Court of Appeals Finds No U.S. “Sale or “Offer of Sale” in U.S. Despite U.S. Master Agreement and Price Negotiations

The World in U.S. Courts: Summer and Fall 2016 - Intellectual Property – Patent

Halo Electronics, Inc. v. Pulse Electronics, Inc., U.S. Court of Appeals for the Federal Circuit, August 5, 2016

Halo is a supplier of electronic components protected by several U.S. patents.  Pulse, a competitor, designs and sells similar products in Asia.  Halo believed these products infringed Halo’s U.S. patents, and sued Halo for infringement. 

As relevant here, the U.S. Patent Act prohibits the manufacture, use, offer to sell, or sale of any patented product “within the United States,” without authority to do so.  The statute has no extraterritorial effect, but certain actions taken outside the U.S. can be part of activities that constitute infringement.  In this case, the U.S. Court of Appeals for the Federal Circuit, which has jurisdiction over all patent appeals, addressed the limits of this principle.

Some Pulse products were sold directly to U.S. customers, but most were sold to other companies in Asia, which incorporated them into finished products sold around the world, including to the U.S.  Pulse accepted purchase orders outside the U.S., but for certain ultimate U.S. customers engaged in price negotiations and entered into master agreements in the U.S.  Pulse employees in the U.S. also approved certain pricing for sales to affiliates of U.S. companies in Asia.  Pulse engaged in other activities in the U.S., including meetings with customers’ engineers and routine sales and post-sale support.

To determine whether Pulse’s conduct could constitute infringement, the Court first addressed the meaning of “sale,” concluding that the term was not limited to the location where legal title was transferred.  Rather, the Court stated:  “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 extraterritorial activities into a sale.”  The Court thus found Pulse’s sales to Asian affiliates of U.S. companies not to be infringement, despite the existence of a U.S. master agreement under which purchase orders were issued and some U.S. price negotiation.  In so ruling, the Court rejected the argument that infringement occurred in the U.S. because economic injury was allegedly suffered by Halo in the U.S.

The Court then addressed the meaning of “offer of sale,” noting that the phrase has previously been construed to point to the location of the contemplated sale, not the place where an “offer” was made.  Assuming that Pulse’s activities in the U.S. could amount to an “offer of sale,” the Court thus concluded that no infringement occurred because the contemplated sale would have been in Asia, not the U.S.

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