Thursday, November 6, 2014

Negotiation in the U.S. for the Sale of a Patent-Infringing Product Is Not Necessarily Infringement Under U.S. Law

Section 271(a) of the U.S. patent law permits an infringement claim against anyone who "without authority makes, uses, offers to sell, or sells any patented invention, within the United States..." A question exists as to whether a U.S. company is subject to a patent infringement claim when it negotiates in the U.S. for the sale of a patent infringing product, including the setting of price and sales terms. That is, is mere negotiation sufficient to constitute a "sale" or an "offer to sell"?

The Federal Circuit answered this question in the negative in the last week's Halo Electronics case. The mere negotiation in the U.S. by a U.S. seller for the sale of a product that infringes a U.S. patent, including negotiation in the U.S. over price and projected demand, is insufficient to constitute a sale or offer to sell in the U.S. This was so when the actual sales transaction, including the final formation of the contract, as well as all delivery and performance under the contract, occurred outside of the U.S.

The Federal Court noted that the final formation of the contract occurred outside of the U.S., and the performance under the contract including final product delivery occurred outside of the U.S. The Court determined that there is a strong presumption "against extraterritorial application of United States laws." As such, the Court ruled that "pricing and contracting negotiations alone are insufficient to constitute a 'sale' within the United States."

The Court further ruled that there is no "offer to sell" in the U.S. if the actual sale transaction occurs outside of the U.S. "In order for a offer to sell to constitute infringement, the offer must be to sell a patented invention within the United States."

 So, the negotiation within the U.S. for the sale of a patent-infringing product is neither a sale nor an offer to sell when the final contract formation, as well as performance and delivery, occur outside of the United States.

As the Federal Circuit noted, "if one desires to prevent the selling of its patented invention in foreign countries, its proper remedy lies in obtaining and enforcing foreign patents." In other words, a U.S. patent is not necessarily worth the paper its printed on outside of the U.S.

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