Practitioners should endeavor to protect each invention using as many statutory claim forms as possible, and clear and enforceable product/apparatus claims are now more important than ever.

On August 19, 2009, an en banc U.S. Court of Appeals for the Federal Circuit overturned its 2007 Union Carbide v. Shell Oil precedent, ruling that 35 U.S.C. § 271(f) does not cover method claims. Cardiac Pacemakers, Inc. v. St. Jude Medical, Slip Op. Case No. 07-1296, -1347 (Fed. Cir., August 19, 2009) (en banc) (Lourie, J.) (Newman, J.; dissenting).

Section 271(f) provides a form of offshore patent infringement relief against persons who sell the "components" of a patented invention in the United States for assembly abroad. The statute provides that one who "supplies . . . in or from the United States, all or a substantial portion of the components of a patented invention, where such components are uncombined in whole or in part, in such manner as to actively induce the combination of such components" shall be liable as an infringer. It was enacted in 1984 in response to the 1972 Supreme Court of the United States decision in Deepsouth Packing, which held that a manufacturer that shipped unassembled parts of a patented shrimp deveining machine was not liable for patent infringement since the patented product was not made or used in the United States.

Application of § 271(f) has consumed considerable judicial resources in recent years and has been a compelling obsession in the legal community, as evidenced by the many amicii that participated in this appeal.

The History of § 271(f) at the Federal Circuit and Supreme Court

The Federal Circuit first dealt with § 271(f) in its 1991 decision in Standard Havens Products, Inc. v. Gencor Industries, Inc., where it held in the context of patent claims directed to a method of producing asphalt composition that the sale to a foreign customer of an asphalt plant did not implicate § 271(f).

More recently, in its 2005 decision in Eolas Technologies, Inc. v. Microsoft Corp., the Federal Circuit held that Microsoft could not avoid § 271(f) liability by exporting golden master disks containing software code that were subsequently copied onto computer hard drives and sold outside the United States. Although Eolas involved both product and method claims, the context for "patented invention" in that case was an apparatus claim. In holding that Microsoft was liable under § 271(f), the Federal Circuit found that the software code on Microsoft's master disks was a "component" of a patented invention under § 271(f) and concluded that the term "component" was not limited to physical items.

Shortly thereafter (still in 2005) the Federal Circuit issued decisions in two other cases in which it delved into § 271(f), AT&T Corp. v. Microsoft Corp. (AT&T I) and NTP, Inc. v. Research in Motion, Ltd. (RIM). AT&T I involved a factual scenario similar to that in Eolas: Microsoft exported golden master disks containing software that was covered by a patent held by AT&T. The software, once shipped abroad, was copied onto hard drives and sold to foreign customers. In AT&T I, the Federal Circuit, relying on its Eolas decision, held that intangible software code was capable of being a component of a patented invention and that such software was "supplied" for purposes of § 271(f) when a "single copy [was sent] abroad with the intent that it be replicated."

In the RIM case, the Federal Circuit held there was no infringement liability under § 271(f) where RIM supplied Blackberry devices to customers in the United States, where use of those devices (in concert with a relay of the Blackberry network located in Canada) would infringe NTP's patented method if all of the claimed steps were performed in the United States.

In 2006, in Union Carbide, a Federal Circuit panel explicitly held that § 271(f) applied to method claims. The Union Carbide case involved the export of a catalyst for performing a patented method for producing ethylene oxide. The panel held that the exportation of the catalyst and use of the patented method abroad implicated § 271(f), finding the catalyst to be "component" under § 271(f). The panel distinguished RIM by noting that the catalyst at issue in Union Carbide was directly supplied to foreign affiliates whereas the device in RIM was sold domestically, even though the claimed method was partially performed in a foreign country. The panel held that "because § 271(f) governs method/process inventions, [defendant's] exportation of catalysts may result in liability" under that section.

The focus then shifted to the Supreme Court, where, in 2007, it granted certiorari and reversed the Federal Circuit decision in AT&T I (AT&T II). In AT&T II, the Supreme Court held that Microsoft did not supply combinable components of a patented invention when it shipped master disks abroad to be copied. Because the foreign-made copies of Windows that were installed on computers were supplied "from places outside of the United States," the Supreme Court held that Microsoft had not supplied components from the United States. However, the Supreme Court reserved the issue of whether "an intangible method or process . . . qualifies as a 'patented invention' under § 271(f)," but noted that if so, the "combinable components of that invention might be intangible."

Federal Circuit Analysis

Against that background, the Federal Circuit took, en banc, the issue of whether § 271(f) applies to method claims, and ruled that it does not. Cardiac argued that the use of the term "patented invention" in § 271(f) indicates Congress's intent to include all classes of invention, including method claims.

Starting from the premise that the "fundamental distinction between claims to a product, device, or apparatus on one hand and claims to a process or method on the other, . . . dooms Cardiac's argument on this issue," the Federal Circuit proceeded to examine the issues as framed in the appeal.

The Federal Circuit rebuffed Cardiac's "reliance on the Supreme Court's language in Quanta Computer, Inc. v. LG Electronics, Inc., to the effect that "[a]pparatus and method claims may approach each other so nearly that it will be difficult to distinguish the process from the function of the apparatus" as being "focused on the similarities between method and apparatus patents in the unique context of patent exhaustion." The Federal Circuit noted that "in an exhaustion context, which considers whether a patent owner has been fully compensated when a sale or license of his invention has occurred, it matters little whether the patent involved claims to a product (apparatus) or a method." However, for purposes of infringement liability (the purpose to which § 271 is directed) the Federal Circuit explained that its cases "draw a clear distinction between method and apparatus claims."

The Federal Circuit also disagreed with Cardiac's definition of "component" that would encompass "the apparatus that performed the process" as "clearly contrary to the text of § 271(f)" and inconsistent with the statute considered in context. As the Federal Circuit explained, § 271(c) contrasts "a component of a patented machine, manufacture, combination, or composition" with a "material or apparatus for use in practicing a patented process" thus evidencing the belief of Congress that a "component" was separate and distinct from a "material or apparatus for use in practicing a patented process." On this basis the Federal Circuit reasoned "a material or apparatus for use in practicing a patented process is not a component of that process. The components of the process are the steps of the process." As the majority explained, § 271(f) "requires that components be 'supplied' and it is that [that] requirement that eliminates method patents from § 271(f)'s reach . . . since supplying an intangible step . . . is a physical impossibility . . . "

Extraterritoriality

To buttress its conclusion, the Federal Circuit noted that any "ambiguity as to Congress's intent in enacting § 271(f) is further resolved by the presumption against extraterritoriality." In AT&T II, the Supreme Court "took a narrow view of § 271(f) by stating that the presumption against extraterritoriality still applies to § 271(f), even though that section specifically extends the reach of U.S. patent law in a limited manner."

The Take-Away

In a passage almost certain to be quoted in scores of future briefs, the Federal Circuit concluded:

"... the language of § 271(f), its legislative history, and the provision's place in the overall statutory scheme all support the conclusion that § 271(f) does not apply to method patents. We therefore overrule, to the extent that it conflicts with our holding today, our decision in Union Carbide (citation omitted), as well as any implication in Eolas or other decisions that § 271(f) applies to method patents.”

Applied to the facts of this case, the Federal Circuit found that the implantable cardioverter defibrillators (ICDs) shipped outside of the United States do not infringe Cardiac's method claim, which requires the steps of determining a heart condition, selecting cardioversion as the appropriate therapy and executing a cardioverting shock. Since Cardiac's allegation is only that St. Jude is shipping a device that is capable of performing the claimed method, the court concluded that St. Jude is not liable for infringement under § 271(f) based on ICDs exported abroad.

The Dissent

In Judge Newman's view "the statutory term 'patented invention' in § 271(f) has the same meaning in this subsection as in every other part of Title 35: it is the general term embracing all of the statutory classes of patentable invention."

Finding that the statute unambiguously uses the term "patented invention" in the same way the term is defined in § 101, Judge Newman would quickly end the inquiry there: "If the statute is unambiguous, our inquiry is at an end; we must enforce the congressional intent embodied in that plain wording."

Context

Judge Newman also takes a much broader view of context then did the majority, reviewing each of the sections and noting that § 271(a)-(e) all use the term "patented invention" in the same sense of § 101 and that in § 271(g), when Congress wanted to specifically refer to patented processes (only), it easily did so.

Judge Newman faulted her brethren for ignoring the "close relationship" among the sections of § 271 that in her view "presents a classic case for application of the normal rule of statutory construction that identical words used in different parts of the same act are intend to have the same meaning."

Physical Impossibility

Judge Newman chides the majority's "physical impossibility" analysis as it relates to delivering "components" of a process claim, noting that "[e]ach step of a process is a component thereof, which, when combined with the other steps, performs the process." She notes that in BMC Resources, Inc. v. Paymentech, L.P., "this court held that process claims are infringed when some steps are practiced by one entity and other steps are practiced by another, provided that the charged entity controls or directs the conduct of the other." In other words, in BMC the court necessarily concluded that "the practice of steps of the patented method can be combined, whereby the party that performs earlier steps 'supplies' this component to the party that performs the later steps." Judge Newman sees the same principle in applying § 271(f) to processes that are partly performed in the United States. "Surely there is no cause to conclude, as the majority concludes, that it is a 'physical impossibility' to read § 271(f) as applying to processes."

Sovereignty Issues

Viewing the statutory purpose of § 271(f) as a congressional attempt "to reach the evasion of United States rights by actions that are taken within the United States by entities subject to United States law," Judge Newman is far less concerned about sovereign foreign rights issues than is the majority. A she sees it "[t]he practice in foreign countries of United States – origin technology without any contribution of components from the United States is untouched by § 271(f), whether of process or product. Liability under § 271(f) is based on domestic conduct and intent."

Judge Newman is concerned that under the majority view, when a patented process is practiced so that some steps are performed in the United States and other steps are performed offshore, "the purloiner of the patented process may escape liability everywhere, for United States infringement is avoided if all of the process steps are not practiced in the United States, and infringement of foreign patents is avoided for the same reason. It cannot be that the legislators intended to enable avoidance of process patents by this ploy, while correcting it for machine patents. A statutory interpretation that results in all process inventions being seriously devalued, is not free of the charge of 'absurd result.'"

Is the Majority Decision Overbroad?

In a rare display of judicial frustration, Judge Newman faults her colleagues for over-reacting to concerns raised by process intensive industry amicii as well as over-reaching, for "it is not necessary (nor is it our prerogative) to destroy the statute for all process industries, in order to avert potential abuses in unknown circumstances."

Judge Newman's "bottom line" is as follows: "[t]he simple purpose of § 271(f) is that, for patented inventions, a United States patent cannot be avoided by providing substantial components from the United States while performing some aspect offshore to avoid a technical act of infringement under § 271(a). Section 271(f) draws no distinction between process and product inventions, and such distinction is unrelated to the legislative purpose."

Implications

As always, practitioners should endeavor to protect each invention using as many statutory claim forms as possible. Now, with the § 271(f) arrow removed from the patent owner’s quiver in terms of enforcing process claims, clear and enforceable product/apparatus claims are more important than ever. Of course method or process claims remain viable enforcement candidates under §§ 271(a)-(e) and (g). The demise of the Union Carbide decision will adversely affect holders of process patents to the advantage of the information and process industries that argued (as amicii) that they were improperly threatened by damage claims based on § 271(f).