Run for The Border:
The Federal Circuit’s Decision in NTP v. Research in Motion May Provide a Way for Off-Shore Companies to Avoid Infringing U.S. Patents

November 11, 2005

United States patents are territorial in nature.  Under section 271(a) of the patent act, which defines what constitutes infringement of a U.S. patent, a U.S. patent protects against infringing conduct by third parties “within the United States.”  Distributed patent infringement claims—where claims are infringed by aggregating conduct of multiple actors who may be located in more than one country—pose a  problem for courts in reconciling the extraterritorial limits of § 271(a) with the realities of current technologies.  The Federal Circuit complicated the picture in its most recent opinion in NTP, Inc. v. Research in Motion, Ltd., holding that the technology behind the Blackberry handheld email device infringed the systems claims but not the method claims of NTP’s patents.  The RIM decision gives companies who fear that they may be accused of infringement of U.S. patents incentives to internationalize their technology systems.

Research in Motion (“RIM”), a Canadian company, manufactures and sells the popular BlackBerry device.  Plaintiff NTP sued RIM for infringement of its patents.  On the issue of an infringing use or sale in the United States, the Federal Circuit first rejected RIM’s argument that because its relay is located in Canada, users in the United States were not infringing because the patent statute applies to a party that “uses, offers to sell , or sells . . . within the United States.”  The court reasoned that because “control and beneficial use of RIM’s system occur” in the United States, the territorial component of the patent statute was satisfied.  Eight months later in August 2005, after receiving briefs from the Canadian government and Canadian chamber of commerce, the same three judge panel modified the ruling in one important respect.  The court found § 271(a) to be unclear as to “how the territoriality requirement limits direct infringement where the location of at least a part of the ‘patented invention’ is not the same as the location of the infringing act.”^[1]  It distinguished between (1) patent claims covering a claimed “system,” and (2) those covering a method or process.^[2]   

The court determined that infringement claims that are based upon “use” of a patented system in the United States are appropriate where the system as a whole is put into service (i.e., where beneficial control and use are exercised).  Method claims, on the other hand, the RIM court explained, must be handled differently because the concept of “use” under § 271(a) of a patented method or process is “fundamentally different” from use of a system.  A system is used as a whole; each of the components are used collectively, not individually.  In contrast, the court concluded that “[b]ecause a process is nothing more than the sequence of actions of which it is comprised, the use of a process necessarily involves doing or performing each of the steps recited.”^[3]  Since NTP’s method claims required a step using an “interface” or “interface switch” which, in RIM’s implementation of the method, took place at the Canadian relay, they could not be infringed by RIM’s implementation.^[4]

In addition to § 271(a), companies located outside the United States should be aware of three other subparts of that section.  First, under subsection (f), which covers extraterritorial activities that constitute infringement, one must “supply” the component of a patented invention “in or from the United States” in order for the extraterritorial action to be an infringement.  Second, a company may avoid liability under § 271(a) by making and selling a patent product outside the U.S^.[5]   However, it may walk into potential liability for inducing infringement by its ultimate customers located in the U.S. who use the patented article and are directly infringing under § 271(a).  Evidence that the company provided product support by email and in-person visits with knowledge of the existence of the patent is enough for a plaintiff to avoid summary judgment and get an inducing infringement claim under § 271(b) to the jury.^[6]  Foreign producers should also be aware of the reach of § 271(g) to products that are imported into the U.S. if made by a process outside the U.S. that infringes a U.S. process patent.

The latest RIM decision raises a number of interesting questions.

• Can a product or process be “designed around” known patents with distributed claims by locating one or more crucial steps outside the U.S.?  
• How should patent claiming strategy be adjusted to minimize the risk of an ineffective U.S. patent?  For example, where the system is a computer network, can the claims be written to cover only actions taken on the server side (or the client side) to avoid distributed claims?^[7]
• Infringement lawsuits should invoke (where supported) §§ 271(f) and (g) as well as the more common § 271(a) (direct), § 271(b) (inducing) and § 271(c) (contributory) infringement theories.
• Patentees should avoid relying solely on distributed claims to support infringement lawsuits; and where distributed claims must be included all actors should be named as defendants.
• Contractual indemnities must consider possible liability under these alternative infringement scenarios and relative responsibility should be expressly negotiated and allocated among the multiple actors in a distributed system.

Finally, all of the foregoing should be reevaluated again with the next Federal Circuit decision in this fast-changing arena.