POSTED BY:
Ian Finch
ON:
16 Apr 2010These days, most New Zealand companies either operate internationally or in a market with international competitors.
Gone are the days when we can rely on our geographic remoteness
as a form of economic or market protectionism. Overseas
distribution lines and supply chains are increasingly the norm, as
is locating some business operations offshore (particularly in the
IT industry). These trends increase the need for an understanding
of patent law and its implications to the international activities
of New Zealand companies. This article examines a few of those
issues.
Invention by Importation
In New Zealand, the current Patents Act is decidedly aged (it
was enacted in 1953 but the rights granted are confirmed in a
document called the Statute of Monopolies which dates back to
1623). As a result it still contains a few quirks of days gone by.
One of these is invention by importation. Under this doctrine, an
individual will be treated as an inventor, and can obtain patent
rights in an invention, if they are the first person to bring that
invention into the country.
This can happen because New Zealand has a 'local novelty'
requirement - a patent can be obtained as long as the invention was
not previously known in New Zealand, irrespective of whether it was
known elsewhere. This is unlike the situation in most other
countries (including most of our major trading partners). On the
whole, those countries require an invention to have 'absolute
novelty' which means that it cannot be known anywhere in the
world.
Nowadays, most technological advancements are published
somewhere on the internet meaning that local novelty may be more
perceived than actual (since documents and information that can be
accessed from computers from within New Zealand will be deemed
known in New Zealand). Therefore, while invention by importation
may have worked for sea-farers like Sir Walter Raleigh
(notwithstanding the anachronism), examples are largely confined to
the history books. However, it remains an interesting idiosyncrasy
of the New Zealand legislation, and theoretically applicable at
least until an absolute novelty standard is adopted in New Zealand
law under the new Patents Bill.
Infringement and Importation
A more serious concern to New Zealand business is the
possibility of infringing someone's patent rights by importing a
product into the country. A New Zealand patent gives the patentee
the right to exclude others from making, using, exercising, selling
and importing the invention that is the subject of the patent. It
is therefore critical that importers consider any patent rights
that may exist in connection with imported products, for example by
having a 'freedom to operate' search conducted by an IP specialist.
In addition, the New Zealand importer should consider whether
patent rights in the originating country are being infringed by the
manufacture of the imported product, which may affect continuity of
supply.
Specialist advice is also important because there are a number
of fish hooks peculiar to the patent legislation and case law. For
example, in the UK, a product manufactured abroad and imported into
the UK has been found to infringe a UK patent for a process of
manufacturing the same product (but not the product itself). The
courts decided that, as a process was used to make the imported
product which would have infringed the patent if the manufacturing
was carried out in the UK, the importation was an unlawful
interference with the patent monopoly and should be restrained.
This would seem to extend not only the territorial reach of
patents, but also the scope of process claims (to encompass the
product of the process). Although the same question has not been
brought before the New Zealand courts, it is likely that a similar
decision would be reached here.
It may seem counter-intuitive that a product can enjoy patent
protection in a country when the patent does not strictly cover the
product and the product has not been manufactured in that country.
The reasoning is that a patent confers the rights to all benefit of
a monopoly in the invention and these rights should extend to
products made by a patented process in the country or elsewhere.
Even if the product produced by the patented process is later
changed by further processes into a completely different product,
patent rights may still prevent the importation of this changed
product. However, it should be noted that, according to the UK law,
the patented process must play an important part in the manufacture
of the imported article.
In the US, a similar law applies. However there is expressly no
infringement if the product is materially changed by a subsequent
process. What constitutes a "material" change is arguable and
ultimately subject to interpretation by the courts. In the US some
courts have also limited the doctrine of infringing importation to
physical goods. An interesting question is whether data would be
considered to be physical. If not, as is perhaps likely, a US
patent for a process for producing data should not prevent one
person from importing data generated overseas using the same method
as is patented in the US. This could have significant implications
in certain technical fields where data constitutes a commercial
product, for example, electronic image production. However, it is
probably limited to situations where the importer and data
generator are unrelated. Otherwise the importer might be deemed to
have control of the system for data generation and infringe any
system claims in the US (under the doctrine discussed below).
Irrespective of this, applicants seeking to protect any product
with a patent, whether the product is being imported or not, should
ensure that the patent application includes claims that cover both
the product itself and the process of its manufacture. An abundance
of caution is always the recommended approach.
Other Extra-Territorial Patent Considerations
So far we have discussed patent issues that importers should be
aware of. However, there are other aspects of patent law that any
New Zealand company with foreign interests should consider -
notably the possibility of patent rights extending outside the
country in which the patent is in force.
Cloud computing is a general term for resources being provided
to companies as a remote service, for example the use of servers.
The servers are typically housed in data centers which may often be
located in another country. This kind of architecture is
increasingly common in medium to large scale enterprises. Where
aspects of the infrastructure are the subject of patent protection,
or the parts of the infrastructure perform a patented process, a
number of issues arise.
In the UK, for example, the courts have ruled that a company
cannot avoid patent infringement simply by locating a machine
offshore if the beneficial use of the invention is obtained
onshore. This means that if a process or system involving a
computer network is the subject of a patent in the UK, simply
locating part of the system (such as a server that performs the
process) offshore will not avoid liability if the benefit of the
invention is still gained in the UK.
In the US, the situation is similar but is complicated by the
courts' different interpretation of the location of an infringement
depending on whether a system or method claim is being considered.
The US courts have ruled that a system claim can be infringed no
matter where the components of the system are located as long as
control of the system is exercised, and beneficial use is obtained,
in the US. However, every step of a method claim must be performed
in the US for there to be infringement. Consider the example of a
patent for a communications network with central processors having
both system and method claims. Under current US law, control and
even use of such a network from within the US could infringe the
system claims even if the central processors are located outside of
the US. However the method claims would not be infringed in those
circumstances. This is a confusing situation which has increased
the importance of system claims for transnational-type inventions
in recent years.
The US also has a law intended to prevent companies avoiding
infringement of a US patent by supplying separate components of a
patented device for assembly overseas. As well as being able to
prevent the assembled product being imported back into the US, the
patent owner can obtain damages for the supply of these components
to another country. This seems like a common sense approach but it
is limited to the breadth of the patent protection. Hence it is
important to ensure that all essential component parts are covered
by a patent to prevent competitors "cherry picking".
Software companies should be especially cautious because
exportation of software that, when installed on a computer,
infringes a US patent claim may constitute patent infringement
under the same approach. This holds whether the software is
exported as a master copy or an installation copy and regardless of
the medium on which the software is exported, such as on a disc or
by wired or wireless transmission.
This particular law does not apply to method claims because the
term "supplied" has been taken to mean the transfer of a physical
object and components of a method claim are not physical objects.
So the implementation of a critical part of a patented method in,
say, New Zealand, cannot be prevented by a US patentee even if the
remainder of the method was carried out in the US. This may be
relevant to a company having servers located in the US which would
expect a US patent to protect the parts of the patented method that
are carried out by the US servers. In this above example, a New
Zealand patent would also be required.
The question of the patentability of software-related inventions
is currently the focus of lively debate all over the world,
including in New Zealand where it is being discussed in relation to
updates to our patent legislation. Irrespective of that debate, the
implications of patent rights in different countries, and the
location of activities that may infringe those rights, is of
critical importance. This is a complex subject that varies
considerably from country to country but the above examples
illustrate some of the issues. While the same issues have yet to be
considered by the New Zealand courts in any detail, we would expect
similar considerations to apply in New Zealand.
Conclusion
Patent law can have complex and difficult implications where
transnational operations and transactions are concerned.
Globalisation and the internet have brought complications to the
fore in recent years with services or infrastructure increasingly
diversified. As such the courts are increasingly showing a
willingness to expand the reach of national patent law to capture
activities occurring outside of a jurisdiction in which a patent is
held which affect the economic rights of the patentee within the
jurisdiction. All organisations (not just importers and exporters)
need to be aware of the perils that can arise when doing business
over such stormy seas.
By Ian Finch,
Partner, and Jonathan
Lucas, Associate
Other patent articles you might be interested in:
EPO Rejects Swiss-Type Claims for Protecting 2nd Pharmaceutical
Uses
Intellectual Property Filing Strategies - Choosing
Countries