Extraterritoriality in U.S. patent law.

• Author: Holbrook, Timothy R.

ABSTRACT

Globalization has eroded traditional territorial limits on intellectual property laws. Although this pressure was first seen in trademark and copyright law, recent court decisions have demonstrated that the territorial lines of U.S. patents are also under assault. Indeed, the Supreme Court recently considered extraterritoriality in U.S. patent law in its 2007 decision in Microsoft Corp. v. AT&T Corp., discussed thoroughly in this Article. Courts and commentators have offered two primary approaches to deal with the issue of the extraterritorial reach of U.S. patents. First, many courts, including the Supreme Court, continue to adhere to a strict view of a patent's territorial limits, affording protection only within the United States. This approach is overly broad in that it precludes effective protection for patent holders even when the usual concerns surrounding extraterritoriality are not present. Second, other courts and commentators would adopt far-sweeping, effects-based tests, in which any effect on the U.S. market is a basis to permit the patent to cover acts occurring outside the United States. Such approaches, however, fail to explicitly consider foreign law and risk creating conflicts with foreign jurisdictions.

This Article rejects both approaches and articulates a novel approach that would require courts to explicitly consider foreign law in assessing whether to enforce a patent extraterritorially. In essence, to infringe the U.S. patent, the patentholder would have to prove that the infringer would also infringe under the laws of the foreign country. If there would be some sort of conflict with foreign law, then the patent cannot be enforced. This balanced approach requires courts to address potential conflicts of law and comity concerns transparently, which fosters greater understanding or foreign patent law and hopefully facilitates international patent law norms that may help harmonize national patent laws through this informal mechanism.

TABLE OF CONTENTS INTRODUCTION I. VARYING APPROACHES TO QUESTIONS OF TERRITORIALITY A. A Strict Territorial Approach to Patent Infringement 1. The Supreme Court's Strict Adherence to Territorial Limits for Patents 2. The Federal Circuit's Occasional Strict Territorial Approach a. Limiting the Extraterritorial Reach of Injunctive Relief b. Section 271(g) Liability for Importing Products of Patented Processes 3. The Advantages and Disadvantages of Drawing Strict Territorial Lines for Patent Infringement B. Affording Extraterritorial Reach to U.S. Patents 1. Federal Circuit Case Law Evincing Broader Extraterritorial Protection a. Injunctions Reaching Outside of the United States b. Federal Circuit's Expansive Interpretation of [section] 271(f) c. Expanding [section] 271(g)'s Liability for Importing the Product of a Patented Process d. Section 271(a)--Finding Infringement "Within the United States" Even If Some Acts Occur Outside of the United States 2. Effects-based Approaches--Does the Conduct Affect the United States? 3. The Advantages and Disadvantages of Effects-based Approaches C. Neither Strict Territoriality Nor Effects-based Tests Are Satisfactory II. A NEW APPROACH--EXPRESSLY CONSIDERING FOREIGN PATENT LAW A. Is There Some Nexus to the United States? B. Ignoring Territorial Lines, Would the U.S. Patent Be Infringed? C. Does the U.S. Patentee Have a Patent in the Relevant Country? 1. The Patentee Has Patents in All Relevant Countries 2. The Patentee Does Not Have Patents in All Relevant Countries a. U.S. Patent Holder Does Not Have Patent Because Someone Else Does b. U.S. Patent Holder Tried and Failed To Procure Patent Protection in the Countries in Question c. Patent Holder Simply Does Not Have a Patent, Nor Does Anyone Else 3. The Problem of Rogue Countries D. Would the Infringer's Activities Infringe in the Foreign Country? III. Is THE COMPARATIVE METHOD DESIRABLE? THE PROS AND CONS A. The Advantages of the Proposed Methodology 1. The Comparative Approach Minimizes Conflicts of Law 2. Consideration of Foreign Law Can Create Dialogue and Help Develop International Norms of Patent Law B. Problems with the Comparative Approach 1. Are Courts Institutionally Competent To Address These Issues? 2. Reduction in Ex Ante Certainty and Predictability 3. The Loss of Legal Diversity CONCLUSION INTRODUCTION

The world is truly a smaller place. Markets are increasingly global in nature, with goods and services crossing borders routinely. Such a shift is in stark contrast to intellectual property rights, which are still national in nature: a patent, copyright, or trademark only affords the owner the right to exclude within a given country's borders. (1) This divergence between markets and property rights can create difficulties for companies seeking to protect such intangible assets. (2) Differing national intellectual property laws raise transaction costs in navigating international business transactions because the rights afforded may differ from country to country. Businesses must anticipate the varying levels of protection and attempt to maximize their opportunities on a country-by-country basis. The ascendance of the Internet as a medium for business transactions, coupled with technology that has digitized many works, has placed considerable stress on the copyright and trademark regimes, resulting in considerable debate about the best way to deal with territoriality issues. (3)

In contrast to copyright and trademark law, many commentators viewed patent law as the most territorially based form of intellectual property because most inventions were tangible in nature and because patents are subject to extensive review by a national government prior to the patent rights being granted. (4) The expansion of subject matter to cover intangible inventions, such as business methods and software, (5) has begun to place pressure on these historical territorial limits in patent law. Recent cases confirm that patent law is now beginning to buckle under the pressure. (6) Moreover, numerous commentators have noted this pressing issue within the court system, (7) although none have offered a satisfying solution to the erosion of territorial lines. Patented inventions now routinely transcend national borders, which places patent owners in the difficult position of protecting these assets.

One approach to dealing with this problem is to harmonize intellectual property laws so that they are generally uniform from country to country. This uniformity reduces the cost of evaluating the varying laws of the relevant countries. In fact, many efforts have been made to harmonize international intellectual property rights, although most resulting agreements have set floors of protection instead of equivalent levels of protection. (8) Even if all of the rights are the same, however, enforcing the rights would require litigation in each and every country where there is infringement. Such piecemeal litigation is a costly endeavor. (9) Moreover, it may be subject to failure because the patent holder must anticipate the markets in which infringing activity may arise. Once the patents have issued in one country, it is generally impossible to seek later patent protection. Thus, if the patentee guesses wrong--and someone begins to infringe in a country where she failed to seek protection--she will be unable to enforce the patent.

Intellectual property rights holders theoretically could bring claims for infringement of foreign patents within a single country's courts. For example, a U.S. patent holder could sue not only for infringement of the U.S. patent but also for infringement of a Japanese patent. The entire case would be litigated in the U.S. court. This approach would eliminate the need for litigation in every country where IP rights are held. Unfortunately, at least with respect to patents, the Federal Circuit has closed this door, holding that it is an abuse of discretion for district courts to hear claims for infringement of foreign patents. (10)

A third way of dealing with these problems is to provide extraterritorial reach to domestic intellectual property rights. (11) If domestic rights can reach activity outside of a given state, then the rights holder can coordinate activities through the use of fewer domestic rights, as opposed to assembling a portfolio of national rights from a variety of countries. Of course, the extraterritorial application of nationally based rights is strongly disfavored and risks interfering with the sovereignty of the other country into whose territory the rights holder is reaching. Patent laws vary from country to country, and the use of a U.S. patent to regulate behaviors in another country can run afoul of policy differences in the affected country.

Until recently, Congress was the primary agent of change as it relates to the territorial nature of patent rights. The courts would strictly construe the territorial limits of U.S. patent rights, (12) and Congress would amend the Patent Act to deal with these perceived loopholes. (13) But recent cases show that Congress is not acting expediently in closing new perceived loopholes that are arising in protection. In some cases, the courts have been willing to step up and extend the extraterritorial reach of U.S. patents in ways that are shockingly different from the reticence expressed in the past. These efforts often are made to avoid gaming of the system by parties aware of the territorial limits of the patent system, but even these judicial efforts may not eliminate all such gamesmanship. (14) In other cases, however, the courts have limited patent rights strictly to cover activities only within the United States. As such, the current state of the law is unclear and lacks a firm theoretical foundation. The courts have failed to articulate a persuasive jurisprudence for assessing the extraterritorial reach of U.S. patent rights.

In light of these new pressures on domestic patent laws...