Patent Law’s Global Grey Areas

Authored by Justin A. Hendrix and Doris J. Hines

Patent law has unresolved grey areas when it comes to patent infringement liability for transactions handled outside the U.S., say two experts.

A company cannot infringe a U.S. patent based on activities that occur entirely overseas. Gray areas in patent-infringement liability exist, however, when some activity occurs in the United States and some occurs overseas. Knowing these gray areas, companies can better understand whether their activities potentially subject them to damages in a U.S. patent infringement case.

Under U.S. patent law, infringement exists when anyone, without authority, "makes, uses, offers to sell,or sells" a patented invention in the United States.¹ When determining what is a U.S. "sale" or "offer to sell," courts apply the general principle that U.S. patent law operates only domestically and does not extend to foreign countries.²

Although the principle seems straightforward, applying it can raise tricky questions. For example, is there an infringing U.S. sale if a sales contract is negotiated and executed overseas for the sale of products in the United States?³ What if the contract is negotiated and executed in the U.S. but contemplates sale and delivery overseas? Courts have answered the first question, but have yet to definitively answer the second.

On the first question, the U.S. Court of Appeals for the Federal Circuit—which has jurisdiction over appeals in patent cases—considered the situation in which two companies negotiated and executed a contract in Norway for the sale and delivery of products in the United States. Explaining that "the location of the contemplated sale controls whether there is an offer to sell within the United States," the Federal Circuit concluded that a U.S. "sale" or "offer for sale" occurred.

Regarding the second question, gray areas still exist. In a case involving hard drives, one court held that no U.S. sale occurred when the parties executed a supply agreement in the United States for products to be manufactured and sold overseas.⁴ Instead, where the products were physically manufactured and delivered drove where the "sale" took place. The court thus found there might still be infringement liability for products that eventually made their way into the United States (e.g., via manufacturers that installed the hard drives into computers and then imported them).⁵

In a case involving image sensors, a different court reached a different conclusion. It said that an agreement executed in the United States for products manufactured and sold overseas was not a U.S. "sale," regardless of whether the products eventually entered the U.S. market.⁶

In yet another case, the Federal Circuit concluded that no U.S. "sale" occurred where the parties negotiated (but did not execute) a contract in the United States for the manufacture and delivery of circuit boards overseas. The court explained that pricing and contract negotiations in the U.S. were not enough to be a U.S. "sale," but it left unanswered what would have happened had the contract actually been executed in the United States.⁷

When entering into agreements for the manufacture and/or delivery of products overseas, companies should understand these gray areas that still surround the definition of a U.S. "sale." Every company's situation is unique, but being mindful of things such as the location where contracts are negotiated and executed, and where manufacture and delivery will occur, may help a company understand and mitigate its risk exposure to U.S. patent litigation.

Endnotes

¹ 35 U.S.C. § 271(a).

² Microsoft Corp. v. AT&T Corp., 550 U.S. 437, 454–55 (2007).

³ Transocean Offshore Deepwater Drilling, Inc. v. Maersk Contractors USA, Inc., 617 F.3d 1296, 1308–10 (Fed. Cir. 2010).

⁴ Lake Cherokee Hard Drive Techs., LLC v. Marvell Semiconductor, Inc., 964 F. Supp. 2d 653, 657–58 (E.D. Tex. 2013).

⁵ Id. at 658.

⁶ Ziptronix, Inc. v. Omnivision Techs., Inc., No. C-10-05525, 2014 WL 5463051, at *5–6 (N.D. Cal. Oct. 21, 2014).

⁷ Halo Elecs., Inc. v. Pulse Elecs., Inc., 769 F.3d 1371, 1379 n.1 (Fed. Cir. 2014).