Opinion analysis: A “substantial portion of the components” means “more than one component”

Some Supreme Court cases have intricate facts, complex legal arguments, numerous nuances and important implications for future cases. Life Technologies v. Promega isn’t like that. Instead, this case presented the court with a single discrete issue: whether the statutory phrase “all or a substantial portion of the components of a patented invention” in one subsection of the Patent Act (35 U.C.C. § 271(f)(1)) can refer to a single component of a multicomponent invention.

The Supreme Court answered that question unequivocally “no.” In other words, if you’ve read and understood the title of this post (A “substantial portion of the components” means “more than one component”), then congratulations! You’ve mastered almost everything that’s worth remembering about this case.

Well, almost everything. Perhaps there are a few more things worth remembering.

Limiting the effect of extraterritorial activity on U.S. patent suits

Generally, U.S. patent law follows a territoriality principle: U.S. patent rights operate only within U.S. territory, and thus extraterritorial activity usually does not affect liability in U.S. patent suits. Section 271(f) is an exception to that general principle. It allows patent-infringement liability to be imposed on a company that exports from the United States “all or a substantial portion of the components of a patented invention,” provided that certain foreign activities occur: (i) The exported components are combined overseas and (ii) the foreign combination would infringe the U.S. patent if that combination occurred in this country.

Section 271(f) may seem complex, but it is really quite simple. Consistent with the territoriality principle, U.S. patents have long granted to patentees exclusive rights to control any “mak[ing]” of the patented invention within the territory of the United States. Prior to the enactment of Section 271(f) in 1984, companies could manufacture all of the components of a patented invention, ship them overseas with “some assembly required,” and not incur any infringement liability because the invention was never made – never fully assembled – in the United States. The absence of liability in such circumstances was confirmed by the Supreme Court in Deepsouth Packing Co. v. Laitram Corp., but many patentees saw the result in that case as a loophole in patent protection. In 1984 Congress acted to close the loophole by adding Section 271(f) to the Patent Act.

Everyone agrees that Section 271(f) does close the loophole exploited in Deepsouth Packing and does impose liability on any manufacturer who sends overseas “all” the parts needed to make the patented invention. But the statute clearly extends more broadly to encompass exporting a “substantial portion” of the components.

The question the court decided yesterday was what portion of the components needed to come from the U.S. in order to trigger infringement liability. If only a small portion of components counted as a “substantial portion,” then U.S. patent law would have broader effects on what is largely foreign economic activity.

The Supreme Court’s ruling – that a single component never qualifies as a substantial portion of the components – tends to curb the extraterritorial effects of Section 271(f), and that result is sensible given that the baseline rule of U.S. patent law is still a principle of territoriality. Section 271(f) is an exception, and the courts usually balk at endorsing broad readings of statutes that create exceptions to longstanding fundamental principles governing an entire field of law.

In less than a month, the Supreme Court will hear arguments in another case – Impression Products v. Lexmark (in which I participated in an amicus brief in support of neither party) – that also involves the relationship between foreign activity and U.S. patent rights. One issue in that case is whether an accused infringer of a U.S. patent can rely on the patentee’s foreign sales of its patented invention to provide a defense to activities that would otherwise constitute infringement of the U.S. patent (activities such as importing the invention into, or making unlicensed sales within, the United States).

The proposed legal defense in that case can be seen as a mirror image of the theory of liability in Life Technologies: The accused infringer in Impression Products is relying on foreign activity as a defense to otherwise infringing U.S. activities, whereas in Life Technologies, the patentee was attempting to rely on foreign activity to impose liability for otherwise noninfringing U.S. activities. If Life Technologies shows that the justices are generally reluctant to have foreign economic activity control outcomes in U.S. patent-infringement suits, that reluctance should be seen again soon.

Structural arguments trump simplistic textualism

The court’s decision yesterday also highlights an important point about statutory interpretation: Paying careful attention to the entire structure of a statute is very much consistent with – indeed, really required by – a textualist approach to statutory interpretation.

One argument addressed in the court’s decision is that the key phrase in Section 271(f) – “substantial portion” – should be interpreted in light of dictionary definitions of “substantial” plus uses of the word “substantial” in other statutes. Certainly consulting dictionaries and usages of a word in other statutes is part of discerning meaning. But the rest of the statute – all of the words surrounding the word “substantial” in Section 271(f) – must also be considered, because that too is statutory text.

In yesterday’s opinion, the court did consider the dictionary definitions and usages of the word “substantial” in other statutes, but it did not find those sources especially illuminating. The dictionary definitions merely revealed the word’s ambiguity, and the usages of the word in other statutes were unhelpful because those statutes had different structures.

So what was helpful to the court in interpreting the phrase? It was all of the text surrounding the phrase “substantial portion” within Section 271(f). In considering that text, the court found a very important clue for interpreting the statute properly. The phrase “substantial portion” appears within paragraph (1) of Section 271(f), but the statute has a paragraph (2) that specifically addresses when infringement liability should be imposed where “any component” is supplied from the United States. Paragraph (2) requires that, if liability is to be imposed for supply “any component” of an invention, that component must be pretty special – it must be “especially made or especially adapted for use in the invention” and also “not a staple article or commodity of commerce.”

To the court, the statutory text in (f)(2) helped nail down the meaning of the phrase “substantial portion of the components” in (f)(1). The court reasoned that reading (f)(1)’s “substantial portion of the components” as referring to more than one component allows (f)(1) and (f)(2) “to work in tandem,” with (f)(1) controlling supply of components “plural” and (f)(2) controlling supply of “‘any component,’ singular.”

That reading makes sense given that supplying a single “commodity” component of an invention (which is all the petitioner in Life Technologies did) cannot generate liability under (f)(2). Under the court’s decision, the apparent meaning of the textual limitations in (f)(2) is not undermined by a broad interpretation of (f)(1).

A rigid rule beats a flexible standard?

One final point about yesterday’s decision is especially important to patent practitioners litigating cases in the Supreme Court. In recent years, it has become the received wisdom among many practitioners and academics (excluding me) that the Supreme Court likes to reverse the U.S. Court of Appeals for the Federal Circuit when the latter has embraced a “rigid rule.” The theory is that the Supreme Court prefers flexible standards over rigid rules in patent law.

Yesterday’s decision provides evidence that such a view is too simplistic. In the decision reversed by the justices, the Federal Circuit had embraced a flexible “qualitative” approach to determining whether a “substantial portion” of components had been supplied. The Supreme Court replaced that flexible test with a rigid rule – one component is never enough to trigger liability under Section 271(f)(1).

Why did the Supreme Court favor a rigid rule here and not in many prior patent cases? The answer – in my humble opinion – is that the statutory text and structure in Section 271(f) lent itself to a rule. By contrast, many other statutes in the Patent Act do not. Most famously among patent practitioners, the concept of “non-obviousness” – a crucial prerequisite to getting a valid patent – does not admit of any neat, formulaic rules. Different legal issues produce different types of solutions, and the relationship between the Supreme Court and the Federal Circuit cannot be boiled down to a simplistic rule.

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Life Technologies is not an earth-shattering development in the law of patents. It’s a smallish case involving the proper interpretation of a single phrase in one subsection of the Patent Act. Yet even this relatively minor case offers lessons about important issues, including the effects of foreign activity on U.S. patent suits, the proper approach to statutory interpretation, and the continuing evolution of the Federal Circuit’s relationship with the Supreme Court.

Posted in: Analysis, Featured, Merits Cases

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