal issue was whether there had been a breach of contract – an issue that was identical for the US and foreign patents.

The CAFC itself dealt with the issue in Mars v Kabushiki-Kaisha, 24 F. 3d 1368 (Fed. Cir. 1994), where it found that the court had no jurisdiction over the alleged infringement of the Japanese patent owned by Mars. According to the CAFC, in Mars there was no "common nucleus of operative fact" (necessary to establish supplemental jurisdiction). The US patent and the Japanese patent had different claims. In addition, the allegedly infringing activities in Japan were different to those in the US. As the court put it:

"The respective patents are different, the accused devices are different, the alleged acts are different and the governing laws are different. The assertion of supplemental jurisdiction over the Japanese infringement claim would in effect result in the trial court having to conduct two trials at one time."

In the more typical case, the alleged acts may well be identical and even the foreign patents may be more or less identical to the US patents. However, the governing laws will always be different. It is far from clear what the CAFC will rule in the Voda case.

An important hurdle to exercising jurisdiction over foreign patents is the Act of State doctrine that prevents all US courts (state or federal) from questioning the validity of a foreign country’s sovereign acts within its own territory. The grant of a patent probably qualifies as such a sovereign act and makes it impossible for a US court to rule on the validity of a foreign patent. As patent invalidity is a standard defence in patent litigation, the US court would find it difficult to deal properly with a foreign infringement without falling foul of the doctrine. All in all, it appears unlikely that the CAFC will rule in favour of Mr Voda.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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