Traditionally, a U.S. patent could only be enforced against activities occurring within the U.S. The globalization of industries and markets over the past 50 years has brought down trade and communication barriers and integrated markets across the world. This has changed many companies from local or regional concerns into global players in the international supply chain. These changes have created conflict with existing U.S. patent law, in some cases allowing companies with infringing products to avoid liability by, for example, manufacturing the infringing product outside of the U.S. U.S. patent law has expanded over the last half century to address these loopholes. Many foreign activities that U.S. patent law traditionally carved out are now subject to liability, and the pace of change appears to be quickening. Although U.S. courts still discuss the traditional presumption against extraterritorial application of patent law,[1] in reality there are many exceptions to this presumption that allow enforcement of U.S. patents for activities occurring outside of the U.S.
Congress has repeatedly revised the patent infringement statute, 35 U.S.C. §271, to address foreign companies trying to skirt U.S. patent laws. For example, in Deepsouth Packing Co. v. Laitram Corp.,[2] the defendant manufactured components of an infringing product in the U.S. and then exported those components outside the U.S. for assembly into the infringing product. Applying the law at the time, the Supreme Court held that the defendant had not infringed the plaintiff’s patent because the assembly and sale of the infringing product occurred outside of the U.S., and it was “not an infringement to make or use a patented product outside of the United States.”[3] Congress enacted §271(f) in 1984 to address this gap by “expand[ing] the definition of infringement to include supplying from the U.S. a patented invention’s components” for assembly outside the U.S.[4] Four years later, Congress added §271(g) to the statute, which expanded liability for infringement for the importation, sale, or use in the United States of a product made abroad by a process patented in the United States. This closed the loophole for method claims of simply off-shoring manufacturing facilities (and then importing the manufactured product) to escape infringement liability. Similarly, in 1996, Congress added liability for the importation into the U.S. of infringing articles to the direct infringement subsection, §271(a).
These amendments can be applied broadly, especially alongside induced infringement under 35 U.S.C. § 271(b). §271(b) provides that “[w]hoever actively induces infringement of a patent shall be liable as an infringer.” For example, not only can a foreign manufacturer be liable for infringement under §271(g) for using a patented product to manufacture an infringing article outside of the U.S. (even if the article is ultimately imported into the U.S. by another entity), but in many cases the foreign manufacturer may also be liable for inducing its customers to import the infringing products under §271(b), even where the manufacturer has no direct link to the U.S. market. In Global-Tech Appliances, Inc. v. SEB S.A., the accused infringer, Pentalpha—located in Hong Kong—purchased one of SEB’s deep fryers in Hong Kong, manufactured its own copies of the fryer, and sold them to customers in Asia. [5] These customers independently imported the fryers into the United States.[6] Pentalpha was found liable for having induced infringement by manufacturing and selling the fryers in Hong Kong for their customers to import into the United States.[7]
The Federal Circuit has held consistently under similar facts. In O2 Micro Int’l Ltd. v. Beyond Innovation Tech. Co., the Court of Appeals of the Federal Circuit affirmed induced infringement by an Asian defendant even though the directly-infringing U.S. sales were made by a customer several rungs down the supply chain.[8] Similarly, in Power Integrations, Inc. v. Fairchild Semiconductor Int’l, Inc., the defendant’s knowledge of the likelihood that the product could be imported into the U.S. by downstream customers was enough to find inducement. In Power Integrations, even though the defendant did not actually know whether its customers were importing the infringing chips into the U.S., the evidence was sufficient to find inducement: designing chips to meet United States energy standards, providing demonstration boards containing the infringing chips to potential U.S. customers, and maintaining a technical support center in the United States.[9] Thus, a foreign business that runs a facially geographically-neutral operation can nevertheless be liable for induced infringement if its activities are directed at least in part to the United States. “[H]ard proof that any individual third-party direct infringer was actually persuaded to infringe” is not required.[10]
The district court opinion in Kaneka Corp. v. SKC Kolon PI, Inc., further illustrates this trend. In Kaneka, there were three degrees of separation between the accused induced infringer and the infringing act. The defendant’s polyimide film was sold to laminate manufacturers (layer 1), who sold laminates to manufacturers of circuit boards (layer 2), who then sold these circuit boards to the final “set-makers,” such as Samsung and LG (layer 3), who incorporated these circuit boards into mobile phones and imported them into the U.S.[11] Inducement was found because the defendant knew its film infringed plaintiff’s patents and that it actively and intentionally sold this film knowing that it would be incorporated into Samsung and LG phones, which would be imported into the United States.[12]
The geographic scope of patent damages has also been steadily expanding. For example, in 2018’s WesternGeco LLC v. ION Geophysical Corp,[13] the issue was whether a patent owner could recover lost foreign profits for infringement under §271(f). The dispute involved two competitors manufacturing sea-floor surveying technology.[14] The defendant manufactured components of its system and shipped them to other companies abroad who would then combine them to create a surveying system that infringed the plaintiff’s patent.[15] The court upheld the lower court award of lost profit damages based, in part, on purely foreign contracts (i.e. contracts for sales of the infringing product outside of the U.S.).[16] Several questions remain unanswered by this case, including whether such damages are limited to infringement under §271(f) and to “lost profits.” These issues are currently on appeal in Power Integrations,[17] where the plaintiffs argue that the analysis of WesternGeco would also permit recovery of damages for direct infringement under § 271(a) and both reasonable royalties as well as lost profits.[18]
With global commerce now being the norm rather than an exception, even purely foreign activities can create significant liability in the U.S. for patent infringement. This long-term trend toward an expansion of liability shows no signs of slowing down. Companies selling products into the international stream of commerce should be aware that significant U.S. liability may exist even where a company has no direct connection with U.S. markets.
[1] See Microsoft Corp. v. AT&T Corp., 550 U.S. 437, 454-455 (2007) (“The presumption that United States law governs domestically but does not rule the world applies with particular force in patent law”); Deepsouth Packing Co. v. Laitram Corp., 406 U.S. 518, 531 (1972) (“Our patent system makes no claim to extraterritorial effect.”).
[4] Microsoft, 550 U.S. at 444-445.
[8] 449 F. App'x 923 (Fed. Cir. 2011) (unpublished).
[9] Power Integrations, Inc. v. Fairchild Semiconductor Int'l, Inc., 843 F.3d 1315, 1333-34 (Fed. Cir. 2016).
[11] 198 F. Supp. 3d 1089 (C.D. Cal. 2016).
[17] See, e.g., Power Integrations, Inc. v. Fairchild Semiconductor Intl., No. 19-1246 (Fed. Cir. Dec. 3, 2018).
[18] Power Integrations Opening Brief at 34, Power Integrations, Inc. v. Fairchild Semiconductor Intl., No. 19-1246 (Fed. Cir. Apr. 12, 2019) (Dkt. No. 32.)