In yet another reversal of the Federal Circuit, the Supreme Court last week held that liability under § 271(f)(1) of the Patent Act requires more than one component part of a multicomponent patented invention to be shipped abroad for assembly, no matter how important or critical that one component may be. Life Techs. Corp. v. Promega Corp.,(U.S. Feb. 22, 2017) 580 U.S. ___, slip opinion at *8 (No. 14-1538).
The parties, Promega and Life Technologies, are competitors in genetic testing and other biotechnology applications. Promega owns the rights to the U.S. Reissue Patent No. 37,984 (“the Tautz patent”), which covers a kit used for genetic testing that can be used in a multitude of fields. Promega licensed the Tautz patent to Life Technologies, but limited the license to a specific field of use for law enforcement. The patented kit includes five components, including a polymerase enzyme. Life Technologies manufactured the polymerase enzyme in the U.S. and shipped it to the U.K. where the other components were made and the final product was assembled and sold worldwide. After Life Technologies began selling the product in the U.S. and overseas in research and clinical fields outside of the license, Promega sued Life Technologies for patent infringement of several patents, including the Tautz patent. Promega’s theory of infringement of the Tautz patent included liability under 35 U.S.C. § 271(f)(1) in order to increase potential damages by including Life Technologies’ sales outside of the U.S.
Section 271(f) was enacted by Congress after the Supreme Court’s decision in Deep South Packing, in which the Court held that enforcement of U.S. patents was strictly limited to culpable actions within the geographical boundaries of the U.S. and its territories. Deep South Packing Co. v. Laitram Corp., 406 U.S. 518, 527 (1972). The expansion of patent rights in § 271(f) provided for liability when an accused infringer supplies component parts from the U.S. for assembly abroad. Section 271(f)(1) is focused on the act of exporting “all or a substantial portion of the components of a patented invention,” while § 271(f)(2) is focused on the act of exporting “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 noninfringing use.”
Promega’s position had been that the one exported component was so important and essential to the patented multicomponent invention that it constituted “a substantial portion” of the components within the meaning of § 271(f)(1). The jury found that Life Technologies willfully infringed the Tautz patent, but the district court granted Life Technologies’ motion for judgment as a matter of law due to the fact that Promega’s evidence at trial supported a finding that only one component part was supplied from the U.S. Promega appealed to the Federal Circuit, which reversed the district court and reinstated the jury verdict in ruling that the polymerase enzyme was “a substantial component.” In the appellate opinion, the Federal Circuit used statutory construction to hold that “there are some circumstances in which a party may be liable under § 271(f)(1) for supplying or causing to be supplied a single component for combination outside the United States.” 773 F.3d 1338, 1353 (2014). The Federal Circuit then provided a rule requiring case-by-case analysis for determining whether a single component of a multicomponent patented invention could satisfy the meaning of “a substantial portion” as used in § 271(f)(1).
Writing for the Court, Justice Sotomayor rejected the case-specific approach of the Federal Circuit. The Supreme Court analyzed the ambiguous term “substantial” in the full context of the statute. Based on this context approach, the Court reasoned that “substantial” is best understood in a purely quantitative sense, as opposed to the qualitative importance of the component approach championed by Promega. Furthermore, the Court held that “substantial” must be a plural number; therefore, exporting or causing to be supplied from the U.S. of a single component can never trigger liability under § 271(f)(1). The Court noted that its ruling allows for § 271(f)(1) and § 271(f)(2) to work in tandem. Where subsection (1) deals with liability for “all or a substantial portion” of components (plural), subsection (2) provides a more limited liability when “any component” (singular) is supplied from the U.S. Holding otherwise, the Court concluded, would undermine the statutory scheme enacted by Congress.
Section 271(f) has the potential to substantially increase damages in a patent case where the accused infringer supplies some or all of the component parts of an accused instrumentality from the U.S. to an overseas location for manufacturing by their own operations, a subsidiary, or even a third party. Thus, § 271(f) raises the possibility of worldwide sales coming under the damages calculus. Given this tremendous windfall for patentees, it is not surprising that some courts have whittled away at its expansive reach in the era of increased non-practicing entity-plaintiffs. The Life Technologies decision thus continues the general trend of narrowing of the extraterritorial reach of U.S. patents since Congress enacted § 271(f) in the mid-1980s. For example, the Supreme Court stated in Microsoft Corp. v. AT&T Corp. that “the territorial limits of patents should not lightly be breached” in a decision that overturned a Federal Circuit holding that a software “master disc” is not a component part of a patented invention under the meaning of § 271(f). Microsoft Corp. v. AT&T Corp., 550 U.S. 437 (2007). After the Microsoft Corp. decision, an en banc Federal Circuit overturned its own precedent by ruling that § 271(f) does not apply to method claims. Cardiac Pacemakers, Inc. v. St. Jude Medical, Inc., 576 F.3d 1348 (Fed. Cir. 2009) (en banc).
The Life Technologies decision, however, is different than most recent opinions involving patent cases. Here, the Supreme Court has embraced a brightline patent law rule in the Life Technologies decision: liability under § 271(f)(1) requires more than one component, period. For manufacturers and suppliers operating in the U.S. and shipping tangible component parts abroad for assembly or further manufacturing, this opinion provides important guidance for avoiding liability. Exporting a single component part (of even a two component patented invention) is not sufficient for liability under § 271(f)(1). Because a patentee could seek damages for all worldwide sales of products found to be infringing under § 271(f), avoiding liability under this section is an important clearance issue for any company exporting component parts abroad. The decision, thus, gives practitioners a clear path to advising their clients how to avoid liability in component export scenarios.
However, the opinion does not declare that “one” is a magic non-infringement number, nor does it hold that “two” is a magic infringement number. The concurring opinion of Justice Alito makes clear that the decision “does not address how much more” than one component is necessary for liability under § 271(f)(1). Life Tech., slip opinion, at *12 (emphasis in original) (Alito, J., concurring in part and concurring in the judgment). While shipping only one component part abroad for assembly is clearly not sufficient for liability under § 271(f)(1), it is important for a practitioner to consider potential liability under § 271(f)(2) for advising a client when only one component is involved.
Under § 271(f)(2), exporting a single component can certainly rise to the level of infringement. Yet, there is critical language within § 271(f)(2) that limits infringement under this section only for a component “that is especially made or especially adapted for use in the invention and not a staple article or commodity of commerce suitable for substantial noninfringing use.” Section 271(f)(2) further requires knowledge and specific intent elements that are not found in § 271(f)(1).
Also, the Life Technologies decision expressly did not reach the issue of how to identify a component part of a patented invention under the meaning of § 271(f). Prior guidance from the Court’s decision in Microsoft Corp. provides that a component part must at least be tangible, as software on a master disc does not suffice. Also, the new decision does not address the situation of when more than one component parts are assembled into a single part for export. This remains an open question that could potentially further narrow the extraterritorial reach of U.S. patents in a future decision.