US Courts Leave Patent Holders Seeking Stronger International Enforcement 29/05/2007 by Steven Seidenberg for Intellectual Property Watch Leave a Comment Share this:Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Facebook (Opens in new window)Click to email this to a friend (Opens in new window)Click to print (Opens in new window)By Steve Seidenberg for Intellectual Property Watch As more and more commerce crosses national borders, so do more and more items seen as infringing on patents. And patent holders are making a case for stronger international rules on enforcement to protect themselves. International intellectual property treaties enable an inventor to file one patent application and obtain patent rights in multiple countries, but the treaties do not provide similar mechanisms for multinational enforcement. A patentee can sue in each country where infringement occurs, but this is often prohibitively expensive, they say. “One of the big problems in international IP law is the cost of enforcement,” said Rochelle Dreyfuss, who teaches patent law at New York University Law School. “People have patents in many countries, and they have to go to country to country to country to get enforcement.” Some patent owners, however, have been creative, trying various means to get the US courts to rule on patent infringements that occur in multiple countries. But in two recent cases, the US courts rejected attempts to extend their jurisdiction beyond the country’s borders. In Microsoft Corp. v. AT&T Corp. [pdf], the US Supreme Court (the country’s highest court) narrowed a statute that allows US patent owners to seek damages for infringements committed abroad. The statute, Section 271(f) of the Patent Act, creates infringement liability whenever an entity exports from the US a patented invention’s “components” for “combination” abroad. US patent law imposes infringement liability for exports of unauthorised copies of patented items. Section 271(f) prevents an infringer from escaping liability by merely exporting a patented item’s components and assembling the components beyond the US border. Because liability is predicated on exports from the United States, not on acts done outside the US, the statute does not violate the generally accepted international norm that one country cannot impose its own patent law on activities undertaken in other countries. Damages, however, are based on the number of infringing copies that are made from the exported items – even though the copies are made overseas. Because of this extraterritorial aspect of Section 271(f), the US Supreme Court concluded that it had to interpret the statute narrowly, so as minimise the effects outside the US borders. In this case, Microsoft exported master copies of its Windows software, which infringed a patent owned by AT&T on digitally encoding speech. These master copies were used outside the US to create numerous copies of Windows, which were sold and used outside the US. Section 271(f) does not clearly indicate whether a master copy of software is a “component,” according to the court. And so, because extraterritorial effects are to be avoided unless Congress expressly authorises otherwise, the court held that a master copy of software is not a “component.” The court recognised that this decision creates a loophole in Section 271(f), allowing software makers to escape liability under the statute. This problem, however, must be addressed by the legislature, the court concluded. The decision was a huge victory for Microsoft, saving the company hundreds of millions of dollars in infringement damages in this case alone, according to informed observers. Other software companies also stand to benefit, reducing their potential liability when they export software from the US. Some patent experts say the ruling is a setback for patent owners around the world, as well as the international patent system. “The Microsoft case was an attempt to facilitate [international] enforcement of IP rights by … bringing a suit on a US patent in the US, instead of having to get foreign patents and sue overseas on those patents,” said Dreyfuss. “It was an attempt to make enforcement easier, and the Supreme Court rebuffed it.” Voda Case: No Supplementary Jurisdiction Outside US A different approach to international patent enforcement was rejected in Voda v. Cordis Corp. The plaintiff in this case, Dr. Jan Voda, had invented a catheter for performing angioplasty in a coronary artery, and had patented this invention in the United States, Canada, France, Germany and the United Kingdom. After learning that a US-based multinational corporation, Cordis Corp., was making suspiciously similar catheters in a factory and selling them around the world, Voda filed an infringement suit in the US. Voda’s lawsuit, however, was not limited to Cordis’ allegedly infringing sales in the US. Voda asked the US court to exercise its supplementary jurisdiction in order to rule on Cordis’ actions in Canada, France, Germany and the UK, which allegedly infringed Voda’s patents in those countries. This request was not unprecedented. A US statute grants US federal courts supplementary jurisdiction to hear foreign claims “that are so related to claims [over which the federal court has] ? original jurisdiction that they form part of the same case or controversy.” So long as foreign claims and the US claims “have a common nucleus of operative facts,” US courts have routinely found that supplemental jurisdiction exists; and so the courts have ruled on a wide variety of foreign claims, including foreign contract law, tort law, real property law and even copyright law. But in a highly controversial decision, the US Court of Appeals for the Federal Circuit created a special rule for patent law. This court (often called “America’s patent court,” because it hears appeals on all the country’s patent cases) ruled on 1 February that a US court cannot assert supplementary jurisdiction over non-US patent infringement claims. Even if the foreign infringement claims and the US infringement claims have the same operative facts, a US court can exercise jurisdiction over only the US claims. This result was compelled, according to the Federal Circuit, by three international IP treaties signed by the US: the Paris Convention, the (World Intellectual Property Organization) Patent Cooperation Treaty and the World Trade Organization Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs). All three of these treaties state that signatory countries retain their independent sovereignty over their patent systems. If a US court ruled on the validity or infringement of a foreign patent, this would trespass on the sovereignty of the relevant foreign government, in violation of these treaties, the Federal Circuit stated. This reasoning has been harshly criticised by many patent experts. “The court erred badly in this decision,” says John Thomas, who teaches patent law at Georgetown University Law Center in Washington, DC. “[I]t has done a very poor job of analysing the governing treaties, which simply don’t deal with this issue [of whether one country’s courts can apply the patent law of another country].” The Voda ruling, however, is not likely to be overturned any time soon. On 14 May, the Federal Circuit declined to rehear the case, and Voda’s attorney says there will be no appeal to the US Supreme Court. The Voda decision will thus prevent patentees from using a US court to consolidate multinational infringements claims into a single proceeding. “It purports to create a black-and-white rule against any transnational patent jurisdiction,” says Harold Wegner, a patent attorney in the Washington, DC office of Foley & Lardner. Some say the ruling harms patentees – especially individuals and small companies who own patents – by preventing them from resolving multinational patent suits in an efficient and relatively inexpensive way. Others say the ruling also hurts alleged infringers, who may have to spend time and money in order to defend allegations of infringement country by country, rather than in one consolidated proceeding. “This [consolidated proceeding] would have been an effective and efficient way to settle disputes between patentees and alleged infringers,” said Dreyfuss. “I think they both are losers.” Steve Seidenberg may be reached at firstname.lastname@example.org. 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