Court: District Court, D. Minnesota; April 10, 2015; Federal District Court
Dynamic Air Inc.'s Motion to Dismiss in a patent infringement case was denied by U.S. District Judge Ann D. Montgomery. The central issue is whether the U.S. Patent Act is applicable to U.S.-flagged ships operating in international waters. M-I Drilling Fluids UK, Ltd. claims that Dynamic Air infringed its patented CLEANCUT® pneumatic conveyance system, which facilitates the environmentally friendly transportation of oil well waste. M-I Drilling seeks damages and a permanent injunction against Dynamic Air.
The parties involved include M-I Drilling, a UK limited-liability company, and Dynamic Air, a Minnesota corporation. M-I Drilling's Brazilian subsidiary, M-I Swaco do Brasil, and Dynamic Air's Brazilian subsidiary, Dynamic Ltda., submitted proposals to Petrobras, a Brazilian company seeking a pneumatic conveyance system for drill cuttings from oil rigs in international waters. Dynamic Ltda. won the contract and collaborated with Dynamic Air to design and install the systems on two U.S.-flagged ships, the HOS Resolution and the HOS Pinnacle. M-I Drilling alleges that both ships’ systems infringe upon its patents, as they were used to transport waste from Petrobras oil rigs.
M-I Drilling has initiated multiple lawsuits related to ongoing patent infringement claims. In August 2013, M-I Drilling and/or M-I Brazil filed a lawsuit against Dynamic Ltda in Brazil, which is currently advancing in the Brazilian court system. Additionally, in the same month, M-I Drilling brought a patent infringement complaint against Dynamic Air and Dynamic Ltda in the U.S. District Court. This complaint was dismissed without prejudice in February 2014 due to a lack of personal jurisdiction over Dynamic Ltda and failure to state a claim against Dynamic Air. However, in March 2014, the court vacated the dismissal of Dynamic Air Ltda, acknowledging M-I Drilling's argument regarding the court's error in jurisdictional conclusions. M-I Drilling was granted the chance to complete the service process for Dynamic Air Ltda, prompting the filing of an amended complaint in November 2014 to address prior deficiencies.
The central legal question revolves around the applicability of the U.S. Patent Act to M-I Drilling's patented technology used on U.S.-flagged ships in international waters. The parties disagree on whether Dynamic Air's motion should be deemed a motion to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1) or for failure to state a claim under Rule 12(b)(6). M-I Drilling references a precedent case, Litecubes, to argue that the location of infringing activity is a claim element, not a jurisdictional issue. Dynamic Air disputes this interpretation but concedes that the outcome remains unchanged regardless of the analytical approach. Ultimately, the court finds that M-I Drilling has adequately alleged a violation of the Patent Act, leading to the classification of Dynamic Air's motion as one for failure to state a claim.
Under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a party may seek to dismiss a complaint that fails to state a claim for which relief can be granted. In evaluating such a motion, courts must interpret the pleadings favorably to the nonmoving party, accepting the facts in the complaint as true. However, the allegations must meet a threshold of plausibility, moving beyond mere speculation to establish that a defendant's conduct was unlawful. Courts must use their judicial experience and common sense in this assessment, making reasonable inferences in favor of the plaintiff while disregarding unreasonable or unrealistic claims.
Dynamic Air argues that the U.S. Patent Act does not apply to U.S.-flagged ships, citing the need for strict construction and asserting that there is no Congressional authorization for such application. M-I Drilling counters that the language and legislative history of the Patent Act support its applicability to U.S. territories, including U.S.-flagged ships at sea, referencing the case of Gardiner v. Howe as relevant authority that has not been explicitly overruled.
The U.S. Constitution empowers Congress to foster the advancement of science and the arts through patent monopolies. The first Patent Act was enacted in 1790, but historical scholarship lacks details on the geographic scope of patent rights. Two significant disputes in the late 1800s involved marine activities, with the case Brown v. Duchesne establishing that a patentee's rights do not extend to foreign vessels entering U.S. ports, thereby limiting patent rights to actions within U.S. jurisdiction.
In Gardiner v. Howe, the defendant owned a U.S. vessel commanded by an American captain at high sea, which allegedly infringed the plaintiff's patent related to sailing technology. The court rejected the defendant's argument against a jury instruction stating that infringement could occur regardless of the vessel's location. The court distinguished this case from Brown, noting that the vessel in Brown was foreign, while Gardiner's vessel was American. The court ruled that U.S. patent laws protect inventions on American vessels at sea, extending U.S. jurisdiction to these vessels as if they were part of U.S. territory. Although Gardiner has faced criticism in subsequent cases from the Court of Claims, it has not been explicitly overruled. In the 1952 Patent Act, Congress defined U.S. patent rights geographically, including U.S. registered vessels at sea and areas under U.S. control.
Additionally, the law of the flag doctrine establishes that no state can exercise sovereignty over the high seas, which are open to all states. Jurisdiction over ships in these waters is determined by the flag state, which can enforce laws aboard its registered vessels. This doctrine asserts that a ship is considered part of the territory of the country whose flag it flies. Furthermore, international law mandates a genuine link between a ship and its registering state, taking into account factors like the nationality of the owners and crew.
Legislative history indicates that U.S. patent rights extend to U.S.-flagged ships, contrary to Dynamic Air's assertion that the 1952 Patent Act limits this applicability. Dynamic Air contends that the Act does not explicitly authorize patent rights for U.S.-flagged vessels at sea, suggesting a statutory gap that Congress must address. Citing cases such as Air Line Stewards and Stewardesses Ass’n v. N.W. Airlines and Deepsouth Packing Co. v. Laitram Corp., Dynamic Air emphasizes the need for explicit Congressional intent to expand the scope of patent rights. M-I Drilling counters that the 1952 Patent Act does not negate the precedent established by Gardiner, which affirms that U.S. patent laws apply to American vessels on the high seas. Legislative history, including the 1990 Inventions in Outer Space Act, suggests Congress intended the definition of "United States" to be broad, encompassing U.S.-flagged ships. While Dynamic Air views the Space Act as evidence that Congress explicitly expands patent rights, M-I Drilling interprets it as reinforcing the inclusion of U.S.-flagged vessels under existing patent law. The Senate Judiciary Report indicates that U.S. patent law may apply to activities on U.S.-flagged vessels, although it expresses uncertainty about its applicability to spacecraft. M-I Drilling argues that the Space Act does not repudiate prior rulings but extends patent protections to include both U.S.-flagged ships and spacecraft.
Gardiner's application remains intact despite Dynamic Air's arguments for its overruling, which are based on two primary cases: Cunard S.S. Co. v. Mellon and Air Line Stewards and Stewardesses Ass’n v. N.W. Airlines, Inc. Dynamic Air contends these cases illustrate a resistance to extending the law of the flag, but their holdings are context-specific and not applicable to the current matter. In Cunard, the Supreme Court ruled that the National Prohibition Act was applicable to domestic and foreign-flagged ships in U.S. territorial waters, emphasizing that the term "territory" referred to physical space, not metaphorical. The Court declined to extend this application to U.S.-flagged ships at high sea, noting the permissive laws of foreign ports regarding alcohol. The decision highlighted that the law of the flag is metaphorical and reflects personal rather than territorial sovereignty.
Subsequent rulings, including Lauritzen and McCulloch, affirm the pragmatic application of the law of the flag as a well-established international law principle governing a ship's internal affairs. In contrast to Cunard's focus on protecting Congress's intent regarding liquor prohibition, the present case requires safeguarding patent rights under the Patent Act. The Northwest Airlines case is also distinguished from the current situation; while it found the Railway Labor Act inapplicable to air carrier employees hired outside the U.S., the legislative history of the Space Act suggests Congress intended for U.S.-flagged ships to be covered, indicating a clear distinction in intent and application compared to the Railway Labor Act.
Extending the Railway Labor Act to workers on U.S.-flagged aircraft operating outside the U.S. presents complex policy implications, unlike the more straightforward extension of patent rights to technology on U.S.-flagged ships at sea. The case of M-I Drilling's patent rights is likened to applying patent protections to U.S. spacecraft, a stance that aligns with the intent of the Patent Act. In contrast, extending labor law protections to overseas aircraft workers is more contentious. Dynamic Air references the case WesternGeco L.L.C. v. Ion Geophysical Corp. to argue that Gardiner is not controlling, but the Court disagrees, affirming Gardiner's relevance and the application of the law of the flag in patent cases. In WesternGeco, the Court ruled on patent infringement involving seismic mapping technology deployed by a Norwegian-flagged ship, applying the law of the flag doctrine and concluding that the Geo Celtic was subject to Norwegian law. Despite Dynamic Air's argument that proximity to the coast affects patent applicability, the WesternGeco decision was based on the law of the flag rather than geographical distance. Consequently, the Court determines that M-I Drilling’s pneumatic conveyance system is protected under the Patent Act for U.S.-flagged ships, rejecting the motion to dismiss. M-I Drilling claims infringement of five patents related to environmentally safe methods for handling drill cuttings.
International waters, or the high seas, are recognized as ocean waters beyond any nation's jurisdiction, traditionally beginning 3 miles from the coastline, but under the 1982 United Nations Convention on the Law of the Sea, they start 200 nautical miles from the coast, outside any exclusive economic zone. The case at hand involves a dispute regarding whether U.S.-flagged ships are in international waters or Brazil's territorial waters, although this distinction may not significantly impact the case's merits. According to the Restatement (Third) of the Foreign Relations Law, the flag state has jurisdiction over activities aboard its vessels, but this jurisdiction is not exclusive in another state's port or internal waters. In the context of a motion to dismiss, all allegations in the Complaint are presumed true, leading to the assumption that the U.S. vessels are in international waters.
The parties agree on the rights conferred to patent holders by the Patent Act of 1952, specifically Section 154, which grants patent holders the right to exclude others from using or selling their patented inventions in the U.S., and Section 271, which defines patent infringement. Dynamic Air contends that the case of Gardiner is distinguishable because the vessel's instrumentality is not relevant, but this argument does not hold as there is no evidence that the type of patent affected the court's decision. The appellate ruling in Brown, which predated Gardiner, affirmed that vessels on the high seas are considered part of the territory of the nation whose flag they fly, reflecting the enduring nature of the law of the flag.
