Transocean v. Maersk, Part II: Secondary Indicia of Nonobviousness Outweigh Prima Facie Case of Obviousness

Guest post by Professor Lucas Osborn, Campbell University School of Law.  Before joining the academy in 2009, Professor Osborn worked on the Transocean case while at Fulbright & Jaworski, which represented Transocean.

Transocean Offshore Deepwater Drilling, Inc. v. Maersk Contractors USA, Inc. (Fed. Cir. 2012)

Panel: Prost, Wallach, Moore (author)

This is the second Federal Circuit opinion in this litigation.  Jason Rantanen wrote about the first opinion in 2010.  The patented technology involves offshore deepwater drilling vessels have "dual activity" capability, which is roughly a vessel with two advancing stations that can cooperate together to drill and finish a single oil well at the ocean floor.  The technology decreases the time it takes to drill and complete an oil well compared to the prior art.  Since offshore drilling rigs rent for around $500,000 a day, every time savings counts.  In Transocean I, the Federal Circuit overturned the district court's summary judgment finding of obviousness, noting that although Maersk provided prior art that made a prima facie case of obviousness, the summary judgment was improper in view of Transocean's significant secondary indicia of nonobviousness.  On remand, the trial jury found Transocean's patents were not obvious and awarded Transocean $15,000,000 in damages.  The district court granted Maersk's motion for JMOL notwithstanding the jury's verdict.

Obviousness – Secondary Considerations and Weighing the Strength of the Prima Facie Case

In Transocean I, the Federal Circuit found Maersk had made a prima facie case of obviousness based on two prior art references, and thus the remand was focused on secondary indicia of nonovbiousness.  On remand, the parties fought over whether the jury could consider the two prior art references in addition to the secondary indicia evidence.  Transocean, apparently believing the prima facie case was weak, wanted the jury to consider the two prior art references for two purposes: (1) to determine whether the references taught each limitation of the claims and provided a motivation to combine, and (2) to consider the strength of the prima facie case.  Maersk opposed both, insisting that the only issue was the secondary indicia of non-obviousness.  The district court allowed the jury to review the prior art references for both purposes.  The Transocean II panel said it was error to allow the jury to reconsider whether the references taught each limitation of the claims and provided a motivation to combine: because that issue was decided in Transocean I, it was the "law of the case."  On the other hand, the court held it was not error to allow the jury to weigh the strength of the prima facie case together with the objective evidence of nonobviousness.

This presents a nice strategy for patentees to (essentially) re-litigate the prima facie obviousness determination.  While the jury technically does not get to decide whether a prima facie case of obviousness exists, it might be difficult for jurors to avoid forming their own opinion about the prima facie obviousness issue if it is allowed to learn about the prior art in detail. 

On the ultimate issue of nonobviousness, the court reinstated the jury verdict as supported by substantial evidence.  The evidence of nonobviousness included evidence of commercial success (including customers willing to pay a premium or even requiring rigs with the patented features), industry praise and unexpected results, copying (including by Maersk itself), industry skepticism, licensing, and long-felt but unsolved need.  The court concluded that "Few cases present such extensive objective evidence of nonobviousness, and thus we have rarely held that objective evidence is sufficient to overcome a prima facie case of obviousness. . . . This, however, is precisely the sort of case where the objective evidence establishes that an invention appearing to have been obvious in light of the prior art was not."

The panel also held that substantial evidence supported the jury's finding of enablement. 

Infringement and Damages – Option to Modify to Avoid Infringement

The court also reiterated its Transocean I holding that Maersk may have infringed even though its original contract for "sale" of the rig contained an option to modify the rig before delivery if any patent infringement was likely.  The jury found that Maersk committed infringement when it "offered to sell" and "sold" its rig to Statoil.  The contract evidencing the sale/offer expressly indicated that Maersk could modify the final rig design based on the outcome of then-pending district court litigation between Transocean and a third party based on the same patents.  Before actually delivering the rig, Maersk modified it to avoid infringement.  But the Federal Circuit reiterated that the option to modify and subsequent modification could not save Maersk.  The jury found that the specifications of the rig offered and sold met all the claim limitations.  Post-offer/sale modifications did not matter even though they occurred before actual delivery.

Moving to damages, the panel reinstated the jury's award, but it was sympathetic to Maersk's apparent good intentions to avoid infringement.  The court stated, "We are sympathetic to Maersk's arguments. It offered drilling services which would use an infringing drill, but expressly reserved the right to modify the drill to avoid infringement. It did then modify the drill prior to delivery to avoid infringement – hence never actually using an infringing dual-activity drill."  Nevertheless, the court held that the $15,000,000 reasonable royalty verdict was supported by substantial evidence. 

What can defendants take away from this?  A contract with an option to modify the product will not avoid infringement.  It would seem defendants in situations like Maersk's (i.e., watching a patent to see if it issues or is held valid) should contract not for an "option" to modify, but for a mandatory modification to avoid infringement upon the triggering event (patent issuance or litigation upholding the patent's validity).

The Ignored Issue – When is a "Lease" a "Sale" Under Section 271?

As in Transocean I, the court did not reach a potentially dispositive issue that the parties strongly contested at times in the litigation.  Section 271(a) provides that "sales" and "offers to sell" can be acts of infringement.  Here, however, Maersk did not offer to sell or sell its drilling rig.  Rather, it "leased" and offered to "lease" its rig to a third party.  While previous cases have found that some leases can be tantamount to a sale (and thus infringe under 271), those cases primarily involved the transfer of property indefinitely or for its entire useful life (think of your typically software "license").  See Minton v. Nat'I Ass'n. of Secs. Dealers, Inc., 336 F.3d 1373, 1378 (Fed. Cir. 2003).  This case presented a closer issue:  Here, Maersk argued that it (1) the lease did not last for the entire useful life of the drilling rig, and (2) the contract was for the provision of drilling services and at all time Maersk maintained possession of the rig.  The court ignored this issue and, as it did in Transocean I, referred to the transaction as a "sale" without comment.   

From an economic perspective, "sales" and "leases" would seem to present the same harm to the patentee.  On the other hand, the statute only mentions sales, not leases.  For whatever reason, the Federal Circuit didn't want to touch this issue.  Maybe we will have to wait for Transocean III to know the answer?

40 thoughts on “Transocean v. Maersk, Part II: Secondary Indicia of Nonobviousness Outweigh Prima Facie Case of Obviousness

  1. But that’s the point, Ned, you can’t focus solely on “sell,” because the statute now identifies a sale and an offer to sell as two separate infringing activities. Your analysis is just fine with respect to 271(a) as of 1993. Is it your view that the addition of “offer to sell” to 271(a) had no impact on the law of infringement?

    The making, using or selling has to actually be in the US for there to be subject matter jurisdiction.

    Why are you leaving “offering to sell” out of this statement?

  2. Leo, I think you misunderstand my point. Let’s focus solely on sell. If I “sell” a product located out side the US to a buyer located outside the US, is that an infringement if the place where the transaction take place is in the US?

    I think not.

    That would essentially overrule SC cases on point.

    So, a “sale” takes place in Norway of products that are not made in the US and not delivered in the US. That is not an infringement.

    A sale takes place in Norway of products not in the US, are not delivered to the US but are “for” delivery to the US? I still think there is a problem. The making, using or selling has to actually be in the US for there to be subject matter jurisdiction.

    That is my view.

  3. If one sells a product in the US, the product is in the US and it is sold. It makes no difference where it might be delivered.

    I see your problem, and it is again traced to your (rather odd) segregation of offer to sell under the law.

    Put simply, an offer to sell does not require that the object you are offering to sell be present (not even in the same country).

    There is something fundamentally wrong, but it is in your odd continuing neglect of actual law. It’s nice to see that even Leopold is trying to point this out to you. Is there a reason you refuse to open your eyes to this law?

  4. Ned, you’re entitled to your view, and you’re not the only one to hold it. (See footnote 96 at link to pennumbra.com .) But I think you’re overlooking the fact that 271(a) was specifically amended to add the “offer to sell” prong. It’s a separate activity from selling, and I don’t see any reason to read “offer to sell” as meaning anything other than “offer to sell.”

    I also don’t see the tension with cases that hold that activities outside the U.S. are not infringing. The activity at issue in our discussion is the offer to sell, not the sale. That offer to sell takes place in the U.S. if the contract is executed in the U.S.

  5. I see no material difference between offers of sale and sales wrt to the issue under discussion.

    A sale of a product or an offer sale of a product is the same thing for the purposes of the issue of whether there is infringement here.

    A sale of a product in the US is an infringement, even if the product will be delivered outside the US. This makes sense. But contract to perform services outside the US. The services were never in the US.

    Now, if the services are never in the US, just how can there be infringement?

    Take it to the bank, Transocean is fundamentally wrong, and should be reviewed en banc or by the Supreme Court.

  6. Leo, on the surface, I would agree with you. But there seems to be a fundamental conflict with prior Supreme Court holdings to the effect that making, using an selling outside the US is not an infringement. If one sells a product in the US, the product is in the US and it is sold. It makes no difference where it might be delivered.

    However, if the product is not in the US or the service is not in the US or the product is not made in the US, there can be no infringement under prevailing SC case law.

    That is my view. So, I think there is something fundamentally wrong with Transocean.

  7. Ned, execution of a contract involves an “offer” and an “acceptance” by definition. Execution, in the U.S., of a contract to sell a patented invention, seems to me to be the clearest possible example of an “offer to sell” under 271(a), and thus infringement. I don’t see the confusion.

  8. Leo, Consider MS v. AT&T. Foreign making, using or selling is not an infringement.

    A contract is executed in the US for foreign making, using or selling of an invention patented in the US. Is that an infringement?

  9. From these case, I would assume that a contract in the US for use outside is not an infringement.

    You would be wrong.

    You continue to confuse “offer for sale” with actual sale.

    You need to realize that an offer for sale – with nothing more – is a violation in its own right. Once you understand this, then come back and discuss.

  10. You’re making it too complicated, Ned. The CAFC evaluated this as a sale of a patented product. Lucas already noted that this “sale” was actually a “lease,” but the CAFC didn’t address this issue, apparently simply assuming it was a sale. So it doens’t make any sense to tie yourself into knots wondering about the ramifications as to “sales” of “services.” There probably aren’t any.

  11. In one, NTP v. RIM, the Feds held that all steps of a process had to be “performed” in the US.

    link to scholar.google.com

    In a second, MS v. AT&T, the Supreme Court reaffirmed its prior holding that use outside the US was not an infringement.

    link to scholar.google.com

    From these case, I would assume that a contract in the US for use outside is not an infringement.

    Second, I would assume that a contract for use only partly in the US would not infringe.

    It seems to make no difference where the contract is made. It seems that the location of the use (or the delivery of goods) seems important.

    The bottom line, a US offer of foreign use cannot be an infringement. Therefore, the sale or offer of sale of a use is not an infringement otherwise a US offer of sale of foreign use would be an infringement, in violation of MS v. AT&T.

  12. Does the offer of sale of services to be performed outside the US infringe a US patent?

    Didn’t we have a couple of Supreme Court case almost on point recently? One may have involved RIM. Another Microsoft.

  13. Anon, there was no product or thing sold.

    When one thinks of a sale, one thinks that “ownership” of something will change.

    Nothing of the sort happened here.

    Are there any cases anywhere where a “sale” does not involve a transfer of some “right.”

    When you engage a lawyer to represent you, has he sold his services in the future such that one could expense now the entire cost of legal services of the lawyer in the next year?

    When a doctor advertises his services, let us say that he advertises that he will use the latest Lasik procedures on nearsighted eyes. Is this an offer of sale of the invention if the Lasik procedures offered infringe a method patent?

    I am sure I haven’t seen any cases on point. I just wonder, that’s all. Something doesn’t seem right.

  14. Nothing was sold

    You say that as if there is no difference between an offer and an actual sale.

    You do realize that an offer is itself a violation, right?

  15. Leo, the case is massively confusing from the get go. A Norwegian company contracted to provide “services” in the US. This was deemed to be an offer for sale in the US of activity that was an infringement, the activity constituting using an infringing oil well derrick. The infringing derrick never was used in the US.

    I think the most interesting issue is whether an offer to provide services is an offer of “sale.” Nothing was sold.

  16. I’m curious why “prima facie obvious” has an appropriate place in inter partes D.C. litigation anyway? It makes some sense in terms of clarifying PTO ex parte examiner/applicant burdens, but it is not statutory. Is it logically relevant to a litigation defendant’s consistent “clear and convincing evidence” burden for 103 invalidity?

  17. Is that ever enough?

    The court said that it’s only rarely not enough.

    Or are you doing that thing again where the question you ask isn’t the question you want answered?

  18. Why not simply contract for the non-infringing boat

    Probably because they wanted to spec the patented one, which is better, or a different price, and they wanted an out in case the patent caught up with them.

  19. Why not simply contract for the non-infringing boat and make an add-on contract for the features you’re proposing to add-on if you find out you’re not infringing?

  20. should contract not for an “option” to modify, but for a mandatory modification to avoid infringement upon the triggering event

    I don’t see how this would save you – it was not the option (or lack of option) that acts as the driver, but rather the act of “sale.” A later must-modify clause will not save a present for “sale” event.

  21. In TO I*, the Feds noted, “There is no dispute that there was an offer to sell in this case, but Maersk USA argues that the offer was made in Norway, not the United States, thereby absolving it of § 271(a) liability.”

    Professor Osborn says,

    “As in Transocean I, the court did not reach a potentially dispositive issue that the parties strongly contested at times in the litigation.”

    The two statements are not consistent.

    * link to scholar.google.com

  22. So maybe the facts of this case, don’t bring up the particular issues that Rougousse T. Fairfly asks.

    However, I want to know, the answer to the jurisdictional hypothetical that he is asking!

  23. The article above says that the court found that an infringing rig was never actually used, and that the infringement was based on a sale. Presumably the sale did not take place outside the 12 mile coastal limit.

  24. I wonder whether anyone examined the question of jurisdiction. (The decision doesn’t say anything much in that area).

    Drilling in the Gulf of Mexico normally occurs beyond the 12 mile coastal limit, in the Exclusive Economic Zone, and you could conceivably ferry in a rig into that area without touching a US harbor. (The supplier was based in Mexico).

    Is the EEZ a part of US territory when it comes to patent infringement? I already (anonymously) wondered about this question in another UK case discussed at the ipkitten‘s lair.

    And would a US-based company drilling in international waters using the claimed apparatus? Does the flag flown on the platform matter?

    Commercial success and long felt needs are only second-rank sign of inventiveness in Europe, and apparently in the US too. Could the overturning of the decision have something to do with the Deepwater Horizon disaster?

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