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Federal Circuit Overrules Precedent, Holds That Foreign Infringement of U.S. Method Patents Are Not Subject to Damages




by:
Jeffrey "Jeff" C. Morgan
Vincent Bushnell
Troutman Sanders LLP - Atlanta Office

 
September 4, 2009

Previously published on September 1, 2009

In its recent en banc decision in Cardiac Pacemakers, Inc., et al. v. St. Jude Medical, Inc., et al., the Federal Circuit Court of Appeals overruled prior precedent and held that foreign sales of products that infringe a U.S. method patent are not subject to damages.  Specifically, the Federal Circuit stated that Section 271(f) of the Patent Act, which is often used to recover damages for foreign sales of infringing products, “cannot apply to method or process patents.”  As a result, method patent holders cannot recover damages for infringing products made in the United States and exported abroad unless all of the infringing steps of the patented method or process are carried out in the United States.  In so ruling, the Federal Circuit expressly overruled any conflicting holding in Union Carbide Chemicals & Plastics Technology Corp. v. Shell Oil Co., “as well as any implication in Eolas [Techs., Inc. v. Microsoft Corp.]  or other decisions that Section 271(f) applies to method patents.” 

The products at issue in Cardiac were implantable cardioverter defibrillator devices (“ICDs”).  The accused infringer manufactured the allegedly infringing ICDs in the United States and then exported them to foreign countries.  The allegedly infringing methods for the exported ICDs were only performed in foreign countries, not in the U.S.

Many believe that the Federal Circuit’s decision in Cardiac was a logical extension of the Supreme Court’s earlier holding in AT&T Corp. v. Microsoft Corp., which was discussed in our May 17, 2007 Advisory.  In AT&T, the Supreme Court held that a patent owner is not entitled to damages under Section 271(f) for foreign sales of infringing products whose physical components are manufactured or copied abroad.  As noted by the Federal Circuit in Cardiac, the Supreme Court in AT&T “reserved judgment on whether ‘an intangible method or process…qualifies as a ‘patented invention’ under § 271(f),’ but noted that, if so, the ‘combinable components of that invention might be intangible.’”  According to the Federal Circuit, the Supreme Court “sent a clear message that the territorial limits of patents should not be lightly breached.”  The Federal Circuit’s decision in Cardiac therefore purports to answer the question left open by the Supreme Court as to the territorial limits of Section 271(f) as applied to method and process patents. 

The Federal Circuit based its holding on the legislative history of Section 271(f), “the provision’s place in the overall statutory scheme,” and on its conclusion that the “components” of a method or process patent cannot be “supplied” as required by the text of Section 271(f).  The Federal Circuit acknowledged that “method patents do have ‘components,’ viz., the steps that comprise the method,” but noted that “a material or apparatus for use in practicing a patented process is not a component of that process.”  Thus, the ICDs at issue in Cardiac did not themselves constitute “components” of the patented method under Section 271(f).  Moreover, the term “supplied” as used in Section 271(f) implies “the transfer of a physical object.”  “Supplying an intangible step is thus a physical impossibility, a position that not even [the patent holder] seems to dispute.”  Accordingly, the Federal Circuit concluded, the “components” (i.e., steps) of a method or process patent cannot be physically “supplied,” which “eliminates method patents from Section 271(f)’s reach.”  In the lone dissent, Judge Newman took issue with this interpretation of Section 271(f), arguing that the term “patented invention” as used in Section 271(f) “has the same meaning in this subsection as in every other part of Title 35,” and, as result, embraces method and process patents.

The Cardiac decision undoubtedly raises questions for both patent holders of method patents and accused infringers.  For example, going forward, patent holders should reevaluate how they can best protect their patented inventions from otherwise infringing foreign sales.  On the other hand, those who manufacture or sell products arguably covered by another’s method or process patent should reexamine their existing strategies regarding products manufactured in the United States and exported abroad.



 

The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.
 

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