Paper Converting Machine Company v. Magna-Graphics Corporation
745 F.2d 11 (1984)
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Rule of Law:
Substantially manufacturing, testing, and delivering the components of a patented machine during the patent term constitutes infringement, even if the final assembly of the machine is intentionally delayed until after the patent has expired.
Facts:
- Paper Converting Machine Company (Paper Converting) held U.S. Patent No. Re. 28,353 ('353 patent) for an automatic rewinder machine, which was set to expire on April 20, 1982.
- In early 1980, Magna-Graphics Corporation (Magna-Graphics) won a contract to sell a rewinder line to Fort Howard Paper Company (Fort Howard), offering a lower price than Paper Converting.
- After a court enjoined Magna-Graphics from infringing the '353 patent in a separate sale, Magna-Graphics devised a plan to fulfill the Fort Howard contract without technically violating the injunction.
- Magna-Graphics negotiated with Fort Howard to delay the final assembly and delivery of the machine until after the '353 patent expired.
- During the patent term, in July and August of 1981, Magna-Graphics constructed the machine and conducted tests on its major components in two separate stages, never operating all patented elements together at once.
- For the first test, Magna-Graphics checked the 'pusher' mechanism without the cutting blade or pins installed.
- For the second test, it checked the cutting blade mechanism using a small blade section, without the pushers or pins installed.
- Magna-Graphics shipped the substantially completed but disassembled machine to Fort Howard in parts during September and October of 1981, before the patent expired.
- The machine was not fully assembled and installed at Fort Howard's plant until April 26, 1982, six days after the patent's expiration.
Procedural Posture:
- Paper Converting Machine Company sued Magna-Graphics Corporation in the U.S. District Court for the Eastern District of Wisconsin for patent infringement.
- Following a trial on liability, the district court found the '353 patent valid and willfully infringed by Magna-Graphics' sale of a machine to Scott Paper Company, and enjoined Magna-Graphics from further infringement.
- The U.S. Court of Appeals for the Seventh Circuit affirmed the district court's liability finding.
- The case returned to the district court for an accounting of damages, where the court found that a second machine sold to Fort Howard Paper Company also infringed and awarded treble damages.
- Magna-Graphics appealed the damages award to the U.S. Court of Appeals for the Federal Circuit.
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Issue:
Does a company infringe a patent when it manufactures all the parts of a patented machine, tests the major subassemblies for functionality, and delivers the unassembled machine to a customer during the patent term, with the final assembly scheduled to occur after the patent expires?
Opinions:
Majority - Nichols
Yes. A company infringes a patent when it constructs and tests an 'operable assembly' of a patented machine during the patent term, even if final assembly is delayed until after expiration. The court distinguished this case from Deepsouth Packing Co. v. Laitram Corp., holding that Deepsouth was primarily concerned with preventing the extraterritorial application of U.S. patent law, a factor not present here. The court reasoned that allowing a competitor to manufacture a machine to the point of near-completion and testing would 'emasculate' the patent grant, making the final year of a patent worthless for products with long lead times. Magna-Graphics' testing of significant subassemblies was found to be, in essence, testing the patented combination and constituted a 'use' under the patent statute. The combination of substantial manufacture, testing of an 'operable assembly,' and sale and delivery during the patent term was sufficient to constitute infringement.
Dissenting - Nies
No. A company's activities do not constitute direct infringement unless the patented invention is fully and completely assembled. The dissent argued that the majority's holding is a de facto reversal of the Supreme Court's decision in Deepsouth, which clearly held that a combination patent protects only against the operable assembly of the whole, not the manufacture of its parts. Under Deepsouth, the 'patented invention' does not exist until all of its claimed elements are united. Since Magna-Graphics never made, used, or sold the fully assembled machine during the patent term, it could not be a direct infringer. The dissent warned that the majority's ruling abandons a clear, bright-line rule for a vague standard, creating uncertainty for competitors.
Analysis:
This decision significantly impacts the interpretation of 'making' and 'using' under 35 U.S.C. § 271, particularly for complex machines with long manufacturing times. It narrows the application of the Deepsouth precedent, suggesting that its strict 'operable assembly of the whole' rule may not protect infringers whose activities occur entirely within the U.S. and are designed to circumvent the final months of a patent term. The case establishes that infringement can be found in the totality of pre-expiration activities, including substantial manufacture and testing of key components, thereby preventing a loophole that would allow competitors to capture sales during the patent term by simply delaying the final, often trivial, assembly step.
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