Guest Post by Prof. Osborn: Infringement by Sales and Offers to Sell

A central focus of the Professor Lucas Osborn‘s research is infringement by offers to sell.  Below, he writes about this aspect of Halo v. Pulse.

Halo Electronics, Inc. v. Pulse Electronics, Inc. (Fed. Cir. 2014) Halo v Pulse
Panel: Lourie (author), O’Malley (concurring opinion), Hughes (joining concurrence)

Jason wrote about the damages aspects of this case here, but the case also is interesting for its discussion of § 271(a). Halo accused Pulse of infringing patents covering surface mount electronic packages. At issue in the portion of the opinion was whether Pulse had either sold or offered to sell the devices “within the U.S.” under §271(a).

Sale

The accused infringer, Pulse, is a U.S. corporation who designs, manufactures, and sells the accused components. At a high level of generality, it sells components to Cisco. But it only does so indirectly through Cisco’s contract manufacturers, who are located outside the U.S.A. and who incorporate the components into end products overseas. Eventually, Cisco sells the completed products to consumers around the world. (The district court found that Pulse was liable as an inducer of infringement for any products that ultimately were imported into the U.S., and that decision was not part of the appeal).

Halo tried to establish that Pulse’s sales occurred “within the U.S.” as required by § 271(a), arguing that Pulse engaged in all the truly important sales activities in the U.S. From Halo’s perspective, Pulse reached the overall agreement for the sale of the components with Cisco in the U.S., such as by entering into a general agreement with Cisco about manufacturing guidelines, engaging in pricing negotiations in the U.S. with Cisco, approving prices that could be quoted to foreign buyers, meeting regularly with Cisco design engineers, sending product samples to Cisco for pre-approval, and attending sales meetings with its customers. Furthermore, according to Halo, Cisco masterminded the actions of its foreign contract manufacturers, such as by negotiating with its manufacturers the prices they could pay to their suppliers when purchasing component parts (such as from Pulse). Halo argued that these were the key activities that amounted to the sale of the accused components, and that everything else was mere window dressing.

But the Federal Circuit held that these actions did not constitute a sale “within the U.S.” because too many key events took place abroad. Following earlier decisions, the court looked at factors such as the places of contracting and performance to determine whether a sale occurred “within the U.S.” Here, the accused components were manufactured, shipped, and delivered abroad to foreign buyers. (This is not surprising, because if the products were manufactured in the U.S., it would constitute an infringing “making” under §271(a).) The court pointed out that Pulse’s agreement with Cisco was not a final contract for the sale of any specific products. Finally, the foreign component manufacturers, not Cisco, directed their purchase orders to Pulse’s non-U.S. offices and paid Pulse directly.

Concluding this part of its analysis, the court stated that “[a]ny doubt as to whether Pulse’s contracting activities in the United States constituted a sale within the United States under § 271(a) is resolved by the presumption against extraterritorial application of United States laws.” The court continued to emphasize the presumption against extraterritoriality when rejecting Halo’s argument that the sale occurred in the U.S. simply because Halo suffered harm there.

What remains unanswered is what minimum criteria must exist for a sale to occur “within” the U.S. In a footnote, the court stated that, “On these facts, we need not reach Halo’s argument that the place where a contract for sale is legally formed can itself be determinative as to whether a sale has occurred in the United States.” In earlier opinions, the Federal Circuit seemed to distance itself from this possibility. See Transocean Offshore Drilling, Inc. v. Maersk Contractors USA, Inc., 617 F.3d 1296, 1310 (Fed. Cir. 2010) (“[Defendant’s] first argument, that the location of negotiation and contracting should control is contrary to our precedent in [Litecubes LLC v. Northern Light Products, Inc., 523 F.3d 1353 (Fed. Cir. 2008)].”). This footnote in Halo suggests that this possibility is still in play.

Offer to Sell

Halo also argued that Pulse’s negotiations with Cisco amounted to infringing offers to sell within the U.S. The court disagreed. It held that no offer to sell “within the U.S.” occurred, relying on its decision in Transocean, which held that, “the location of the contemplated sale controls whether there is an offer to sell within the United States.” This case shows the Federal Circuit meant what it said in Transocean.

Transocean was the obverse of Halo: in Transocean, the court concluded that “an offer which is made in Norway by a U.S. company to a U.S. company to sell a product within the U.S., for delivery and use within the U.S. constitutes an offer to sell within the U.S. under § 271(a).” Here, any possible offer made by Pulse was not made abroad but was made in the U.S., and the delivery was not to the U.S. but abroad. Thus, this panel (comprised entirely of judges different from the Transocean panel) closed one possible exception to Transocean and confirmed that the location of the contemplated sale – and only the location – controls whether there is infringement for an offer to sell. The court justified this result by noting that otherwise, “the presumption against extraterritoriality would be breached.”

It is therefore clearer than ever that companies need not orchestrate trips abroad (or otherwise direct activities abroad) to ensure negotiations and offers to sell are extended outside the U.S. It is not where the words are uttered or the offer is made, but where the eventual sale will occur.

A high-level takeaway from this case is that for infringement by an “offer to sell,” the location of the prospective sale controls whether infringement is “within the U.S.,” while for infringement by “sale,” the court leaves open both the location of the prospective sale and the location of the contract formation activities as factors.