Page 4 - Intellectual Property

S4 | MONDAY, MARCH 27, 2017 | Intellectual Property
| NYLJ.COM
Extraterritorial Jurisdiction of IP Laws:
Overseas Operations May Still Create U.S. Liability
BY ANDREW P. MacARTHUR AND RALPH A. DENGLER
In today’s global economy, manufactur- ing and distribution chains typically are spread across multiple countries. A product now passes through several (and sometimes related) companies as it is sold and resold overseas before possibly being imported back into the United States. This dynamic and complex relationship from the incarnation of product to eventual world-wide sale often creates tension with U.S. laws that regulate domestic conduct.
Intellectual property laws, which are cen- tral to innovation, product development and protection, are no stranger to this ten- sion. IP owners naturally want to assert their rights to exclude others, and when necessary, identify potential liability and maximize damages relating to foreign activ- ity. But accused infringers try to resist this
ANDREW P. MacARTHUR is counsel and RALPH A. DENGLER is a partner at Venable in New York.
“reach” to ensure a U.S. IP-acquired right does not surreptitiously become world-wide protection, especially when no equivalent foreign protection exists, or it is weakly enforced. Recent U.S. cases have created benchmarks of patent, trademark, copy- right, and trade secret liability for foreign activity, and businesses should take heed.
The U.S. Patent Claw
“The traditional understanding [is] that ... patent law operates only domestically and does not extend to foreign activities.” Lexmark Int’l v. Impression Prods., 816 F.3d 721, 764 (Fed. Cir. 2016) (internal citation and quotations omitted). One such example is patent exhaustion, which states that a patent owner’s right to control a patented article is eliminated after a rst authorized sale, thereby enabling a party to use or resell a product without the threat of infringement. Id. at 739. However, a recent case from the U.S. Court of Appeals for the Federal Circuit (en banc) has shifted the reach of U.S. pat- ents overseas. In Lexmark,1 the court held that patent exhaustion does not apply to
foreign sales and a patent owner can pre- serve its patent rights—and thus prevent the exhaustion of patent rights—by imposing clearly delineated restrictions at the time of sale. Id. at 735, 754, 773-74.
As background, Lexmark sold two forms of cartridges, one at full price and another at a discounted price with conditions that prevented the resale and reuse of these lat- ter cartridges. Id. at 727. Certain companies overseas acquired empty cartridges of the second type and re lled them for resellers such as Impression. Id. at 728. Impression, then imported these foreign-purchased car- tridges into the United States. Id. Lexmark sued Impression for patent infringement of these imported cartridges. Id.
The Lexmark decision exposes numerous companies to patent infringement liability, including foreign resellers and U.S. companies that rely on foreign companies to procure and manufacture products that are imported into the United States. It is conceivable that a U.S. company importing a product comprised of hundreds of components acquired abroad might be sitting on a Trojan horse where the patent holder could sue for infringement on
one component. As a result of Lexmark, U.S. companies will be forced to re-evaluate their contracts with suppliers to ensure (1) each component is properly purchased from the patent owner and (2) there are no contrac- tual restrictions on the use of the compo- nent downstream (and actually af rmatively state so if possible); this could entail paying a higher price for the component.
The Federal Circuit also has provided guid- ance on when there is a foreign sale or offer for sale to invoke U.S. patent infringement liability. In Halo Elecs v. Pulse Elecs., 831 F.3d 1369 (Fed. Cir. 2016), the Federal Circuit held that there was no foreign sale where products were “manufactured, shipped, and delivered to buyers abroad” and orders for those prod- ucts were received abroad. Id. at 1378-79. This was despite pricing negotiations and market- ing activities occurring in the United States that resulted in those foreign orders. Id. at 1378. Nor did the Federal Circuit nd any offer for sale because “the locations of the contemplated sales were outside the United States.” Id. at 1380.
In view of Halo and prior precedent, a U.S. company would be well advised » Page S11
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