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Proof of Alleged Patent or Copyright Infringement in the United States Is Required to Prevail on the Merits, but Not for Establishing Subject Matter Jurisdiction

06-1646
April 28, 2008

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Last Month at the Federal Circuit - May 2008

Judges: Newman, Archer, Gajarsa (author)

[Appealed from: E.D. Mo., Judge Webber]

In Litecubes, LLC v. Northern Light Products, Inc., No. 06-1646 (Fed. Cir. Apr. 28, 2008), the Federal Circuit affirmed the district court’s denial of Northern Light Products, Inc.’s (“GlowProducts”) motion to dismiss for lack of subject matter jurisdiction, holding that a plaintiff must provide that allegedly infringing activity took place in the United States to prevail on claims of patent or copyright infringement, but failure to do so does not divest the federal courts of subject matter jurisdiction. The Federal Circuit also affirmed the district court’s denial of GlowProducts’ JMOL motion, finding that substantial evidence supported the jury’s finding of infringement.

Carl R. Vanderschuit is the inventor and owner of U.S. Patent No. 6,416,198 (“the ’198 patent”), which discloses an illuminatable novelty item that can be placed in beverages, i.e., a lighted artificial “ice cube.” Vanderschuit is also the owner and founder of Litecubes, LLC, which is the licensee of the ’198 patent and the owner of a registered copyright on the Litecube. Vanderschuit and Litecubes, LLC (collectively “Litecubes”) sued GlowProducts for patent and copyright infringement. GlowProducts is a Canadian corporation with no offices, facilities, or assets in the United States. GlowProducts sold the accused products directly to customers located in the United States and shipped the products f.o.b. from its Canadian offices. “F.o.b.,” or “free on board,” is a method of shipment whereby goods are delivered at a designated location, usually a transportation depo, at which legal title, and thus the risk of loss, passes from seller to buyer.

During trial, GlowProducts argued for the first time that the district court lacked subject matter jurisdiction because there was no evidence of a sale or importation of the accused products into the United States. It argued that because its sales to U.S. customers were shipped f.o.b., the sales took place in Canada and that it was the customer who imported the goods into the United States. After the jury verdict of willful infringement, GlowProducts filed a motion to dismiss for lack of subject matter jurisdiction on this ground. The district court denied the motion, not on a jurisdictional analysis, but based on a finding that the evidence of infringement was sufficient to establish subject matter jurisdiction because GlowProducts clearly imported the accused products into the United States. The district court also dismissed GlowProducts’ motion for JMOL, concluding that substantial evidence supported the jury’s verdict. GlowProducts appealed.

On appeal, the Federal Circuit first addressed the district court’s denial of GlowProducts’ motion to dismiss. It explained that under what is known as the “well-pleaded complaint rule,” subject matter jurisdiction exists if a well-pleaded complaint establishes either that federal patent law creates the cause of action or that the plaintiff’s right to relief necessarily depends on resolving a substantial question of federal patent law. The Court noted that Litecubes alleged in its complaint that GlowProducts violated 35 U.S.C. § 271(a) and that this statute created a federal cause of action for patent infringement over which district courts have subject matter jurisdiction under 28 U.S.C. §§ 1331 and 1338(a). The Court noted further that Litecubes, as GlowProducts conceded, properly pled every element of a § 271(a) claim by alleging that GlowProducts had infringed the ’198 patent. The Court rejected GlowProducts’ argument that there was no subject matter jurisdiction because Litecubes failed to prove that GlowProducts sold or offered to sell products in the United States or imported products into the United States. The Court explained that subject matter jurisdiction does not fail simply because the plaintiff might be unable to ultimately succeed on the merits. It reasoned that a failure to prove the allegations alleged in a complaint requires a decision on the merits, not a dismissal for lack of subject matter jurisdiction. Accordingly, the Court concluded that there was no question that Lifecubes’ allegations, which stated a claim under the patent laws, were sufficient to create general federal question jurisdiction.

Moreover, noted the Court, while Congress could restrict the federal question jurisdiction under § 1331 or § 1338, the Supreme Court reiterated, in Arbaugh v. Y & H Corp., 546 U.S. 500 (2006), that it is critical to distinguish between a statutory limitation that is truly jurisdictional and one that is simply an element of the claim that must be established on the merits. The Court observed that the Arbaugh court created a bright line rule for analyzing the difference: “[I]f the Legislature clearly states that a threshold limitation on a statute’s scope shall count as jurisdictional, then courts and litigants will be duly instructed . . . . But when Congress does not rank a statutory limitation on coverage as jurisdictional, courts should treat the restriction as non-jurisdictional in character.” Slip op. at 12. The Court found no clear statement in § 271 or in any other statute that § 271’s requirement that the infringing act happen within the United States was a threshold jurisdictional requirement as opposed to an element of the claim. It noted that to the contrary, the statute in no way distinguished the territorial limitation from any of the other elements necessary to show infringement.

The Federal Circuit further considered the tendency prior to Arbaugh to refer to limitations on the extraterritorial reach of a statute as “jurisdictional.” The Court concluded that a limitation regarding the extraterritorial scope of a statute does not convert what would otherwise be a factual element of a claim into a restriction on the subject matter jurisdiction of federal courts. The Court explained that there is no absolute rule prohibiting the extraterritorial reach of federal statutes and that if Congress has extended a cause of action to reach extraterritorial activity, there is no independent bar to the federal courts adjudicating such extraterritorial disputes, provided a court has personal jurisdiction over the defendants. It observed that a limitation on the extraterritorial scope of a statute was no different than any other element of a claim that must be established before relief can be granted.

Accordingly, the Court held that “whether the allegedly infringing act happened in the United States is an element of the claim for patent infringement, not a prerequisite for subject matter jurisdiction,” and affirmed the district court’s denial of GlowProducts’ motion to dismiss for lack of subject matter jurisdiction. Id. at 17. In so doing, the Court noted that there was no need for the district court to consider whether GlowProducts had imported products into the United States in order to determine whether it had jurisdiction and that Litecubes, by alleging a violation of § 271, properly invoked jurisdiction under §§ 1331 and 1338.

The Federal Circuit next addressed GlowProducts’ argument that the district court had no subject matter jurisdiction over Litecubes’ copyright claims. The Court noted that it normally applies regional circuit law to issues of copyright law. It noted, however, that it would apply Federal Circuit law here because, although the issue implicated the substance of the Copyright Act, it was ultimately a question of the Court’s jurisdiction. The Court observed that both parties agreed that the Patent Act and the Copyright Act should be interpreted consistently and that if the Patent Act’s requirement that the infringing act take place in the United States was not a jurisdictional requirement, the exclusion from the Copyright Act of acts taking place entirely abroad should also not be jurisdictional. The Federal Circuit also agreed, noting that the principles and case law that led it to conclude that the Patent Act’s territorial requirement is an element of the claim that must be established to prove infringement, but not a requirement for subject matter jurisdiction, applied equally to the Copyright Act’s limitation on the extraterritorial reach of the statute. The Court noted that there was no indication that Congress intended the extraterritorial limitations on the scope of the Copyright Act to limit the subject matter of the federal courts. Accordingly, it held that the issue is properly treated as an element of the claim that must be proved before relief can be granted, not a question of subject matter jurisdiction, and affirmed the district court’s denial of GlowProducts’ motion to dismiss for lack of subject matter jurisdiction.

The Federal Circuit next turned to GlowProducts’ JMOL motion that substantial evidence did not support the jury’s verdict of copyright and patent infringement. Specifically, GlowProducts argued that the evidence was insufficient to establish a sale or offer for sale of the allegedly infringing products within the United States or importation of the products to the United States. The Federal Circuit disagreed. It noted that although the district court based its ruling on a finding that GlowProducts imported its goods into the United States, the preferable initial inquiry was whether there was a sale within the United States.

While it was uncontested that GlowProducts sold and shipped the accused products to customers in the United States, GlowProducts argued that these were not sales in the United States because the products were shipped f.o.b. and, thus, title over the goods was transferred while the goods were still in Canada. The Court rejected this argument, finding that there was substantial evidence of a sale within the United States for the purposes of § 271. It explained that it has previously, in the context of personal jurisdiction, “rejected the notion that simply because goods were shipped f.o.b., the location of the ‘sale’ for the purposes of § 271 must be the location from which the goods were shipped,” and that to the contrary, it determined that the sale also occurred at the location of the buyer. Id. at 24 (citing N. Am. Philips Corp. v. Am. Vending Sales, Inc., 35 F.3d 1576 (Fed. Cir. 1994)). The Court noted that since the American customers were in the United States when they contracted for the accused products, and the products were delivered directly to the United States, substantial evidence supported the jury’s conclusion that GlowProducts sold the accused products within the United States. The Federal Circuit similarly concluded that substantial evidence supported the jury’s verdict of copyright infringement. The Court noted that the Copyright Act did not explicitly require that sales be “in the United States,” but that courts have generally held that it does not reach activities that take place entirely abroad. Id. at 28. It found that substantial evidence supported the jury’s conclusion that, by selling to customers in the United States, GlowProducts’ distribution of the accused products had taken place, at least in part, in the United States. Accordingly, it affirmed the denial of JMOL with respect to the copyright claim.

Finally, the Court turned to GlowProducts’ argument that the district court erred in denying its JMOL motion with respect to infringement by one of the accused products because those products did not meet one of the claim limitations. The Federal Circuit disagreed, noting that substantial evidence supported the jury’s verdict, and affirmed the district court’s denial of JMOL.