It is a deceptively simple question with a not so simple answer. A purely foreign transaction is certainly beyond the reach of U.S. patent law, but what if part of the transaction occurs within the United States? For example, if a company executes a contract in the U.S. to manufacture and deliver a product overseas, and that product is covered by a U.S. patent, has the patent been infringed? After decades of confusion in the courts, the Federal Circuit provided some much needed guidance in its 2014 ruling in Halo Electronics, Inc. v. Pulse Electronics, Inc., 769 F.3d 1371 (Fed. Cir. 2014), but stopped short of announcing any bright-line tests. This article examines the efforts that the Federal Circuit and district courts have made to resolve this fundamental question of infringement liability in our increasingly global economy.
The Ambiguity in the Law
35 U.S.C. § 271(a) provides in relevant part that “whoever without authority…offers to sell, or sells any patented invention, within the United States…infringes the patent.” This begs the question, however: is it “offer/sell in the United States a patented invention” or “offer/sell a patented invention for delivery in the United States?” In other words, does the location of the act of offering, negotiating and/or contracting control, or does liability turn on the ultimate delivery location of the thing that was offered or sold? A separate statute – Section 271(f) – makes it an act of infringement to sell components of a patented invention in the United States for export and assembly overseas, but does not cover products that are manufactured entirely in another country.
The Transocean Decision: Foreign Transactions with Delivery in the United States
The Federal Circuit’s 2010 decision in Transocean Offshore Deepwater Drilling, Inc. v. Maersk Construction USA, Inc., 617 F.3d 1296 (Fed. Cir. 2010) provided guidance regarding the scenario of a transaction that takes place in a foreign country contemplating delivery of a product into the U.S. With regard to the question of whether an infringing offer to sell had occurred, the court summarized as follows: “[t]his case presents the question whether an offer which is made in Norway by a U.S. company to a U.S. company to sell a product within the U.S., for delivery and use within the U.S. constitutes an offer to sell within the U.S. under § 271(a). We conclude that it does. …The focus should not be on the location of the offer, but rather the location of the future sale that would occur pursuant to the offer.” With regard to the question of whether an infringing sale had occurred, the court applied similar reasoning, and concluded that “a contract between two U.S. companies for the sale of the patented invention with delivery and performance in the U.S. constitutes a sale under § 271(a) as a matter of law.”
The Halo Decision: Transactions in the United States with Delivery Overseas
In the wake of Transocean, district courts struggled with how to apply the Federal Circuit’s holding to the scenario of a transaction that occurs in the U.S. contemplating delivery of an otherwise infringing product overseas. In particular, what has continued to cause confusion is defining where a “sale” occurs geographically for purposes of Section 271(a). A sale can be thought of as encompassing several distinct steps – negotiation, contract execution, payment, title transfer, and delivery – not all of which necessarily happen in the same place. Although the Transocean court concluded that the negotiation and execution of a contract in Norway did not insulate the defendant from “sale” liability where the product was ultimately delivered into the United States, the court stopped short of adopting a per se rule that the delivery location controls the outcome in all cases.
The Federal Circuit’s later decision in Halo gives further guidance, but still does not provide any bright-line rules. In Halo, the defendant had engaged in U.S.-based negotiations to manufacture allegedly infringing electronic components overseas and deliver them to foreign device manufacturers, who in turn incorporated the components into finished products for sale around the world, including the United States. The Federal Circuit concluded that the defendant had not engaged in any infringing “sale” in the U.S., reasoning 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...
