Foreign Sales Of Infringing Catalysts Supports Liability Under 35 U.S.C. Section 271(f)

Case: Union Carbide Chemicals & Plastics Tech. Corp. v. Shell Oil Co., 04-1475, -1512 (Fed. Cir. 10/3/05)

The One Sentence Summary: In an infringement suit over a patent for catalysts used to produce ethylene oxide, the Federal Circuit affirmed a jury verdict finding infringement, but vacated and remanded the damage award, finding that 35 U.S.C. section 271(f) applies to process claims, so that Shell's foreign export of infringing catalysts should have been included in the damages calculation.


What They Were Fighting About: Union Carbide had a patent for catalysts composed of silver and alkali metals that improved the efficiency of a process for ethylene oxide production. A jury found that Shell was producing catalysts that infringed the patent. Shell appealed the infringement verdict, and Union Carbide appealed the trial court's refusal to allow Shell's profits from exporting the infringing catalyst to be included in the damages calculation.

Federal Circuit Holdings:

• One basis for Shell's challenge of the infringement verdict was the use by Union Carbide's expert of a test expressly approved in the patent specification for measuring catalyst activity -- based on those test results, the Shell catalysts were found to fit squarely within a claim limitation. The Federal Circuit found that use of a test approved in the specification was sufficient evidence to support the jury verdict of infringement of that limitation.
  
• Shell also challenged the expert's failure to vary the silver composition during his experiments, but the Federal Circuit held that the claim language did not require variation of all of the named components. The claim uses the language "independent variables, silver, cesium, and alkali metal" and by using the word "independent" the court found that it meant each variable was free to operate without regard to the others, such that the silver concentration could be set at any value, including zero, and thus the expert's method was proper.
  
• Shell also argued that the expert had failed to test Shell's catalysts in the same ethylene production system that Shell used. The expert had instead used a single system, which was representative of all of the 69 Shell processes that were accused of infringing. Use of an approximation of the entire set of processes, even though it did not match any single process, was found sufficient because the claim as written did not require an exact match to the accused processes. (In fact, Shell only used a single set of experimental conditions to test catalyst efficiencies and warranted the catalysts based on that one set of conditions -- that is, Shell itself did not test catalyst efficiency under the conditions used in all 69 commercial processes that it employed).
  
• With respect to computation of royalties, the Federal Circuit found it proper to have considered the impact of Shell's infringement on the parent of the holding company that owned the patent at issue, finding that the relationship between the parent and holding company went far beyond a mere licensor/licensee relationship, as Shell had argued. For example, the holding company would not enter any negotiation without considering the competitive position of the parent.
  
• On Union Carbide's cross-appeal, the Federal Circuit clarified that 35 U.S.C. section 271(f) applied to process claims -- the phrase "any component of a patented invention," as used in the statute, does not distinguish between patentable method/process inventions and other forms of patentable inventions, a distinction that the lower court had erroneously made. The court distinguished one case, NTP, Inc. v. Research in Motion, Ltd., 418 F.3d 1282 (Fed. Cir. 2005), which had found that section 271(f) did not apply to out-of-country use of domestically manufactured Blackberry wireless systems, because the facts there did not involve supplying a component to a foreign affiliate. Thus, in NTP no additional damages were available under section 271(f). In contrast, here additional damages were available for Shell's export of these catalysts directly to foreign customers. The Federal Circuit found that those exports should have been included in the damages award.