Can a Taiwan company that manufactures products in China and delivers them in Hong Kong, pursuant to contracts signed in Taipei, be held liable for infringing U.S. patents based on those transactions, even if it never imports the goods to or does business in the U.S.? Surprisingly, yes.
Direct Infringement. Under Section 271(a) of the U.S. Patent Act it is unlawful to make, use, offer to sell, sell or import in/into the U.S. any device that makes use of a valid patent, without authority from the patent owner. To do so constitutes direct infringement.
It’s not always clear what constitutes U.S. sales. In MEMC v. Mitsubishi, a Japanese supplier sold goods exclusively to a Japanese customer, but placed shipping labels on the products indicating a U.S. destination and otherwise helped facilitate importation by the customer. Nonetheless, a U.S. court found the supplier didn’t engage in U.S. sales.
However, in LightCubes v. Nothern Light, the court found a supplier engaged in U.S. sales despite delivering the goods in Canada, because it sold them to U.S. customers. And in SEB v. Montgomery Ward, the court found U.S. sales despite delivery in Hong Kong, because the supplier manufactured the goods with North American electrical fittings, affixed U.S. trademarks on the goods, and stated U.S. destinations on the invoices.
Patented Processes. Even if a product manufactured overseas does not infringe any U.S. patents, the foreign manufacturer may be liable under Patent Act section 271(g) if it made the device using a process patented in the U.S. However, Pfizer v. Aceto and Tec Air v Nippondenso each held there can be no liability under section 271(g) unless the goods are eventually sold in the U.S.
Active Inducement. In addition to direct infringement and use of a patented process, Patent Act section 271(b) states, “Whoever actively induces infringement of a patent shall be liable as an infringer.” Inducement requires both (i) intent to cause infringement and (ii) affirmative acts to encourage infringement, such as by advertising an infringing use or instructing how to engage in an infringing use. See Wing Shing v. Simatelex and Honeywell v. Acer.
When proving intent to cause infringement, circumstantial evidence may be sufficient, including evidence of a failure to investigate, to explore design-around solutions, to take remedial steps, or to seek legal advice. However, courts have declined to find inducement liability where a product, despite having potentially infringing uses, is also capable of noninfringing uses. See Acco Brands v. ABA Locks and Warner-Lambert v. Apotex.
In DSU Medical Corp. v. JMS, the Federal Circuit held that proof of the requisite intent necessarily requires proof that the defendant knew of the patent. But the Supreme Court held in Global-Tech v. SEB that “willful blindness” to known risks may be sufficient to satisfy the knowledge requirement. However, the vendor’s conduct in that case was especially egregious.
Contributory Infringement. Finally, on a related topic, a vendor may be liable under section 271(c) of the Patent Act, even if it never makes or sells an infringing product, if it knowingly sells, offers to sell, or imports in/into the U.S. a device specially made or adapted for use in an infringing product.
Section 271(c) includes an exemption for staple articles of commerce capable of substantial noninfringing use, but such use must be more than occasional, far-fetched, impractical, experimental, or hypothetical. See Ricoh v. Quanta and Lucent v. Gateway. Also, to establish liability for contributory infringement, the plaintiff is also required to prove direct infringement by a third party, such as the vendor’s customer.
Of course, when pursuing a claim against a foreign entity, the U.S. patent owner must surmount potential hurdles pertaining to jurisdiction, venue, service of process, evidence, and ultimately – if successful – cross-border enforcement of the award. But, the fact that a foreign manufacturer or supplier never does business in the U.S. may not be a bar to liability under the U.S. Patent Act.
Have you been involved in litigation involving allegations of Active Inducement, Use of a Patented Process, or Contributory Infringement? Care to tell about it?
If you have any questions, please contact our Taiwan business attorneys.