American Intellectual Property Law Association
Extraterritorial Reach of U.S. Patents:
Foreign Sales and Offers for Sale
2015 AIPLA Mid-Winter IP Practice in Japan Committee Pre-Meeting
Naoki Yoshida
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Partner, Finnegan, Henderson, Farabow, Garrett & Dunner, LLP
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Halo Electronics v. Pulse Electronics
• Halo Electronics, Inc. v. Pulse Electronics, Inc., Case
No. 2013-1472, -1656 (Fed. Cir. Oct. 22, 2014).
• Halo owns patents directed to
surface mount electronic packages
containing transformers for
mounting on a printed circuit board
inside computers and internet
routers.
• Pulse, another supplier of electronic
components, designs, makes and
sells surface mount electronic
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packages.
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Halo Procedural Background
• District Court (D. Nev.):
– Halo sued Pulse for infringement of Halo’s patents.
– Dist. Ct. granted Pulse’s summary judgment that there
was no direct infringement because Pulse did not sell or
offer to sell the accused surface mount electronic
packages within the United States.
• Federal Circuit:
– Halo appealed.
– Fed. Cir. addressed the “sale” and “offer for sale”
aspects of Section 271(a), and affirmed the Dist. Ct.
judgment
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Halo Facts
• Supply Chain of Pulse’s Product
– Pulse manufactured its surface mount electronic
packages in Asia.
– Pulse delivered some of its products to customers in the
United States, but delivered the majority of them outside
the U.S. to contract manufacturers for Cisco.
– The contract manufacturers incorporated the electronic
packages into end products, such as network routers,
overseas and sold and shipped to consumers around
the world.
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Halo Facts (con’t)
• Pulse’s Business Activities
– Pulse received purchase orders for products delivered
abroad at Pulse’s sales offices abroad.
– Pulse engaged in pricing negotiations in the U.S. with
customers such as Cisco.
– Pulse’s employees in the U.S. approved prices quoted
to foreign customers on some occasions.
– Pulse attended sales meetings with its customers and
provided post-sale support for its products.
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Halo Facts (con’t)
• Pulse’s Business Activities with Cisco
– Cisco outsourced its manufacturing activities to foreign contractors but
negotiated with Pulse the prices that its contractors would pay when
purchasing electronic packages.
– Pulse met regularly with Cisco and sent product samples to them for
pre-approval.
– Pulse executed with Cisco a general agreement that set forth
manufacturing capacity, low price warranty, and lead time terms
without reference to any specific Pulse product or price.
– Cisco sent a request for quote to Pulse and Pulse responded with the
proposed price and minimum quantity for each product.
– Cisco then communicated the price and percentage allocation for each
product to its contract manufacturers in Asia, and the contract
manufacturers applied the Cisco price and allocation when ordering
components from Pulse.
– Pulse received the purchase orders abroad.
– Upon receiving the orders, Pulse delivered the electronic package
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products
from its manufacturing facility in Asia to Cisco’s contract
manufacturers located in Asia, which then paid Pulse.
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Halo Facts (con’t)
ASIA
U.S.
Negotiated
Customers
Cisco
Pulse
Customers
Sold
Sold
Shipped
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Cisco’s Contractors
Customers
Sold
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Halo Federal Circuit Opinion
• Fed. Cir. analyzed if Pulse’s activities constituted a
sale or an offer for sale in the United States under
§ 271(a).
• The Court held that the products Pulse made,
shipped, and delivered abroad were neither sold
nor offered for sale by Pulse within the United
States.
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Sale
• Fed. Cir. reviewed cases addressing a “sale” in the context of personal
jurisdiction and concluded that a “sale” may occur at multiple locations
(a location of a seller or a buyer, a location of a legal operative act, etc.)
• “Although the place of contracting may be one of several possible
locations of a sale to confer personal jurisdiction, we have not deemed
a sale to have occurred within the United States for purposes of liability
under § 271(a) based solely on negotiation and contracting activities in
the United States when the vast majority of activities underlying the
sales transaction occurred wholly outside the United States.”
• “one must examine whether the activities in the United States are
sufficient to constitute a ‘sale’ under § 271(a), recognizing that a
strong policy against extraterritorial liability exists in the patent law.”
• A “sale” in the context of personal jurisdiction may be different from a
“sale” for purposes of liability under § 271(a), and you must analyze
what activities took place in the United States.
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Sale (con’t)
• The patent statute does not define the meaning of a “sale” within
the United States for purposes of § 271(a).
• “[T]he ordinary meaning of a sale includes the concept of a
transfer of title or property.”
– NTP, Inc. v. Research in Motion, Ltd., 418 F.3d 1282, 1319 (Fed. Cir.
2005).
• Article 2 of the Uniform Commercial Code provides that “[a] ‘sale’
consists in the passing of title from the seller to the buyer for a
price.” U.C.C. § 2-106
• A sale is “not limited to the transfer of tangible property” but may
also be determined by “the agreement by which such a transfer
takes place,” but the location of actual or anticipated
performance under a “contract for sale” remains pertinent to the
transfer of title or property from a seller to a buyer.
• A sale may be a transfer of tangible property or/and an
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agreement,
and the location of actual or anticipated performance
under a contract for sale is pertinent to the transfer of property.
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Sale (con’t)
• “when substantial activities of a sales transaction,
including the final formation of a contract for sale
encompassing all essential terms as well as the
delivery and performance under that sales
contract, occur entirely outside the United States,
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).”
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Sale (con’t)
• In this case:
– Pulse’s products were manufactured, shipped, and delivered to
buyers abroad and were at no point, in transit or otherwise, in the
United States.
– Pulse received the actual purchase orders for those products
abroad.
– Pulse and Cisco entered into a general business agreement in the
United States, but the agreement did not refer to, and was not a
contract to sell, any specific product.
– Pulse and Cisco engaged in pricing negotiations in the United
States, but the negotiated price did not constituted a firm agreement
to buy and sell, binding on Pulse and Cisco.
– Pulse received purchase orders from Cisco’s foreign contractors,
which then firmly established the essential terms (including price
andFirm
quantity)
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– Pulse was paid abroad by the contractors, not by Cisco.
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Sale (con’t)
• Fed. Cir. held that:
– Substantial activities of the sales transactions at issue, in
addition to manufacturing and delivery, occurred outside the
United States.
– Pricing negotiations and certain contracting and marketing
activities took place in the United States, which purportedly
resulted in the purchase orders and sales overseas, but such
pricing and contracting negotiations alone are insufficient to
constitute a “sale” within the United States.
– “Any 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.”
• citing Microsoft Corp. v. AT&T Corp., 550 U.S. 437, 454–55 (2007).
– Fed. Cir. rejected Halo’s argument that the sales occurred in
LogoStates simply because Halo suffered economic
theFirm
United
harm as a result of those sales.
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Offer for Sale
• Fed. Cir. stated its analysis with the definition of an “offer for
sale.”
• An “offer for sale” generally occurs when one communicates a
manifestation of willingness to enter into a bargain, so made as
to justify another person in understanding that his assent to that
bargain is invited and will conclude it.
• “the location of the contemplated sale controls whether there is
an offer to sell within the United States” and that “[i]n order for an
offer to sell to constitute infringement, the offer must be to sell a
patented invention within the United States.”
– Citing Transocean Offshore Deepwater Drilling, Inc. v. Maersk
Contractors USA, Inc., 617 F.3d 1296, 1309 (Fed. Cir. 2010) (holding
that there was infringement based on the offer to sell because contract
negotiations, although occurred outside the United States, were for
delivery and performance in the United States.)
• An offer for sale under § 271(a) is determined based on the
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location
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the contemplated sale.
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Offer for Sale (con’t)
• This case involves opposite situation from Transocean:
– The negotiations between Halo and Cisco occurred in the United
States, but the contemplated sale occurred outside the United
States.
• Fed. Cir. held that:
– “Pulse did not directly infringe the Halo patents under the ‘offer to
sell’ provision by offering to sell in the United States the products at
issue, because the locations of the contemplated sales were
outside the United States.”
– An “offer to sell, in order to be an infringement, must be an offer
contemplating sale in the United States. . . If a sale outside the
United States is not an infringement of a U.S. patent, an offer to
sell, even if made in the United States, when the sale would occur
outside the United States, similarly would not be an infringement of
a U.S. patent.”
– Fed. Cir. appears to hold that this interpretation is consistent with
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presumption
against extraterritoriality.
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Practice Tips - Foreign Sales or Offers for Sale
• Investigate a supply chain, business and transactional activities early
– Supply chain
• Any direct or indirect sale into the United States?
• Who sells what to whom, and who buys what from whom?
– Business and transactional activities
• Any tangible property transferred in the United States?
• Any contract negotiated and/or formed in the United States?
• Where is the location of actual or anticipated delivery and performance under a contract for
sale?
• Any offer contemplating sale in the United States?
• Consider providing these information to patentee
– Demonstrate reduced damages base
– Assist with potential settlement
• Consider summary judgment
• For international transactions, you can minimize infringement liability
based on sale and offer for sale under § 271(a) by:
– Avoiding a transfer of a tangible property and contract formation in the United
States and an offer contemplating sale in the United States, and
– Arranging
the location of actual or anticipated delivery and performance under a
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contract for sale to be abroad.
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Extraterritoriality – Historical Perspective
• Brown v. Duchesne, 60 U.S. (19 How.) 183 (1856)
– Found no infringement by an unauthorized use of U.S.-patented sail
boat parts on board a foreign vessel docked in Boston because U.S.
patent rights did not extend beyond the U.S. boarder in international
waters and the parts were placed on the vessel in a foreign port
(foreign policy concern).
• 35 U.S.C. § 271(a) (1952)
– “(a) Except as otherwise provided in this title, whoever without authority
makes, uses or sells any patented invention, within the United States
during the term of the patent therefor, infringes the patent.”
• Deepsouth Packing Co. v. Laitram Corp., 406 U.S. 518 (1972)
– Found no infringement of a U.S. patent directed to a shrimp peeling
machine when individual components of an accused shrimp peeling
machine were exported from the United States to be assembled in a
foreign country.
• The general rule against extraterritoriality
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Extraterritoriality – Historical Perspective (con’t)
• But the tide shifted.
• 35 U.S.C. § 271(f) (1984)
– An exception to the general rule.
– A reaction by the United States Congress to Deepsouth by creating
infringement liability for those who makes unpatented components in
the United States and export them for combination abroad in a matter
that would infringe a U.S. patent.
• Eolas Technologies, Inc. v. Microsoft Corp., 399 F.3d 1325 (Fed.
Cir. 2005)
– Held that a U.S. patent was infringed under § 271(f) when golden
master disks containing software were exported and their copies were
used to install the software on PCs overseas.
• Union Carbide Chemicals & Plastics Technology Corp. v. Shell
Oil Co., 425 F.3d 1366 (Fed. Cir. 2005)
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– Held
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§ 271(f) applies to method claims
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Extraterritoriality – Historical Perspective (con’t)
• Microsoft Corp. v. AT&T Corp., 127 S. Ct. 550 U.S. 437 (2007)
– Exporting golden master disks containing software (Microsoft
Windows) to be copied abroad for installation onto foreignmanufactured PCs was not infringement of a U.S. patent under §
271(f) because Windows in the abstract, without physical embodiment,
does not qualify as a “component” under § 271(f) and the foreignmade copies of Windows actually installed on the PCs were not
supplied from the United States.
– “Any doubt that Microsoft’s conduct falls outside § 271(f)’s compass
would be resolved by the presumption against extraterritoriality.”
• Cardiac Pacemakers, Inc. v. St. Jude Medical, Inc., 576 F.3d
1348 (Fed. Cir. 2009)
– Ruled that § 271(f) does not apply to method claims.
• Courts are returning to the presumption against extraterritoriality
and will increasingly rely on it to limit the extraterritorial reach of
U.S. patents.
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Thank you!
Naoki Yoshida
Tokyo Office Managing Partner
Finnegan, Henderson, Farabow,
Garrett & Dunner, LLP
Shiroyama Trust Tower, 33rd Floor
3-1, Toranomon 4-chome
Minato-ku, Tokyo 105-6033 Japan
Tel: (81) 3-3431-6517
E-mail: naoki.yoshida@finnegan.com
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