Under 35 U.S.C. § 271(a), a patent is infringed when someone “without authority . . . offers to sell, or sells any patented invention, within the United States.”1In this manner, “[t]he territorial reach of section 271 is limited,”2and the Supreme Court has long ago made clear that “the US patent laws do not, and were not intended to, operate beyond the limits of the United States.”3But for many industries, where a sale occurs can be unclear: Perhaps some of the negotiation, contracting, importation, and/or delivery involved in a product’s sale happens within the United States, while some happens elsewhere. For such products, when is 271(a) infringed?
Sale and Offer for Sale Under Section 271(a)
“It is the general rule under United States patent law,” the Supreme Court has said, “that no infringement occurs when a patented product is made and sold in another country.”4But as the Federal Circuit has observed, “[t]he patent statute does not define the meaning of ‘sale’ within the United States for purposes of § 271(a).”5Instead, whether a party’s actions constitute a sale or an offer to sell depends on a fact-intensive inquiry that examines what a party did—and where.
Time and again, the Federal Circuit has “rejected [a] formalistic approach” that defines a sale as occurring at “the single point at which some legally operative act took place.”6As the court has explained, “[t]he standards for determining where a sale may be said to occur do not pinpoint a single, universally applicable fact that determines the answer.”7Instead, the court has looked to the “substantial activities” of the sale to determine whether they occurred in the United States.8These substantial activities may include any of negotiations; contracting; shipment; and delivery, as explained below.
Negotiations: Halo and CalTech
Before entering a contract, parties negotiate. Can negotiations in the United States constitute a sale, even if other substantial activities of the sale occur abroad?
In Halo Electronics, Inc. v. Pulse Electronics, Inc., Halo accused Pulse of infringing its patents on surface mount electronic packages.9Pulse disputed that infringement occurred “within the United States,” as § 271(a) requires, arguing it received purchase orders abroad from contract manufacturers outside the United States.10Halo countered that Pulse’s negotiations with these contract manufacturers took place within the United States.11The Federal Circuit agreed with Pulse, finding the negotiations were insufficient to create liability where the other substantial activities of Pulse’s sales to the contract manufacturers, including not only receipt of the purchase orders but also delivery of the products, occurred abroad.12“Any doubt,” the court explained, “is resolved by [a] presumption against extraterritorial application of United States laws.”13
Importantly, though, the Federal Circuit in California Institute of Technology v. Broadcom Ltd. seemed to leave open the possibility that certain types of negotiations — such as “design wins arising out of a sales cycle”—may rise to the level of a sale.14There, the Federal Circuit approved of a jury instruction that stated “a sale can occur in the United States based on the ‘design win’ process . . . where the design of the products . . . occurs in the United States and the buyer selects that design in the United States,” even if the products are “manufactured, delivered, and used entirely abroad.”15
Thus, while Halo found no sale based on negotiations in the United States, Halo did not hold that negotiations are never enough. The nature of the negotiations and their role in the ultimate purchase must be considered carefully.
Contracting: Halo and Transocean
Can a contract made abroad be a sale “within the United States”? Does it matter where the product will end up?
In Halo, Pulse received the purchase orders for its surface mount electronic packages abroad, and the packages were delivered to contract manufacturers outside the United States.16According to Halo, however, it suffered economic harm when the contract manufacturers then incorporated Pulse’s packages into products that ultimately reached the United States.17For the Federal Circuit, such economic harm was not enough. “The incurring of harm alone,” it explained, “does not control the infringement inquiry,” noting the court had previously held that § 271 “suggests the conception that the ‘tort’ of patent infringement occurs where the offending act is committed and not where the injury is felt.”18
An illustrative contrast, though, is Transocean Offshore Deepwater Drilling, Inc. v. Maersk Construction USA, Inc.19In Transocean, as in Halo, the contract for sale was entered into outside the United States.20Importantly, though, under the contract the product at issue was to be delivered to the United States.21Accordingly, the Federal Circuit found infringement “within the United States” had occurred.22As the court explained, “an offer which is made [abroad] by a US company to a US company to sell a product within the United States, for delivery and use within the US constitutes an offer to sell within the United States under § 271(a).”23,24“The focus,” the court stated, “should not be on the location of the offer, but rather the location of the future sale that would occur pursuant to the offer.”25To do otherwise “would exalt form over substance by allowing a US company to travel abroad to make offers to sell back into the United States without any liability for infringement.”26
Thus, Halo and Transocean suggest, when a contract is entered into abroad, the other activities of the sale—including, where the products will end up—should be considered to determine where the sale occurred.
Shipment and Delivery: Litecubes and MEMC
Products can be shipped through a variety of arrangements along any number of routes to a delivery destination. How does a product’s shipment and delivery impact where the sale occurred?
Litecubes, LLC v. Northern Light Products considered a simple situation: The accused infringer, GlowProducts, shipped its products from its Canadian offices directly to customers located in the United States.27GlowProducts disputed that these were sales “within the United States” on the grounds that it shipped the products “free on board”—a method of shipment in which legal title for a product transfers from the seller to the buyer when the product is shipped.28Because legal title thus passed from GlowProducts to its customers in Canada, GlowProducts argued, the sale took place in Canada.29The Federal Circuit was unpersuaded. It “rejected [a] formalistic approach” that defined a sale as occurring at “the single point at which some legally operative act”—such as the passing of legal title—“took place,” instead looking to all the substantial activities of the sale.30Finding “the American customers were in the United States when they contracted for the accused cubes, and the products were delivered directly to the United States,” the court found a sale “within the United States.”31
In MEMC Electronic Materials, Inc. v. Mitsubishi Materials Silicon Corp., the accused infringers, collectively referred to as SUMCO, manufactured silicon wafers in Japan according to purchase orders received from Samsung Japan.32 Before providing the wafers to a packaging company in Japan, SMOG affixed a packaging label identifying the wafers’ destination as Austin, Texas.33The wafers were then shipped34by the packaging company to Samsung Austin’s plant in Austin, Texas.35The patentee, MEMC, argued SUMCO’s wafers were sold “within the United States” because, while the purchase orders came from Samsung Japan, Samsung Austin was the ultimate recipient and thus true purchaser.36MEMC highlighted that SUMCO communicated with Samsung Austin regarding design and approval of the wafers, shipping of the wafers, and technical support for the wafers, and SUMCO personnel had visited Samsung Austin.37The Federal Circuit nevertheless found no infringement under § 271(a). What mattered, it held, was that Samsung Japan controlled every step of the purchase, from providing the purchase orders to designating the packaging company and the content of the packaging labels—all of which occurred in Japan.38That SUMCO was aware the wafers would ultimately reach Samsung Austin was, the court explained, insufficient: “Mere knowledge that a product sold overseas will ultimately be imported into the United States is insufficient to establish liability under section 271(a).”39
Litecubes and Halo are somewhat in tension: While Litecubes places more weight on the products’ ultimate delivery in the United States than on the delivery in Canada to the shipping company, in MEMC the sale was found to be abroad notwithstanding the products’ ultimate delivery in the United States. More illuminating, perhaps, is what these cases have in common, which is a focus on where the determined purchaser was located.
The Federal Circuit has made clear that “[t]he standards for determining where a sale may be said to occur do not pinpoint a single, universally applicable fact that determines the answer.”40On the contrary, “the ‘selling’ of an infringing article has both a physical and a conceptual dimension to it”,41necessitating that many of a party’s activities be considered to determine whether a sale or offer for sale occurred “within the United States” under § 271(a).
This post was originally published by Finnegan, Henderson, Farabow, Garrett & Dunner, LLP.