United States: Supreme Court To Decide Whether Supplying A Component From The US To A Manufacturing Facility Abroad Can Constitute Patent Infringement

On December 6, 2016, the Supreme Court heard oral argument in Life Tech. Corp. v. Promega Corp. addressing the circumstances under which a company may be subject to a finding of patent infringement of a US patent for shipping a component from the US to a manufacturing facility in a foreign country for assembly. This issue of infringement under 35 USC §271(f)(1) raises the question of when infringement of a US patent can result in damages for worldwide sales. This decision could impact any company that has components in its supply chain shipped from the US to its own manufacturing facility or to a contract manufacturer abroad.

Infringement under 35 USC § 271(f)(1)

35 USC §271(f)(1) was enacted by Congress in 1984 in response to the Supreme Court's decision in Deepsouth Packing Co. v. Laitram Corp., 406 US 518 (1972), which identified a perceived "loophole" in the US patent law.  Promega Corp. v. Life Tech. Corp., 773 F.3d 1338, 1352 (Fed. Cir. 2014). 

In Deepsouth, the Fifth Circuit affirmed an injunction after the defendant's shrimp deveining machine was found to infringe.  Id.  The defendant then began manufacturing certain components of its infringing shrimp deveining machine in the US and sending those parts abroad to its foreign customers for assembly of the infringing machines abroad.  Id.  The Supreme Court found that the sending of unassembled parts of the infringing machine to foreign customers did not infringe the US patent, which required the completed combination of those elements in the US. Id

In response to Deepsouth, Congress enacted 35 USC §271(f).  Id.  The portion of the statute before the Supreme Court today is 35 USC §271(f)(1), which states:

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, where such components are uncombined in whole or in part, 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 if such combination occurred within the United States, shall be liable as an infringer.

As the Federal Circuit recently explained, the policy goal of §271(f)(1) is to prevent copiers from avoiding US patents by supplying components of a patented product in this country for assembly of the components in a completed product abroad.  Promega, 773 F.3d at 1352.

The Federal Circuit's decision in Promega Corp. v. Life Tech. Corp.

In the district court, Promega accused Life Technologies' genetic testing kits of patent infringement under 35 USC §271(f)(1).  The accused testing kits include various components, e.g., a primer mix, a PCR reaction mix, a buffer solution, control DNA, and a Taq polymerase enzyme.  Life Technologies manufactured the accused testing kits in the UK.  It acquired a component of the accused kits, the Taq polymerase enzyme, from a third party in the US and shipped that single component to its manufacturing facility in the UK for incorporation into the completed product.  Notably, the Taq polymerase enzyme component is a commoditized item that can be used for various purposes separate and apart from the Life Technologies genetic testing kits.

The jury returned a verdict of willful infringement under 35 USC §271(f)(1), finding that all of Life Technologies' worldwide sales were attributable to infringing acts in the US.  Promega, 773 F.3d at 1345.  The finding of infringement under §271(f)(1) implicated worldwide sales based on Life Technologies supplying the Taq polymerase enzyme from the US to its facility in the UK where the accused testing kits were assembled.  Id. at 1350-56.  Following the jury verdict, the district court granted Life Technologies' JMOL of non-infringement, finding that Promega failed to present sufficient evidence to sustain a jury verdict of infringement.  Id. at 1345.

On appeal, the Federal Circuit reversed the district court's grant of JMOL of non-infringement. It concluded that there was sufficient evidence to support a finding of infringement under 35 USC §271(f)(1).  Id. at 1358, 1358.  In reaching this decision, the Federal Circuit reasoned that the statutory language "substantial portion of the components of a patented invention" in 35 USC §271(f)(1) could be met by a shipping a single component from the US to Life Technologies' facility in the UK.  The court explained that "the ordinary meaning of 'substantial portion' suggests that a single important or essential component can be a 'substantial portion of the components' of a patented invention." Id. at 1353.  Despite being a single, commoditized component of the accused products, the Federal Circuit reasoned that the Taq polymerase enzyme was a "substantial portion of the components of the patent invention" because, "[w]ithout Taq polymerase, the genetic testing kit recited in the [] patent would be inoperable because no PCR could occur." Id. at 1356.

The Supreme Court oral argument about the scope of 35 USC § 271(f)(1) and its policy implications

There was much debate at oral argument in the Supreme Court this week about the statutory language "supplies or causes to be supplied in or from the United States all or a substantial portion of the components" in §271(f)(1).  Life Technologies, the accused infringer, took the position that "substantial portion" is quantitative and relates to the number of components.  It argued that "substantial portion" means "approximating or very close or tantamount to all" of the components of the accused product.  Under its interpretation, an infringer would need to supply all or very close to all of the components of a patented invention, and would not infringe by supplying a single component from within the US to its manufacturer outside of the country. Promega, on the other hand, argued that "substantial portion" has a qualitative meaning such that "substantial portion" can refer to an important portion of the patented invention even if that is a single, commoditized component.

During oral argument, the Supreme Court also discussed the policy implications surrounding the reach of US patent laws.  Both Justices Kennedy and Breyer questioned the economic impact of affirming the Federal Circuit's interpretation of 35 USC §271(f)(1) given the complex supply chains employed today.

JUSTICE KENNEDY: That -- that – that sounds to me much more like (f)(2) than (f)(1), but I'll -- I'll -- I'll look at that. The -- the -- the brief by Agilent Technologies was instructive for me as to how modern supply chains work. They say it's very complex. They ship out hundreds of different things. And that seems to me to give some help to the Petitioner, because it shows that a quantitative test is simply a good baseline to begin with, and the more egregious cases, it seems to me, are under (f)(2) anyway. If we have -- if we can think of horror stories, they are mostly covered by (f)(2), aren't they?

*  *  *  *

JUSTICE BREYER: That's US conduct, but you read the brief of the German companies, and they said it's a fairly common thing. We've been making product X forever, and now we invest in an American company, and lo and behold, we just want to import some wood. You know, just some wood, and -- and -- and we can't do it, because we'll be had up under this, because wood is an important -- some kind of -- is -- 30 percent of some kind of a patented thing that we've been making for years.

Further, counsel for Life Technologies argued that the Federal Circuit's interpretation would cause an explosion of NPE litigation against companies in the supply chain that would ultimately have a negative impact on the US economy.  Life Technologies argued as follows:

Justice Kennedy, you asked the question about, you know, what are we supposed to do in these circumstances as -- you know, with supply chains? And the answer is -- you know, the answer that my colleague gave you was one that basically says, this is a recipe for the trolls of the world to go and chase down every supply opportunity. And do what? Send them notice that what you're sending is a staple article that's a major component of a piece that's in the patent, and that if you send -- keep sending that, you're going to violate that patent and we're going to come after you. And what's that going to do? That's going to disrupt the supply chain in the United States, and the ultimate effect is going to be twofold: Either purchasers outside the US will stop purchasing from inside the US, or US manufacturers will go offshore. And the one thing we know that 271(f) was never intended to do was to accomplish that kind of an -- that kind of an impact -- negative impact on the US economy.

The oral argument thus addressed both the statutory interpretation issues and the possible real world effects of the Supreme Court's decision.

Conclusion

If the Supreme Court upholds the Federal Circuit's decision, 35 USC §271(f)(1) will be construed broadly such that providing even a single, significant component sourced from the US to a foreign manufacturing facility may expose a company to liability for patent infringement with damages encompassing both domestic and foreign manufacturing and sales.  On the other hand, if the Supreme Court overturns the Federal Circuit and more strictly construes 35 USC §271(f)(1), a company's exposure under this statute may be reduced.

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