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Patent and Copyright Infringement by Sale of Offending Products into the United States

As international sales and sales over the Internet become more common, the question of where a sale takes place for the purposes of infringement of U.S. patents and copyrights becomes more important. An April 28, 2008 decision of the Court of Appeals for the Federal Circuit makes it clear that one cannot avoid the risk of being found liable for patent or copyright infringement simply by relying on the nature of the sales transaction or the location where legal ownership of the goods in question is transferred from the seller to the buyer. Therefore sellers who are for any reason subject to personal jurisdiction of the United States courts, for example as a result of other activities in the United States, may find themselves subject for claims to patent or copyright infringement based on shipments made from abroad on the basis that performance of the sales contract occurred in the United States upon delivery of the goods.

In Litecubes LLC v. Northern Light Products, the Court of Appeals for the Federal Circuit was confronted with a case in which novelty items (illuminable artificial “ice cubes” than can be placed in drinks) were made in China and sold into the United States by a Canadian Corporation (Northern Lights). It was claimed that these items fell within the scope of United States patents and were also the subject of copyright protection. The sales into the United States were made “free on board” Northern Lights Canadian offices so that legal ownership of the novelties was transferred from the Canadian corporation before the goods actually entered the United States.

Northern Lights appealed from a district court ruling that the district court had jurisdiction to try the case, it being claimed by the defendants that United States courts had no subject matter jurisdiction because the sale was made in Canada. In its decision, the Court of Appeals decided that such subject matter jurisdiction did exist and went on to consider the substantive question of whether sales of this type infringed U.S. patents and copyrights.

On the subject matter jurisdiction issue, the Court of Appeals, relying on a 2006 United States Supreme Court decision in Arbaugh v. Y & H Corp drew a distinction between situations in which jurisdiction existed to try a case and those where even though jurisdiction existed acts outside the United States did not breach United States law. In its ruling the Supreme Court had held that jurisdiction should be denied only when the legislature

All parties filed motions for summary judgment. On April 1, 2008, the District Court issued its ruling on these motions holding that:

clearly states that a threshold limitation on a statute’s scope shall count as jurisdictional. … But when Congress does not rank a statutory limitation on coverage as jurisdictional, courts should treat the restriction as non-jurisdictional in nature.

The Court of Appeals went on to find that the requirement of 35 USC § 271 that to infringe a U.S. patent, the infringing act (such as manufacture, sale, offer for sale, use, or importation of an infringing article) had to occur within the United States was not a jurisdictional requirement but rather a requirement of whether an unlawful act had occurred. Therefore, the district court did have jurisdiction to hear the question of patent infringement. The Court of Appeals concluded that similar reasoning led to a conclusion that the court also had jurisdiction to hear the case for copyright infringement.

On the substantive issue, the defendants had filed a motion before the district court for a judgment as a matter of law that there had been insufficient evidence for the jury to find that the acts complained of constituted infringement of U.S. patents or copyright because they took place in Canada. The district court had declined such a motion and upheld a jury verdict of infringement of both intellectual property rights. Before the district court the substantive issue had been argued on the basis of a claim for infringement by importation of the offending goods. Despite the failure of the defendants to appeal against the denial of its motion, both parties agreed that if the Court of Appeals concluded that the question to be decided in this case was not one of whether there was subject matter jurisdiction but rather a matter of whether the acts actually fell within the substantive prohibitions of the Patents and Copyright Acts, the court could consider whether there was sufficient evidence before the jury for it to have concluded that infringement had occurred. The Court of Appeals decided that under the circumstances it was proper to exercise its discretion to decide the substantive issue, taking the view that it had been fully briefed “albeit under the incorrect rubric of subject matter jurisdiction”.

Having so decided, the Court of Appeals opined that so far as the issue of patent infringement was concerned, characterization of the issue to be decided as whether there had been infringement by importation of the goods into the United States was incorrect and that the preferable approach to the question of infringement was to consider whether there had been a sale of infringing articles in the United States. The Court noted that in its 1994 decision in North American Phillips Corp. v. American Vending Sales Inc., which had considered the question of the location of a “sale” for the purposes of establishing personal jurisdiction over a party, the Court had pointed out that even if a formal test were required to establish location of a sale there was no reason “why the criterion should be the place where legal title passes rather than the more familiar places of contracting and performance.” The Court went on to state that

while North American Phillips dealt with the issue of where a “sale” took place under §271 in the context of personal jurisdiction, we see no basis for construing the location of “sale” differently when the issue is whether the plaintiff has established that the sale took place in the United States for the purposes of infringement.

In the present case, “American customers were in the United States when they contracted for the accused cubes and the products were delivered directly to the United States”. The court therefore concluded that there was substantial evidence to support the jury’s finding of patent infringement and that the district court had been correct to refuse the defendant’s motion for a judgment as a matter of law that there had been no patent infringement.

On the question of copyright infringement, Section 106(3) of the Copyright Act makes it an act of infringement to “distribute” copies of the copyrighted work “to the public by sale”. The Court of Appeals held that the term “sale” should be construed consistently under copyright and patent law and so the defendant’s act were copyright infringements. Furthermore, the Court noted that unlike the Patent Act, the Copyright Act does not explicitly require sales to be “in the United States” for there to be copyright infringement and that prior case law had excluded from copyright infringement only activities that took place entirely abroad. There was therefore substantial evidence to support the jury’s verdict of copyright infringement.

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