US High Court Hears Patent Case With Global Trade Implications

In a first-impression case with implications for international trade, the United States Supreme Court is set to decide whether the US supplier of a single non-infringing article used in an infringing product abroad can be held liable for worldwide damages under US patent law. The case hinges on the meaning of “substantial” and whether US law can extend beyond its borders.

The case centres on an enzyme, Taq polymerase, which is used to amplify DNA for analysis. Life Technologies Corp. made or procured the enzyme and sent it to a manufacturer in the UK who packaged it into a genetic testing kit to be sold worldwide, including in the US. The patent owner, Promega Corp., sued for patent infringement, alleging that the testing kit made in the UK would infringe a US patent. Not only would Life Technologies’ shipment of the kits to the US breach Promega’s patents, but its shipment of the kits from the US made it liable for damages based on worldwide sales of the item, Promega charged.

After a jury found in Promega’s favour and awarded around $52 million in lost profits based on worldwide sales of the kits, Life Technologies appealed to U.S. District Court. That court threw out the verdict, holding that because 35 U.S. Code Section 271(f)(1) refers to the supply of “all or a substantial portion of the components of a patented invention,” it didn’t apply to the export of a single component from the US.

The US Court of Appeals for the Federal Circuit reversed, saying US manufacturers could be liable for infringement for shipping a single non-infringing component or ingredient from the US to another country, if that component or ingredient represented a “substantial portion” of the patented product made outside the US, and if the manufacturer actively induced the combination or assembly of that product.

All documents related to Life Technologies Corp. v. Promega Corp. are available here.

The high court heard oral argument on 6 December.

“Substantial” Creates Substantial Ambiguity

The Federal Circuit decision “has created substantial ambiguity, because it forces US producers to guess at whether their single component is itself a ‘substantial portion’ of combinations assembled outside the US,” Morrison & Foerster said. The appellate court decision also expands the territorial reach of US patent laws, it noted.

Section 271(f)(1) was enacted as a reaction to the high court’s 1972 decision in Deepsouth Packing Co., Inc. v. Laitram Corp., Marshall Gerstein (Chicago) patent litigator Tom Duston said in an interview. In that case, which concerned a patent on a shrimp deveining machine, Deepsouth made all the components but shipped them outside the US for assembly. The patent read only on the device once it was assembled.

Under patent law at the time, the patent only covered activity in the US, not abroad, leading the high court to hold that the device maker wasn’t liable for infringement outside the US, Duston said. Congress, however, viewed this as an end-run around the patent, and passed 271(f), which lead to the current dispute, he said.

Under existing laws on contributory infringement, someone who makes and sells a single component can be held liable provided that the component can only be used to infringe, said Duston. Similarly, even if a component isn’t solely used in an infringing design, its supplier can still be liable for infringement if he sells the component intending that it be used in an infringing manner.

US law, therefore, already covers situations involving inducement and contributory infringement within the US, and Section 271(f) extends that law to suppliers who supply a component in or from the US for use outside the country, Duston said.

But it raises the vexing question of what “all or a substantial part of the components” means. In the Life Technologies case, the alleged infringer supplied only one of the kit’s five components, so what did Congress mean by “substantial”?

The patent owner argued that one out of five components should be considered substantial because it was one of the most important parts of the invention, said Duston. The Federal Circuit agreed that substantial could mean important, not simply quantitative. Several amici, including the American Intellectual Property Law Association, agreed with the Federal Circuit that the term “substantial” can be a qualitative requirement, said Morrison & Foerster patent litigator Mark Whitaker, who is AIPLA president-elect. The alleged infringer, however, questioned how to assess importance.

The US government suggested a more objective test that considers whether a fair number of components were involved and whether they were important, Duston said. It focused on whether a component from the US was easy or difficult to replicate in terms of time, money and effort.

Oral Argument

At the 6 December argument, the justices “spent much time on how, or even whether, to define a ‘substantial portion’ in 271(f)(1),” said Baker Botts (Washington) intellectual property attorney Lisa Kattan.

Another major question is whether the statute has effect outside the US. Patent owner Promega said the statute was an anti-circumvention measure to prevent people from doing internationally what they can’t do nationally, said Duston. Justices, however, were concerned about interpreting the law in a way that could extend its reach beyond US borders, he said. In this case, the UK patent that would have prevented the manufacture and sale of the kit had expired, so the case could be seen as stretching US law to cover activities that could no longer be protected under UK law, he said. Life Technologies argued that when a statute is ambiguous, the presumption should be to limit its extra-territorial reach, said Kattan.

Whitaker said he hoped that the “focus on the language of the statute and the practical implications of the decision will lead to a flexible standard for infringement” under Section 271(f)(1), rooted in a qualitative analysis. Homing in on statutory language, rather than “policy” concerns, was the right approach, he said.

The issue of what the statutory language means hasn’t come up before, making this a case of first impression, said Duston.

Impact on Global Trade?

Depending on how the high court decides, the case could have implications for global trade, Duston said.

Those who side with the patent owner contend that the case is about stopping the theft of US IP by actors in other countries who want to create loopholes in US patent law, he said. The accused infringer, however, argued that giving the statute effect outside the US could disadvantage US manufacturers of staple commodity-type items that they ship abroad for inclusion in products, he said. If those items are sourced from the US, their manufacturers could risk infringement liability, which could lead some companies to turn to foreign manufacturers.

The accused infringer also played to the Supreme Court’s hostility to “patent trolls,” saying that if it only takes one component from the US to expose a supplier to liability, that will open a vast new territory of patent prosecution entities worldwide, Duston said.