US Patent Infringement – A Case for Concern?

Federal Circuit
Says no patent infringement
For non-US sales

The Federal Circuit Court of Appeals affirmed that there is no infringement of US patent rights where the allegedly infringing goods were made, shipped, and delivered to buyers outside the United States.

The case of Halo Electronics, Inc. v. Pulse Electronics, Inc. involves rival makers of electronic components. In 2002, Halo offered to license its patents to Pulse. Pulse declined, concluding that the patents were invalid. In 2007, Halo sued Pulse for infringing its patents. Pulse sought summary judgment on the grounds that it doesn’t sell or offer to sell the allegedly infringing components in the US. Under US patent law, “whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States . . . infringes the patent.”

Pulse makes its components in Asia and delivers most of them to buyers outside the US. Some Pulse components are sold to contract manufacturers for US companies such as Cisco. These contract manufacturers incorporated the electronic packages supplied by Pulse into end products overseas, with the end products being sold and shipped to buyers in the US and around the globe. In connection with the components that weren’t sold directly in the US, Pulse engaged in a number of sales-related activities that had a connection to the US:

    • Pulse negotiated prices within the US for foreign customers.
    • Pulse met with foreign customers’ design engineers in the US.
    • Pulse sent product samples to US end-users of its components.
    • Pulse attended sales meetings with foreign customers in the US.
    • Pulse provided post-sale support for its products in the US.

The district court granted Pulse’s summary judgment motion and the parties proceeded to trial on Halo’s infringement claims based on products that Pulse shipped directly to the US. A jury found that those sales did indeed infringe Halo’s US patent rights. Halo appealed the summary judgment on the non-US sales.

The Federal Circuit concluded that Pulse’s sales-related activities were not actually “sales” nor “offers for sale” within the purview of US patent law, and so upheld the granting of summary judgment.

According to the Federal Circuit Court of Appeals, the ordinary meaning of a sale includes the concept of a transfer of title or property. A sale may occur at multiple locations, including the location of the buyer or the places of contracting and performance. Nonetheless, a sale has not been deemed to have occurred within the US for purposes of liability under patent law based solely on negotiation and contracting activities in the US when the vast majority of activities underlying the sales transaction occurred wholly outside the US. Further, the location of actual or anticipated performance remains pertinent to the transfer of title or property.

On the other hand, an “offer to sell” generally occurs when one communicates a manifestation of willingness to enter into a bargain. In order for an offer to sell to constitute infringement, the offer must be to sell a patented invention within the US.

In applying the above concepts of “sale” and “offer to sell” to the case, the Federal Circuit recognized that the products were manufactured, shipped, and delivered by Pulse to buyers abroad; and that Pulse was paid abroad by its contract manufacturers. While pricing negotiations and contracting activities were done in the US, these did not constitute the final formation of a definitive, binding contract of sale. Thus, the Federal Circuit concluded that the substantial activities of the sales transactions occurred outside the US.

In addition, the Federal Circuit clarified that US patent law only applies domestically and does not extend to foreign activities. Thus, if one desires to prevent the selling of its patented invention in foreign countries, its proper remedy lies in obtaining and enforcing foreign patents.

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