S.D. Ind., Judge Hamilton
August 19, 2009
Decision, en banc
Last Month at the Federal Circuit - September 2009
Judges: Newman, Mayer, Lourie (author). Part C.2 was heard en banc before Michel, Newman (dissenting), Mayer, Lourie (author), Rader, Schall, Bryson, Gajarsa, Linn, Dyk, Prost, Moore.
[Appealed from: En Banc Court Holds That § 271(f) Does Not Apply to Method Patents]
In Cardiac Pacemakers, Inc. v. St. Jude Medical, Inc., Nos. 07-1296, -1347 (Fed. Cir. Aug. 19, 2009) (en banc), the Federal Circuit held en banc that 35 U.S.C. § 271(f) cannot apply to method or process patents. Additionally, a panel of the Federal Circuit reversed the district court’s SJ of invalidity, reinstating the jury’s verdict of validity, held that inequitable conduct arguments could not be asserted on remand, affirmed the district court’s limit on damages to only those products that actually performed the patented method, and declined to reassign the case to a different judge on remand.
Cardiac Pacemakers, Inc. (“Cardiac”) is the exclusive licensee of U.S. Patent No. 4,407,288 (“the ’288 patent”), which claims a method of heart stimulation using an implantable heart stimulator capable of detecting heart arrhythmias. Cardiac sued St. Jude Medical, Inc. (“St. Jude”) for infringement of the ’288 patent, among others. After a jury trial, the jury found the ’288 patent valid and enforceable but not infringed, rejecting St. Jude’s arguments that it was obvious and unenforceable for inequitable conduct. But the district court granted St. Jude’s JMOL on invalidity and also granted a conditional new trial on obviousness and inequitable conduct should the JMOL decision be reversed. The district court also denied Cardiac’s JMOL for infringement.
Cardiac appealed, and a panel of the Federal Circuit reversed the district court, holding that the court had exceeded its discretionary authority by granting St. Jude’s JMOL and reversing the district court’s claim construction of one claim term. The panel remanded the case to the district court for a new trial on infringement and reassessment of damages. During the remanded trial, the district court allowed St. Jude to argue new invalidity and unenforceability defenses. At the conclusion of the remanded trial, the district court granted Cardiac’s SJ motion for infringement and held that Cardiac’s potential damages included the sale of infringing devices exported from the United States to other countries under 35 U.S.C. § 271(f). But the district court also granted St. Jude’s SJ motion for anticipation and limited damages to products that actually performed the method steps. Cardiac and St. Jude both appealed these rulings.
On appeal, a panel of the Federal Circuit found that the district court improperly allowed St. Jude to present invalidity arguments during the remanded trial. Prior Federal Circuit panels had expressly limited the remanded trial to an assessment of infringement, calculation of any damages, and any directly related new issues. The Court stated that while a changed claim construction may permit new anticipation arguments, the changed term must have been an element missing from the prior art. The Court found that the term at issue was uncontested at trial and never served as a basis for distinguishing the prior art. Thus, the Court reinstated the jury’s verdict of nonobviousness because the jury’s verdict of validity could not have depended on the erroneous construction of the claim.
The Federal Circuit also found that the district court improperly allowed St. Jude to make inequitable conduct arguments on remand. The Court concluded that St. Jude had either failed to pursue their arguments at trial or failed to appeal the arguments, and had therefore waived them. In addition, the Court found that St. Jude had entered into a stipulation with Cardiac that precluded it from pursuing its remaining viable inequitable conduct argument. With all of St. Jude’s inequitable conduct arguments either waived or covered by the stipulation, the Court reinstated the jury’s verdict of enforceability.
The Court then turned to the district court’s rulings on damages. First, the Court affirmed the district court’s ruling that damages could only apply to products that actually performed the claimed method, and not to products with the mere capability to practice the method. Cardiac argued that Stryker Corp. v. Intermedics Orthopedics, Inc., 96 F.3d 1409 (Fed. Cir. 1996), indicated that a plaintiff could receive damages on sales of an infringing product that lacked a required element, so long as the element was capable of being supplied. The Federal Circuit disagreed, distinguishing Stryker on its facts. The Court stated that in Stryker, the plaintiff sought lost profits on a patented apparatus and the entire apparatus was supplied during surgery. In the present case, Cardiac sought royalties on a patented method, and all the elements of the method could not be supplied until a device actually performs all of the steps. Therefore, the Court reasoned, Cardiac could only receive infringement damages on those devices that actually performed the patented method.
Finally, the Court turned to the district court’s ruling that § 271(f) applied to method claims, the only issue heard en banc. Although the district court based its decision on Union Carbide Chemicals & Plastics Technology Corp. v. Shell Oil Co., 425 F.3d 1366 (Fed. Cir. 2005), which held that § 271(f) applied to method claims, the Court noted that Union Carbide and its predecessors were decided before the Supreme Court examined and gave direction on § 271(f) in Microsoft Corp. v. AT&T Corp., 550 U.S. 437 (2007). The Court stated that the Supreme Court’s decision in Microsoft sent a clear message that the territorial limits of patents should not be lightly breached.
First, the Federal Circuit looked to the definition of the word “component,” as used in § 271(f). The Court stated that “a component of a tangible product, device, or apparatus is a tangible part of the product, device, or apparatus, whereas a component of a method or process is a step in that method or process,” slip op. at 23, and “not the physical components used in performance of the method,” id. at 25. The Federal Circuit rejected Cardiac’s argument that a component of a process may encompass the apparatus that performs the process. In doing so, the Court pointed to the language of § 271(c), where Congress contrasts a component of a patented machine with a material or apparatus for use in practicing a patented process, to show that Congress clearly believed that a component was separate and distinct from a material or apparatus for use in practicing a patented process.
Having found that the components of a method are the steps of the method, the Federal Circuit concluded that § 271(f)’s requirement that components be supplied from the United States eliminates method patents from its reach. The Court stated that the word “supply” implies the transfer of a physical object and “[s]upplying an intangible step is thus a physical impossibility.” Id. at 26. The Court reasoned that the legislative history of § 271(f) supports this conclusion because Congress was focused on closing the loophole, presented by the Supreme Court’s decision in Deepsouth Packing Co. v. Laitram Corp., 406 U.S. 518 (1972), that shipping an unassembled patented product abroad for later assembly avoids patent infringement. “The legislative history of Section 271(f) is almost completely devoid of any reference to the protection of method patents and the Supreme Court has advised us that it is Congress’s right, not the courts’, to extend the statute beyond the Deepsouth problem it was designed to fix.” Slip op. at 27.
The Federal Circuit also rejected Cardiac’s argument that a statement in the legislative history indicated that Congress understood “components” to apply also to method patents. The Court reasoned that a statement by one private proponent of a pending bill in Congress cannot override the clear language of the statute and the context in which it was enacted. In addition, to support its holding that § 271(f) does not apply to method patents, the Court pointed to the presumption against extraterritoriality and the narrow view of § 271(f) taken by the Supreme Court in Microsoft. The Court stated that the presumption compelled them not to extend the reach of § 271(f) to method patents.
Finally, the Federal Circuit expressly overruled the decision in Union Carbide, as well as any other decisions, that § 271(f) applies to method patents. Because the patent at issue in the present case was a method patent, the Federal Circuit reversed the district court and held that Cardiac could not receive any damages for sales of devices outside the United States.
In the dissent, Judge Newman disagreed with the Court’s holding that all process patents fall outside the scope of § 271(f). Judge Newman stated that the text of the statute is not ambiguous, the term “patented invention” applies to all patent-eligible subject matter, and Congress explicitly states a specific statutory class when it intends to single one out. The dissent concluded that because Congress did not single out process patents but used the term “patented invention” in § 271(f), the statute must cover process patents as well as the other statutory classes. The dissent further noted that the original language of § 271(f) expressly listed “a patented machine, manufacture, or composition of matter,” but this was changed to “patented invention” in the final version. Citing the statutory construction rule that “[w]here Congress includes limiting language in an earlier version of a bill but deletes it prior to enactment, it may be presumed that the limitation was not intended,” Judge Newman concluded that Congress intended § 271(f) to apply to process patents. Newman Dissent at 9-10.
Judge Newman then examined how § 271(f) applies to process components. First, she stated that a process may involve both product and process aspects. “It appears that the heart stimulator is supplied from the United States and combined with process steps that are taught from the United States and performed abroad.” Id. at 12. The dissent noted this issue was not brought out in the appeal. Next, Judge Newman made an analogy between coinfringement and § 271(f). Judge Newman reasoned that the holding in BMC Resources, Inc. v. Paymentech, L.P., 498 F.3d 1373 (Fed. Cir. 2007), that in some cases the practice of steps of a patented method by two parties can be combined, whereby the party that performs earlier steps “supplies” this component to the party that performs the later steps, was “commensurate with the application of § 271(f) to processes that are partly performed in the United States.” Newman Dissent at 14. This precedent, she asserted, does not support a conclusion that it is a physical impossibility to read § 271(f) as applying to processes.
Finally, Judge Newman addressed the sovereignty issue of extraterritoriality. Using the example of a patented process that is practiced so that some steps are performed in the United States and others offshore, she opined that the “purloiner of the patented process may escape liability everywhere,” and that the legislators could not have intended to enable avoidance of process patents by this ploy. Id. at 15. Judge Newman concluded that for process patents, the majority opinion reopened the loophole exposed by Deepsouth and overreached by dumping the statute entirely in an overreaction to the facts of one case.