Halo Elecs., Inc. v. Pulse Elecs., Inc., (Fed. Cir. Aug. 5, 2016) (Before Lourie, O’Malley, and Hughes, J.) (Opinion for the court, Lourie, J.)
Halo sued Pulse for infringing three patents related to computers and internet routers. Pulse makes computer chips, and the vast majority of its products are delivered to contract manufacturers outside the U.S. These vendors make finished products on behalf of consumer device companies. The finished products are then sold throughout the world, including in the U.S.
Halo accused Pulse of offering, within the U.S., to sell infringing products manufactured abroad and delivered to the U.S. and to other countries. Halo also accused Pulse of willful infringement because Pulse allegedly knew of the Halo patents for a number of years prior to the suit.
Pulse regularly conducts sales-related activities in the U.S., including sending samples to engineering teams in the U.S., meeting with customer design teams, attending customer sales meetings, and providing post-sale support. For example, Pulse entered into an agreement with Cisco, one of its U.S. customers, that specified Pulse’s manufacturing capacity, a low price warranty, and lead times, but did not specify any particular product or price. When Cisco requires Pulse components, it requests a quote, and Pulse responds with a price and minimum quantity. Following a negotiation, Cisco communicates the agreed-upon price to its product manufacturers, who submit purchase orders to Pulse for the components. The purchase orders are received by Pulse at a sales office outside the US.
The district court granted summary judgment that certain products that Pulse manufactured, shipped, and delivered outside the U.S. were not infringing, because they were not sold or offered for sale in the U.S. A jury then found that (a) products sold in the U.S. were infringing, (b) Pulse’s infringement was willful, and (c) the patents were not invalid. Halo moved for enhanced damages. Pulse moved for judgment as a matter of law that the asserted patent claims were obvious over various references. The district court denied these motions and both parties appealed.
The Federal Circuit affirmed the district court in all its determinations. Both parties moved for rehearing en banc, which was denied. Halo then filed a petition for a writ of certiorari to the Supreme Court on two questions. First, Halo challenged the Federal Circuit’s application of the Seagate standard for determining willfulness. Second, Halo challenged the Federal Circuit’s decision that no infringing offer for sale arose from Pulse’s sales activities and agreements within the U.S. The Supreme Court granted the petition regarding willfulness, and denied the petition regarding offers for sale. The Supreme Court then vacated the Federal Circuit’s decision, finding that the Seagate rule was overly rigid, and was too constraining on the discretion of the district courts to decide questions of willful infringement.
On remand, the Federal Circuit vacated the district court’s finding of no willful infringement in view of the Supreme Court’s decision, and instructed the court to consider what Pulse knew or had reason to know at the time of its infringement of the Halo patents.
The Federal Circuit again addressed whether Pulse’s domestic sales activities were either a sale or an offer for sale in the U.S.
While the patent statute does not define “sale,” the Court has previously held that it carries its ordinary meaning, including the transfer of title or property. Further, a “sale” must be understood in view of the strong policy against extraterritorial liability for patent infringement. Here, no sale occurred in the U.S., because the final formation of a contract and all elements of performing the contract occurred outside the U.S. Negotiations and pre-sale activities in the U.S. that did not specify a product or a price were not a “sales contract” or offer for sale. No legally-binding obligations to manufacture, pay for, or deliver products was concluded until a purchase order was submitted to Pulse, outside the U.S., by a contract manufacturer who was also outside the U.S. Pulse did not “offer for sale” products manufactured and delivered abroad, even if negotiations occurred in the U.S., because the negotiations only contemplated sales outside the U.S. An infringing offer for sale must be an offer contemplating a sale in the United States, otherwise the presumption against extraterritorial application of U.S. patent law prevents liability.
Companies that conduct pre-sale activities and negotiations within the U.S., for sales that will be made abroad, may avoid liability for infringement based on those sales. Courts will consider whether the accused domestic activities constituted final formation of a contract, including definite pricing for specific products, and where the products are to be made and sold. The outcome may turn on whether and to what extent performance of a contract for sale involves the United States.