Key takeaways — Protection and enforcement strategies

In part one of our Patent Litigation Strategies in the Digital Era webinar series, our global team of patent experts honed in on patent protection for innovative digital and cloud technologies, looking at:

• Where, and by whom, are digital or cloud-based strategies implemented;
• How do these issues impact strategy for commencing or defending patent litigation; and
• How can these issues be addressed through patenting strategies which maximize protection for digital technology inventions?

Cross-border enforcement: A device claim can protect a series of computational steps carried out by a device, while a method claim covers the method of computation itself.  However, issues can arise when a patent is in force in one jurisdiction, but the method steps are partially conducted in another country. While the principle of territoriality generally requires all method steps to be conducted in the same country, in today's digital world, where data is routinely sent to the cloud for processing, storage, and routing, method steps may be conducted in more than one country including jurisdictions lacking patent protection. In such scenarios, the concept of "attributing action" arises, which considers whether method steps conducted abroad can be attributed to actions in a territory where patents are held. Additionally, products made utilizing patented methods, regardless of where such steps are undertaken, may be restricted from importation. The session examined the approach to these scenarios in five key jurisdictions:

• Germany — There is no consistent legal doctrine on the subject, but a set of decisions which can be used as a toolbox to examine scenarios on a case-by-case basis. For example, in Prepaid Telephone Card II¹, the court ruled that where the last method step takes place in Germany and this last step makes use of the previous method steps, those prior steps will be attributed to the last step, which took place in Germany, and the German patent will be infringed. However, where the inverse is true and the first method steps take place in Germany and the last method steps take place abroad, the Düsseldorf Lower Regional Court also found infringement if the economic effect is realised in Germany. Finally, in Rezeptortyrosinkinase II² the Federal Court of Justice, the highest civil law authority, commented by way of dictum that derivative product protection also applies to data, and that importing data derived from a method claim constitutes an act of patent infringement if the data is structured in a way that it incorporated the patented invention such as in the instance of audio or video encoding.
• Australia —Australian courts have yet to issue a judgement addressing the situation where some method steps take place abroad and others take place in Australia. Whether a method claim where some of the steps are performed within Australia and other steps are performed offshore will infringe an Australian method patent will come down to an application of both Australian patent law and private international law principles requiring consideration of the connection the parties have with Australia, whether the infringement can be said to have occurred in Australia and the substantiality of the steps performed in Australia compared to abroad, and whether any economic damage occurs in Australia. In relation to these factors it will be relevant to consider the acts of exploitation, which would constitute an infringement of the patent if performed without the patent-holder's permission. Notably the Australian Patents Act defines such acts of exploitation inclusively, so it may be open to patentees to rely on this inclusive definition to argue that the courts should recognize infringement in circumstances where some steps of a method claim are performed abroad.

Australian courts have, however, considered the scenario where the method steps take place abroad but the final product is in Australia. Here, the courts have stated that it is the act of importation that is the infringement — however, the courts have also distinguished physical and data based products in this instance. Where the end result is a physical product, it is considered an infringement to import the physical product produced by the patented method. On the other hand, data is not considered itself to be a product and the importation of data would not constitute infringement of the patented method.

• Brazil — According to Brazilian law, a patent is infringed where there is importation, sale or offer for sale of the protected method, or product obtained directly as a result of the patented method. Patent infringement may also be subject to penalties under Brazilian criminal law, which specifically refer both to the importation of articles obtained through patented processes, as well as to contributory infringement. These provisions are quite broad, and are relied upon to assert that even where not all of the steps of a method are performed in Brazil, infringement by contribution has still taken place. The burden of proof also moves to the infringer, who must then prove that they are not using the protected method. However, as a civil law jurisdiction where many decisions are kept under seal, there is not currently a large amount of publicly available case law on the topic. In one pending case, involving patented audio encoding methods for mobile communications where the accused mobile devices were imported into Brazil, the court granted a preliminary injunction, which has since been stayed by the court of appeal. Notably, the court of appeal's opinion did not engage with the territoriality issues, finding that they were too complex to be disentangled at the interlocutory stage. In another case relating to patented compression methods for streaming video, some of the alleged steps are performed abroad, with the resulting video in Brazil. Again the first instance judge granted a preliminary injunction in this case, which was subsequently stayed by the court of appeals. In both cases, the courts relied heavily on their reading of the expert opinions filed with the injunction motions.
• United States — Under US law, with limited exceptions applying to the importation of physical goods made by a patented process, if any patented method steps take place abroad, there is no infringement of the method patent claim. On the other hand, the question is less clear in respect of system claims covering software systems. US patent law recognizes infringement where an entity supplies all or a substantial portion of software components of a patented invention, in a manner that would induce the combination of those components outside of the US which would infringe a claim had it taken place within the US. Therefore, the key question for the courts becomes "what is a substantial portion of the components of a patented invention?" The US Supreme Court has construed "substantial portion" to require a quantitative (rather than qualitative) assessment, such that a supplier of a single component is under minimal risk of infringement, while suppliers of multiple components stand a greater risk of liability. The Federal Circuit, the US court that decides appeals of patent cases from all district courts, has further clarified that such components are not limited to the physical and extended this principle to software. Accordingly, the supply of more than one patented component of software outside of the US in a manner inducing combination of those components (in a way that would be considered infringement if it took place within the US) could result in a finding of infringement. Where a system has steps taking place both inside and outside the US, infringement can be found if control of the system and economic benefit occur within the US. Conversely, software method claims cannot be successfully asserted where any step takes place outside of the US and use of a patented software method where any of the steps take place outside of the US will not be considered infringement.
• China — Similar to the US, if any step of a claimed method is implemented abroad, such conduct will not be recognized as infringement by Chinese courts. However, in recent years, there are some new developments. One of these is the "solidification” rule established in Tenda³, which states that where a product (i.e., hardware running software) has a default setting which can implement the steps of a systems claim, the manufacture of the product may constitute infringement. There has also been some academic discussion surrounding patent infringement relating to cloud and other digital technologies, including in the case where one of the key steps takes place in China, should the Chinese court consider all of the steps, regardless of whether they take place in China. However, this argument remains untested by the courts, which will play an important role in determining the infringement by using such a rule in the future. Additionally, the importation of products derived directly from a patented process may constitute infringement. However, this principle has not yet been tested applied to digital technology, but the risk of engaging in such activities may be considered relatively high based on the approach other influential jurisdictions have taken. Therefore, caution and careful legal consultation is needed when launching such a product.

Consequences for claim drafting: Taking these varied approaches into account, it is essential for companies to draft software patents with enforcement in mind. As a patent owner, when developing your patent portfolio strategy for patents, it is important to consider the basic components of a distributed digital environment, including user devices, cloud services, server nodes with a variety of internal modules and databases. Each of these components provides certain functionalities within the system. In the modern context in which even basic software applications involve components located across jurisdictions, enforcing software patents can be difficult. When drafting a patent claim, companies should therefore consider the likely infringers, the functions performed by different components, potential design-arounds, as well as what and where information is being sent, received, stored and processed.

How do we create claims that are enforceable in a variety of jurisdictions? Patentees should draft claims of varying scope and in both system and method formats, and should understand the specific rules of the jurisdictions where they are filing. If filing a PCT application, include a larger claim set and narrow from there as to the application reaches different national stages. These tips are purely from a cross-border enforcement perspective.  Of course, additional attention must be given to abstract claiming and patentability, among other issues, for software patent claims.

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1 Higher Regional Court Duesseldorf, decision dated 10.12.2009 - I-2 U 51/08
2 Federal Court of Justice, decision dated 27.09.2016 - X ZR 124/15
3 Lavecky v Visa Inc [2017] FCA 454