Territorial Limits of Infringement via Sale

Litecubes v. Northern Light Productions (GlowProducts) (Fed. Cir. 2008).

Short Summary: (1) Subject Matter Jurisdiction is satisfied by a well pled complaint, even if the accused infringer is foreign and the infringing activity is potentially outside the US; (2) In an infringement analysis, a product may be considered “sold” in the US even though title is transferred abroad – so long as the seller deals directly with US customers and then ships the product to the US.

Litecubes are artificially illuminated pseudo-ice cubes. The company asserted both patent and copyright protection against GlowProducts of Canada.  Although GlowProducts has no US facilities or assets, the company does sell and ship directly to US customers.

Subject Matter Jurisdiction: On appeal, the CAFC raised the issue of subject matter jurisdiction. Specifically the court inquired whether the limits on subject matter jurisdiction require a patent plaintiff to establish some threshold level of infringement within the US. Or, are the elements of infringement merely factual elements to be proven at trial.

Well pled complaint rule: Under the well pled complaint rule, subject matter jurisdiction is satisfied by a complaint that establishes “either that federal patent law creates the cause of action or that the plaintiff’s right to relief necessarily depends on resolution of a substantial question of federal patent law.”  Here, because Lightcubes complaint pled each element of the infringement statute (35 USC 271(a)), the federal court properly has jurisdiction. 

Furthermore, subject matter jurisdiction is not defeated by a failure to prove the allegations unless the allegations are “wholly insubstantial and frivolous.”

There are some prior that look at territoriality requirements as jurisdictional. However, the CAFC found that the territorial limitations of Section 271 are elements of infringement rather than requirements for subject matter jurisdiction.

“Thus, in these respects, a limitation on the extraterritorial scope of a statute is no different than any other element of a claim which must be established before relief can be granted under a particular statute.”

Thus, the district court should have rejected GlowProduct’s subject matter jurisdiction claims without even considering whether any products were actually imported into the U.S.  Rather, Litecubes satisfied the SMJ requirement by alleging US infringement in the complaint:

“by alleging a violation of § 271, has properly invoked federal question jurisdiction under § 1331 and § 1338. This jurisdiction does not depend on whether Litecubes is able to succeed on the merits in proving all of the elements of patent infringement that it alleged in the complaint.”

Applying a parallel analysis, the CAFC likewise held that the issue of territoriality of copyright infringement is “properly treated as an element of the claim which must be proven before relief can be granted, not a question of subject matter jurisdiction.”  Of course, foreign companies charged with infringement can still escape the court’s reach if there is a lack of personal jurisdiction. “In many such cases, the court may not have personal jurisdiction over the defendant.”

Sale in the US: GlowProducts argued that it had not made any US sales. In particular, the Canadian defendant argued that the sales were made in Canada and then shipped f.o.b.. On appeal, the CAFC found that that the location of a “sale” under Section 271 should not be limited by any formalistic rules.  Citing its 1994 North American Philips case, the appellate panel held that foreign company’s “sale” may properly be considered within the US if the seller deals directly with US customers and then ships to the US — regardless of whether title to the goods was legally transferred in another country.  

Interestingly, the court extensively relied on personal jurisdiction precedents interpreting constitutional law to broadly define the location of a sale. Yet, the court also argued foreign defendants should rely upon personal jurisdiction arguments to protect against constitutional due process violations — noting that those foreign companies “have substantial protection if the activity complained of took place wholly outside of the United States.  In many such cases, the court may not have personal jurisdiction over the defendant.” 

Comments

[Opampman]

Dennis, thanks for including a summary at the beginning of the case report. This is a great feature.

[Andrew Dhuey]

I can't decide if those LED ice cubes are so cheesy that they're good, campy fun.

[John Roethel]

Nice to see that the CAFC's law clerks still remember their Con Law. Good reminder that one must consider both subject matter jurisdiction and personal jurisdiction. I seem to recall a SCOTUS decision from the 80's or so involving Volkswagen in which the Court determined that personal jurisdiction can be found when a Defendant "purposely avails itself of the benefits of the locale" by selling to customers in the U.S. If a company doesn't want to defend in the U.S., don't sell to customers in the U.S.

[Leopold Bloom]

"the Canadian defendant argued that the sales were made in Canada and then shipped f.o.b.."

I think you mean "shipped f.o.b. Canada." The alternatives are f.o.b. origin or f.o.b. destination. The argument here, of course, is that they gave up title in Canada. The court apparently said that this doesn't matter.

[I'm just saying...]

How much could a few infringing glowing ice cubes be worth, especially because estimating the degree of infringement is going to be ridiculously speculative. Glow ice cubes go nicely with pink flamingos.

[anonymous]

Mr. Roethel, in World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286 (1980), the Supreme Court found NO personal jurisdiction in Oklahoma over the Volkswagen distributor, which sold cars in New York.

This is a good opinion, but pretty unremarkable and straightforward. It often happens that litigants (and judges, occasionally) incorrectly frame challenges to the plaintiff's substantive case as challenges to the court's subject matter jurisdiction (the conduct alleged in the complaint doesn't fall within the statute; therefore no subject matter jurisdiction). There are some types of cases in which that distinction can be confusing (see, e.g., this opinion at p. 24, fn. 18) http://www.ca3.uscourts.gov/opinarch/051222p.pdf but it shouldn't be confusing in this context.

[Paul F. Morgan]

As you note, "the CAFC found that that the location of an infringing “sale” [which must be in the U.S.] under Section 271 should not be limited by any 'formalistic' rules." [Here, sales solely "F.O.B. Canada", ignoring what that means in commerical law.]
Had it occured to anyone that this decision could have serious repercussions by direct application to the current major political 'hot potato' and serious economic issue of the numerous Americans buying patented prescription drugs [not just a few toy ice cubes] from, or in, Canada at much lower prices?

[Babel Boy]

Dennis,
I think this is a great case. Here's a cut n' copy of my post on Prospector. Some of your fans might also have SMJ bunker-tales.

This case may be boring, but there is a serious litigation lesson here: unlike personal jurisdiction, subject matter jurisdiction is not waivable. It can be raised at any time, even for the first time on appeal. So the D can sit on the issue until the judgment is in and then start screaming "No SMJ!" as GlowProducts did here.

I once had a case where the P was a US citizen but a resident of New Zealand. D removed the purely state action to USDC on diversity grounds. Even though P was living in the US at the time of the suit (and there was in personam), there was no diversity jurisdiction (i.e., SMJ) because he was not a resident of any district of the US. The point was never raised in the trial court, but the 4th CA reversed and remanded to the state court for lack of SMJ. That was one spittin' mad defendant's lawyer.

Federal SMJ can be raised for the first time even after judgment is entered. It's spooky stuff, Dude.

[Federally Circuitous]

Paul Morgan, this decision doesn't change much vis-a-vis online pharmacies. They've been targets for charges of inducement to infringe all along (in many cases they're shipping drug companies' own products to the USA without the companies' permission, so no question of underlying infringement when the products enter the USA, and they know the stuff is destined for the US and that it infringes, so they've got the requisite intent for inducement); now maybe they're also guilty of direct infringment. Their US-based customers have been guilty of direct infringement all along, but apparently it hasn't been worth big pharma's time/money/public relations capital to go after the retirees who are buying meds from Canada or wherever they're getting them from.

[EG]

I'm not surprised that GlowProducts, the alleged infringer, got no traction on the "f.o.b." argument from the Federal Circuit. Although it's not clear from the opinion whether infringement was alternatively alleged under 271(b), even if the "sale" by GlowProducts was viewed as occurring before importation, they would still be on the hook for "inducing" infringement.

[Bruce E. Hayden]

I would not be surprised if the Canadian drug thing worked out that there was infringement if the Canadian company shipped to the customer in the U.S., but not if the U.S. person picked them up in Canada himself. Of course, you would still have the person who crossed the border to pick up the drugs as an infringer, and the pharmacy as a contributory infringer through his inducement.

[Not real, right?]

Whoa, is that law firm name on the opinion a joke? I'd repeat it here, but I think the filter would get me.

[compound pharmacy]

well i must say canadian drugs are spread all over on the internet and most of them are scams .