May 13, 2008

By Jay Gordon Taylor

Just as competition in the world economy is purportedly becoming flat due to advances in technology as described in Thomas L. Friedman's best selling book, The World is Flat, the law of patent infringement is likewise becoming flat due to internet technology. In the recent decision of the U.S. District Court for the Southern District of Texas in Renhcol, Inc. v. Don Best Sports, et al., Judge Davis decided that patent claims directed to a "computer" and a "computer storage media" programmed to perform specific functions could be directly infringed in the United States under 35 U.S.C. §271(a) by foreign defendants even though the defendants and their computers and the computer storage media were located totally outside the United States. Judge Davis reasoned that because the computer and software could be accessed and controlled over the internet by users in the United States, "the situs of use of the allegedly infringing computer storage medium [and computer] is the United States." Unfortunately, Judge Davis ignored the issue of who was actually performing the allegedly infringing acts of "use" in the United States in reaching his conclusions of infringement by the foreign defendants.

Two of the defendants in the Renhcol case, one of whom was a Canadian corporation whose computer and software was located in Canada and one of whom was an Irish corporation whose computer and software was located in Ireland, moved for summary judgment of non-infringement under §271(a) because "the code for the accused websites is, and has always been, written outside the United States and the computers and servers that host the code are, and have always been, located outside the United States." Nonetheless, Judge Davis concluded that there was direct infringement under §271(a) by the defendants based upon the Blackberry case, NIP, Inc. v. Research in Motion, Ltd. 418 F.3d 1282 (Fed. Cir. 2005). In the NIP case, direct infringement of an apparatus claim was found under §271(a) although one element of the apparatus was located in Canada because the users in the United States "derive beneficial use from a device located overseas that infringes a claimed system." However, in the NIP case, the defendant and all elements of the allegedly infringing system except one resided in the U.S. Moreover, the holding in NIP was based upon an earlier Court of Claims decision, Decca Ltd. v. U.S., 544 F.2d 1070 (Ct. Cl. 1976) which held the United States Government liable for direct patent infringement of a patented radio navigation system under 35 U.S.C. §271(a) even though one of three radio antennas of that system was located in Norway. The court in Decca concluded there was direct infringement by the United States because of "ownership of the equipment by the Untied States, control of the equipment from the United States [by the United States] and … the actual beneficial use of the system [by the United States] within the United States." On the other hand, in the Renhcol case, all of the defendants and all of the allegedly infringed elements of the claims were located outside the United States, and the defendants themselves were not using or controlling the system in the United States.

While Judge Davis' logic for concluding direct infringement under §271(a) in Renhcol appears faulty as the foreign defendants were not the parties using the computer and computer media in the United States, liability under other theories appears quite justified. The foreign defendants in Renhcol performed no acts that constituted "use" of the system within the United States. Only the consumers, i.e., those who accessed the web pages on the internet and controlled the use of the software, performed such infringing acts of use within the United States. Thus, while there may have been infringing "use" of the invention in the United States by those consumers, Judge Davis held the foreign defendants themselves were directly infringing under 35 U.S.C. §271(a) as well. There is no justification under either NIP or Decca for such a result as both cases involved defendants residing in the United States who performed acts of control over the system within the United States. By Judge Davis' logic, a foreign manufacture whose product is purchased abroad and shipped into the United States by an unrelated third party, could be charged with infringing "use" in the United States when the purchaser of the allegedly infringing product uses it in the United States because "the situs of use of the allegedly infringing … [product] … is the United States."

Notwithstanding the weakness of Judge Davis logic for finding direct infringement under 35 U.S.C. §271(a) by the foreign defendants, liability for inducement of infringement and contributory infringement under 35 U.S.C. §271(b) and (c) appears quite justified. Both Decca and NIP can be read to hold that beneficial control over and use of a computer system resident either partially or wholly outside the United States by a party within the United States constitutes infringing use by that using party within the United States under §271(a). Thus, the requirement of direct infringement is satisfied and the foreign defendants could be liable for either inducement of infringement [to extent to which specific intent to induce infringement can be established] or contributory infringement as a result of making the allegedly infringing system available for use on the internet and inducing its infringing use in the United States.

The lesson to be learned from the Renhcol case is that foreign businesses that place interactive software on line from a foreign location for use by parties accessing the internet in the United States may be faced with patent infringement claims in United States courts. While the situs of the computer server and software may be totally outside the United States, beneficial use and control by U.S. consumers may subject those foreign businesses to liability in the United States for at least inducement of infringement or contributory infringement and possibly direct infringement.

Jay Taylor is a Partner with Ice Miller LLP focusing his efforts on patent, trademark, copyright, and trade secret litigation.


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