United States: Patent Infringement Liability for Overseas Providers

Last Updated: October 19 2005

By Mark A. Prinsley, London and Donald W. Rupert, Chicago

Concern For Cross Border Outsourcing And Service Provision

A patent action in the United States involving the technology underlying the BlackBerry device, which is currently progressing through the US appeals system, and a recent English case involving William Hill’s online gambling site available in the United Kingdom, have highlighted a risk all businesses using cross border technological solutions need to take care to understand.

Patents are national rights. Conventional wisdom is that a patent will only be infringed if the offending activity is carried out, or the accused products are sold, within the country that granted the patent. In the United States, for example, Section 271(a) in the patent statute states that:

"…whoever without authority makes, uses, offers to sell or sells any patented invention within the United States or imports into the United States any patented invention during the term of the patent therefor, infringes the patent".

Similarly, in the UK, Section 60 of the Patents Act 1977 provides:

"…a person infringes a patent for an invention if, but only if, while the patent is in force, it does any of the following things in the United Kingdom in relation to the invention without the consent of the proprietor…."

BlackBerry Litigation

In the BlackBerry case the claimant pursued RIM, the licensor of the BlackBerry technology, for damages and an injunction to restrain patent infringement. In 2002 the US District Court for the Eastern District of Virginia ruled that RIM was guilty of infringement and awarded damages of US$53 million together with an injunction which was stayed pending appeal. RIM appealed, arguing that, since a key element of the system it was licensing was the BlackBerry relay component which, in the case of the US implementation, was located in Canada, it could not be infringing the US patent. RIM argued that all the steps of the invention had to be performed within the United States for there to be infringement of the US patent. The District Court had specifically held the location of RIM’s relay in Canada did not preclude infringement of the US patent. RIM appealed the District Court’s final judgment.

The US Court for the Federal Circuit handed down its decision in December 2004. It held that use of the BlackBerry system had taken place within the United States "regardless of whether the messages exchanged between them [the devices] may be transmitted outside the United States at some point along their wireless journey". The BlackBerry system was being used by US domestic users to communicate with each other in the US and, in the Appeals Court’s view, RIM was directly liable under Section 271(a) for the "beneficial use" by US domestic users.

RIM has now filed for a re-hearing by the Appeals Court of the issue and has raised the following points of significance:

  1. The Appeals Court’s decision amounts to "an extension of liability for direct infringement". RIM argues that by performing essential activities outside the United States (i.e., the relay), it should not be using the invention within the United States. The concern for businesses selling technology solutions in the United States market but otherwise having no operations in the United States is that they could be fixed with direct liability for the infringing acts of their customers—as RIM was in this case.
  2. Where a technological solution is implemented by elements operating in a number of countries, RIM contends that there should be no direct infringement in the United States, particularly in the light of the patent statutes that require the patented invention to be used in the United States.
  3. RIM further notes that the Appeals Court misapplied, or failed to consider, the full scope of Section 271(a). As noted, that statute defines infringement as "whoever…uses…within the United States…" RIM argues that because it did not "use" the system or the relay in the US, it could not infringe, and a focus on the "whoever" part of the statute supports that conclusion.

International Concerns Raised By The RIM Decision

The decision raises the following point. The concern for businesses selling technology solutions in the United States market but otherwise having no operations in the United States is that they could be fixed with direct liability for the infringing acts of their customers - as RIM was in this case. The Canadian government is so concerned about this point given its proximity to the United States—and no doubt the fact that RIM is a Canadian technology business—that it has filed its own Amicus brief in support of the request for a rehearing of the case. The Canadian government argues that this decision will impact on technological advances made in Canada that have cross-border implications and may also affect cross-border trading.

William Hill Decision

In the English case involving a William Hill online gambling site, William Hill had been arguing, as a preliminary issue, that there could be no infringement of the patent where the host computer, which was an essential part of the apparatus claimed in the patent, was located outside the United Kingdom in Antigua but was connected to the rest of the apparatus operating in the United Kingdom. On a strict interpretation, key elements of the apparatus were not located in the United Kingdom and so there was an argument that there was no infringement of the United Kingdom patent. The English Court of Appeal held that it was irrelevant that the host computer accessed by bettors located in the UK was based in Antigua. The issue was where the bettor was using the host computer and since it was being used in the United Kingdom there was infringement by the UK based bettors. William Hill would therefore be liable for indirect infringement by supplying the bettors with the means to infringe.

The outcome of William Hill decision is therefore broadly similar to the BlackBerry decision in the United States. The location of the users of the systems appears to be the decisive factor so far as liability for infringement of national patent rights is concerned.

Implications For Technology Licensors And Outsourcing Transactions

Although it seems curious that these issues have taken until now to emerge, there is clearly a risk of patent infringement where essential elements of the invention are located outside the country which granted the patent and, at least so far as the RIM decision in the United States is concerned, a risk that parties located entirely outside the United States could become liable for infringement of the patent inside the United States.

In off-shore outsourcing transactions, where business processes are being outsourced across borders, suppliers and customers will need to consider the risks that the parties may be exposed to liability for infringement of business method patents even though they are located outside the country which has granted the patent and/or they are using a technological solution which merely allows customers in a particular country to access a technology which is provided by resources located largely outside the country in which the patent subsists. The issue of liability in this area is a factor businesses contemplating an outsourcing transaction will need to consider when assessing alternative business transformation solutions with overseas elements offered by competing suppliers.

Copyright © 2007, Mayer, Brown, Rowe & Maw LLP. and/or Mayer Brown International LLP. This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

Mayer Brown is a combination of two limited liability partnerships: one named Mayer Brown LLP, established in Illinois, USA; and one named Mayer Brown International LLP, incorporated in England.

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