Imagine you’re a U.S. startup that has spent years developing a new satellite service. You’ve raised capital, worked through engineering setbacks, and built a substantial U.S. patent portfolio to protect the innovations that make your service possible. The technology works. Customers are signing on. The business you spent years building is finally taking off.
Then a larger, better-funded satellite company decides to expand its offerings, announcing a competing service that looks a lot like yours. It plans to pursue the same customers, in the same markets, using what appears to be your technology.
Fortunately, you invested in U.S. patents for precisely this situation.
Now imagine you’re the larger satellite competitor. After establishing yourself in the market your company was built to serve, you recognize that your technology could be adapted to address a new, emerging market. After years of research and development, you announce your service. But a year earlier, a small, up-and-coming startup debuted its own technology, which it had been developing for years and described as the first of its kind to enable the very service you just announced.
Unfortunately for the larger competitor, that startup invested in patents for precisely this situation.
From the startup’s perspective, the course of action is clear. Their patent counsel has told them they have a strong case for infringement.
From the larger company’s perspective, the risks are equally clear. An injunction (however unlikely) would doom their new service in the U.S., while a damages award would cut into their expected returns, but would be survivable. But both outcomes would likely be avoided with the right settlement offer.
Neither company may appreciate how far their expectations miss the mark.
Thanks to the Patents in Space Act (“PSA”), the startup’s patents could secure it a royalty award based on the larger company’s global sales, not just its U.S. sales—a potentially dramatic consequence of the PSA’s treatment of the satellite’s worldwide operations as occurring within the United States. At the same time, the large company could have a defense that dooms the startup’s infringement case before it even starts, even if the larger company’s technology does practice the startup’s claimed invention. We will return to these scenarios in a bit.
These possibilities are just two of the more consequential quirks of the Patents in Space Act, which Congress passed in 1990, as the commercial space race was just beginning. Congress’s goal in enacting the PSA was to provide certainty and clarity regarding the application of U.S. patent law in space. As I’ll explain in this article, it did anything but. And as the commercial space race heats up—with companies like SpaceX, Blue Origin, AST SpaceMobile, and Rocket Lab (just to name a few) all competing for market share and all with their own patents—the courts may soon get their chance, for the first time, to weigh in and clarify just how meaningful the PSA’s impact on existing patent precedent is.
An object in orbit is only sometimes within the United States—and probably not when you think
U.S. patents generally confer territorial rights. The principal infringement provision, 35 U.S.C. § 271(a), governs the unauthorized making, using, offering to sell, or selling of a patented invention within the United States, as well as importing it into the country. For a factory in Ohio, the location question is straightforward. For a satellite in orbit, not so much. Is a satellite in orbit ever within the United States? Is it only within the United States when it’s passing above the United States’ territory? The answer, it turns out, is more complicated and does not depend on the satellite’s location at all.
According to 35 U.S.C. § 105, enacted as part of the Patents in Space Act, an invention made, used, or sold in outer space on a space object or component thereof is—subject to a notable exception—treated as if it were made, used, or sold within the United States if it is under U.S. jurisdiction or control. It turns out that this is a low bar to clear. If a satellite falls within any of the many federal regulatory frameworks governing space objects, it is under U.S. jurisdiction. Generalizing a bit, that means a space object is under U.S. jurisdiction if it (1) is owned or operated by a U.S. company or person, (2) contains technology of U.S. origin or that is subject to export/import controls, or (3) transmits to, from, or within the United States.
At first blush, this seems reasonable and uncontroversial. Any American-owned space object, or any other space object that operates in the U.S., is treated as if it were being used on Earth in the United States. As a result, determining whether those space objects infringe a U.S. patent should be the same as determining whether any other product or service in the U.S. infringes a patent.
Not quite.
Remember that notable exception in § 105? It turns out that it’s one of those exceptions that swallow the rule. A space object that is under U.S. jurisdiction or control will nonetheless not be considered within the United States when it is carried on the registry of a foreign state. If you’re anything like me, you probably are just now learning that these national registries exist and that the objects currently in space are all carried on some nation’s registry. The reason for this, and how to figure out which nation’s registry a given space object will be carried on, is found in international law. Namely, the Outer Space Treaty and subsequent Convention on Registration of Objects Launched into Outer Space (“Registration Convention”).
The Outer Space Treaty prohibits national appropriation of outer space through claims of sovereignty or other means. But that does not make space a place without national jurisdiction. Article VIII provides that a treaty party retains jurisdiction and control over a space object carried on its national registry while the object is in space. The Registration Convention, in turn, states that a space object must be carried on the national registry of its “Launching State,” which is defined as the state that either launches or procures the launch, or from whose territory or facility the space object was launched.
Technically, multiple states can qualify as the Launching State for the same space object. When that happens, the participating launching states jointly determine which one will register the object. For a number of reasons, however, in practice (and leaving aside special international agreements such as those governing the ISS), the State in which the company that owns the space object being launched resides typically, if not always, carries the space object on its registry.
So, putting it all together: A U.S. company’s space object will be carried on the U.S. registry and will be considered within the United States under § 105, but a foreign company’s space object will be carried on its Nation’s registry, and will therefore not be considered within the United States under § 105. The consequences of this for both domestic and foreign companies are, like space, vast.
Orbital Infringement’s Potential All-or-Nothing Outcomes
Let’s return to the potential infringement fight brewing between the up-and-coming U.S. satellite startup and the larger, established satellite company. As it turns out, the larger company is—knowingly or not—infringing the startup’s patents, and the startup sues. What happens next will depend on the larger company’s nationality.
When infringement occurs here on Earth, the scope of an individual’s or company’s conduct that falls within the reach of 35 U.S.C. § 271 is generally bounded by geography; If the conduct occurs entirely outside of the United States, it falls outside the reach of § 271, but if it occurs entirely, or in some cases partially, inside the United States, it falls within the reach of § 271. But when infringement occurs in space, the scope of an individual or company’s conduct that falls within the reach of § 105 is all-or-nothing; if the space object is on the U.S. registry, its use is always within the reach of § 105, but if it is on a foreign registry, its use is never within the reach of § 105. In legal jargon, § 105’s clear indication of an extraterritorial application (e.g., “in outer space”) is enough to rebut the presumption against extraterritoriality, i.e., that § 105 was not intended to apply outside the United States.
The consequences of this quirk in § 105 could define the startup’s infringement case and determine whether it sees a windfall in damages or goes home with nothing.
The Larger Company is American. Luckily for the startup, the company infringing its patents is American. As such, its infringing satellites are carried on the U.S. registry and considered within the United States under § 105. Thus, the startup’s job of proving infringement will largely be no different than if the infringing conduct occurred on Earth. What will be different, though, is the extent of the conduct the startup can claim constitutes infringement. Because the accused satellites are deemed to be within the United States based on their presence on the U.S. registry, any use of the satellites in orbit—whether that be offering services in the United States or anywhere else in the world—constitutes infringing conduct. As a result, the larger company’s global, not just domestic, revenues from those satellites’ operations can now serve as the royalty base for the startup’s reasonable royalty damages calculation. In other words, if the larger company is operating in major markets around the globe, the startup’s damages award could dwarf what it would have been for terrestrial infringement.
The Larger Company is Foreign. Luckily for the larger infringer, it is a foreign company that manufactures its satellites abroad. Consequently, its accused satellites are all registered on a foreign registry, are considered not to be within the United States under § 105, and any use of those satellites exclusively in orbit, or between orbit and a foreign country, falls outside the purview of U.S. patent law. But the startup’s case is not entirely doomed, just more difficult. Depending on the patent claims and the company’s U.S. activities, the startup might still pursue infringement involving ground equipment or operations in the United States, either directly against the competitor or by inducing customer infringement. Nonetheless, § 105 has shielded the larger company from the brunt of the damages risk in the startup’s case and greatly improved its chances of prevailing altogether.
Other Potential Unintended Consequences of the Patents in Space Act
The possibility of a larger royalty award for U.S. patent holders or of a complete defense to liability for foreign space companies may be the most immediate concerns for U.S. space companies. But they are not the only ones.
Consider the other remedies available to patent owners for infringement: lost profits and injunctions. Regarding the former, if the startup was preparing to offer global services and can prove that the larger company’s infringing service diverted customers from the startup, then, like a reasonable royalty, the startup will be able to argue that it is entitled to its global lost profits, not just its U.S. lost profits.
An injunction, either preliminary or permanent, poses different problems. Not necessarily of the legal kind; the startup would still be required to establish all of the general elements before a court would grant it an injunction. But does the fact that a satellite will be in orbit impact how a court weighs the legal factors? Would a company seeking a preliminary injunction benefit from the fact that, without one, the infringing satellites would leave Earth? On the other hand, if an injunction is granted, would the court be hesitant to require a satellite in orbit to cease operating globally? And even if it did, what would that look like? De-orbiting the satellite would be a drastic and potentially dangerous remedy, so how would compliance be measured?
What U.S. Space Companies Can Do to Protect Themselves
U.S. space companies’ patent strategy should account for the potentially massive consequences of the Patents in Space Act. Companies unfamiliar with § 105 might question the value of claims covering technology used aboard a satellite, assuming that activity in orbit falls outside the territorial reach of U.S. patent law. But where § 105 applies, those claims may reach the satellite’s global operations themselves, and the potential damages that may follow. If, instead, companies pursued only terrestrial claims directed to how their space object is used in the United States, they may be limited to seeking damages available for terrestrial infringement occurring within the United States under existing precedent.
That does not mean, however, that U.S. companies should abandon claims to terrestrial systems altogether, as such claims may be necessary to “space-proof” their patents and ensure that foreign companies are not protected from infringement liability. Where the disclosed technology supports it, claims directed to ground equipment and its operation may provide an infringement theory that does not depend on the satellite’s registry. The drafting objective is to capture the inventive terrestrial functionality without requiring the satellite itself as a claimed component or requiring an act performed aboard it. Depending on the invention, that might mean claiming how ground equipment is configured to receive or process particular satellite signals, data, or images. Such claims may support direct infringement against a competitor that makes or uses the claimed terrestrial system in the United States. Where customers instead use the system, they may provide the underlying infringement necessary to pursue the competitor for inducement or, where its additional requirements are satisfied, contributory infringement.
In short, while terrestrial system claims and method claims may not open up the possibility of a royalty award based on global sales, they may nonetheless ensure that foreign infringers cannot escape liability, and allow U.S. companies to obtain a royalty award based on U.S. sales under the existing framework for patent infringement governed by § 271 et seq.
Conclusion
The startup and its larger competitor began with familiar expectations about what U.S. patents protect and what infringement might cost. Space complicates both. Before either company decides how strong its position is, it needs to ask a question that may never have arisen in its terrestrial patent disputes: whose registry carries the satellites? The answer to that question could make or break their competitive position, so it is imperative that patent counsel understand and properly advise their clients operating in space of both the risks and the rewards that § 105 created.
