First published in LES Insights

Abstract

Under the Patent Act, a party may infringe a patent by supplying all or a substantial portion of the components of a patented invention and actively inducing the combination of components outside the United States in a way that would infringe if the combination had occurred inside the United States. In Promega Corp. v. Life Techs. Corp.,1 the U.S. Court of Appeals for the Federal Circuit held that the statute does not require inducement of a third party, but rather can apply when the induced party is a foreign subsidiary of the inducer. The court also held that the supply of one component, if important or central to the invention, can qualify as a substantial portion of the components of a patented invention.

In the 1970s, the Supreme Court identified a loophole in the patent statute, whereby one could manufacture in the United States components of an infringing product and export those components for assembly and use of the infringing product outside of the United States. In response, Congress enacted 35 U.S.C. § 271(f)(1), which permits a finding of infringement where a party (1) supplies from the United States all or a substantial portion of the components of a patented invention and (2) actively induces the combination of such components outside of the United States in a manner that would infringe the patent if such combination occurred within the United States. The Federal Circuit recently held that the statute does not require active inducement of a third party—inducing one's own foreign subsidiary qualifies. The Court also held that "a substantial portion of the components" does not require any specific number of components and could include just "a single important or essential component."

Background

Promega is the exclusive licensee of a patent that claims methods and kits for DNA testing. In 2006, Promega entered into a nonexclusive license agreement with Applied Biosystems, LifeTech's wholly owned subsidiary, giving Applied Biosystems a limited right to use the invention for activities relating to legal proceedings.

LifeTech manufactures kits for DNA testing that are used by law enforcement agencies for forensic purposes, and by clinical and research institutions, for research purposes. LifeTech manufactures one component of the 5-part kit—known as Taq polymerase—in the United States and ships it to its manufacturing facility in the United Kingdom. The U.K. subsidiary assembles the entire kit in the U.K. and sells them worldwide, including in the United States.

In 2010, Promega sued LifeTech for patent infringement. LifeTech responded that it was licensed to practice the patents under the 2006 license agreement. But the district court rejected LifeTech's argument, concluding that the license was limited to use in live forensic investigations conducted by police officers, and that uses outside of that field therefore were not covered by the license. The district court also found that LifeTech infringed Promega's patent.

The case proceeded to a jury trial to determine the amount of Promega's damages. The district court asked the jury to determine the total dollar amount of LifeTech's U.S. sales, explaining that "United States sales" included sales from LifeTech's direct infringement (all kits made, used, offered for sale, sold within the United States or imported into the United States), as well as Life Tech's induced infringement (all kits made outside the United States where a substantial portion of the components are supplied from the United States.). LifeTech challenged the district court's inclusion of induced infringement, arguing that an alleged infringer could not "induce itself" to infringe within the meaning of the patent statute.

The jury found that all of LifeTech's worldwide sales were attributable to infringing acts in the United States, and that Promega was entitled to $52 million in lost profits. LifeTech moved for judgment as a matter of law, arguing that Promega failed to prove damages for patent infringement. The district court agreed and vacated its earlier infringement finding. The district court found that LifeTech did not infringe the asserted patent because (1) LifeTech did not induce a third party to infringe, rather it sent the component to its own subsidiary in the United Kingdom who assembled the accused kits, and (2) LifeTech supplied only a single component—the Taq polymerase—from the United States, which could not be all or a substantial portion of the components of the patented invention. Promega appealed.

The Decision

Considering each issue in turn, the Federal Circuit first held that induced infringement does not require inducing a third party to combine the components of an infringing product outside the United States. The Federal Circuit stated that while the word "induce" might suggest that one influence or persuade "another," the term also encompassed the broader concept of "bringing about or causing." Looking to the history of the statute and earlier Supreme Court cases, the Court found that Congress enacted the statute in order to respond to a "loophole" that arose in a Supreme Court case where a defendant made parts in the U.S. and shipped them to foreign buyers, who assembled and used the infringing devices abroad. The Supreme Court found the unassembled export of the components of that infringing device did not infringe the patent under then-current U.S. law. In response, Congress acted to "prevent copiers from avoiding United States patents by supplying components of a patented product" simply by exporting and assembling them abroad. The Federal Circuit found that it was unlikely that Congress intended the statute to hold companies liable for shipping components overseas to third parties, but not for shipping those same components overseas to themselves or their foreign subsidiaries.

Next, the Federal Circuit addressed whether induced infringement under the statute requires at least two components of the patented invention be supplied from the United States. The Court noted that §271(f)(1) assigns infringement to anyone who supplies or causes to be supplied "all or a substantial portion of the components of a patented invention." Rejecting LifeTech's arguments to the contrary, the Federal Circuit concluded that the ordinary meaning of "substantial portion" suggests that a single important or essential component could be a "substantial portion of the components" of a patented invention. Turning to the specific facts of the case, the Federal Circuit agreed with the jury's conclusion that the single component supplied by LifeTech was a "substantial portion" of the components of the accused genetic testing kits, because without it, the genetic testing kits would be inoperable.

One of the three Federal Circuit judges who heard the matter, Judge Prost, disagreed with the Court's opinion. Judge Prost noted that the Court's interpretation of § 271(f)(1) to permit inducement of one's self was not supported by prior cases or by the legislative history of the statute. And Judge Prost explained that the Supreme Court has held, in the context of a different section of the Patent Act, that inducement liability requires a third party. Judge Prost thus concluded that the Court's interpretation of § 271(f)(1) expanded the scope of the statute, which is something that only Congress has authority to do.

Strategy and Conclusion

The Promega decision illustrates that induced infringement under 35 U.S.C. § 271(f)(1) does not require inducing a third party to combine the elements of an infringing product overseas, and that exporting just one component of an accused product may be sufficient to constitute infringement, as long as the exported component is a "substantial" or important component of accused product.