by Dennis Crouch
The recent Federal Circuit decision in Caltech v. Broadcom includes an important discussion of extraterritorial damages further extending Carnegie Mellon (Fed. Cir. 2015) in finding that manufacture and delivery of a product in a foreign country can infringe a US patent if sufficient sales-activity occurred within the US.
California Institute of Technology v. Broadcom Ltd. and Apple Inc., ___ F.2d ___ (Fed. Cir. 2022).
The case involves wireless communication chip logic patented by CalTech. Broadcom makes infringing chips and they are installed in Apple devices. The Broadcom chips and Apple phones are manufactured outside of the United States, although they are largely designed in the US, and the nerve centers of marketing and sales are also in the US. Although many of these devices made their way to the US, the jury verdict apparently included damages for 1 billion chips that Broadcom manufactured abroad, and sold to Apple’s foreign suppliers outside of the US, and that were never imported into the US.
This setup raises some concern because US patents are territorial in nature, and liability under Section 271(a) requires action “within the United States” importing “into the United States.”
(a) Except as otherwise provided in this title, whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefor, infringes the patent.
35 U.S.C. 271(a). Still, much of the sales activities occurred within the United States. In Halo, the Federal Circuit addressed a similar situation regarding local sales activity leading to delivery and performance occurring entirely outside of the US. The court explained that in that situation, “pricing and contracting negotiations in the United States alone do not constitute or transform those extraterritorial activities into a sale within the United States for purposes of §271(a).” Halo Elecs., Inc. v. Pulse Elecs., Inc.., 831 F.3d 1369 (Fed. Cir. 2016) on remand from 579 U.S. 93 (2016).
On appeal, the Federal Circuit cabined-in its prior Halo statements and concluded the sales activity can be considered “within the United States” when the US activity extends beyond “pricing and contracting negotiations . . . alone.” A contrasting case here is Carnegie Mellon Univ. v. Marvell Tech. Grp., Ltd., 807 F.3d 1283 (Fed. Cir. 2015). In CMU, the Federal Circuit explained that the location of a sale is often difficult to pinpoint, and might occur in multiple locations at once.
Places of seeming relevance include a place of inking the legal commitment to buy and sell and a place of delivery, and perhaps also a place where other substantial activities of the sales transactions.
CMU. The chip business is particularly crazy because they involve multi-year sales cycles and the chip-maker is looking for a “design win” where a particular chip is locked-in for mass production. Here, apparently the patentee provided substantial evidence that the multi-year process of designs, simulations, test, reworking, sampling, pricing, etc., all occurred within the United States. This evidence was presented to the jury, and the jury also received instructions that “sales may be found to have occurred in the United States where a substantial level of sales activity occurs here, even for products manufactured, delivered, and used entirely abroad. . . . ” (Instruction reprinted below)
On appeal, the defendants did not challenge the sufficiency of the evidence, but rather that the jury instruction was improper. The Federal Circuit though sided with the patentee and confirmed that the instructions were proper. “This was a proper and sufficient jury instruction with respect to the applicable burdens on the territoriality of the sales at issue.”
The result here is continued flexibility on what counts as “US sales” for patent infringement purposes, and this case makes it marginally easier to capture foreign activity with a US patent.
In its appeal, Broadcom also argued that the jury should have receive instructions on the presumption against extraterritorial application of US law. See WesternGeco LLC v. ION Geophysical Corp., 138 S.Ct. 2129 (2018). The Federal Circuit rejected this appeal — holding that the presumption is applied when courts interpret the law or construe a statute. Once the law is defined, then it is time for the jury to weigh the evidence and draw its conclusions — and and that the presumption is inapplicable. Here, the court told the jury that the sales must be “within the United States,” and the jury then was asked to simply weigh the evidence and determine “whether the relevant transactions … were domestic or extraterritorial in nature.” On appeal, the Federal Circuit found that the district court’s approach was again sufficient and proper.
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Note – the Federal Circuit affirmed on the extraterritorial questions, but vacated the billion dollar judgment on other grounds. Thus, there will be a new trial on damages, and the new jury might reach a different result.