Apocalypse soon: how the implementation of web services changes the game for extraterritoriality.

• Author: Joseph, Elizabeth T.
• Position: In method and process patenting

1. INTRODUCTION II. BACKGROUND A. Extraterritoriality and the Enactment of [section] 1(f) B. The Evolution of Method and Process Patents Under [section] 271(f) 1. Early Cases: Unequivocal Refusal to Include Method and Process Patents 2. The Gradual Broadening of [section] 271(f) C. A Return to the Narrowing of [section] 271(f): Cardiac Pacemakers 1. Majority Opinion 2. Dissenting Opinion D. The Future of the Software Industry: Web Services III. ANALYSIS A. Cardiac Pacemakers Majority: Encouraging Infringement Under [section] 271(f) 1. The Majority Opinion Cannot be Reconciled with Eli Lilly 2. The Concerns of Major United States Software Companies Are Not Universal B. Cardiac Pacemakers Dissent: The Correct Interpretation of [section] 271(f)? C. Implications of Cardiac Pacemakers for Web Services 1. The Importance of Software Patents 2. The New Problem Presented by Web Services 3. The Effect on Small Companies and Independent Inventors IV. Recommendation A. The Necessary Amendment to [section] 271(f)--Explicit Protection of Method and Process Patents B. Cardiac Pacemakers Dissent--The Necessary Interpretation of [section] 271(f) 1. Protecting the United States Software Industry 2. Preventing Damage to U.S. Manufacturing V. CONCLUSION I. INTRODUCTION

   The purpose of U.S. intellectual property laws was set forth in the Constitution when the Framers gave Congress the power "[t]o promote the Progress of Science ... by securing for limited Times to ... Inventors the exclusive Right to their respective ... Discoveries." (1) However, the ever-growing importance of overseas markets for the software industry has led major corporations to evade these laws. While U.S. patent law largely covers only domestic conduct, there is one exception--35 U.S.C. [section] 271(f)--that allows infringement liability based on the exportation of components of patented inventions for assembly abroad. (2)

   Congress enacted [section] 271(f) in a time when the manufacturing of physical products dominated the United States economy. (3) Since then, the focus of the economy has shifted from tangible goods to intangibles, such as software. (4) The rapid rate of innovation in the economy is mirrored in the software industry, whose future lies in the movement away from traditional packaged software towards Web Services. (5) This movement makes the interpretation of [section] 271(f) even more difficult, as future infringement claims will focus on intangible software stored on network servers, rather than physical copies of software alleged infringers ship from the United States.

   This Note suggests that [section] 271(f) should protect method and process patents. Part II examines the history of [section] 271(f) and the evolution of courts' interpretations of the statute with respect to method and process patents, and the most recent decision in this area--Cardiac Pacemakers v. St. Jude (6) Part II also addresses the future of the software industry and [section] 271(f)'s new problem--Web Services. Part III addresses how both the majority and dissent of Cardiac Pacemakers will affect extraterritorial patent infringement, what implications they will have for the future of Web Services, and their effect on the ability of small companies and independent inventors to collect damages for infringement of their patents. Finally, Part IV examines how courts and Congress can use [section] 271(f) to protect method and process patents, and why this is particularly important for small companies and independent inventors. In short, this Note addresses why the implementation of Web Services provides the right incentive for courts and Congress to provide more protection for method and process patents under [section] 271(f).

2. BACKGROUND

   1. Extraterritoriality and the Enactment of [section] 271(f)

      U.S. patent law is territorial in nature, (7) and through early decisions, the Supreme Court placed limits on its reach. In Brown v. Duchesne, the Court stated that "acts of Congress do not, and were not intended to, operate beyond the limits of the United States; and as the patentee's right of property and exclusive use is derived from them, they cannot extend beyond the limits to which the law itself is confined." (8) However, as patent law continued to develop over time, an exception to the tradition of extraterritoriality became necessary.

      A 1972 decision, Deepsouth Packing Co. v. Laitram Corp., (9) was the landmark case that exposed a glaring loophole in United States patent law. In Deepsouth, the plaintiff held patents on a shrimp de-veining machine. (10) The defendant manufactured and partially assembled the components of the patented machine, and then shipped the components to foreign consumers for assembly abroad. (11) Because none of the individual parts manufactured infringed the plaintiff's patent, the Court held that no part of [section] 271 (12) provided for infringement liability for the manufacture or use of a patented product outside of the United States. (13) In response to the Court's decision in Deepsouth, Congress enacted [section] 271(f), which reads:

      (1) Whoever without authority supplies or causes to be supplied in or from the United States all or a substantial portion of the components of a patented invention, where such components are uncombined in whole or in part, in such manner as to actively induce the combination of such components outside of the United States in a manner that would infringe the patent if such combination occurred within the United States, shall be liable as an infringer.

      (2) Whoever without authority supplies or causes to be supplied in or from the United States any component of a patented invention that is especially made or especially adapted for use in the invention and not a staple article or commodity of commerce suitable for substantial noninfringing use, where such component is uncombined in whole or in part, knowing that such component is so made or adapted and intending that such component will be combined outside of the United States in a manner that would infringe the patent if such combination occurred within the United States, shall be liable as an infringer. (14)

      However, the text of this statute is ambiguous to a certain extent, as it does not provide definitions for important terms such as "component." It is this ambiguity that has led courts to apply a variety of interpretations to the statute since its enactment.

   2. The Evolution of Method and Process Patents Under [section] 271(f)

      For a long period following the enactment of the statute, courts refused to apply [section] 271(f) to method and process patents. (15) However, courts have begun responding to advances in technology by interpreting the statute as including these patents. (16) To fully understand the progression of decisions, one must examine the evolution of courts' interpretations of [section] 271(f) with respect to method and process patents.

      1. Early Cases: Unequivocal Refusal to Include Method and Process Patents

         Early litigation under [section] 271(f) yielded little success for patent holders, as courts adamantly refused to interpret the statute as including method and process patents. (17) In the 1997 case, Aerogroup International v. Marlboro Footworks, (18) the court found that the design patent in question had no "component parts." (19) The court stated that if they were to apply a broad interpretation to [section] 271(f)(1), that would nullify [section] 271(a)'s purpose of limiting infringement within the United States. (20) The court went on to describe [section] 271(f) as "a specific and targeted exception" to extraterritoriality. (21)

         Similarly, the 1998 case Enpat v. Microsoft (22) resulted in a holding that [section] 271(f) did not apply to a patent for a computer-related method. (23) The court reasoned that the fact that all processes utilize physical parts is not enough to justify protecting method patents under [section] 271(f). (24) In the 2004 case, Pellegrini v. Analog Devices, (25) the court held that although the defendant sent instructions from the United States and therefore caused the supply of the components of a patented invention, [section] 271(f) was inapplicable because the terms "[s]uppl[ying]" or "caus[ing] to be supplied" require the "physical supply of components." (26)

      2. The Gradual Broadening of [section] 271(f)

         Beginning with Imagexpo v. Microsoft (27) in 2003, courts became more willing to interpret [section] 271(f) as including method and process claims. In this case, Imagexpo claimed that Microsoft had infringed its patent for network workflow software. (28) Though the case was decided on other grounds, the court found merit in Imagexpo's reasoning that the software "golden master" disk (or template) involved a code base that became an "integral ingredient" in the finished computer product and that the code drives the completed product and is transmitted through the "golden master." (29) The court also reasoned that "Microsoft's role in the production process is active rather than passive," which led to the conclusion that the template was a "component" under [section] 271(f). (30)

         Similarly, in 2005, the Federal Circuit, in Eolas v. Microsoft, (31) held that software code was a "component[] ... of a patented invention." (32) The court stated that the language of [section] 271(f) was not limited to "patented 'machines' or patented 'physical structures.'" (33) Instead, every component of an invention deserved the protection of [section] 271(f). (34) The court went on to reason that without the software code, "the invention would not work at all and thus would not even qualify as new and 'useful.' Thus, the software code on the golden master disk is not only a component, it is probably the key part of [the] patented invention." (35)

         The biggest decision for proponents of broadening of [section] 271(f) came when the Federal Court of Appeals, in AT&T v. Microsoft, found liability under [section] 271(f)...