Back in 1972, the U.S. Supreme Court oversaw the case of Deepsouth Packing v. Laitram Corp.. Laitram had brought a patent infringement claim against Deepsouth, alleging that the latter had manufactured shrimp deveining equipment which infringed on the former’s patents. Deepsouth admitted to infringing on the patents, but filed a counterclaim, based on a wrinkle in the case that complicated matters: The component parts of the equipment had been manufactured outside the United States, shipped abroad for final assembly, and subsequently imported.
The lawyers for Deepsouth argued that, as written, the Patent Act only protected against infringement when patented items were fully assembled within the United States.
Ultimately, the Supreme Court agreed. As stated in the decision:
The word “makes” as used in § 271(a) does not extend to the manufacture of the constituent parts of a combination machine, and the unassembled export of the elements of an invention does not infringe the patent.
Ultimately, the U.S. Supreme Court ruled that the Patent Act didn’t provide any protections against patent infringement perpetrated overseas. This is because of a legal construct known as “presumption against extraterritoriality.” Essentially, in interpreting the Constitution and U.S. law, judges found that laws only apply to the conduct of individuals and companies within the United States, unless otherwise explicitly indicated.
When the SCOTUS found that the Patent Act provided no overseas protections, Congress sought to find a remedy. Lawmakers didn’t want to apply the full breadth of patent law outside the U.S., but also didn’t want to leave the door wide open. So, Congress tweaked the Patent Act by adding Section 271(f), granting an exception under which infringement claims could be filed against infringers who manufactured components in the United States, and then shipped them overseas for assembly into a device that infringed on an American patent.
Essentially, Congress attempted to shut the door on Deepsouth imitators seeking to make all the component parts, then shipping them over the border for the requisite “some assembly required” before importing the finished products back into the United States.
The laws surrounding overseas enforcement of patent law, and court interpretation of those laws, are always changing. It pays to have a patent expert on your side. If you need assistance with a matter involving overseas U.S. patent enforcement, contact the Law Office of Michael O’Brien by calling (916) 760-8265, or sending a message using our contact form.
But, what should rightsholders and potential infringers know about the current lay of the land, as it pertains to patent enforceability outside the United States?
Courts are still attempting to find the bounds of the enforceability of patent law overseas.
Back in 2009, WesternGeco, a manufacturer of towed sensor arrays used for finding oil below the sea floor, filed suit against Ion Geophysical. The latter had manufactured components in the United States which were assembled overseas into arrays which infringed upon WesternGeco’s patents. In 2012, the District Court for the Southern District of Texas found in favor of WesternGeco, and awarded them $12 million as a reasonable royalty for the company’s IP. In addition, because the Patent Act holds that patent owners are allowed to recover lost profits, the court awarded an addition $93.4 million—what WesternGeco would have made from 10 contracts that Ion Geophysical instead won.
Ion appealed, and the Court of Appeals ultimately vacated the award for lost profits, on the grounds that the contracts WesternGeco lost out on were fulfilled overseas, and thus fell outside the geographical bounds of patent law.
WesternGeco has now appealed to the Supreme Court, where the case will be heard during the spring session. WesternGeco’s argument is that the Congressional exception created in the wake of Deepsouth was designed specifically for this sort of infringement, and thus all damages should be awarded. A contrary interpretation essentially leaves patent holders undercompensated, with courts only awarding licensing fees, but not damages for lost profits. Ion argues that the exception created by Section 271(f) says nothing about sanctioning overseas conduct (i.e. what is done with the infringing products outside the U.S.), and thus it is inappropriate to award lost profits for contracts fulfilled outside the United States.
The court’s ruling, regardless of which way it decides, will have a significant impact on the ability of patent holders to recover damages.
What can rightsholders do to protect against overseas patent infringement?
First of all, it pays to be vigilant and aware of how your technology is being used, here and overseas. Work with a patent attorney to develop an international patent strategy that accounts for supply of and demand for your product outside the United States. If there are specific countries which would have a particular interest in your invention, then it may be wise to ensure you have patents from the respective patent offices of those countries.
When the need does arise for patent prosecution, enter into litigation with an enforcement strategy in mind.
Alleged and potential infringers need to take precautions to prevent prosecution, or running afoul of other laws.
If you are operating internationally, you need to do due diligence with regard to export control laws, which impact many areas of technology and related ‘know-how.’ The United States considers many forms of technology to be sensitive in nature, and thus restricts the export of such items. By attempting to sidestep patent protections, you may instead wind up having the Department of Commerce coming down on you like a sack of hammers.
Secondly, American law may apply to you, even if you are not located in the United States. It’s wise to work with an American patent lawyer and ensure that you are not running afoul of U.S. regulations.
Lastly, as always, the best defense is a good offense. Work to get enforceable rights in the United States—for instance, by purchasing a portfolio of patents and related IP. Making it dangerous and costly to sue you will make rightsholders look for easier targets to take down.
Threading the needle of overseas patent enforcement is a delicate matter, and as evidenced by the forthcoming Supreme Court case, requires vigilance and attention. If you need assistance with protecting against overseas patent infringement or litigation, the Law Office of Michael O’Brien can help. To learn more, contact us by calling (916) 760-8265, or sending a message using our contact form.