STRONGER Patents Act of 2017 Disadvantages Domestic Manufacturers

In late June, Senators Coons, Cotton, Durbin, and Hirono introduced the STRONGER Patents Act of 2017. The Act includes provisions that seek to heavily change the inter partes review and post-grant review processes. However, Sec. 108, which focuses on patent infringement, is the portion that may have the largest effect on hurting domestic automotive companies relative to their foreign counterparts.

Under Sec. 108(3)(A) of the Act, “whoever, without authority, supplies or causes to be supplied in or from the United States a design for a product embodying a patented invention in such manner as to actively induce the making of that product outside the United States in a manner that would infringe the patent if made in the United States, shall be liable as an infringer.” This departs from existing statute under 35 U.S.C. § 271(f), which requires actually supplying a component from the United States rather than merely a design for the component, which is then manufactured overseas.

Generally, a manufacturer must file for patent protection in each country where the manufacturer wants to enforce its patent rights. Under the present system, there is some flexibility to argue for induced infringement if some components of the infringing product originate from the United States and are merely assembled overseas. However, under the STRONGER Patents Act, patent owners would be able to enforce their patents against companies that design an infringing product in the United States even if the product itself is never exported from, imported into, or sold in the United States.

This shift in infringement is important because, in recent years, automakers have taken steps to reduce the numbers of different vehicle platforms and consolidate the numbers of parts in order to reduce vehicle development costs. For example, Volvo’s Compact Modular Architecture (CMA) platform is being used to underpin future small Volvo models as well as other models introduced under other brands owned by parent company, Geely. As a result, a vehicle or components designed in the United States is more likely to be sold overseas, rather than being designed locally for the specific foreign market. However, this consolidation of global vehicle design in the United States by domestic automakers is more likely to implicate the STRONGER Patents Act than for vehicles and components designed overseas for a vehicle that is specific to a foreign market.

In contrast, like U.S. domestic manufacturers, foreign manufacturers are also consolidating their engineering efforts outside the United States. In this case, if a U.S. and a foreign manufacturer both sold identical infringing products in China, for example, the U.S. manufacturer would be subject to patent liability under the Act while the foreign manufacturer would be free to sell its products without concern for a U.S. patent, even though neither manufacturer ever makes or assembles a portion of the product in the United States. While both manufacturers would still have to contend with any Chinese patents, only the U.S. manufacturer is likely to be at risk of infringing a U.S. patent.

In effect, the Act would grant a form of worldwide patent protection that can be enforced against all products designed in the United States, unduly limiting companies with U.S. engineering operations from competing in the global marketplace.  Further, it should be noted that auto sales outside the United States have been a great source of growth in recent years to U.S. auto manufacturers.  For example, the Chinese auto market grew 13.7% last year and GM sold more vehicles in China than in North America.  If the STRONGER Patents Act of 2017 were to pass in its current form, the growth of overseas sales would exacerbate the disadvantage of designing products in the United States as patent liability increases.