On April 28, 2008, the United States Court of Appeals for the Federal Circuit released its decision in Litecubes, LLC v. Northern Light Products, Inc. The appeals court upheld a district court’s dismissal of Northern Light Products Inc.’s (NLP) motion to dismiss the action for lack of subject matter jurisdiction, and upheld the jury’s verdict that NLP was liable for patent and copyright infringement.
NLP, carrying on business as GlowProducts.com, was a Canadian corporation purchasing novelty items from Chinese manufacturers and selling them primarily in North America. One such novelty product was a lighted artificial ice cube. The owner and co-founder of Litecubes, LLC, which owns a US patent for a similar novelty lighted ice cube, sued GlowProducts for patent and copyright infringement.
GlowProducts operated in Victoria, B.C., and did not have offices, facilities or assets in the United States. At trial, the evidence showed that GlowProducts sold the ice cubes directly to customers located in the United States and that the products were shipped "free on board" (FOB) from its Canadian office to buyers in the United States. FOB is a method of shipment whereby goods are delivered to a designated location at which legal title and risk of loss passes from seller to buyer. In this case, the FOB shipments were structured so that title would change hands in Canada prior to the goods entering the United States.
GlowProducts appealed the finding of infringement on the basis that the district court did not have subject matter jurisdiction to review the case since the sale was made in Canada and not the United States. The court found that because the plaintiff had filed a "well-pled complaint" that properly alleged all of the elements of infringement, the district court (part of the US federal court system) had subject matter jurisdiction. In order to succeed in the action for infringement, the plaintiff would have to show that the allegedly infringing act took place in the United States. However, failure to prove this would not mean that federal court did not have subject matter jurisdiction.
On the issue of infringement, GlowProducts submitted that Litecubes had not satisfied the "territorial" element of infringement that requires the act to be within the United States. Relying principally on North American Philips Corp. v. American Vending Sales, Inc., the court explained that the territorial element may be satisfied regardless of the location where legal title passes, and that the location where the contract was entered into and performance was carried out must also be taken into account. Thus, the federal circuit in the United States may have jurisdiction over an action for patent or copyright infringement even if the sale took place FOB outside the United States. In Litecubes, the court held that (i) the buyers were undisputedly located in the United States, (ii) the buyers contracted for the goods while in the United States, and (iii) the goods were delivered directly to the United States. Therefore, the court had jurisdiction over both the copyright action and patent action since there was substantial evidence to establish a sale in the United States.
This is an important case for Canadian and other non-US businesses that deal with US customers directly. Simply delivering products FOB to US customers will not necessarily avoid an action for patent or copyright infringement in the United States.