NTP v. RIM: Developments in Infringement Liability Where a Significant Component Is Located Outside the U.S.

Companies involved with technologies that use components located both within and outside the United States will be interested in a recent decision in the patent infringement action brought by NTP, Inc. (“NTP”) against Research In Motion, Ltd. (“RIM”). In August 2005, the U.S. Court of Appeals for the Federal Circuit distinguished between infringement of “system” and “method” patent claims in “out of country” situations. The Federal Circuit held that if a component is located outside the United States, a system claim would be infringed if there is beneficial use of the patented system in the United States, while a method claim would not be infringed.

The hotly contested litigation between NTP and RIM has been closely watched by those interested in patents relating to the now ubiquitous wireless e-mail technology. The dispute has been the subject of numerous articles, many focusing on the impact of the litigation on the high-profile Blackberry' handheld device manufactured by RIM.

NTP is a Virginia-based patent holding company that sued RIM for infringement of five patents related to integrating existing e-mail systems with wireless communications systems. Each of NTP's patents-in-suit originated from a single “parent” patent application and together include more than 1900 patent claims directed to systems and methods for wireless e-mail technology. Such claims include those that recite systems for transmitting information between electronic mail systems over a wireless network using an interface switch and methods for transmitting information between electronic mail systems over a wireless network via an interface.

RIM is a Canadian company that owns the Blackberry wireless e-mail technology. The Blackberry system enables e-mail messages to be transmitted to and from Blackberry handheld units over a wireless communications system. The pertinent operation of RIM's accused Blackberry e-mail system requires three components: 1) a handheld Blackberry unit for sending and receiving messages, 2) “Redirector” software installed at the user's home e-mail system (eg, work or personal e-mail system) in order to forward e-mails into RIM's system and 3) access to a wireless transmission network for transmitting wireless messages to and from the handheld unit.

The Redirector software component of RIM's system retrieves all e-mail destined for delivery to a Blackberry user and forwards it to RIM's Relay Switch, which is located in Ontario, Canada. The Relay Switch performs the processing necessary to deliver the e-mail message to the appropriate wireless network for the intended Blackberry user. Every e-mail message, whether generated by a Blackberry user or destined for a Blackberry user, passes through RIM's Relay Switch located in Canada.

NTP sued RIM in federal court in Virginia in November 2001 for infringement based on various embodiments of the Blackberry system. Infringement was alleged of both NTP's system claims and method claims. Following the district court's Markman decision, RIM brought a summary judgment motion for non-infringement based on 35 U.S.C. '271(a). In pertinent part, '271(a) provides that “whoever without authority makes, uses, offers to sell or sells any patented invention, within the United States … during the term of the patent therefor, infringes the patent.” Thus, on its face, '271(a) requires activity “within the United States.”

The basis of RIM's non-infringement motion was that the location of RIM's Relay Switch in Canada caused RIM's activities to fall outside of the scope of '271(a). In particular, RIM argued that the accused infringement required use of the Relay Switch (which corresponded to the “interface” or “interface switch” limitations in NTP's patent claims) that was located and used in Canada, not in the United States. As a result, RIM asserted that there could not be any direct infringement and therefore no infringement liability under '271(a). The district court rejected RIM's analysis of '271(a) and, hence, denied RIM's motion. The case then went to trial and RIM was found to infringe all five patents-in-suit.

RIM appealed. Among the various issues that the Federal Circuit addressed on appeal was RIM's '271(a) argument, which the court rejected in an initial opinion issued in December 2004. NTP, Inc. v. Research In Motion, Ltd., 392 F.3d 1336 (Fed. Cir. 2005) (“NTP I“). In particular, the Federal Circuit in NTP I found that RIM was liable for infringement of both NTP's system and method claims, even though the Relay Switch (the alleged control point of RIM's system) was located outside the United States. Following a request for reconsideration, the Federal Circuit modified its view on infringement and issued a new opinion in August 2005. NTP, Inc. v. Research In Motion, Ltd., ___F.3d___, 2005 WL 1806123 (Fed. Cir. Aug. 2, 2005) (“NTP II“). In NTP II, the Federal Circuit specifically addressed and modified the portion of NTP I discussing infringement liability under '271.

The Federal Circuit in NTP II concluded, as in NTP I, that RIM was liable for infringement of claims directed to systems, since there was beneficial use of RIM's Blackberry system in the United States. However, in contrast to NTP I, the Federal Circuit in NTP II found RIM not liable for infringement of NTP's method claims. This was because all of the steps of a method claim must occur in the United States and this was not the case with RIM's operation, where RIM's Relay Switch operated entirely in Canada.

In reaching its conclusions, the NTP II court analyzed the language of '271(a) and determined that the “grammatical structure” of the statute provided two separate aspects: 1) a territorial component ' namely, the “within the United States” clause of the statute, and 2) the infringing acts portion of the statute. However, the Federal Circuit observed that “it is unclear from the statutory language how the territoriality requirement limits direct infringement where the location of at least a part of the 'patented invention' is not the same as the location of the infringing act.” The court determined that, under the language of '271(a), infringement is not automatically precluded simply because a component is located outside the United States.

The Federal Circuit in NTP II then turned to the issue of analyzing the effect on an infringement analysis where there are separate locations for 1) the components accused of infringement and 2) the infringing act. On this issue, RIM relied on an earlier Supreme Court decision, Deepsouth Packing Co. v. Laitrim Corp., 406 U.S. 518 (1972). Deepsouth was a patent infringement case in which the Supreme Court considered whether '271(a) prevented liability for direct infringement where the components accused of infringement were all manufactured in the United States, but were exported unassembled for assembly and use outside the United States. Id. at 527. The Supreme Court held that there was no infringement because there was no complete assembly of the infringing product in the United States ' the complete assembly only occurred abroad. The Federal Circuit found RIM's reliance on Deepsouth to be misplaced. It distinguished Deepsouth as involving infringing activity completely outside the United States, whereas it considered RIM's activities as occurring at least partly within the United States.

The Federal Circuit in NTP II then looked to another patent case for guidance ' Decca Ltd. v. United States, 544 F.2d 1070 (Ct. Cl. 1976). Decca was a patent infringement case in which the United States was sued for manufacturing and using Decca's patented radio navigation system. The system had a master controller in the United States and required use of three transmitter stations, one of which was located in Norway. In finding infringement based on the United States' system that included use of the Norway-based transmitter, the court explained that, among other factors, there was “actual beneficial use” of the system in the United States.

RIM argued that Decca did not apply because Decca involved use of a United States-based controller (the only non-United States component was the Norway-based transmitter which did not have a system control function). This was in contrast to RIM's Relay Switch, which RIM argued was the Canada-based control for the entire Blackberry system. The Federal Circuit was not persuaded by RIM's argument and explained that the use of Blackberry handheld devices in the United States could be sufficient use in the United States for purposes of '271(a).

The Federal Circuit then applied the “beneficial use” concept from Decca to NTP's system and method claims. For a system claim, the court explained that “use” infringement liability is based on “the place at which the system as a whole is put into service ' ie, the place where control of the system is exercised and beneficial use of the system is obtained.” Finding that RIM's customers in the United States controlled the transmission of information and benefited from the exchange of transmitted information, the NTP II court ruled that RIM's activities were sufficient for direct infringement of the subject system claims. Thus, the location of the Relay Switch in Canada was not an impediment to a finding of infringement of a system claim.

For a method claim, however, the Federal Circuit agreed with RIM and concluded that there could not be infringement where one of the method steps occurs outside the United States. In reaching this decision, the NTP II court differentiated between the use of patented methods as opposed to patented systems: “the concept of 'use' of a patented method or process is fundamentally different from the use of patented system or device.” The Federal Circuit further explained the distinction between a process and a system: A process “necessarily involves doing or performing each of the steps recited,” whereas the use of a system as a whole involves components that are “used collectively, not individually.” Employing this analysis, the court held that, unlike for a system claim, infringement of a method claim could only be found if every step of the claim was performed in the United States. Therefore, because RIM's Relay Switch was in Canada and the use of the Relay Switch was required for infringement of each of NTP's asserted method claims, there could not be infringement of such claims.

The Federal Circuit's decision in NTP II impacts both prosecution and litigation of patents. Where a patent applicant is describing an invention that includes components that may be located outside the United States, system claims, rather than just method claims, should be sought where appropriate. As for litigation, in cases where there are components of the allegedly infringing process located outside the United States, litigants will likely argue about whether a requisite level of “beneficial use” in the United States can be established. There is also the possibility that the last word has not been heard from the Federal Circuit on this new method/system claim distinction, as a motion for reconsideration en banc is pending. So, stay tuned!

Companies involved with technologies that use components located both within and outside the United States will be interested in a recent decision in the patent infringement action brought by NTP, Inc. (“NTP”) against Research In Motion, Ltd. (“RIM”). In August 2005, the U.S. Court of Appeals for the Federal Circuit distinguished between infringement of “system” and “method” patent claims in “out of country” situations. The Federal Circuit held that if a component is located outside the United States, a system claim would be infringed if there is beneficial use of the patented system in the United States, while a method claim would not be infringed.

The hotly contested litigation between NTP and RIM has been closely watched by those interested in patents relating to the now ubiquitous wireless e-mail technology. The dispute has been the subject of numerous articles, many focusing on the impact of the litigation on the high-profile Blackberry' handheld device manufactured by RIM.

NTP is a Virginia-based patent holding company that sued RIM for infringement of five patents related to integrating existing e-mail systems with wireless communications systems. Each of NTP's patents-in-suit originated from a single “parent” patent application and together include more than 1900 patent claims directed to systems and methods for wireless e-mail technology. Such claims include those that recite systems for transmitting information between electronic mail systems over a wireless network using an interface switch and methods for transmitting information between electronic mail systems over a wireless network via an interface.

RIM is a Canadian company that owns the Blackberry wireless e-mail technology. The Blackberry system enables e-mail messages to be transmitted to and from Blackberry handheld units over a wireless communications system. The pertinent operation of RIM's accused Blackberry e-mail system requires three components: 1) a handheld Blackberry unit for sending and receiving messages, 2) “Redirector” software installed at the user's home e-mail system (eg, work or personal e-mail system) in order to forward e-mails into RIM's system and 3) access to a wireless transmission network for transmitting wireless messages to and from the handheld unit.

The Redirector software component of RIM's system retrieves all e-mail destined for delivery to a Blackberry user and forwards it to RIM's Relay Switch, which is located in Ontario, Canada. The Relay Switch performs the processing necessary to deliver the e-mail message to the appropriate wireless network for the intended Blackberry user. Every e-mail message, whether generated by a Blackberry user or destined for a Blackberry user, passes through RIM's Relay Switch located in Canada.

NTP sued RIM in federal court in Virginia in November 2001 for infringement based on various embodiments of the Blackberry system. Infringement was alleged of both NTP's system claims and method claims. Following the district court's Markman decision, RIM brought a summary judgment motion for non-infringement based on 35 U.S.C. '271(a). In pertinent part, '271(a) provides that “whoever without authority makes, uses, offers to sell or sells any patented invention, within the United States … during the term of the patent therefor, infringes the patent.” Thus, on its face, '271(a) requires activity “within the United States.”

The basis of RIM's non-infringement motion was that the location of RIM's Relay Switch in Canada caused RIM's activities to fall outside of the scope of '271(a). In particular, RIM argued that the accused infringement required use of the Relay Switch (which corresponded to the “interface” or “interface switch” limitations in NTP's patent claims) that was located and used in Canada, not in the United States. As a result, RIM asserted that there could not be any direct infringement and therefore no infringement liability under '271(a). The district court rejected RIM's analysis of '271(a) and, hence, denied RIM's motion. The case then went to trial and RIM was found to infringe all five patents-in-suit.

RIM appealed. Among the various issues that the Federal Circuit addressed on appeal was RIM's '271(a) argument, which the court rejected in an initial opinion issued in December 2004. NTP, Inc. v. Research In Motion, Ltd., 392 F.3d 1336 (Fed. Cir. 2005) (“NTP I“). In particular, the Federal Circuit in NTP I found that RIM was liable for infringement of both NTP's system and method claims, even though the Relay Switch (the alleged control point of RIM's system) was located outside the United States. Following a request for reconsideration, the Federal Circuit modified its view on infringement and issued a new opinion in August 2005. NTP, Inc. v. Research In Motion, Ltd., ___F.3d___, 2005 WL 1806123 (Fed. Cir. Aug. 2, 2005) (“NTP II“). In NTP II, the Federal Circuit specifically addressed and modified the portion of NTP I discussing infringement liability under '271.

The Federal Circuit in NTP II concluded, as in NTP I, that RIM was liable for infringement of claims directed to systems, since there was beneficial use of RIM's Blackberry system in the United States. However, in contrast to NTP I, the Federal Circuit in NTP II found RIM not liable for infringement of NTP's method claims. This was because all of the steps of a method claim must occur in the United States and this was not the case with RIM's operation, where RIM's Relay Switch operated entirely in Canada.

In reaching its conclusions, the NTP II court analyzed the language of '271(a) and determined that the “grammatical structure” of the statute provided two separate aspects: 1) a territorial component ' namely, the “within the United States” clause of the statute, and 2) the infringing acts portion of the statute. However, the Federal Circuit observed that “it is unclear from the statutory language how the territoriality requirement limits direct infringement where the location of at least a part of the 'patented invention' is not the same as the location of the infringing act.” The court determined that, under the language of '271(a), infringement is not automatically precluded simply because a component is located outside the United States.

The Federal Circuit in NTP II then turned to the issue of analyzing the effect on an infringement analysis where there are separate locations for 1) the components accused of infringement and 2) the infringing act. On this issue, RIM relied on an earlier Supreme Court decision, Deepsouth Packing Co. v. Laitrim Corp., 406 U.S. 518 (1972). Deepsouth was a patent infringement case in which the Supreme Court considered whether '271(a) prevented liability for direct infringement where the components accused of infringement were all manufactured in the United States, but were exported unassembled for assembly and use outside the United States. Id. at 527. The Supreme Court held that there was no infringement because there was no complete assembly of the infringing product in the United States ' the complete assembly only occurred abroad. The Federal Circuit found RIM's reliance on Deepsouth to be misplaced. It distinguished Deepsouth as involving infringing activity completely outside the United States, whereas it considered RIM's activities as occurring at least partly within the United States.

The Federal Circuit in NTP II then looked to another patent case for guidance ' Decca Ltd. v. United States , 544 F.2d 1070 (Ct. Cl. 1976). Decca was a patent infringement case in which the United States was sued for manufacturing and using Decca's patented radio navigation system. The system had a master controller in the United States and required use of three transmitter stations, one of which was located in Norway. In finding infringement based on the United States' system that included use of the Norway-based transmitter, the court explained that, among other factors, there was “actual beneficial use” of the system in the United States.

RIM argued that Decca did not apply because Decca involved use of a United States-based controller (the only non-United States component was the Norway-based transmitter which did not have a system control function). This was in contrast to RIM's Relay Switch, which RIM argued was the Canada-based control for the entire Blackberry system. The Federal Circuit was not persuaded by RIM's argument and explained that the use of Blackberry handheld devices in the United States could be sufficient use in the United States for purposes of '271(a).

The Federal Circuit then applied the “beneficial use” concept from Decca to NTP's system and method claims. For a system claim, the court explained that “use” infringement liability is based on “the place at which the system as a whole is put into service ' ie, the place where control of the system is exercised and beneficial use of the system is obtained.” Finding that RIM's customers in the United States controlled the transmission of information and benefited from the exchange of transmitted information, the NTP II court ruled that RIM's activities were sufficient for direct infringement of the subject system claims. Thus, the location of the Relay Switch in Canada was not an impediment to a finding of infringement of a system claim.

For a method claim, however, the Federal Circuit agreed with RIM and concluded that there could not be infringement where one of the method steps occurs outside the United States. In reaching this decision, the NTP II court differentiated between the use of patented methods as opposed to patented systems: “the concept of 'use' of a patented method or process is fundamentally different from the use of patented system or device.” The Federal Circuit further explained the distinction between a process and a system: A process “necessarily involves doing or performing each of the steps recited,” whereas the use of a system as a whole involves components that are “used collectively, not individually.” Employing this analysis, the court held that, unlike for a system claim, infringement of a method claim could only be found if every step of the claim was performed in the United States. Therefore, because RIM's Relay Switch was in Canada and the use of the Relay Switch was required for infringement of each of NTP's asserted method claims, there could not be infringement of such claims.

The Federal Circuit's decision in NTP II impacts both prosecution and litigation of patents. Where a patent applicant is describing an invention that includes components that may be located outside the United States, system claims, rather than just method claims, should be sought where appropriate. As for litigation, in cases where there are components of the allegedly infringing process located outside the United States, litigants will likely argue about whether a requisite level of “beneficial use” in the United States can be established. There is also the possibility that the last word has not been heard from the Federal Circuit on this new method/system claim distinction, as a motion for reconsideration en banc is pending. So, stay tuned!