United States: The Surprisingly Broad Reach Of U.S. Patent Law

U.S. patents create potential liability for using infringing products in the United States. That is, the unauthorized use or sale within the United States of a product covered by a U.S. patent infringes the patent. However, in many cases damages and liability for infringing U.S. patents can extend beyond purely domestic uses to cover activities taking place far outside the United States. U.S. patents may cover activities that have little or nothing to do with the United States. Many companies are unaware of this surprisingly broad geographic reach.

WesternGeco LLC v. ION Geophysical Corp The Supreme Court's recent decision in WesternGeco LLC v. ION Geophysical Corp.¹ illustrates this reach. Traditionally, patent damages were only available for domestic acts of infringement. That is, damages were not available "for a defendant's foreign exploitation of a patented invention" because foreign use of a patented U.S. invention "is not infringement at all."² In WesternGeco, the plaintiff WesternGeco was seeking lost profit damages based on defendant Ion's sale of the infringing product abroad.³ Specifically, Ion had negotiated contracts outside of the United States for sale of the infringing product outside of the United States, and WesternGeco argued that it would have won those contracts (and the corresponding profits) but for Ion's infringement.⁴ The Federal Circuit held, consistent with the traditional scope of patent damages, that lost profits were not available for contracts that were negotiated and performed entirely outside the United States. The Supreme Court reversed the Federal Circuit and held that, in this case, lost profits damages for sales that had occurred in other countries was appropriate.⁵ Even though the actual act of infringement was limited to providing components of the patented product from the United States, WesternGeco was able to recover damages for foreign sales of the entire finished product.

Going forward, courts will have to determine how broadly to interpret WesternGeco. Nothing in the WesternGeco opinion limited its applicability to lost profits. Thus, courts will have to determine, for example, if WesternGeco allows recovery of reasonable royalty damages for foreign uses of a patented invention.⁶ An expansive interpretation of WesternGeco could lead to vastly increased damages for infringing activities occurring outside the United States.

The Expanding Coverage of U.S. Patents

WesternGeco illustrates the trend toward expanding the coverage of U.S. patents. Historically, U.S. patent law has carried a heavy presumption against extraterritorial application. "The presumption that United States law governs domestically but does not rule the world applies with particular force in patent law."⁷ Over the years, however, Congress has repeatedly amended the infringement statute (35 U.S.C. § 271) to chip away at this presumption. For example, in 1984, Congress enacted § 271(f) to cover situations like WesternGeco where a company manufactures components of a patented product in the United States and then ships those products abroad for assembly into the patented product. The new §271(f) "expand[ed] the definition of infringement to include supplying from the United States a patented invention's components."⁸ Thus, the supply of components to someone outside the United States who then assembles those components into a product covered by a U.S. patent can constitute U.S. patent infringement.

In 1988, Congress further amended § 271 to include subsection (g). § 271(g) imposes liability for infringement based on importation, sale, or use in the United States of a product manufactured abroad by a process patented in the United States. Based on 271(g), the importer or seller of a product that itself is not patented, but that was created abroad by a process that is patented, may be liable for infringement.

§ 271(a) –the original direct infringement subsection— has also seen significant amendments. § 271(a) traditionally imposed liability for making, using or selling infringing articles in the U.S. In 1996, § 271 was amended to add liability for importation and offers for sale of infringing articles in the United States. After these amendments went into effect, foreign companies with no U.S. presence could be liable for infringement by importing infringing products into the United States or offering to sell those products in the United States even if the actual sale did not materialize.

Courts Broadly Interpret the Scope of §271

The amendments to §271 created new issues for courts regarding the territorial reach of U.S. patent law. For example, courts long wrestled with whether an "offer for sale" meant an offer made internationally for a sale that takes place in the United States (e.g., two companies in Europe discussing a proposed sale of a product in the United States) or, conversely, an offer made in the United States to sell a product outside of the United States.

The Federal Circuit's 2010 opinion in Transocean Offshore Deepwater Drilling, Inc. v. Maersk Construction USA, Inc.⁹ settled this question for the time being. Transocean involved an "offer for sale" under §271(a). In Transocean, a company made an offer to sell an allegedly infringing product to another company while in Norway.¹⁰ The product was to be sold in the U.S. and delivered and used in the U.S.¹¹ The Federal Circuit held this constituted an offer for sale, stating that "the focus should not be on the location of the offer, but rather the location of the future sale that would occur pursuant to the offer."¹² Under Transocean, any offer for sale of a product that infringes a U.S. patent and contemplates the infringing product being sold in the United States constitutes an act of direct infringement. Thus, foreign companies that are negotiating for potential sales of infringing articles in the U.S. may be liable for direct infringement under §271(a) even if the actual sale never materializes.

On the other hand, in Life Technologies Corp. v. Promega Corp., ¹³ the Supreme Court interpreted the scope of §271(f) (1). There, the issue was whether § 271(f)(1)'s requirement that the alleged infringer supplies a "substantial portion of the components of a patented invention" could be read to mean supplying a single component of a patented invention requiring five components.¹⁴ The Court held against an expansive interpretation, reversing the Federal Circuit and ruling that "a single component does not constitute a substantial portion of the components that can give rise to liability under §271(f) (1)."¹⁵ Thus, in at least this situation, the Court resisted the temptation to expand the scope of patent infringement.

Courts have also grappled with the scope of the statutory amendments with respect to induced infringement under 35 U.S.C. § 271(b). § 271(b) simply states "[w]hoever actively induces infringement of a patent shall be liable as an infringer." As long as an underlying act of direct infringement occurs pursuant to one of the other subsections of § 271 (e.g., 271(a), (f) or (g)), the induced infringement may occur anywhere in the world. Where the direct infringement is based on, for example, importation of a product that infringes under § 271(a) or foreign manufacture of a product that infringes under § 271(g), a party with little or no connection to the infringing act may be liable for induced infringement based on the fact that some of its products get imported into the United States by a downstream purchaser.

The facts in Global-Tech Appliances, Inc. v. SEB S.A. illustrate the reach of §271(b).16 In Global-Tech, the accused infringer (Global-Tech subsidiary Pentalpha) was located in Hong Kong. Pentalpha purchased one of SEB's deep fryers in Hong Kong and copied the fryer.¹⁷ Pentalpha then manufactured its own copies of the fryer and sold them to companies such as Sunbeam and Montgomery Ward in Hong Kong or mainland China.¹⁸ Those companies then took possession of the deep fryers and imported them into the United States. ^Id. Although none of Pentalpha's activities actually occurred in the United States, the Federal Circuit and Supreme Court both affirmed a jury verdict that Pentalpha had induced its customers to infringe by manufacturing and selling the fryers in Hong Kong for their customers to import into the United States.¹⁹

Taken together, recent cases indicate a surprisingly broad territorial reach for U.S. patents. For example, manufacturing and selling a potentially infringing product outside of the United States can, in some cases, constitute U.S. infringement, especially when the manufacturer is aware that some of the products will be imported and sold downstream into the U.S. ²⁰ Similarly, the WesternGeco case discussed above presents an open issue of whether and to what extent damages might be available for foreign use of products covered by U.S. patents. Companies with foreign presences should be aware that even strictly foreign activities can in many cases create significant damages and liability for U.S. patent infringement and plan accordingly.

Originally published by Virginia Lawyer Magazine - April 2020

Footnotes

1. 138 S. Ct. 2129 (2018).

2. Power Integrations, Inc. v. Fairchild Semiconductor Int'l, Inc., 711 F.3d 1348 (Fed. Cir. 2013) (overruled by WesternGeco, 138 S.Ct. 2129.)

3. WesternGeco, 138 S.Ct. at 2134-35.

4. Id. WesternGeco had proven infringement under § 271(f) by proving that Ion had manufactured the components of the infringing product and then exported those components for assembly outside of the United States. Id.

5. Id., 2134.

6. One case that raised these issues is the Power Integrations case discussed above (Power Integrations Opening Brief at 34, Power Integrations, Inc. v. Fairchild Semiconductor Intl., No. 19-1246 (Fed. Cir. Apr. 12, 2019) (Dkt. No. 32)) where the plaintiff argued that the analysis of WesternGeco would also permit recovery of foreign damages for direct infringement under § 271(a) as to both reasonable royalties and lost profits. The parties in Power Integrations settled before the court could resolve this issue.

7. Microsoft Corp. v. AT&T Corp., 550 U.S. 437, 454-455 (2007).

8. Microsoft, 550 U.S., at 444-445.

9. 617 F.3d 1296 (Fed. Cir. 2010).

10. Id., 1307.

11. Id.

12. Id., 1309

13. 137 S.C.t. 734 (2016).

14. 137 S.C.t. at 737-738.

15. Id., 737

16. Global-Tech Appliances, Inc. v. SEB S.A., 563 U.S. 754 (2011).

17. Global-Tech, 563 U.S. at 758.

18. SEB S.A. v. Montgomery Ward & Co., 594 F.3d 1360, 1366-67 (Fed. Cir. 2010).

19. Global-Tech, 563 U.S. 759. The Federal Circuit has repeatedly found infringement in similar circumstances. See, e.g., O2 Micro Int'l Ltd. v. Beyond Innovation Tech. Co, 449 F. App'x 923 (Fed. Cir. 2011) (unpublished), MEMC Elec. Materials, Inc. v. Mitsubishi Materials Silicon Corp., 420 F.3d 1369 (Fed. Cir. 2009), Power Integrations, Inc. v. Fairchild Semiconductor Int'l, Inc., 843 F.3d 1315, 1333-34 (Fed. Cir. 2016)

20. Id.

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