Supreme Court Limits Patent Liability for Component Makers in Global Supply Chain

In a decision that should please American manufacturers that feed into the global supply chain, the U.S. Supreme Court has narrowly interpreted a 33-year-old law that imposes patent liability on components made in the U.S. for assembly overseas.

A unanimous Court reversed the U.S. Court of Appeals for the Federal Circuit, ruling that shipping a single component cannot trigger a provision of Section 271(f) of the Patent Act which applies to “all or a substantial portion of the components of a patented invention” that are combined abroad.

The decision on February 22 in Life Technologies v. Promega, No. 14-1538, wipes out a $52 million jury verdict for Promega Corp. endorsed by the Federal Circuit. The appellate court had ruled that the taq polymerase supplied by Life Technologies Inc. for DNA profiling kits assembled abroad met the “substantial” requirement because taq polymerase is the main component of the kits. See, Promega v. Life Technologies, Nos. 2013-1011, 1029, 1376 (Fed. Cir. Dec. 15, 2014).

But Justice Sonia Sotomayor's opinion held that in the context of the statute, “substantial” must mean more than one. For example, §271(f) refers to combining “such components” outside of the United States in a way that infringes a patent. “Text specifying a substantial portion of 'components,' plural, indicates that multiple components constitute the substantial portion,” she wrote.

The decision will come as good news to U.S. companies with worldwide manufacturing operations, including Agilent Technologies, which filed an amicus curiae brief in the case. The company had warned that the Federal Circuit decision imposed “outsized liability for global sales of multi-component products based on manufacturing and shipment of commonplace, but technologically essential, components” from the United States. The Federal Circuit's interpretation “reduces flexibility, increases risk and cost of U.S. manufacturing, and threatens to penalize U.S. manufacturing of components,” the company had cautioned.

Life Technologies leaves in place a companion statute that imposes liability if the single component is specially made or adapted for use in the combination, as opposed to a staple article or commodity such as taq polymerase.

“The decision follows classic principles of statutory construction to reach a conclusion that many expected,” says Holwell Shuster & Goldberg partner John DiMatteo, a patent litigator, in an email. “The only interesting aside is that the court left open the question of how many components are required to be a 'substantial portion of the components' — is two of five components substantial? What about three? That issue is left for another day.”

Justice Samuel Alito penned a short concurrence, joined by Justice Clarence Thomas, saying they understood the opinion not to suggest that two or more components automatically meets the substantial requirement. “In other words, today's opinion establishes that more than one component is necessary, but does not address how much more,” Alito wrote.

Chief Justice John Roberts had recused himself from the case because of stock ownership in Life Technologies' parent corporation, Thermo Fisher Scientific.

The ruling is a win for Sidley Austin chairman Carter Phillips, who argued the case for Life Technologies. It also offered a measure of vindication for Weil, Gotshal & Reines partner Edward Reines. When Reines argued the case at the Federal Circuit, former Chief Judge Randall Rader sent him an email saying his colleagues had been impressed with his oral advocacy. Reines shared the email with friends, family and clients, forcing Rader to apologize for the ethical lapse and later resign, while earning Reines a public reprimand from the court. The court also ruled against Reines, but his position, which had prevailed at the trial court level, carried the day at the High Court.

Wilmer Cutler Pickering Hale and Dorr partner Seth Waxman argued the case for Promega. Waxman had suggested that the Court leave it to juries to decide on a case-by-case basis whether “substantial” should be interpreted quantitatively or qualitatively.

Sotomayor demurred. “Our task is to resolve that ambiguity,” she wrote, “not to compound it by tasking juries across the nation with interpreting the meaning of the statute on an ad hoc basis.”

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Scott Graham writes for The Recorder, an ALM sibling of this newsletter. He can be reached at at [email protected].

In a decision that should please American manufacturers that feed into the global supply chain, the U.S. Supreme Court has narrowly interpreted a 33-year-old law that imposes patent liability on components made in the U.S. for assembly overseas.

A unanimous Court reversed the U.S. Court of Appeals for the Federal Circuit, ruling that shipping a single component cannot trigger a provision of Section 271(f) of the Patent Act which applies to “all or a substantial portion of the components of a patented invention” that are combined abroad.

The decision on February 22 in Life Technologies v. Promega, No. 14-1538, wipes out a $52 million jury verdict for Promega Corp. endorsed by the Federal Circuit. The appellate court had ruled that the taq polymerase supplied by Life Technologies Inc. for DNA profiling kits assembled abroad met the “substantial” requirement because taq polymerase is the main component of the kits. See, Promega v. Life Technologies, Nos. 2013-1011, 1029, 1376 (Fed. Cir. Dec. 15, 2014).

But Justice Sonia Sotomayor's opinion held that in the context of the statute, “substantial” must mean more than one. For example, §271(f) refers to combining “such components” outside of the United States in a way that infringes a patent. “Text specifying a substantial portion of 'components,' plural, indicates that multiple components constitute the substantial portion,” she wrote.

The decision will come as good news to U.S. companies with worldwide manufacturing operations, including Agilent Technologies, which filed an amicus curiae brief in the case. The company had warned that the Federal Circuit decision imposed “outsized liability for global sales of multi-component products based on manufacturing and shipment of commonplace, but technologically essential, components” from the United States. The Federal Circuit's interpretation “reduces flexibility, increases risk and cost of U.S. manufacturing, and threatens to penalize U.S. manufacturing of components,” the company had cautioned.

Life Technologies leaves in place a companion statute that imposes liability if the single component is specially made or adapted for use in the combination, as opposed to a staple article or commodity such as taq polymerase.

“The decision follows classic principles of statutory construction to reach a conclusion that many expected,” says Holwell Shuster & Goldberg partner John DiMatteo, a patent litigator, in an email. “The only interesting aside is that the court left open the question of how many components are required to be a 'substantial portion of the components' — is two of five components substantial? What about three? That issue is left for another day.”

Justice Samuel Alito penned a short concurrence, joined by Justice Clarence Thomas, saying they understood the opinion not to suggest that two or more components automatically meets the substantial requirement. “In other words, today's opinion establishes that more than one component is necessary, but does not address how much more,” Alito wrote.

Chief Justice John Roberts had recused himself from the case because of stock ownership in Life Technologies' parent corporation, Thermo Fisher Scientific.

The ruling is a win for Sidley Austin chairman Carter Phillips, who argued the case for Life Technologies. It also offered a measure of vindication for Weil, Gotshal & Reines partner Edward Reines. When Reines argued the case at the Federal Circuit, former Chief Judge Randall Rader sent him an email saying his colleagues had been impressed with his oral advocacy. Reines shared the email with friends, family and clients, forcing Rader to apologize for the ethical lapse and later resign, while earning Reines a public reprimand from the court. The court also ruled against Reines, but his position, which had prevailed at the trial court level, carried the day at the High Court.

Wilmer Cutler Pickering Hale and Dorr partner Seth Waxman argued the case for Promega. Waxman had suggested that the Court leave it to juries to decide on a case-by-case basis whether “substantial” should be interpreted quantitatively or qualitatively.

Sotomayor demurred. “Our task is to resolve that ambiguity,” she wrote, “not to compound it by tasking juries across the nation with interpreting the meaning of the statute on an ad hoc basis.”

*****
Scott Graham writes for The Recorder, an ALM sibling of this newsletter. He can be reached at at [email protected].