Looking at Federal Circuit developments 2005: the year in review *.

AuthorDzwonczyk, Michael R.

The Federal Circuit's much-awaited en banc pronouncements about claim construction in Phillips (1) overshadowed many of the court's other decisions this year, both in the press and on the conference circuits. But the court has issued a number of decisions in other areas of patent law in 2005 that both clarify, and in some cases confuse, existing law under Federal Circuit precedent. This paper looks at some of the notable developments by the court this year in four areas of law: the extraterritorial reach of U.S. patent law, claim construction, inequitable conduct and enablement.

  1. Extraterritorial Reach of 35 U.S.C. [sections]271(f)

    Within the past year, the Federal Circuit has refined the contours of the extraterritorial reach of U.S. patent laws under 35 U.S.C. [sections]271(f) in a series of cases that highlights the court's unease in construing this statutory provision.2 Losing parties in all four of the court's [sections]271(f) cases this year have sought review by way of petitions for rehearing, rehearing en banc, or certiorari.

    1. Components of Patented Inventions Under [sections]271(f) Need Not Be Tangible

      The Federal Circuit in Eolas Technologies Inc. v. Microsoft Corp. (3) considered the issue of whether software code contained on a "golden master" disk (manufactured in the United States and exported to Original Equipment Manufacturers (OEMs) abroad), was a "component" under [sections]271(f) sufficient to sustain a damages award for Microsoft's foreign sales of Windows[R] with Internet Explorer[R]. Foreign OEMs use the golden master disk to replicate the software code onto computer hard drives for sale outside of the United States. The golden master disk itself does not end up as a physical part of an infringing product (4) and the software code per se was unpatented; rather, the claims were directed to a computer program product. (5) The district court determined that the software code on the golden master disks constituted a "component" of an infringing product for combination outside of the United States under section 271(f), and held that Eolas' royalty for Microsoft's infringement should include foreign sales of the patented computer code. The Federal Circuit agreed, construing "patented invention" in [sections]271(f) broadly to mean any "invention or discovery," (6) including a process. (7) Contrary to arguments offered by Microsoft, neither the statutory language nor the legislative history of the enactment of [sections]271(f) (overruling Deepsouth (8)) limited "components" under [sections]271(f) to machine components or structural or physical components. According to the court, the software code on the golden master disk was not only a component, it was "probably the key part of [the] patented invention." (9) By any metric, the Eolas case involved an extraordinary extension of [sections] 271(f) to capture foreign sales.

      Both Microsoft and a surprised amici community petitioned for rehearing or rehearing en banc. (10) There is no decision on the petition as of yet. Just weeks after Microsoft's petition was filed, it argued nearly the same issues again in AT&T v. Microsoft. (11)

    2. "Supplied" Under [sections]271(f) Includes Foreign Replication of Exported Components That Are Sold Exclusively to Foreign Users

      Microsoft supplies a limited number of master versions of the Windows[R] software to foreign computer manufacturers and authorized foreign "replicators," who, pursuant to their licensing agreements with Microsoft, replicate the master versions in generating multiple copies of Windows[R] for installation on foreign-assembled computers that are then sold to foreign customers. (12) After a district court found Microsoft liable for infringement of AT&T's Reissue '580 patent based on copies of the Windows[R] operating system replicated abroad, Microsoft again argued that software could not be a "component" of a patented invention within the meaning of [sections] 271(f). The court squarely disposed of this argument based on Eolas, decided only three months earlier.

      Microsoft also argued that no actual "components" had been "supplied" from the United States as required by [sections]271(f) because the copies of Windows[R] installed on the foreign-assembled computers had all been made abroad. But the Federal Circuit, per Judge Lourie, was unpersuaded. Because software was typically "supplied" by transmitting an exact copy, the court reasoned that the act of copying was subsumed in the act of "supplying," such that sending a single copy abroad with the intent that it be replicated invoked [sections]271(f) liability for those foreign-made copies. (13) The court rejected Microsoft's argument that [sections]271(f) liability should attach only to disks shipped and incorporated into a foreign-assembled computer, because inherent in the nature of software is its replicability from a single disk. According to the court, all such resulting copies had essentially been supplied from the United States.

      Dissenting, Judge Rader disagreed that "supplied" in [sections]271(f) included copying, replicating, or reproducing--in effect manufacturing. (14) To give such a broad interpretation of "supplied" was--according to Judge Rader--(1) an unwarranted extraterriorial expansion of U.S. patent law, (2) violative of both Supreme Court and Federal Circuit precedent, (3) discriminatory based on the field of the inventive technology, and (4) inconsistent with Congress' intent in enacting [sections]271(f). (15)

      To be certain, Judge Lourie's expansion of "supplied" to encompass sending a copy of software abroad with the intent that it be replicated (based on the nature of software itself) has telling implications on a U.S. biotechnology industry whose members may produce domestically but thereafter export products capable of self-replication. Left unchecked, the AT&T case may, sub silentio, be one of the most important decisions for biotech companies this year.

    3. The Domestic Sale of Blackberry[R] Devices is not the "Supply" of a "Component" of a Patented Method

      In early August, the court again revisited the outer edges of [sections]271(f) in NTP v. RIM (16) a re-do of last December's notorious Blackberry[R] case. (17) In NTP, the court held that RIM's supply of Blackberry[R] devices to customers in the US was not the statutory "supply" of any "component" steps for combination into NTP's patented methods and thus did not constitute infringement under [sections]271(f). (18) NTP's method claims at issue recited a series of steps for transmitting information from an originating processor in an electronic mail system to at least one destination processor. One of the steps in the process in each asserted method claim recited an "interface" or "interface switch," which was only met by the use of RIM's Blackberry[R] relay located in Canada. (19) The district court found infringement of all asserted claims of NTP's patents and denied RIM's JMOL motions seeking relief. (20)

      In its initial panel opinion, the Federal Circuit affirmed the judgment of the district court, stating that that the location of the RIM's infringement was within the territorial United States, not abroad as in Deepsouth. (21) The court held that even though one of the accused components in RIM's Blackberry[R] system was located in Canada, the beneficial use and function of the whole operable system assembly was within the United States. According to the court, it was immaterial whether the messages exchanged between Blackberry[R] users were transmitted outside of the United States at some point. (22)

      Reversing direction, the Federal Circuit vacated its original panel opinion and held that although Congress did not expressly limit [sections]271(f) to a specific type of invention, (citing Eolas), "RIM's supply of the Blackberry handheld devices and Redirector products to its customers in the United States is not the statutory "supply" of any "component" steps for combination into NTP's patented methods." (23) By merely supplying products to its U.S. customers, RIM did not supply or cause to be supplied any steps of a patented process invention for combination outside the U.S. and did not infringe NTP's asserted method claims under section 271(f) as a matter of law.

    4. The Foreign Sale of Catalysts IS a "Supply" of a "Component" of a Patented Method

      Just weeks after NTP was decided, the Federal Circuit in Union Carbide (24) reached an opposite result from the NTP decision regarding the sale of a component of a patented method practiced abroad. Shell manufactures unpatented silver catalysts used in the production of ethylene oxide (EO). It sells these catalysts to customers abroad, who make EO but do not sell EO in the United...

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