Negotiation to Sell Products Outside the US is not an Infringing Offer for Sale

federal-circuit-front-steps-335Halo 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.

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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.

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The Author

Joseph Robinson

Joseph Robinson has over 20 years of experience in all aspects of intellectual property law. He focuses his practice in the pharmaceutical, life sciences, biotechnology, and medical device fields. His practice encompasses litigation, including Hatch-Waxman litigation; licensing; counseling; due diligence; and patent and trademark prosecution. He has served as litigation counsel in a variety of patent and trademark disputes in many different jurisdictions, and has also served as appellate counsel before the Court of Appeals for the Federal Circuit. Joe also focuses on complex inter partes matters before the U.S Patent and Trademark Office, inventorship disputes, reexaminations and reissues. His experience includes numerous interferences, a particular advantage in new U.S. Patent and Trademark Office post-grant proceedings. He also counsels on patent–related U.S. Food and Drug Administration issues, including citizen petitions, Orange Book listing, and trademark issues. For more information and to contact Joe please visit his profile page at the Troutman Sanders website.

Joseph Robinson

Robert Schaffer is an intellectual property partner at Troutman Sanders. Bob applies more than 30 years of experience to IP counseling and litigation. His work includes patent procurement, strategic planning and transactional advice, due diligence investigations, district court patent cases, and Federal Circuit appeals. He regularly handles complex and high-profile domestic and international patent portfolios, intellectual property agreements and licensing, IP evaluations for collaborations, mergers, and acquisitions. In disputed court cases Bob’s work includes representing and counseling client in ANDA litigations, complex patent infringement cases and appeals, and multidistrict and international cases. In disputed Patent Office matters his work includes representing and counseling clients in interferences, reexaminations, reissues, post-grant proceedings, and in European Oppositions. For more information and to contact Bob please visit his profile page at the Troutman Sanders website.

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Discuss this

There are currently 2 Comments comments.

  1. JD August 13, 2016 12:31 am

    Given the presumption against extraterritoriality of american laws, this holding makes sense. It negligibly reduces the patentee’s american market when others sell the patented product abroad, even if the negotiations occurred in the US. And of course the patent holder will always have a remedy if the product is imported into the states.

    Insight on patent law damages

  2. Anon August 13, 2016 2:20 pm

    What is the basis for so tightly linking “offer for sale” and actual sale?

    It is said (without citation to authority) that “ 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.

    I do not see this as the truism asserted. I do not see “pre-sale” as necessarily different than “offer for sale” – and certainly closer to that than any “actual sale.”

    Of course, this is only so if “offer for sale” and “(actual) sale” are allowed to be two different things.

    There was another recent case that seemed to not distinguish these two aspects – which are in fact separate aspects, with “offer for sale” added to the law at a different time than “pure” sale.

    There is too much gloss and assumption at the critical thinking point here (in my humble opinion).