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Will a U.S. patent covering an innovative method for performing certain steps reach an accused infringer who performs one or more of those steps outside the United States? A patent’s reach historically has been territorial, but as today’s innovative technology companies rapidly expand their development, use and sale of increasingly complex software and technological systems, parts of which operate from various diverse corners of the globe, the law has become less clear, and it has become extremely important to understand the limits and boundaries of U.S. Patent Law. FEDERAL CIRCUIT CASES Three recent U.S. Court of Appeals for the Federal Circuit cases address cross-border patent infringement and should be of special interest to today’s innovators. � Eolas Technologies Inc. v. Microsoft Corp. [FOOTNOTE 1] Eolas Technologies and the Regents of the University of California (collectively Eolas) sued Microsoft for infringing their patent directed to Internet browsing software. Eolas sought damages from Microsoft stemming from Microsoft’s foreign and domestic sales of its Windows(r) operating system with Internet Explorer. Microsoft moved, in limine, to prevent Eolas from seeking damages based on its foreign sales. The U.S. District Court for the Northern District of Illinois granted final judgment to Eolas and invoked 35 USC �271(f) in awarding royalties based on Microsoft’s foreign sales of its Internet Explorer product. The statute at issue addresses cross-border activities. In relevant part, �271(f) provides that:
(1) Whoever without authority supplies or causes to be supplied 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 outside of the United States in a manner that would infringe the patent if such combination occurred within the United States, shall be liable as an infringer. (2) Whoever without authority supplies or causes to be supplied in or from the United States any component of a patented invention that is especially made or especially adapted for use in the invention and not a staple article or commodity of commerce suitable for substantial noninfringing use, where such component is uncombined in whole or in part, knowing that such component is so made or adapted and intending that such component will be combined outside of the United States in a manner that would infringe the patent if such combination occurred within the United States, shall be liable as an infringer. [FOOTNOTE 2]

Eolas’s patent described a Web browser operating in a distributed hypermedia environment to allow for full interactivity. In other words, the claimed invention purportedly covers a computer program product that allows a person to use the Web interactively, such as by viewing news clips or playing video games across the Internet. As a result, Microsoft’s Internet Explorer stood accused of infringement. ‘GOLDEN MASTER DISKS’ Microsoft exported a limited number of “golden master disks” containing the software code for Windows(r) to original equipment manufactures (OEM) abroad. The OEM’s then used that disk to replicate the code onto computer hard drives for sale outside of the United States. Microsoft argued that because the golden master disks did not end up as a physical part of the infringing product it was not a “component” of an infringing product made “in or from” the U.S. for combination outside of the U.S. as required to find �271(f) liability. The district court disagreed stating that in a legal sense, “source code is a made part of computer product.” The district court therefore determined that the code on the golden master disks constituted “components” of the infringing product and, as a result, concluded that Eolas’s royalty from Microsoft should include foreign sales of the patented computer products under �271(f). The district court also issued a permanent injunction against Microsoft which was stayed pending appeal to the Federal Circuit. The Federal Circuit took up the issue of whether software code made in the United States and exported abroad for copying into a final saleable product is a “component” of a patented invention under 35 USC �271(f). The answer was “yes.” The court explained that the statute defined inventions in a broad and inclusive manner, with software code certainly within that category. The court also stated that “every component of every form of invention deserves the protection of �271(f).” According to the court, Microsoft used exact duplicates of the software code on the golden master disk and incorporated that code as an operating element of the ultimate product sold. The code is what drove the product to perform in new and useful ways. Therefore, the accused code was a “component of a patented invention.” The Federal Circuit also supported its interpretation by referencing the patent policy argument that all forms of inventions should be treated in the same manner; the court would not treat process inventions differently from structural inventions. Additionally, the language of the statute did not limit its applicability to a tangible or physical component, as Microsoft argued. � AT&T Corp. v. Microsoft Corp.[FOOTNOTE 3] In the AT&T case, the owner of a patent directed to speech encoding technology sued Microsoft for infringement. The U.S. District Court for the Southern District of New York granted summary judgment of infringement against Microsoft. The district court held that Microsoft infringed AT&T’s U.S. Reissue Patent No. 32,580 under 35 USC �271(f). Microsoft appealed. SPEECH CODECS The technology at issue in this case was speech codecs, which are software programs for coding a speech signal into a more compact form and decoding it back into a signal that sounds like the original. AT&T alleged that Microsoft’s Windows(r) software, which incorporated the speech codecs, infringed its patent. Microsoft supplied a limited number of “master versions” of the Windows(r) software to foreign computer manufacturers and authorized foreign replicators to replicate the master versions and to install them on foreign-assembled computers that were then sold to foreign customers. The “master versions” of Windows(r) were created in the United States and then sent abroad; they contained the accused speech codecs and when installed on a computer were alleged to infringe the AT&T patent. Microsoft argued that evidence of alleged liability under 35 USC �271(f) arising from foreign sales of the Windows(r) products should be excluded because: (1) software is intangible information such that it cannot be considered a “component” of a patented invention; and (2) even if the Windows(r) software were a “component,” no actual components had been “supplied” from the United States as required by the statute since the copies of the Windows(r) programs were made abroad. The district court rejected Microsoft’s argument that software could not be a “component” of a patented invention under 35 USC �271(f) because the patentability of software is well-established. With regard to the second issue, the court ruled that copies of the “master version” that were sent abroad were not shielded from the statute because of the statute’s purpose of prohibiting the circumvention of infringement by exportation. Microsoft challenged these rulings on appeal. The Federal Circuit affirmed the district court’s decision. The Federal Circuit cited its earlier Eolas opinion in ruling that software can very well be a “component.” As discussed above, the Federal Circuit in Eolas stated that “without question, software code alone qualifies as an invention eligible for patenting” and that the “statutory language did not limit section 271(f) to patented ‘machines’ or patented ‘physical structures.’” Indeed, software could be a “component” of a patented invention. With respect to Microsoft’s second argument, that the components in its Windows(r) program were not “supplied” from the United States, the Federal Circuit once again ruled against it. The court interpreted the word “supplying” in the context of software distribution. According to the court, the way that software is supplied under normal circumstances is by copying it — “[c]opying, therefore, is part and parcel of software distribution.” Thus, sending a single copy abroad with the intent that it will be replicated invokes �271(f) liability for those foreign-made copies. The court also noted that it was of no import whether the software was sent on disk or via electronic transmission. Finally, the court emphasized the remedial purpose of �271(f). The statute was intended to encourage advances in technology by closing a loophole and the court would not allow “the very advances in technology thus encouraged to subvert that intent.” THE BLACKBERRY(R)NTP Inc. v. Research in Motion Ltd.[FOOTNOTE 4] In this long-running case, NTP, the owner of patents directed to the integration of electronic mail with wireless transmission, sued Research in Motion (RIM) the maker of the BlackBerry(r) hand-held device for patent infringement. The U.S. District Court for the Eastern District of Virginia ruled in favor of NTP, following a jury verdict, that RIM’s Blackberry(r) system infringed NTP’s patents. The district court awarded damages of approximately $53 million to NTP. RIM appealed the district court’s decisions. The Federal Circuit initially ruled on the appeal in December 2004, but uncharacteristically withdrew that decision in favor of new one dated Aug. 2, 2005, the one discussed herein. The accused product was RIM’s BlackBerry system, which allows out-of-office users to continue to receive and send electronic mail using a small wireless device. All of the components of RIM’s system are located in the United States except for the “relay” which is located in Canada. When a user receives new e-mail on his/her office e-mail system, a redirector is notified and retrieves the message from the mail server. It then copies, encrypts and routes the message to the relay component. The relay translates and routes the e-mail to a partner wireless network. The partner network delivers the message to the user’s BlackBerry handheld. The cross-border infringement issues arose in this case precisely because the relay was located in Canada. The Federal Circuit re-examined the issue of whether RIM was liable under various parts of 35 USC �271. The court first gave an opinion on whether the using, offering to sell or selling of a patented invention is an infringement under this �271(a) if a component or step of the patented invention is located or performed abroad. �271(a) states:

(a) Except as otherwise provided in this title, whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States, or imports into the United States any patented invention during the term of the patent therefor, infringes the patent. [FOOTNOTE 5]

‘SYSTEM,’ ‘METHOD’ CLAIMS In contrast to its earlier interpretation of �271(f) in the Microsoft cases, the Federal explained that, under this section, “system” claims and “method” claims would be treated differently. For system claims, the use of the system under �271(a) is “the place where control of the system is exercised and beneficial use of the system is obtained.” For the BlackBerry system, the location of the relay in Canada did not, as a matter of law, preclude infringement of the asserted system claims. RIM’s customers within the United States controlled the transmission of the e-mail and also benefited from the system. It was proper for the jury to find that the RIM system was “used” in the United States. The result is different, however, for the asserted method claims. The “use” of a method requires utilization of all steps or stages of the claimed process. The Federal Circuit held that “a process cannot be used ‘within’ the United States as required by �271(a) unless each of the steps is performed within this country.” Each of the NTP’s asserted method claims required use of the relay. The location of the relay in Canada precluded liability for infringing the method claims. The Federal Circuit also addressed, seemingly for the first time, the issue of whether a sale of a claimed method can occur in the United States even though the contemplated performance of that method would not be wholly within the United States. The court concluded that the sale or offer to sell the BlackBerry(r) handheld was not enough to be considered a sale of the invention covered by the asserted method claims. The same logic applies to the “import” prong of �271(a). The court was cautious to note it was not holding that method claims may never be infringed under the “sells” or “offers to sell” prongs of �271(a). Because the court found the system claims infringed under �271(a), it did not examine those claims under �271(f). It did, however, discuss the asserted method claims. The court stated, “[b]y merely supplying products to its customers in the United States, RIM is not supplying or causing to be supplied in this country any steps of a patented process invention for combination outside the United States and cannot infringe NTP’s asserted method claims under �271(f) as a matter of law.” The court went on to evaluate the applicability of �271(g) which states, in relevant part:

(g) Whoever without authority imports into the United States or offers to sell, sells, or uses within the United States a product which is made by a process patented in the United States shall be liable as an infringer, if the importation, offer to sell, sale, or use of the product occurs during the term of such process patent … [FOOTNOTE 6]

RIM argued, and the Federal Circuit agreed, that �271(g) does not cover the production of intangible items. The court held that because the transmission of information (i.e. e-mail) does not entail the manufacturing of a physical product, �271(g) does not apply to the asserted method claims. CONCLUSION In the Microsoft cases, the Federal Circuit has made it clear that �271(f) covers exportation of software contained on “master disks” later copied and sold abroad. “Components” can be software in any format, whether the software is on a master disk which will be copied and installed, or in an electronic transmission. Moreover, the NTP case does provide a shield from �271(a) for those parties who are accused of infringing method claims. The same cannot, however, be said for system claims. The location of part of a system abroad will not be enough to avoid the reach of �271(a). Technology companies and their counsel should carefully consider these recent rulings by the Federal Circuit. They will have an important impact on how companies approach the development, sale, and/or location of parts of their technology abroad. United States patent law may indeed reach them even when their activities are outside the physical borders of this country. Robert C. Scheinfeld is the head of the intellectual property group at Baker Botts and Parker H. Bagley is a partner in the intellectual property group at Milbank Tweed, Hadley & McCloy. Noera Ayaz, an associate at Baker Botts, assisted in the preparation of this article. ::::FOOTNOTES:::: FN1 Eolas Technologies, Inc. v. Microsoft Corp., 399 F3d 1325 (Fed. Cir. March 2, 2005). Microsoft’s petition for rehearing and rehearing en banc was denied by the Federal Circuit on May 3, 2005. FN2 35 USC �271(f) (emphasis added). FN3 AT&T Corp. v. Microsoft Corp., 414 F3d 1366 (Fed. Cir. July 13, 2005). FN4 NTP, Inc. v. Research in Motion, Ltd., 2005 WL 1806123 (Fed. Cir. Aug. 2, 2005). FN5 35 USC 271(a). FN6 35 USC 271(g).

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