When is the use of a product a “substantial noninfringing use” for purposes of Section 271(c)?

By Chris Holman

Sections 271(b) and 271(c) of the Patent Act form the statutory basis for the two forms of indirect patent infringement, induced and contributory, respectively. Section 271(c) explicitly provides that sale of a material that is “suitable for substantial noninfringing use” is not contributory infringement (note that this proviso does not apply to induced infringement under 271(b)). In a recent post, Dennis pointed out that in H. Lundbeck A/S v. Lupin Ltd. the Federal Circuit “somewhat controversially” states that:

[S]ubstantial noninfringing use in section 271(c) refers to uses that do not infringe the patent in question, not other patents. The text is clear: to support liability, the accused infringer must sell a material part of an invention or an article for use in practicing a patented process “knowing the same to be especially made or especially adapted for use in an infringement of such patent.” 35 U.S.C. § 271(c) (emphasis added). “Such patent” is in the singular and refers to a specific patent—the asserted patent.

Taken on its face, the statement seems overbroad and potentially problematic for the reason set forth by another Federal Circuit panel in Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1320 (Fed. Cir. 2009):

One example illustrates the problem with Microsoft’s approach. Consider a software program comprising five—and only five—features. Each of the five features is separately and distinctly patented using a method claim. That is, the first feature infringes a method claim in a first patent, the second feature infringes a method claim in a second patent, and so forth. Assume also that the company selling the software doesn’t provide specific instructions on how to use the five features, thus taking potential liability outside the realm of § 271(b). In this scenario, under Microsoft’s position, the software seller can never be liable for contributory infringement of any one of the method patents because the entire software program is capable of substantial noninfringing use. This seems both untenable as a practical outcome and inconsistent with both the statute and governing precedent.

The dicta from Lucent seems to support the proposition that in determining whether there has been contributory infringement with respect to a first patent, a use of the product should not be deemed a “substantial noninfringing use” negating a finding of contributory infringement if that use would infringe a second patent, at least under some circumstances. But under what circumstances should this be permitted. For example, would it be proper for a court to assume that the second patent would be infringed by an alleged “substantial noninfringing use” without allowing the alleged infringer an opportunity to challenge the validity of the second patent and participate in a formal construction of the relevant claims?

This issue arose in the context of calculating lost profit damages in a 1995 decision of the en banc Federal Circuit, Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538 (Fed. Cir. 1995). In that case, the district court identified essentially the same concern expressed by the Federal Circuit in Intel, stating that its decision to award lost profit damages for lost sales of a product not covered by the infringed patent “avoid[ed] the ‘whip-saw’ problem, whereby an infringer could avoid paying lost profits damages altogether by developing a device using a first patented technology to compete with a device that uses a second patented technology and developing a device using the second patented technology to compete with a device that uses the first patented technology.” In a split decision, the Federal Circuit affirmed, explaining that:

the only Panduit factor that arguably was not met in the present fact situation is the second one, absence of acceptable non-infringing substitutes. Establishment of this factor tends to prove that the patentee would not have lost the sales to a non-infringing third party rather than to the infringer[.]  Here, the only substitute for the patented device was the ADL–100, another of the patentee’s devices. Such a substitute was not an “acceptable, non-infringing substitute” within the meaning of Panduit because, being patented by Rite–Hite, it was not available to customers except from Rite–Hite. Rite–Hite therefore would not have lost the sales to a third party. The second Panduit factor thus has been met. If, on the other hand, the ADL–100 had not been patented and was found to be an acceptable substitute, that would have been a different story, and Rite–Hite would have had to prove that its customers would not have obtained the ADL–100 from a third party in order to prove the second factor of Panduit.

Writing in dissent, Judge Nies pointed out the potential problem with the majority’s approach:

[T]he one or more patents on technology used in the ADL–100 were never asserted against Kelley, and the validity of those patents is untested. If those patents are invalid, the majority’s analysis collapses.… Given that Kelley has had no legal basis for bringing a declaratory judgment action challenging the unlitigated patents (never having been charged with their infringement), the majority imposes liability and overlooks the unfairness in its theory. If the unlitigated patents are significant to damages, Kelley deserves an opportunity to defend against them. A clearer denial of due process is rarely seen.

On a related note, in Eli Lilly & Co. v. Actavis Elizabeth LLC, 435 F. App’x 917 (Fed. Cir. 2011), the Federal Circuit held that the use of a drug that has not been approved by the FDA does not constitute a “substantial noninfringing use” for purposes of 271(c). The accused infringer in this Hatch-Waxman case argued that up to 29% of the total use of the drug in question was off-label and noninfringing, and the patent owner conceded that this noninfringing off-label use was possibly as high as 8%. But the Federal Circuit found this used to be irrelevant for purposes of 271(c), holding that “unauthorized activity does not avoid infringement by a product that is authorized to be sold solely for the infringing use.” See also Grunenthal GMBH v. Alkem Lab’ys Ltd., 919 F.3d 1333, 1340 (Fed. Cir. 2019)(“In a pharmaceutical case, the noninfringing use must be in accordance with the use for which the product is indicated.” citing Eli Lilly and Co. v. Actavis Elizabeth LLC).

Based on my review of reported decisions, contributory infringement has not played a significant role in pharmaceutical patent litigation, and is redundant in view of the availability of an action for induced infringement. There are many decisions in which an alleged infringer is found liable for both induced infringement and contributory infringement, and also a significant number of decisions in which the alleged infringer has been found liable for inducing infringement but not contributory infringement. See, e.g., Vanda Pharms. Inc. v. W.-Ward Pharms. Int’l Ltd., 887 F.3d 1117 (Fed. Cir. 2018) and In re Depomed Pat. Litig., 2016 WL 7163647 (D.N.J. Sept. 0, 2016).  However, I have searched of case law and failed to find a reported decision involving and FDA-authorized pharmaceutical in which the court found contributory infringement but held that there was not induced infringement. I found a single district court decision in which the court found that contributory infringement had been proven and did not make a finding with respect to induced infringement, declaring the issue moot in view of its finding of contributory infringement.  Alcon Rsch., Ltd. v. Apotex Inc., 790 F. Supp. 2d 868 (S.D. Ind. 2011).

2 thoughts on “When is the use of a product a “substantial noninfringing use” for purposes of Section 271(c)?

  1. 2

    I’m bothered by apparent CAFC equating of the test for the relatively rare obtaining of “lost profit” patent infringement damages [versus normal infringement damages] with the 271(c) exclusion from contributory infringement of sales of “a staple article or commodity of commerce suitable for substantial noninfringing use.” Are they really validly comparable in intent and function?
    Under Panduit, a patentee is entitled to “lost profit” damages only if it can establish: (1) demand for the patented product, (2) absence of acceptable non-infringing alternatives, (3) manufacturing and marketing capability to exploit the demand, and (4) the amount of profit it would have made.

  2. 1

    Thanks for the insightful analysis, Chris. You make a compelling case that the current jurisprudence around substantial noninfringing use and contributory infringement contains some ambiguities and potential fairness concerns worth addressing. I agree the impact seems limited given the apparent redundancy with induced infringement in pharma cases, but the financial stakes in this industry are so high that even a single case could involve hundreds of millions in damages. As such, this does seem like an issue ripe for potential en banc reconsideration.

    It would be interesting to see what lobbyists would come up with if Congress was planning to rewrite Section 271.

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