Federal Circuit Clarifies Limits of US Patent Law

by: Robert Wagner, patent attorney at the Pittsburgh law firm of Picadio Sneath Miller & Norton, P.C. (Robert Wagner on G+)

The United States patent laws have a territorial scope and prohibit individuals from making, using, offering for sale, and selling any patented invention within the United States without authority from the patent owner. 28 U.S.C. § 271(a). The United States is just one part of a much bigger world, and the question sometimes arises as to whether an accused infringer’s foreign activities are within the scope of the U.S. patent laws. In Halo Electronics, Inc. v Pulse Electronics, Inc., (No. 2013-1472 and -1656), the Federal Circuit had to address this issue and concluded that they were not.

Background

Halo is a supplier of electronic components and owned three patents related to surface mount electronic packages containing transformers for mounting on a printed circuit board inside an electronic device. Halo filed suit against Pulse for selling products containing electronic packages that used this technology.

Pulse designed and manufactured the accused products overseas and only sold minority of them in the United States. For its foreign orders, Pulse received purchase orders in its foreign offices and then shipped and delivered them to foreign locations.

One of Pulse’s major customers was Cisco, who incorporated some of Pulse’s products into its internet routers, which were sold all over the world. Pulse employees would sometimes meet with Cisco in the United States to negotiate prices, attend sales meetings with customers, meeting with design engineers, and provide post-sale support.

Pulse obtained summary judgment that it did not directly infringe with respect to products that were made, shipped, and delivered outside of the United States. At trial, the jury determined, among other things, that Pulse directly infringed with respect to products sold in the United States and induced infringement with respect to products that were incorporated into other products that were sold in the United States.

Halo appealed the grant of summary judgment to the Federal Circuit.

The Federal Circuit Affirms

In deciding the appeal, the Federal Circuit had to consider the geographic scope of infringement under § 271(a). The Court first looked at the statutory language and history behind § 271(a). It noted that the concept of a sale has physical and conceptual dimensions—where the buyer and seller are located and where a legally-operative act occurred regarding the sale.

It concluded that when no substantial activities occur within the United States there could be no potential liability under § 271(a):

Consistent with all of our precedent, we conclude that, 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).

Thus, it affirmed the district court’s grant of summary judgment of no direct infringement for sales that did not occur within the United States.

It then turned to whether there could be infringement via an offer for sale. It reached the same result, finding that “[a]n offer to sell, in order to be an infringement, must be an offer contemplating sale in the United States.” Because all of these offers involved sales that occurred overseas, there could not be direct infringement.

The Federal Circuit upheld the district court’s summary judgment of no infringement with respect to the foreign sales.

Judge O’Malley’s Concurrence

Judge O’Malley concurred fully with the majority’s decision but wrote about another issue in the case. The district court found that Pulse’s infringement was not willful because it had an objectively reasonable invalidity defense. Therefore, it found that Halo could not satisfy the first prong of the Seagate test—that “a patentee must show by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent.”

It did not matter that the invalidity defense was first developed during litigation. The objection prong of the test requires consideration of the totality of the evidence, including all defenses developed during the litigation and presented at trial, not just those considered by the accused infringer before being sued. The Federal Circuit affirmed this determination.

Judge O’Malley agreed with the decision but felt that it was time for the Federal Circuit to revisit its willful infringement standards in light of the Supreme Court’s decisions in Highmark Inc. v. Allcare Health Management Systems, Inc., 134 S. Ct. 1744 (2014), and Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749 (2014). She also questioned whether willful infringement should be an issue for the court or the jury. She recommended that the entire Court take up this issue en banc in order to clarify the law.

Conclusion

United States patents have geographic limitations. Companies, especially those with presences in multiple countries, need to be aware of this scope in order to make sure that they are complying with U.S. patent laws. It will also be interesting to see if the full Court takes up Judge O’Malley’s urging to reconsider the Court’s willfulness jurisprudence.