Infringement Can Be Based on Product Specified in a Sales Contract Even Where the Product Actually Delivered Does Not Infringe

Authored by D. Brian Kacedon, Forrest A. Jones, and John C. Paul

The typical patent-infringement case involves a determination of whether the sale of a particular product meets all the limitations of the asserted claims. In a recent decision, the Federal Circuit considered the somewhat unusual case where the device sold pursuant to the contract met all the limitations of the claims, but was modified before delivery in an attempt to avoid infringement. Notwithstanding the modifications, the Federal Circuit found that sale infringing based on the terms of the contract.

In Transocean Offshore Deepwater Drilling, Inc. v. Maersk Contractors USA, Inc.,¹ Transocean Offshore Deepwater Drilling, Inc. owned several patents related to oil rigs. Maersk Drilling USA, Inc., entered into a contract to allow Statoil Gulf of Mexico LLC to use one of Maersk's rigs. The contract expressly indicated that the final drill design could be modified as a result of pending district-court litigation. And several months after the contract was signed, Maersk modified the rig in an effort to avoid infringement of Transocean's patents.

Transocean subsequently sued Maersk in the Southern District of Texas for its sale of the oil rig to Statoil. Although the district court initially granted Maersk's motion for summary judgment, holding Transocean's patents obvious, not enabled, and not infringed, the Federal Circuit later vacated that decision and remanded for trial. Transocean Offshore Deepwater Drilling, Inc. v. Maersk Contractors USA, Inc., 617 F.3d 1296 (Fed. Cir. 2010) ("Transocean I"). At trial, the jury found that the prior art failed to disclose every element of the asserted claims and that each of seven objective factors indicated nonobviousness—thus that the patent was not invalid—and that Maersk infringed; as a result, the jury awarded Transocean $15 million in compensatory damages. The district court, however, granted Maersk's motions for judgment as a matter of law, holding that Transocean's patent was obvious and not infringed, and that Transocean was not entitled to damages.

Literal Infringement

On appeal, the Federal Circuit addressed the issue of whether Maersk could avoid the claim of infringement based on the fact that the contract between Maersk and Statoil provided that the rig could be modified. The district court had concluded that Maersk did not offer for sale or sell the use of an infringing rig based on this language. The Federal Circuit reversed this decision, however, holding that the right to alter the final design did not affect the result. Quoting from its own opinion in the earlier Transocean I case, the Federal Circuit explained that "Maersk USA and Statoil signed a contract and the schematics that accompanied that contract could support a finding that the sale was of an infringing article . . . The potentially infringing article is the rig sold in the contract, not the altered rig that Maersk USA delivered to the United States." In particular, the court reasoned that the contract permitted Statoil to access the schematics for the rig and that the jury reasonably concluded that the rig described in the contract and schematics possessed every limitation of Transocean's asserted claims. Thus, Maersk infringed when it offered to sell, and did sell, the infringing rig to Statoil.

Obviousness

On appeal, Maersk also argued that the Federal Circuit's opinion in Transocean I established, as law of the case, that the prior art presented a prima facie case of obviousness. The "law of the case" doctrine is a rule by which a court does not disturb its own prior decisions without exceptional circumstances. In the prior appeal, the Federal Circuit had held that the two prior-art references at issue taught every limitation of the asserted claims and provided motivation to combine their teachings, thus making a prima facie case of obviousness. Accordingly, the district court could not permit a jury to consider whether the prior art taught the limitations of Transocean's claims at issue. But as the court explained in the present appeal, the prima facie case did not resolve the ultimate issue of obviousness, which was therefore properly submitted to the jury. Accordingly, the court had to consider whether substantial evidence supported the jury's factual findings on the seven specific considerations of nonobviousness, and affirmed the nonobviousness verdict after identifying evidence to support those findings.

The Federal Circuit then concluded that substantial evidence also supported the jury's finding that the patents were enabled. Accordingly, the court reversed the district court's judgment, which had overturned the verdict of no invalidity.

The Damages Award

On remand, the jury had awarded Transocean $15 million in compensatory damages. On appeal, Maersk argued that the amount was too high, because it never delivered an infringing rig to Statoil. The $15 million reflected the full upfront licensing fee a competitor actually using an infringing drill would pay, and Maersk argued it would not have paid so much for the right to merely offer for sale the use of an infringing platform.

But the Federal Circuit was not persuaded. According to the court, while it may not have awarded such a high fee, a damage award is reviewed for substantial evidence. And the Federal Circuit found substantial evidence to support the jury's award of $15 million. Evidence showed that Transocean required both an upfront fee and also a running royalty for the use of its technology. Transocean had presented evidence of the payment of $15 million up-front fees by competitors other than Maersk.

The hypothetical negotiation used to calculate a reasonable royalty is based on the moment of first infringement, and, according to the court, a reasonable jury could conclude that at the time Maersk first infringed by offering an infringing rig for sale, the parties would have negotiated a license granting the right both to offer the rig for sale and to deliver the rig. Thus, that Maersk did not ultimately deliver an infringing rig did not matter.

Strategy and Conclusion

This case illustrates that an agreement in a contract to avoid infringing by modifying the design will not necessarily shield an accused infringer from "offer for sale" liability. As always, careful drafting of an agreement in this type of situation is important. Parties should take care to ensure that whatever is being offered for sale does not infringe at the time of the offer for sale.

Endnotes

¹ The Transocean v. Maersk decision may be found here.

Copyright © Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.