Taking Notes, Global Portfolio Management Strategies in view of Life Technologies v. Promega
As expected another patent decision came down last month from the US Supreme Court. Life Technologies v. Promega, Case No.: 14-1538 (Feb. 22, 2017). This case involves the question of “substantiality” with respect to inducing infringement by manufacturing some portion of a device’s components in the United States for what would be an infringing configuration abroad, had the configuration been assembled domestically. 35 USC §271(f)(1). Global portfolio managers will want to take notes, this question can be an important one for domestic patent holders that sell their products globally. One does not want a competitor to benefit from the manufacture or sale of all or a “substantial portion” of a patented invention locally and compete with their products abroad without obtaining a license.
The Court was unanimous as to its holdings that: (1) the “substantial portion” limitation in the statute was strictly a quantitative measure (not qualitative) and (2) a singular component of the patented invention is insufficient to create liability under §271(f)(1), without being tailored for infringement under §271(f)(2).
Justice Sotomayor, writing for the Court, started by answering the first question – whether “a substantial portion of the components of a patented invention” in §271(f)(1) regards a quantitative measure? Finding in the affirmative, the Opinion first looked at the plain and ordinary meaning of the word “substantial.” Though, the Court conceded that “‘[s]ubstantial,’ as it is commonly understood, may refer either to qualitative importance or quantitatively large size.” (emphasis added). Not finding a disposition of the issue in the plain and ordinary meaning of the term “substantial,” the Court next looked to its neighboring text: “[b]oth ‘all’ and ‘portion’ convey a quantitative meaning.” Nothing in the neighboring text gives clues as to intent for a qualitative meaning. From there the court employed a common canon of statutory construction to construe the statute in a manner as to give meaning to all terminology in the code. “A qualitative reading would render the phrase ‘of the components’ unnecessary the first time it is used in §271(f)(1).” The Court found it impractical to task fact-finders, specifically jurors, with determining what a “substantial portion” means from a qualitative standpoint on a case-by-case basis. (Interestingly enough, the “black box” in this case found in favor of inducement based upon the manufacture of a single component; was this boundary-pushing verdict reached by interpreting “substantial portion” to have a purely quantitative or quasi-qualitative meaning? In any event, something about the case caused them to rise to the occasion at the district court level and find for liability.).
The Court’s Opinion to this point begs the question: well, if quantitative is the measure of substantiality, how much is enough? Leaving us panting, the Court dodged that bullet, only telling us that a single component in a multicomponent invention is not enough. In arriving at this conclusion, the Court looked to the plain and ordinary meaning of the word “components” in §271(f)(1). Seeing that it is written in the plural sense the Court reasoned that Congress must have intended for more than one component to be exported in order to trigger liability. The Court also found guidance in the neighboring statute §271(f)(2) indicating that it works in tandem with §(f)(1), which defines the only circumstance where the exportation of a single component could create liability for inducement in a multicomponent device. I.e., that is where the component is “especially made or especially adapted for use in the invention.” The Court reinforced the presumption against the extraterritorial effect of domestic laws, citing Microsoft v. AT&T.
Justice Alito and Justice Thomas signed onto the Opinion in large part, concurring in the judgment. They wrote separately, however, to taunt the notion that Deepsouth Packaging (a case involving the exportation of all patented components, which served as the impetus for this legislation) provided any competent instruction as to the interpretation of the term “substantial portion.” The overall Opinion granted some substantial peace of mind to global manufacturers as many answers were provided.
IP stakeholders now know that the extraterritorial effect of §271(f) is more limited than before. Practically speaking, however, we still don’t know how much of a multicomponent invention (above a single component) need be shipped abroad to create liability and licensing obligations. Certainly, with the probability of being heard at the US Supreme Court in the low 1% range these days, one could reasonably rely on the Federal Circuit’s more liberal bent on the matter to revise ones portfolio-management strategy. Remember, the hippie CAFC thought one component was enough, which suggests that two components of ten might also be sufficient to impose liability.
Undoubtedly, the term substantial – whether quantitative or qualitative in measure – is a comparative term. This meaning that whatever subcomponents are shipped, their “substantiality” will be compared to the completed invention. Did the Supreme Court also rule that one fifth or 20% of the invention is insubstantial?... I guess we will find out.
Until then, a reasonable portfolio-management strategy considering Life Technologies would be to continue enforcing licensing obligations for the manufacture or sale of components greater than one. It can be expected, still, that an optimistically reasonable manufacturer might now challenge licenses for subcomponent manufacturing in any quantity less than… “all” or something proximate to the same.
