'; April 2017 Newsletter

April 2017 Newsletter

April 4, 2017

Supreme Court: Supplying only one component of a patented product is not infringement

35 U.S.C. § 271(f)(1) prohibits supplying “from the United States all or a substantial portion of the components of a patented invention … uncombined in whole or in part … to actively induce the combination outside the United States,” where the combination would infringe if done in the United States.

In its recent decision in Life Technologies Corporation v. Promega Corporation, the Supreme Court addressed whether supplying only one such component could constitute a violation of § 271(f)(1). The Supreme Court’s answer was a resounding “no.”

The Supreme Court’s decision overturned an earlier decision by the U.S. Court of Appeals for the Federal Circuit. In that case, the Federal Circuit opined that even a single component could constitute “a substantial portion of the components of a patented invention,” if it were sufficiently important to the finished product.

Disagreeing with the Federal Circuit, the Supreme Court held that a single component can never constitute “all or a substantial portion” of an invention’s components under § 271(f)(1), regardless of how important that component is to the invention. After analyzing the statute’s plain language and legislative history and applying principles of statutory interpretation, the Court concluded that the “substantial portion” requirement is purely quantitative – not qualitative – and, in its proper context, cannot refer to a single component.

“In view of Promega, we now know that the ‘substantial portion’ requirement of § 271(f)(1) is quantitative, and liability for infringement under this section can be avoided if only one component of a patented invention is supplied,” says Ken Spina, a member in Leydig’s Chicago office. “This decision frees suppliers wanting to avoid liability from having to determine the relative importance of an invention’s components.” While concluding that one component cannot constitute a “substantial portion,” the Court left an important question unanswered, Spina says.

Promega does not tell us what percentage of an invention’s components constitutes a ‘substantial portion’ under § 271(f)(1),” Spina says. “Is it more than half, and if so, how much more?”

Spina also cautions that, Promega notwithstanding, suppliers could still face liability for supplying one component under other sections of the Patent Code.

Promega does not stand for the proposition that supplying only one component of a patented invention will always avoid infringement,” Spina says. “For example, 271(f)(1)’s companion provision, § 271(f)(2), covers situations in which a single component is ‘especially made or especially adapted for use in the invention.’ While Promega did not directly address § 271(f)(2), potential market participants should be cognizant of that provision as well.”

Courts begin to define scope and application of DTSA

The Defend Trade Secrets Act (DTSA) has been in effect for nearly a year, and courts are now beginning to determine the contours of the law.

“As a mechanism for enforcing trade secret rights, the use of the DTSA is a work in progress,” says John Augustyn, a member in Leydig’s Chicago office. “As more claims are filed, we will get a better sense of how courts will apply the law in terms of its unique remedies and its interaction with state trade secret laws, among other issues.”

Pre-enactment application of DTSA

Two recent federal court decisions – one from the Middle District of Florida and one from the Northern District of California – concluded that a plaintiff may be precluded from bringing a claim under the DTSA if the claim only alleges acts of misappropriation that occurred before May 11, 2016.

“While the DTSA is still in its infancy, it would not be unusual for a claim to be based, at least in part, on acts of misappropriation that occurred before the DTSA’s effective date,” Augustyn says. “Even if a claim is based on a continuing misappropriation that began before May 11, these cases make it relatively clear that plaintiffs should allege that at least some of the actionable conduct occurred after that date for their claims to be viable.”

Ex parte seizure

The first courts to consider requests for ex parte seizure as provided for in the DTSA emphasized the extraordinary nature of such a remedy, and indicated that the circumstances that would justify ex parte seizure should be equally extraordinary.

“To maximize the chances of obtaining relief resulting in an ex parte seizure order, a plaintiff should be prepared to explain why seizure is necessary and why other remedies are inadequate,” says Nicole Kopinski, an associate in Leydig’s Chicago office. “Unless a plaintiff can show that the property is at risk of immediate destruction, based on the defendant’s history of disobeying court orders or destroying evidence, or that the defendant is planning to disclose the trade secret immediately to a third party, or is seeking to flee the country with trade secret information, a seizure order is unlikely.”

Conflict with state trade secret laws

“While the DTSA establishes a federal cause of action for trade secret misappropriation, it doesn’t pre-empt state laws that cover the same ground,” Augustyn notes. “Plaintiffs will want to be strategic as to where they file their claims as some state laws offer stronger protections for employees that could make it more challenging to get a favorable result on a misappropriation claim by an employer.”

Additionally, conflicts between the application of the DTSA and state trade secret laws will inevitably arise, Augustyn says.

“In California, for example, an injunction that prevents employee mobility is more difficult to obtain than in other states,” he says. “Such an injunction may be available under the DTSA, but you want to consider which state law may apply and the forum for the lawsuit.”

Employee notice of whistleblower protections

Another feature of the DTSA is the immunity it provides employees if they disclose trade secrets in a whistleblower capacity.

This feature is important for employers because the DTSA specifies that some of the law’s remedies, such as punitive damages and attorneys’ fees, will be unavailable if they do not include notice of these whistleblower rights “in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.”

Augustyn advises companies to review and revise their employment agreements, handbooks, nondisclosure agreements, and other applicable materials to include the statutory notice language.

Supreme Court to reconcile patent exhaustion and conditional sale doctrines

The Supreme Court will address the question of how much control, if any, a manufacturer of a patented product can have on the use of that product after its initial sale. By granting certiorari in Lexmark International v. Impression Products, the court may provide clarity on the interplay of two competing principles of patent law: “patent exhaustion” and “conditional sale.”

“The flurry of amicus briefs filed in support of Impression’s position that the patent exhaustion doctrine nullifies any purported post-sale restrictions is a sign of this decision’s potential significance,” says Wesley Mueller, a member in Leydig’s Chicago office.

“If the Court holds that such post-sale restrictions cannot be preserved, it will likely have a significant impact on companies that make and sell new products that include patented components,” Mueller says.

Lexmark is a global manufacturer of printer cartridges. It sells cartridges, at a discounted price, with a restriction that prohibits purchasers from reusing or transferring them. Notwithstanding that limitation, Impression buys and refurbishes those discounted cartridges to sell on the aftermarket.

Impression defeated Lexmark’s infringement claims in the district court, successfully arguing that patent exhaustion prohibited Lexmark’s post-sale restriction. Also known as the “first sale” doctrine, patent exhaustion is the principle that an initial authorized sale of a patented item terminates all patent rights to that item because title in the patented item has transferred.

An en banc U.S. Court of Appeals for the Federal Circuit sided with Lexmark, however, confirming support of the “conditional sale” doctrine, which allows a patent owner to retain rights in a patented product after its sale, provided the restrictions are “clearly communicated.”

Many commentators believe that the Supreme Court will weigh in on whether and how these two doctrines can coexist.

Design patent damages can be limited to component profits, Supreme Court says

Damages for infringement of a design patent having multiple components can be limited to the profits attributable to individual components, rather than the total profits earned on the entire product sold to consumers, the Supreme Court held recently. The Court’s decision in the ongoing saga of Apple v. Samsung means that calculating damages for design patent infringement may now become much more complex and fact-intensive.

“Before this decision, the damage formula for design patent infringement was straightforward – give us your total profits on the entire product,” says Jeremy Jay, a member in Leydig’s Washington, D.C., office. “Now, trying to figure out how much of an infringer’s profits were due to one component out of multiple components may lead to difficulties in showing consumers’ motivation for buying a product.”

The Court’s recent opinion reversed and remanded a decision by the U.S. Court of Appeals for the Federal Circuit that awarded Apple the total profits Samsung earned on smartphones that included the design patents having multiple components at issue.

The Federal Circuit awarded damages pursuant to 35 U.S.C. § 289, which entitles a prevailing plaintiff to a defendant’s total profits on an “article of manufacture.” Since consumers could not purchase the phones’ component parts separately, the court held that the “article of manufacture” as used in § 289 could only mean the phone itself. Thus, the total profits on the whole phones were the appropriate measure of damages.

The Supreme Court did not opine as to whether the Federal Circuit’s $399 million damage award was appropriate in this case. Rather, “the only question we resolve today is whether, in the case of a multi-component product, the relevant ‘article of manufacture’ must always be the end product sold to the consumer or whether it can also be a component of that product,” Justice Sonia Sotomayor wrote for a unanimous court.

The Court concluded that the term “is broad enough to embrace both a product sold to a consumer and a component of that product whether sold separately or not.” In holding that design patent damages could be limited to profits attributable to a component, the court acknowledged the challenges inherent in such an analysis.

“In the case of a design for a single-component product, such as a dinner plate, the product is the ‘article of manufacture’ to which the design has been applied,” Sotomayor wrote. “In the case of a design for a multi-component product, such as a kitchen oven, identifying the ‘article of manufacture’ to which the design has been applied is a more difficult task.”

Jay believes the decision is one that will keep patent lawyers busy, especially since the Court offered little guidance as to when and how such component damages are to be calculated.

“Design patent litigants will now have to argue about which of two potential damage formulas – profits attributable to one or more components or total profits from the final product – should apply in their case,” Jay says. “Then, if it is the former, they will have to consider obtaining consumer surveys and reports from market experts to put a dollar figure on profits attributable to just one component in a complex product. A more difficult task indeed.”

Supreme Court to decide scope of venue for patent infringement suits

Will patent litigation plaintiffs still be able to file suits nearly anywhere they choose or will defendants be able to fight a patent holder’s choice of a far-flung or plaintiff-friendly venue? The Supreme Court will answer this question in TC Heartland LLC v. Kraft Food Brands Group LLC.

“Currently, patent plaintiffs can pursue cases in U.S. courts with plaintiff-friendly reputations. If the Court decides to change the status quo by narrowing the scope of permissible venue in patent cases, it could dramatically reshape patent litigation,” says H. Michael Hartmann, a member in Leydig’s Chicago office.

“For decades, patent plaintiffs have had the luxury of being able to choose almost any venue in the country, regardless of where the defendant’s principal place of business is,” Hartmann says. “If the Court finds that patent venue is limited to jurisdictions where the defendant is incorporated or headquartered, plaintiffs will no longer be able to select a forum, such as the Eastern District of Texas, based primarily on its perceived friendliness to patent holders.”

28 U.S.C. § 1400(b) limits venue in patent cases to judicial districts “where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.” In 1957, the Supreme Court held in Fourco Glass Co. v. Transmirra Products Corp that § 1400(b) was not to be interpreted in conjunction with the general venue statute, 28 U.S.C. § 1391, which broadly defines “residence” for venue purposes as “any judicial district in which it is … licensed to do business or is doing business.” Rather, the Court held that “where the defendant resides” as used in § 1400(b) only means the defendant’s state of incorporation.

In 1988, Congress amended the general venue statute to expand the definition of residency “for all venue purposes” as “any judicial district in which such defendant is subject to the Court’s personal jurisdiction.”

The U.S. Court of Appeals for the Federal Circuit has consistently held that the 1988 amendment implicitly overruled the Supreme Court’s decision in Fourco Glass. Since most patent defendants will be subject to personal jurisdiction almost anywhere they conduct business, this has allowed plaintiffs to choose the venue that they believe would be the most advantageous, regardless of where the defendant is located.

Hartmann says that those who are advocating for narrower patent venue choices are doing so for the same reasons that others want to maintain the expansive status quo.

“All patent litigants want a home field advantage,” Hartmann says. “It can absolutely make a difference.”

Leydig Announces

  • The Leydig, Voit & Mayer newsletter is going digital. Email to make sure you are on the list for the first online issue.

Leydig Awards

  • The 2017 World Trademark Review 1000 recognized Leydig as one of the top trademark law firms in Illinois, and recognized Mark Liss, Tamara Miller, Anne Naffziger, Kevin Parks, Claudia Stangle and Lynn Sullivan as top trademark lawyers.
  • Illinois Super Lawyers 2017 has named the following Leydig attorneys as Super Lawyers in Intellectual Property: David Airan, John Augustyn, Bruce Gagala, H.  Michael Hartmann, John Kilyk Jr., John Kozak, Mark Liss, Tamara Miller, Charles Mottier, Wesley Mueller, Steven Sklar and Robert Wittmann.
  • Illinois Super Lawyers 2017 has named the following Leydig attorneys as Rising Stars in the areas of Intellectual Property: Leonard Hua, Elias Soupos, Ashlee Szelag and David Van Buskirk.