The JoSTL Blog

A Patented Review of the Supreme Court’s 2016-2017 Term

February 22nd, 2018in Blog Posts

by Jacob Berman

The 2016-2017 term was a busy one for the Supreme Court's patent docket. In particular, the Court heard three cases involving major patent law issues: Impression Prods., Inc. v. Lexmark Int’l, Inc.,[1] TC Heartland LLC v. Kraft Foods Grp. Brands LLC,[2] Life Techs. Corp. v. Promega Corp.[3] The Court also granted certiorari in another case, Oil States Energy Servs., LLC v. Greene’s Energy Grp., LLC,[4] which has the potential to fundamentally change the patent prosecution and litigation processes by eliminating inter partes review (“IPR”) proceedings by the Patent Trial and Appeal Board (“PTAB”).[5] Here is a look back at some of the most important patent cases of last year.

Life Technologies Corp. v. Promega Corp.

The issue in Life Technologies was whether a company that domestically manufactures a single component of a patented multicomponent product sold abroad can be liable for indirect infringement under the patent infringement statute, 35 U.S.C. § 271(f)(1).[6] The Supreme Court ruled in the negative, holding “that § 271(f)(1) does not cover the supply of a single component of a multicomponent invention.”[7]

The facts of the case were simple. Promega granted Life Technologies a limited sublicense to produce patented genetic testing kits for use in law enforcement investigations.[8] Life Technologies manufactured four of the five components for the kits in the United Kingdom and manufactured one component in the United States.[9] Four years after licensing the patent to Life Technologies, Promega discovered that Life Technologies sold kits to entities beyond the limited terms of its license, and brought suit for patent infringement.[10] In finding Life Technologies liable for infringement, the Federal Circuit held that “there are circumstances in which a party may be liable under § 271(f)(1) for supplying or causing to be supplied a single component for combination outside the United States.”[11]

In interpreting § 271(f), the Supreme Court found that the “substantial portion” requirement imposed a quantitative threshold and that an alleged infringer cannot be liable for producing only one component of a multicomponent invention.[12] The Court reasoned that to hold manufacturing a single component to trigger liability under § 271(f)(1) would render a companion provision of the statute, 35 U.S.C. § 271(f)(2) superfluous, but declined to specify, “how close to ‘all’ of the components ‘a substantial portion’ must be.”[13] Life Technologies presented the Supreme Court with an exercise in statutory interpretation in which the Court affirmed that some territorial limits remain on the reach of United States patent law, but those limits remain unclear because the court declined to clarify the definition of “substantial portion” in the statue.[14]

 

TC Heartland LLC v. Kraft Foods Group Brands LLC

The question presented in TC Heartland was whether the 1988 amendment to the general venue statute, 28 U.S.C. § 1391(c), altered the definition of the “reside[nce]” in the patent venue statute 28 U.S.C. § 1400(b).[15] Previously, under Federal Circuit precedent, a patentee could file an infringement suit in any district where a defendant was subject to personal jurisdiction.[16] Effectively, this meant that a defendant could be sued anywhere it made sales. The Supreme Court rejected the Federal Circuit’s rule, holding that venue is proper in patent litigation where either (1) defendant resides, (i.e., place of incorporation for businesses or domicile for persons), or (2) where the defendant has committed acts of infringement and has a regular and established place of business.[17]

The TC Heartland decision was thought to substantially narrow the ability of parties, and patent assertion entities (“PAEs”) in particular, to forum shop for plaintiff-friendly local rules and juries. Many commentators suggested that the decision would effectively end patent litigation in the United States District Court for the Eastern District of Texas, which had become known as a haven for PAEs.[18] However, while the decision initially reduced the number of PAE suits, and the number of patent suits overall, many cases have now moved to the District of Delaware where PAEs still enjoy considerable success, and where damages awards are larger on average than those in the Eastern District of Texas.[19]

Some latent ambiguities in the statute, such as what constitutes a “regular and established place of business,” allow forum shopping in ways the decision was presupposed to eliminate.[20] However, the Federal Circuit recently signaled that it will adhere to a relatively strict interpretation of that phrase in In re Cray, which laid out a three-factor test for determining what constitutes a “regular and established place of business”.[21] Thus, nine months after the TC Heartland decision, it is unclear whether it has done much at all to solve the problem of forum shopping. It may be the case that more substantial reforms, such as unifying the local rules for patent litigation, are required in order to resolve the problem of forum shopping.

Impression Products, Inc. v. Lexmark International, Inc.

Impression Prods, Inc. v. Lexmark Int'l, Inc. presented two questions to the Supreme Court: (1) whether an international sale exhausts a patentee's exclusive right to sell and import in the United States and abroad, and (2) whether a patentee can attach terms to the sale of its products that limit the rights of consumers to reuse or resell them.[22]

Lexmark, a maker of printer toner cartridges, argued that firms who remanufactured their cartridges by refilling them after they ran out of toner infringed its patent rights in those cartridges on two bases.[23]  First, Lexmark sold its cartridges at a discount price in exchange for consumers agreeing to “use it only once and to refrain from transferring the empty cartridge to anyone but Lexmark,” and Lexmark argued that remanufacturers who aided consumers in breaking this contract should be liable for patent infringement when they refilled and resold the Lexmark cartridges.[24] Second, Lexmark argued that international sales did not exhaust their rights to control resale and importation in the United States because the initial sales were made outside the jurisdiction of United States patent law.[25]

The patent exhaustion doctrine allows consumers to freely use and sell patented goods after the patentee makes the first lawful sale. Essentially, the doctrine holds that after the patentee’s first lawful sale of a patented product, the patentee’s rights to prevent the purchaser from using or reselling the good are “exhausted.”[26] The Court began its analysis by recognizing that the contracts Lexmark placed on its cartridges to limit the activities of consumers after sale were restraints on alienation, which are typically disfavored in United States law.[27] The Court further stated that because the purpose of the patent law  – that is, to incentivize and promote innovation – is fulfilled when the patentee has received his reward for the use of his invention, patent law cannot be used to justify post-sale restraints on patented inventions.[28] As such, the Court found that it was of no consequence whether Lexmark licensed or sold their products to consumers: “sale [by the patentee] exhausts its patent rights, regardless of any post-sale restrictions the patentee purports to impose, either directly or through a license.”[29]

The Supreme Court then addressed Lexmark’s argument that importation of cartridges lawfully sold abroad amounted to infringement by Impression and other remanufacturers.[30] The Court analogized the facts of the present case to an earlier copyright case, Kirtsaeng v. John Wiley & Sons, Inc., in which the Court held that lawful sales of textbooks abroad exhausted the copyright owner's right to prevent importation and resale of those books in the United States.[31] The Supreme Court reasoned that there should be uniformity between patent and copyright law on the issue of international exhaustion, stating that “restrictions and location are irrelevant; what matters is the patentee's decision to make a sale.”[32] Lexmark thus expressly rejected the notion that patentees have any right to restrict the resale or importation of patented products after initial sale by the patentee, and affirmed the principle that a lawful sale of a patented product anywhere in the world exhausts the patentee’s rights to control subsequent resale or importation of that product.[33]

Oil States Energy Services, LLC v. Greene’s Energy Group, LLC

During the term, the Supreme Court also heard Oil States Energy Servs., LLC v. Greene’s Energy Grp., LLC, which called into question the constitutionality of the United States Patent and Trademark Office inter partes review procedure.[34] Inter partes review is an adversarial process conducted at the PTAB, that provides standing to any person to challenge the validity of any patent on the grounds that the patented invention is either obvious or not novel nine months after the grant of the patent.[35] At issue in the case is “whether inter partes review . . . violates the Constitution by extinguishing private property rights through a non-Article III forum without a jury.”[36]

This case will largely be decided by how the Supreme Court characterizes patent rights, either as public rights closely related to a federal regulatory scheme, or private rights.[37] One Supreme Court precedent from the late nineteenth century McCormick Harvesting Mach. Co. v. C. Aultman & Co., appears to strongly suggest that patents are private rights that cannot be taken away by an Article I tribunal or agency.[38] There, the Court stated that a valid patent is the patentee’s property and is deserving of the same legal protections as real property.[39] Further, many of the recent Supreme Court patent cases discussed in this post, including Lexmark, viewed patents through the lens of private property.[40]

On the other hand, there are those who argue that patents are public rights, meaning patent rights may be extinguished through an Article I tribunal or agency. As argued by the PTO, “patents are a quintessential public right closely intertwined with a federal regulatory program.”[41] Under the definition of public rights recently given in Stern v. Marshall, the PTO is correct in arguing that the processes for examining and issuing patents are part of the constitutional functions of the legislature and executive braches, and perhaps, those branches could exclusively determine the scope of these rights.[42]  However, given that precedent spanning over a hundred years treats patents as private rights, and because patents are typically characterized as property rights, there appears to be above a marginal possibility that the Supreme Court will hold IPR to be unconstitutional under the Seventh Amendment.

The Supreme Court decided major cases on the issues, of exhaustion, venue, indirect infringement liability, and granted certiorari to determine the fate of IPR review during the 2016-2017 term. The Court has seemingly shown a strong interest in shaping the future of patent law as of late, and hopefully this guidance will aid in increasing the value of patent rights and the public benefits resulting from patent disclosures.

[1] 137 S. Ct. 1523 (2017).

[2] 137 S. Ct. 1514 (2017).

[3] 137 S. Ct. 734 (2017).

[4] 639 Fed. App’x 639 (Fed. Cir. 2016), cert. granted, (U.S. June 12, 2017) (No. 16-712).

[5] IPR is an administrative action at the PTAB that allows any person to challenge the validity of a patent on the grounds that the patented invention is obvious or not novel. Petitioners must wait nine months after the patent issues before bringing a challenge.

[6] Life Techs., 137 S. Ct. at 734. 35 U.S.C. § 271(f)(1) (2012) states in full: “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.”

[7] Id. at 742.

[8] Life Techs., 137 S. Ct. at 738.

[9] Id.

[10] Id.

[11] Promega Corp v. Life Techs, 773 F.3d 1338, 1353 (Fed. Cir. 2014).

[12] Life Techs., 137 S. Ct. at 741.

[13] Id. at 742 (quoting 35 U.S.C. § 271(f)(1) (2012)).

[14] Id.

[15] 28 U.S.C. §§ 1391(c), 1400(b) (2012); TC Heartland LLC v. Kraft Foods Grp. Brands LLC, 137 S. Ct. 1514, 1514-15 (2017) (“As applied to domestic corporations, “reside[nce]” in § 1400(b) refers only to the State of incorporation. The amendments to § 1391 did not modify the meaning of § 1400(b) . . . .”).

[16] VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574, 1584 (Fed. Cir. 1990) (holding that patent litigation venue is proper where “the defendant was subject to personal jurisdiction in the district of suit at the time the action was commenced.”).

[17] See TC Heartland LLC, 137 S. Ct. at 1515 (affirming the Fourco court’s interpretation of 28 U.S.C. § 1400(b)); Fourco v. Transmirra Prods. Corp., 352 U.S. 222, 223 (1957).

[18] See e.g., Lily Lim, TC Heartland: Supreme Court Makes Venue Shopping More Difficult for Patent Trolls, Finnegan, Henderson, Farabow, Garrett & Dunner, LLP (May 23, 2017) https://www.finnegan.com/en/insights/blogs/federal-circuit-ip/tc-heartland-supreme-court-makes-venue-shopping-more-difficult-for-patent-trolls.html.

[19] Brian J. Love & James Yoon, Predictably Expensive: A Critical Look at Patent Litigation in the Eastern District of Texas, 20 Stan. Tech. L. Rev. 1, 20 (2017); Lauren H. Cohen et al., Patent Trolling Isn't Dead -- It's Just Moving to Delaware, Harv. Bus. Rev. (June 28, 2017), https://hbr.org/2017/06/patent-trolling-isnt-dead-its-just-moving-to-delaware.

[20] 28 U.S.C. § 1400(b).

[21] 871 F.3d 1355, 1360 (Fed Cir. 2017) (stating that “(1) there must be a physical place in the district; (2) it must be a regular and established place of business; and (3) it must be the place of the defendant.”).

[22] 137 S. Ct. 1523, 1529 (2017).

[23] Id.

[24] Id. at 1530.

[25] Id.

[26] 35 U.S.C. § 154(a) (2013) (granting a patentee the exclusive right to: “exclude others from making, using, offering for sale, or selling [its] invention throughout the United States or importing the invention into the United States.”); 137 S. Ct. at 1534 (citation omitted).

[27] Impression Prods, Inc., 137 S. Ct. at 1525.

[28] Id. at 1532.

[29] Id. at 1534.

[30] Id. at 1535.

[31] Id. at 1527 (citing Kirtsaeng v. John Wiley & Sons, Inc., 568 U.S. 519 (2013)).

[32] Id. at 1538.

[33] Id. at 1535, 1538.

[34] Oil States Energy Servs., LLC v. Greene’s Energy Grp., LLC, 639 Fed. App’x 639 (Fed. Cir. 2016), cert. granted, 137 S.Ct. 2239 (U.S. June 12, 2017) (No. 16-712).

[35] Gene Quinn, Inter Partes Review: Overview and Statistics, IP Watchdog, (Feb. 9, 2014), http://www.ipwatchdog.com/2014/02/09/inter-partes-review-overview-and-statistics/id=47894/.

[36] Petition for Writ of Certiorari, Oil States Energy Servs., LLC, 137 S.Ct. 2239 (No. 16-712), at i.

[37] See id. at 13-14.

[38] McCormick Harvesting Mach. Co. v. C. Aultman & Co., 169 U.S. 606, 608-09 (1898).

[39] Id.

[40] See, e.g., Impression Prods., Inc. v. Lexmark Int’l, Inc., 137 S. Ct. 1523, 1531 (2017).

[41] Petition for Writ of Certiorari, supra note 36, at 14.

[42] Stern v. Marshall, 564 U.S. 462, 485 (2011).