Extraterritorial Application of U.S. Patent Laws: NTP, Inc. v. Research in Motion

Members of Congress rely on them, and many lawyers compulsively check them, but until recently, most users did not realize that every e-mail message sent to or from their BlackBerry handheld device is routed through a Relay station in Canada, which Research in Motion, Ltd. (“RIM”), the maker of the BlackBerry, calls home. The location of this Relay was a central issue in a patent infringement dispute between NTP, Inc., the holder of patents related to mobile electronic e-mail, and RIM, with RIM claiming it did not infringe NTP's patents because a key component of its BlackBerry system, and a necessary element of NTP's patent claims, resides outside the United States. But the courts have sided with NTP. (Editor's note: The case was recently settled. See IP News for details.)

The Technology

In Nov. 2001, NTP filed suit against RIM in the Eastern District of Virginia, claiming that the BlackBerry system infringes more than 40 system and method claims of NTP's patents directed toward an “electronic mail system with RF communications to mobile processor.” The BlackBerry system routes e-mail messages from a user's e-mail system through the Canadian Relay to wireless networks which then transmit the messages to the BlackBerry device. NTP alleged that the Relay component satisfies the “interface” of the “interface switch” limitation in several of its patent claims.

The Extraterritorial Defense

As part of its defense of NTP's claims, RIM argued that its service does not infringe the NTP patents because a necessary component of RIM's system, the Relay, is located in Canada, and to infringe a patent claim all infringing activity must occur within the United States. RIM based this “extraterritoriality” argument on Section 271(a) of Title 35, which sets forth the requirements for a claim of direct infringement of a patent:

Except as otherwise provided in this title, 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.

RIM argued that the “within the United States” restriction means that, in order to infringe, the entire claimed system and every component comprising it must be made, sold, used, or offered for sale within the territorial boundary of the United States. Because the Relay is located in Canada, RIM said, not all infringing activities occur in the United States, placing the entire BlackBerry system beyond the reach of Section 271(a).

The District Court's Decision

Following a jury verdict of infringement, the District Court entered judgment in favor of NTP. The stakes were high. The court awarded monetary damages totaling some $54 million, including compensatory damages, attorneys' fees, prejudgment interest, and enhanced damages. The court also permanently enjoined any further infringement by RIM, but stayed the injunction pending RIM's appeal to the Federal Circuit Court of Appeals. NTP, Inc. v. Research in Motion, Ltd., No. 3:01CV767 (E.D. Va. Aug. 5, 2003).

The Federal Circuit Sides with NTP

On Dec. 14, 2004, the Federal Circuit affirmed the District Court on the extraterritoriality issue and ruled for NTP. NTP, Inc. v. Research in Motion Ltd., No. 03-1615, slip. op., 2004 U.S. App. LEXIS 25767 (Fed. Cir. Dec. 14, 2004). The Court of Appeals reasoned that the plain language of Section 271(a) of the Patent Act does not preclude infringement where a system alleged to infringe a system or method claim is used within the United States, even where an element of the infringed claim can only be satisfied by a component of that system located outside the United States. The court concluded that “control and beneficial use” of the BlackBerry system by users in the United States was sufficient to demonstrate infringing use “within the United States” under Section 271(a). Where users in the United States communicate with each other via their BlackBerry devices, the court explained, their use of the BlackBerry system occurs in the United States regardless of whether the messages are transmitted outside of the United States at some point during the communication.

Two Key Cases Regarding Section 271: Deepsouth and Decca

In making its decision, the Court of Appeals distinguished RIM's activities from the noninfringing conduct reviewed by the Supreme Court in Deepsouth Packing Co. v. Laitram Corporation, 406 U.S. 518 (1972). In Deepsouth, the defendant sought to export unassembled machines that if made or used in the United States would have infringed the patent holder's patent. The Court held that the export of unassembled components of an invention could not infringe the patent because a combination patent protects only against the operable assembly of the whole and not the manufacture of its parts. (In 1984, Congress enacted section 271(f) of Title 35, which extends infringement liability to cover the export of elements of patented inventions.) The Court of Appeals distinguished the NTP case by concluding that the infringement by the BlackBerry system actually took place in the United States, not abroad, as in Deepsouth.

The court found more analogous the case of Decca Ltd. v. United States, 544 F.2d 1070 (Ct. Cl. 1976). Decca involved the “Omega” navigation system, used by the United States for global positioning of ships and aircraft. The system was comprised of one “master” control station, located in the United States, and several planned transmitter stations located around the world. The system claimed in Decca included both a master control station and a transmitter station. The Court of Claims found that the “Omega” navigation system was an infringing “use” because, although a transmitter station was a necessary claimed element, the transmission from the foreign station was controlled and used by the United States and the beneficial use of the system took place in the United States. Similarly, the NTP court concluded, RIM's Canadian Relay is a necessary element of the patent claims, but all of the other components of RIM's accused system are located in the United States, and the control and beneficial use of RIM's system occur in the United States. Thus, the situs of the “use” for purposes of Section 271(a) is the United States. (RIM argues that this focus on use by customers is legal error, as the focus should be on use by RIM.)

Impact for Practitioners

The NTP case raises a number of issues for practitioners to consider when prosecuting, enforcing, and defending patents claims. For example, the decision leaves unanswered how much of a system or method must occur in the United States for Section 271(a) to apply. In the RIM situation, only one of the claimed components (the Relay) was used outside the United States. If two, three, or more of the RIM components were used outside of the United States, but control and beneficial use of the whole system still occurred in the United States, would the decision have come out differently? From the court's emphasis on determining the situs of the “use” from the location of control and beneficial use, the answer may be yes, although the courts will have to clarify this point in future cases.

Before NTP, some practitioners had addressed the issue of extraterritoriality by drafting claims so that the components of a system or steps of a method that may take place outside the United States are recited implicitly rather than explicitly in the claim, so as to attempt to avoid making these components or steps necessary elements of the claim. The Federal Court of Appeals decision in NTP provides an alternative (or additional) approach to drafting claims: describing a system or method for which overall control and beneficial use occurs in the United States, thereby sweeping in components or steps outside of the United States. The result of taking this approach is still uncertain.

It may also be possible to draft patent claims to focus on the use of information that is generated outside the United States where the control and beneficial use of the information occurs in the United States. In 2003, the Court of Appeals for the Federal Circuit decided that Section 271(g) does not cover the practice of a patent to generate information or derive new products imported into the United States, even though the information or new products are generated by a method that would infringe a United States patent claim if the method was carried out in the United States. Bayer AG v. Housey Pharms, Inc., 340 F.3d 1367 (Fed. Cir. 2003). The NTP decision suggests that where Section 271(g) may not apply, Section 271(a) may. Thus, for example, infringement could be based on use of information imported into and used in the United States, such as data from tests performed overseas, if such information was created using a method that would be infringing if performed in the United States. The emergence of such claims would have a significant impact on companies that have operations abroad.

Members of Congress rely on them, and many lawyers compulsively check them, but until recently, most users did not realize that every e-mail message sent to or from their BlackBerry handheld device is routed through a Relay station in Canada, which Research in Motion, Ltd. (“RIM”), the maker of the BlackBerry, calls home. The location of this Relay was a central issue in a patent infringement dispute between NTP, Inc., the holder of patents related to mobile electronic e-mail, and RIM, with RIM claiming it did not infringe NTP's patents because a key component of its BlackBerry system, and a necessary element of NTP's patent claims, resides outside the United States. But the courts have sided with NTP. (Editor's note: The case was recently settled. See IP News for details.)

The Technology

In Nov. 2001, NTP filed suit against RIM in the Eastern District of Virginia, claiming that the BlackBerry system infringes more than 40 system and method claims of NTP's patents directed toward an “electronic mail system with RF communications to mobile processor.” The BlackBerry system routes e-mail messages from a user's e-mail system through the Canadian Relay to wireless networks which then transmit the messages to the BlackBerry device. NTP alleged that the Relay component satisfies the “interface” of the “interface switch” limitation in several of its patent claims.

The Extraterritorial Defense

As part of its defense of NTP's claims, RIM argued that its service does not infringe the NTP patents because a necessary component of RIM's system, the Relay, is located in Canada, and to infringe a patent claim all infringing activity must occur within the United States. RIM based this “extraterritoriality” argument on Section 271(a) of Title 35, which sets forth the requirements for a claim of direct infringement of a patent:

Except as otherwise provided in this title, 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.

RIM argued that the “within the United States” restriction means that, in order to infringe, the entire claimed system and every component comprising it must be made, sold, used, or offered for sale within the territorial boundary of the United States. Because the Relay is located in Canada, RIM said, not all infringing activities occur in the United States, placing the entire BlackBerry system beyond the reach of Section 271(a).

The District Court's Decision

Following a jury verdict of infringement, the District Court entered judgment in favor of NTP. The stakes were high. The court awarded monetary damages totaling some $54 million, including compensatory damages, attorneys' fees, prejudgment interest, and enhanced damages. The court also permanently enjoined any further infringement by RIM, but stayed the injunction pending RIM's appeal to the Federal Circuit Court of Appeals. NTP, Inc. v. Research in Motion, Ltd., No. 3:01CV767 (E.D. Va. Aug. 5, 2003).

The Federal Circuit Sides with NTP

On Dec. 14, 2004, the Federal Circuit affirmed the District Court on the extraterritoriality issue and ruled for NTP. NTP, Inc. v. Research in Motion Ltd., No. 03-1615, slip. op., 2004 U.S. App. LEXIS 25767 (Fed. Cir. Dec. 14, 2004). The Court of Appeals reasoned that the plain language of Section 271(a) of the Patent Act does not preclude infringement where a system alleged to infringe a system or method claim is used within the United States, even where an element of the infringed claim can only be satisfied by a component of that system located outside the United States. The court concluded that “control and beneficial use” of the BlackBerry system by users in the United States was sufficient to demonstrate infringing use “within the United States” under Section 271(a). Where users in the United States communicate with each other via their BlackBerry devices, the court explained, their use of the BlackBerry system occurs in the United States regardless of whether the messages are transmitted outside of the United States at some point during the communication.

Two Key Cases Regarding Section 271: Deepsouth and Decca

In making its decision, the Court of Appeals distinguished RIM's activities from the noninfringing conduct reviewed by the Supreme Court in Deepsouth Packing Co. v. Laitram Corporation , 406 U.S. 518 (1972). In Deepsouth, the defendant sought to export unassembled machines that if made or used in the United States would have infringed the patent holder's patent. The Court held that the export of unassembled components of an invention could not infringe the patent because a combination patent protects only against the operable assembly of the whole and not the manufacture of its parts. (In 1984, Congress enacted section 271(f) of Title 35, which extends infringement liability to cover the export of elements of patented inventions.) The Court of Appeals distinguished the NTP case by concluding that the infringement by the BlackBerry system actually took place in the United States, not abroad, as in Deepsouth.

The court found more analogous the case of Decca Ltd. v. United States , 544 F.2d 1070 (Ct. Cl. 1976). Decca involved the “Omega” navigation system, used by the United States for global positioning of ships and aircraft. The system was comprised of one “master” control station, located in the United States, and several planned transmitter stations located around the world. The system claimed in Decca included both a master control station and a transmitter station. The Court of Claims found that the “Omega” navigation system was an infringing “use” because, although a transmitter station was a necessary claimed element, the transmission from the foreign station was controlled and used by the United States and the beneficial use of the system took place in the United States. Similarly, the NTP court concluded, RIM's Canadian Relay is a necessary element of the patent claims, but all of the other components of RIM's accused system are located in the United States, and the control and beneficial use of RIM's system occur in the United States. Thus, the situs of the “use” for purposes of Section 271(a) is the United States. (RIM argues that this focus on use by customers is legal error, as the focus should be on use by RIM.)

Impact for Practitioners

The NTP case raises a number of issues for practitioners to consider when prosecuting, enforcing, and defending patents claims. For example, the decision leaves unanswered how much of a system or method must occur in the United States for Section 271(a) to apply. In the RIM situation, only one of the claimed components (the Relay) was used outside the United States. If two, three, or more of the RIM components were used outside of the United States, but control and beneficial use of the whole system still occurred in the United States, would the decision have come out differently? From the court's emphasis on determining the situs of the “use” from the location of control and beneficial use, the answer may be yes, although the courts will have to clarify this point in future cases.

Before NTP, some practitioners had addressed the issue of extraterritoriality by drafting claims so that the components of a system or steps of a method that may take place outside the United States are recited implicitly rather than explicitly in the claim, so as to attempt to avoid making these components or steps necessary elements of the claim. The Federal Court of Appeals decision in NTP provides an alternative (or additional) approach to drafting claims: describing a system or method for which overall control and beneficial use occurs in the United States, thereby sweeping in components or steps outside of the United States. The result of taking this approach is still uncertain.

It may also be possible to draft patent claims to focus on the use of information that is generated outside the United States where the control and beneficial use of the information occurs in the United States. In 2003, the Court of Appeals for the Federal Circuit decided that Section 271(g) does not cover the practice of a patent to generate information or derive new products imported into the United States, even though the information or new products are generated by a method that would infringe a United States patent claim if the method was carried out in the United States. Bayer AG v. Housey Pharms, Inc., 340 F.3d 1367 (Fed. Cir. 2003). The NTP decision suggests that where Section 271(g) may not apply, Section 271(a) may. Thus, for example, infringement could be based on use of information imported into and used in the United States, such as data from tests performed overseas, if such information was created using a method that would be infringing if performed in the United States. The emergence of such claims would have a significant impact on companies that have operations abroad.