Section 271 determines whether global sales infringes a US patent

Under Section 271(a), activities considered to be infringing a patent when performed wholly in the United States may be transformed into non-infringing activities if some of those activities are performed outside of the United States. In this sense, a company’s global operations may help the company to avoid patent infringement liability.

35 USC Section 271(a) states that:

“Whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States, or imports into the United States any patented invention during the term of the patent therefore, infringes the patent.” (Emphasis added).

In Halo Electronics, Inc. v. Pulse Electronics, Inc. (Fed. Cir. August 5, 2016), the accused infringer (Pulse) performed certain negotiations and contracting activities within the United States. However, the goods were manufactured, ordered, invoiced, shipped and delivered outside of the United States. The issue was, assuming that the goods were infringing the claims of the patent, whether there was a sale or offers to sell the goods within the United States in order to impose patent infringement liability.

1. Sale within the United States Under Section 271

The Federal Circuit described the accused infringer’s activities regarding the sales transaction as predominantly occurring outside of the United States. For these types of sales, the Federal Circuit examined whether the activities that remained inside the United States were sufficient to constitute a “sale” under section 271(a). The Federal Circuit focused on the location where title to the property was transferred based on the agreement of the parties and the location of actual or anticipated performance. In the present case, the defendant (Pulse) had a general business agreement but that agreement was not a contract to sell any specific product. Rather the vast majority of activities involving the sale occurred outside of the United States. Purchase orders were sent to Pulse’s office outside of the United States from foreign contract manufacturers. Pulse was paid abroad by those contract manufacturers. The product was manufactured outside of the United States. Finally, the Federal Circuit said that any doubt was resolved by the presumption against extraterritorial application of United States laws.

To determine whether a sale occurred within the United States within the meaning of Section 271, the courts look at a spectrum of activities including both the location of contract formation as well as performance of the contract.

2. Offer to sell within the United States Under Section 271

Section 271(a) also provides for infringement if an accused patent infringer offers to sell a patented invention within the United States. Even if the sale is not consummated by the buyer, the seller could be liable for patent infringement based on an offer to sell under Section 271. In this regard, the Federal Circuit reiterated its holding that “the location of the contemplated sale controls whether there is an offer to sell within the United States.” (Emphasis in original). Transocean Offshore Deepwater Drilling, Inc. v. Maersk Contractors USA, Inc., 617 F.3d 1296 (Fed. Cir. 2010).  In Transocean, contract negotiations occurred outside the United States for delivery and performance in the United States. That court held that the location of the contemplated sale controlled and that the offer to sell infringed the patent at issue under Section 271.

In the instant case, the opposite situation was before the court. Negotiations occurred in the United States but the contemplated sale occurred outside the United States. The court adopted the same reasoning in Transocean and concluded 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.  In this situation, the court also required that “an offer to sell, in order to be an infringement, must be an offer contemplating sale in the United States.” (emphasis added).  In this case the parties did not want to complete the sale in the United States, and thus there was no patent infringement.

For the “offer to sell” provision, the location of the delivery and performance of the products at issue was determinative as to whether the “offer to sell” is within or outside the United States.