The Supreme Court to Tackle Extraterritorial Reach of U.S. Patents

01 August 2016 IP Litigation Current Blog

The Supreme Court recently granted certiorari in Life Techs. Corp. v. Promega Corp., 14-1538, to resolve: “[w]hether a supplier can be held liable for providing ‘all or a substantial portion of the components of a patented invention’ from the United States when the supplier ships for combination abroad only a single commodity component of a multi-component invention” under 35 U.S.C. § 271(f)(1).

Life Technologies (“LifeTech”) manufactures genetic testing kits containing: (1) a primer mix; (2) Taq polymerase; (3) PCR reaction mix including neucleotides; (4) a buffer solution; and (5) control DNA. Promega Corp. v. Life Techs. Corp., 773 F.3d 1338, 1344 (Fed. Cir. 2014). Promega licensed a patent on technology for replicating DNA which it then licensed to LifeTech for “Forensics and Human Identity Applications.” Id. In addition to “Forensics and Human Identity Applications,” LifeTech also sold kits for unlicensed purposes worldwide. Id. Notably, LifeTech manufactures Taq polymerase in the United States, which it then ships to another manufacturing plant in the UK, which manufactures the remaining kit components and assembles the kits. Id. Promega sued LifeTech in 2010 alleging infringement including those worldwide sales containing only one component from the U.S. (Taq). Id.

The jury found LifeTech liable for a percentage of its worldwide sales, implicitly finding that Taq, alone, was “all or a substantial portion of the components of [the] patented invention.” § 271(f)(1); Promega, 773 F.3d at 1345. On JMOL, the district court found that Promega had adduced insufficient evidence to sustain a verdict under § 271(f)(1). Promega, 773 F.3d at 1345. Specifically, the district court held that a “substantial portion of the components” requires at least two components (of a multi-component product) to be supplied from the U.S. Id. at 1351. The Federal Circuit reversed, focusing on the connection between “substantial portion” and “invention” holding that Taq, by itself, is a “substantial portion” of the invention, even if it, as one of five components, is not a substantial portion of the components as sold. Id. at 1356. Meaningfully, Promega did not allege infringement under § 271(f)(2) because Taq is a “staple article of commerce.” Id. at 1354 n. 14.

In summary, after the Federal Circuit’s opinion, a company may be liable for patent infringement for exporting a single “staple article of commerce” if it forms a “substantial portion” of an invention when combined abroad.  LifeTech noted that this holding discriminates against domestic manufacturers and incentivizes them to relocate in order to avoid infringement. (Pet. Br. at 20.)

The United States, as amicus curiae, strongly supported the Court granting certiorari on the question of whether a defendant could be found liable under § 271(f)(1) for supplying a single component of a multi-component product. (Br. at 15.) The government brief focused on the language of § 271(f)(1), and specifically “all or a substantial portion of the components,”  arguing that it differentiates the phrases “of the components” and “the invention.”  Id. at 16.

The Federal Circuit test qualitatively compares the value of the exported goods to the invention. Promega, 773 F.3d at 1356. Conversely, the United States argues for a quantitative test dividing the number of exported components by the number of components in the infringing article. Am. Br. at 20.  Ironically, the Federal Circuit adopted a more fluid test than the alternative offered by the United States because it allows a qualitative valuation of the exported goods as opposed to arithmetic division. Am. Br. at 20. Recently, the Supreme Court has repeatedly rejected rigid Federal Circuit tests in favor of more flexible approaches. See Halo Elecs., Inc. v. Pulse Elecs., Inc., No. 14-1513 (2016) (enhanced damages); Nautilus, Inc. v. Biosig Instruments, Inc., 134 S. Ct. 2120 (2014) (indefiniteness); Octane Fitness, LLC v. Icon Health & Fitness, Inc., 134 S. Ct. 1749 (2014) (attorneys’ fees); Highmark Inc. v. Allcare Health Mgmt. Sys., Inc., 134 S. Ct. 1744 (2014) (exceptional case).

This case puts the recent trend in conflict with the powerful presumption against extraterritoriality and the pragmatic concerns of American manufacturing. Whatever the resolution, this is an area where clarity from the Supreme Court would be beneficial. See generally Carnegie Mellon Univ. v. Marvell Tech. Grp., Ltd., 807 F.3d 1283 (Fed. Cir. 2015) (vacating portions of damage award and granting new trial regarding damages base where certain chips were made and delivered outside U.S. and never imported but perhaps still sold within U.S.). Patentees and accused infringers would benefit from greater certainty as to whether certain acts constitute infringement. See id.; WesternGeco LLC v. Ion Geophysical Corp., 791 F.3d 1340 (Fed. Cir. 2015) (reversing jury award of lost profits for foreign service contracts awarded due to infringing sales).  In an increasingly global economy, future damage awards could be drastically larger should the Supreme Court uphold the Federal Circuit’s reading of  § 271(f)(1).

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