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Quantity not quality: patent infringement by components exported from the US is a game of numbers

Posted: 06/07/2017

Can a company infringe a US patent if it manufactures one component of a patented invention in the US and exports it to the UK to be combined with other components that have been manufactured in the UK? Under US patent law, infringement by exported components of a patented invention is dealt with in Section 271 of the Patent Act. Patent infringement under this section requires that the alleged infringer export “all or substantial portion of the components of a patented invention” in such a manner as to actively induce the combination of such components outside the US. In its 22 February decision in Life Technologies Corp et al v Promega Corp, the US Supreme Court held that export of one component of a multicomponent invention does not satisfy this test.

Liability for extraterritorial sales under US patent law

In its 1972 decision, Deepsouth Packing Co v Laitram Corp, the US Supreme Court held that the defendant who made parts of a machine in the US and exported them to its foreign customers as separately packaged components to ‘work around’ a US patent which blocked it from making the complete product in the US was not liable for patent infringement. The court reasoned that, under US patent law as it existed at the time, it was not an infringement to make or use a product covered by a US patent outside of the US.

Section 271 was enacted by Congress in response to this decision in order to prevent copiers from avoiding US patents by supplying components of a patented product for assembly abroad.

Section 271 of the Patent Act reads: “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 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.” 35 USC 271(f)(1).
Significantly, a person found to infringe a US patent under this section would be liable for the worldwide sales of the product.

The facts of the case

Life Technologies Corporation, the defendant in the case, and its subsidiaries manufactured genetic kits that could be used in two separate fields – by law enforcement agencies for forensic identification and by clinical and research institutions for purposes such as analysing cancer cells. The kit which would amplify a particular sequence of DNA by synthesizing multiple copies of that sequence, consisted of five components: (1) a mixture of primers that mark the part of the DNA strand to be copied; (2) nucleotides for forming replicated strands of DNA; (3) an enzyme known as Taq polymerase; (4) a buffer solution for the amplification; and (5) control DNA.

In 2006, Promega Corporation and the predecessor of Life Technologies entered into a non-exclusive cross licence that granted the predecessor of Life Technologies the right to use the Promega inventions only in the law enforcement field.

Life Techologies manufactured one component of its kits in the US, the Taq polymerase, which it then shipped to its UK manufacturing facility. This facility assembled and sold the kits worldwide, including the US.

In 2010, Promega sued Life Technologies for infringement of the licensed patents alleging that sales of the testing kits into the clinical and research markets fell outside the licensed field and thus constituted infringement. The district court rejected Life Technologies’ defences and found on summary judgment that sales for uses other than for forensic investigations infringed the patents at issue. The case proceeded to a jury trial on damages and willfulness (which enhances any damages awarded).

The jury found that Life Technologies wilfully infringed Promega’s patents and that (1) all of Life Technology’s worldwide sales were attributable to infringing acts in the US; (2) ten percent of those sales were for unlicensed uses; and that (3) Promega was entitled to $52 million in lost profits.

The district court however vacated this judgment, finding that Promega failed to present sufficient evidence to sustain the jury verdict. The district court also held that Section 271(f)(1) requires the involvement of another, unrelated party to “actively induce the combination of components” and that no other party was involved in Life Technology’s assembly of the accused kits. It further found that the phrase “substantial portion of the components” in section 271(f)(1) requires at least two components to be supplied from the United States and that Life Technologies supplied only a single component.

The Federal Circuit, the appellate court for patent cases, disagreed on both counts and reinstated the jury’s verdict finding Life Technologies liable for infringement. When Life Technologies appealed, the Supreme Court granted certiorari.

The Supreme Court decision

The question before the Supreme Court was whether the supply of a single component of a multicomponent invention is an infringing act under Section 271(f)(1).

As an initial matter, the court considered whether ‘substantial portion’ should be given a qualitative rather than quantitative meaning. The court construed the statute to mean the latter as the ‘substantial portion’ appears in the context of ‘components of a patented invention’.

The court then turned to the question of whether, as a matter of law, a single component can ever constitute a ‘substantial portion’ of components and thus trigger patent infringement liability under Section 271(f)(1). The court found that export of one component of a multicomponent product could not trigger liability under this section.

Notably, the court contrasted Section 271(f)(1) with the next subsection of the Act. Section 271(f)(2) explicitly deals with components that are “especially made or especially adapted for use in the invention and [are] not a staple article or commodity of commerce suitable for noninfringing use.” The export of ‘any’ such component for reassembly could constitute patent infringement.

What does it mean?

The Supreme Court’s decision is relevant to companies which supply components from the US for assembly and sale in other countries. Where the finished product is covered by a US patent, the company could be liable for patent infringement in the US.

What is clear is that the relative importance of the component or components supplied is not a factor in the analysis. As the test is quantitative, companies reviewing their supply chains do not need to evaluate which of the components of a product is being manufactured and exported from the US. The caveat to this is Section 271(f)(2) – if the component’s only possible use is in the patented invention, the supply of even one such component could constitute infringement of a US patent.

For now, the decision may give some assurance to the few companies that are in the situation equivalent to the fact scenario in the Life Technologies case. Unfortunately, the Supreme Court’s decision leaves more questions than answers, a fact the court acknowledged: “We do not today define how close to ‘all’ of the components ‘a substantial’ portion must be. We hold only that one component does not constitute ‘all or substantial portion’ of a multicomponent invention under Section 271(f)(1).”

Indeed, because in this case the parties had stipulated the number of components in the product at issue, the court did not give guidance as to what constitutes a ‘component’. The Supreme Court merely defined the goal posts in numerical terms. Export from the US of all components of a patented invention for assembly constitutes infringement. Export of one component of a multicomponent invention does not.

Everything in between is still to play for.

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