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How long is the reach of U.S. patent law? On March 2, a federal appeals court expanded the extraterritorial scope of the patent law further than it had ever gone before. In Eolas Technologies Inc. v. Microsoft Corp., the U.S. Court of Appeals for the Federal Circuit extended the meaning of the patent statute to cover acts that Congress never intended it to cover and thereby paved the way for an expansion of damages liability that Congress never intended to permit. The trial jury had found that those damages stretched to more than $520 million, almost two-thirds of which was attributed to foreign sales of the infringing product. At issue in Eolas was the meaning of the word “component” in 35 U.S.C. �271(f). Section 271(f) provides that the unauthorized shipping abroad of components for assembly abroad of another’s patented invention constitutes infringement under U.S. law. The Federal Circuit held that the shipping abroad of a master disk of software code violated �271(f). It also held that the scope of damages included all foreign sales of the product�Microsoft’s Internet Explorer browser�on which copies of that code were installed. The Federal Circuit’s decision will have a grave impact on any industry that veers from traditional bricks-and-mortar manufacturing to rely instead on sophisticated technology that can replicate components of the product. One logical response from American businesses might be to move the process of software and other technological development abroad. Indeed, on April 25, at the first hearing of the newly created Senate Judiciary Subcommittee on Intellectual Property, several witnesses urged lawmakers to consider the repeal of �271(f) for this very reason. Microsoft’s petition for rehearing and rehearing en banc on this issue was denied in May. Certainly the issue now begs for Supreme Court attention. A TOOL IS A TOOL IS A TOOL In 1999, Eolas brought suit against Microsoft for infringement of a U.S. patent that essentially allows use of a Web browser in a “hypermedia” environment. The jury found for the plaintiff and assessed damages of more than $520 million on foreign and domestic sales of Windows with Internet Explorer. (In an interesting side note, a re-examination of Eolas’ patent was pending before the Patent and Trademark Office as of press time.) On appeal, the Federal Circuit acknowledged the operative facts that (1) Microsoft exports a limited number of “golden master” disks containing software code to equipment manufacturers abroad; (2) the manufacturers use that disk to replicate the code outside the United States; (3) the duplicates of the code become operating elements of the ultimate devices for sale outside the United States; and (4) the master disk itself never ends up as a physical part of an infringing product. Nonetheless, the Federal Circuit held that “components” under �271(f) include software code on master disks because the code “drives the �functional nucleus of the finished computer product.’” The crux of the issue here, the significance of which the Eolas panel seemingly disregarded, is that copies of the software code on the master disk are made and combined abroad, not the software code itself. And the master disk is never incorporated into a product. When the matter is viewed in this proper light, the code on the master disk is clearly not a component of the foreign units; rather, it is a tool used to make the components. And �271(f) does not prohibit the unauthorized export of tools from the United States to manufacture components abroad that will be combined abroad into products covered by a U.S. patent. FROM PRODUCT TO PROCESS The Eolas panel did not simply expand the meaning of “component” in �271(f) to encompass a tool shipped abroad to make duplicate components of a product. The panel appears to have reversed Federal Circuit precedent and broadened the interpretation of �271(f) to encompass an entire category of patents heretofore held not to be implicated by �271(f). Since the Federal Circuit’s 1992 decision in Standard Havens Products Inc. v. Gencor Industries Inc., it has been clear that �271(f) does not apply to process patents and that the shipment of tools used to practice a patented method abroad does not violate �271(f) or any other section of the patent law. In Standard Havens, the Federal Circuit held that �271(f) was not implicated where the defendant sold to a foreign customer a device that was going to be used to practice the method of a U.S. process patent. Now the Eolas panel has opined that �271(f) does indeed apply to process patents. The opinion states that “every form of invention eligible for patenting falls within the protection of section 271(f),” and also comments that the panel “cannot construct a principled reason for treating process inventions different than structural products.” The panel has over-read �271(f), breathing a life into it that Congress never intended. Indeed, there are principled reasons in the legislative history and the language of �271(f) itself for treating patented processes differently. Section 271(f) was enacted specifically to close a gap in the existing patent law identified by the Supreme Court in Deepsouth Packing Co. v. The Laitram Corp. (1972). In Deepsouth, the Court held that �271(a)’s proscription against the unauthorized making of a patented invention within the United States did not extend to the export of the constituent parts for assembly abroad of a patented shrimp deveining machine. The Court declined to broaden the interpretation of the statute, cautioning that “the sign of how far Congress has chosen to go can come only from Congress.” According to the legislative history, �271(f) was enacted as part of the Patent Law Amendments of 1984 to “prevent copiers from avoiding U.S. patents by supplying components of a patented product in this country so that the assembly of the components may be completed abroad.” That language speaks specifically of supplying components of a product, and not of a process or design. Likewise, then-Rep. Robert Kastenmeier (D-Wis.), who chaired the House Judiciary Committee’s intellectual property panel, said in October 1984 that “the bill provides that a product’s patent cannot be avoided through the manufacture of component parts within the United States for assembly outside the United States.” Practically speaking, this is the only interpretation that makes sense. As the U.S. District Court for the Eastern District of Virginia properly observed in Enpat Inc. v. Microsoft Corp. (1998), there are no exportable components of a process or design patent. A process patent describes the steps to accomplish a particular task. While those steps will certainly involve the use of physical objects, those objects are tools for implementing, not components of, the process. Likewise, while various steps in a process patent may involve the production of a particular intermediary product, such intermediate product is not a component of the process or a step in the process, but the product of a step in the process. WHAT CONGRESS WROTE The exact wording of �271(f) also strongly supports a less expansive interpretation of “component.” The legislative history notes that language in �271(f) was drawn from ��271(b) and 271(c). Notably, what is present in �271(c), but absent from �271(f), is the language concerning “a material or apparatus for use in practicing a patented process.” Section 271(c) states that contributory infringement includes an offer to sell or sale within the United States, or an importation into the United States, of “a material or apparatus for use in practicing a patented process” where the material or apparatus is especially made or adapted for use in an infringement. Section 271(f) has no similar phrasing. Congress’ decision to exclude such language can only mean that �271(f) was not intended to prohibit the exportation of materials or apparatuses�tools�used to practice a patented process. Section 271(f) simply does not cover all the ways in which conduct from the United States can facilitate the unauthorized manufacture of a patented product or the unauthorized performance of a patented process abroad. As Rep. Kastenmeier noted, “Each of the titles addresses a specific, narrow concern in the patent law.” With regard to �271(f), that narrow concern is the export of components of patented products. Rather than remain faithful to the language of �271(f), the Eolas opinion veers from proper statutory interpretation to improper judicial legislation. If Congress meant for �271(f) to prohibit the export of tools to practice a patented method or to manufacture components of a patented product abroad, it would have said so. COMPUTERS ARE DIFFERENT? Of course, the Federal Circuit understands the proper role of courts. What made the Eolas panel overreach? It is likely that the panel was struck by the ease and relative speed with which Microsoft or any other software company is able to manufacture the components of a product abroad through replication of the software code from a master disk. But this is not a reason to broaden the meaning of the statute. Take, for example, a blade from the shrimp deveining machine of Deepsouth. If one had exported a single blade, with the intent that it be copied and the copies be combined abroad with other components to make the patented machines, would the export of that one blade open up for damages liability all the foreign sales of shrimp deveining machines? U.S. patent law does not warrant that result, and it is doubtful that any court would so hold. Yet the blade in the deveining machine, like the code in Internet Explorer, is an essential component of the finished product and important to its functioning. The difference is solely in the ease and speed of the manufacture of the copies abroad. In a very real sense, the Eolas decision is a discriminatory assault on the computer industry because certain components of its products are easily replicated from a master disk. Other innovative industries could get caught in this same trap. In the biotechnology field, for example, numerous substances are produced through cloning. In light of Eolas, the export of a single cell could feasibly open damages liability to all the cells cloned abroad. Perhaps Congress would wish to extend liability so far. Perhaps it would not. The point is that Congress has to hear and debate the policy reasons for and against such an extension of liability, and for and against such an extension of the reach of U.S. patent law. Section 271(f) was enacted with the shrimp deveining machine of Deepsouth in mind and well before the recent revolutions in software and biotechnology. It is for Congress to consider legislative action with these industries in mind. Until and unless Congress speaks, the role of the courts is to follow the statutory language, not to make new patent law through broad interpretations unsupported by the text or the legislative history. Eolas just goes too far.
Bruce A. Lehman is chairman of the D.C.-based International Intellectual Property Institute, which promotes the creation of modern IP systems around the world. He is a former commissioner of patents and trademarks and now is senior counsel with Akin Gump Strauss Hauer & Feld. Michael A. O’Shea and Shari Fleishman Esfahani are partners in the D.C. office of Akin Gump in the IP and litigation practices. The opinions expressed here are those of the authors and do not represent the position of their firm.

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