Patent infringement through foreign offer for domestic sale: Transocean V. Maersk.

• Author: Zhu, Na

1. INTRODUCTION II. HISTORY A. Presumption against extraterritorial application of the United States patent law B. Interpreting "offer to sell within the United States" i. Construing "offer to sell" in the Federal Circuit ii. Federal Circuit: Interpreting "offer to sell within the United States" a. Rotec's majority: is a domestic offer sufficient to constitute "offer to sell" infringement? b. Litecubes Court: Is Sale Itself Sufficient to Constitute an "Offer to Sell" Infringement? iii. Interpreting "Offer to Sell Within the United States" in Federal District Courts a. Quality Tubing--both offer and contemplated sale must be within the United States b. Offer made in the United States is sufficient to constitute "offer to sell" infringement iv. When the subject matter of an "offer for sale" is at issue a. The option to modify the infringing product to non-infringing one b. The subject the offeror intended to offer and understood by the offeree is the subject of an "offer to sell" c. Conditional acceptance does not negate an offer to sell III. REVIEW OF TRANSOCEAN V. MAERSKIN THE FEDERAL CIRCUIT A. The Factual Background in Transocean B. The Federal Circuit's Offer to Sell Analysis C. "Willfulness" Infringement Analysis IV. THE FEDERAL CIRCUIT IN TRANSOCEAN CREATED NON-PRECEDENTIAL "OFFER TO SELL" ANALYSIS A. The Federal Circuit's Interpretation of "Offer to Sell Within the United States" is Inconsistent with Statutory Language B. The Federal Circuit's Interpretation of "Offer to Sell Within the United States" Departs From the Precedent C. Interpreting a Foreign Offer as an Infringement Activity Contradicts the Presumption Against Extraterritoriality D. Ignoring the Location of the Offer is Likely to Put United States Companies at a Competitive Disadvantage E. The Court Misinterprets the Subject Matter of the "Offer to Sell" F. The Economic Interest of the Patentee Does Not Justify the Court's Holding V. CONCLUSION Cite as 12 J. HIGH TECH. L. 566 (2012)

1. Introduction

   The purpose of the United States patent law is to "promote the [p]rogress of [s]cience and useful [a]rts, by securing for limited [t]imes to ... [i]nventors the exclusive[r]ight to their ... [discoveries." (1) The exclusive right is reflected in the infringement statute, 35 U.S.C. [section] 271. (2) As in most other areas of laws, the infringement statute has evolved and has been revised with time. (3) For example, prior to 1994, patent holders only had the right to exclude others from making, using, or selling inventions. (4) Thus, contracting to make or beginning to make infringing devices did not constitute infringement, nor did intent, preparation, or a threat to sell an infringing device. (5) Increasing international trade not only breaks the national barriers of modern business transactions, (6) but also transforms international intellectual property agreements and United States intellectual property law. (7) Substantial changes in the United States patent law arose from the Trade Related Aspects of Intellectual Property Agreement (TRIPS). (8) Specifically, under 35 U.S.C. [section] 271(a), patentees now have the right to bring an infringement action against parties who "offer to sell" the patented product within the United States. (9)

   Although the scope of the statutory cause of action for infringement has increased, the territorial reach of exclusive patent rights remains limited to the United States. (10) Historically, the Supreme Court held that the exclusive rights granted by U.S. patent law were confined to the United States and its territories, and that the infringing activities must occur wholly within the United States. (11) The presumption against extraterritorial reach of the United States patent law is also prescribed in the infringement statute [section] 271, which requires that the listed activities occur "within the United States." (12) The enactment of [section] 271(f) and [section] 271(g) in response to the global market did not change this presumption. (13) Although the reasons for the presumption are unclear, some commentators suggest harmonizing with international law to be one of the reasons. (14) It is also the reason for adding "offer to sell" to the infringement statute [section] 271 (a). (15)

   "Offer to sell within the United States" was added to the infringement statute without further explanation from Congress in 1994. (16) Because there were very few guidelines from Congress or from the legislative history, courts split on the territorial scope of "offer to sell." (17) Most notably, courts arrived at different conclusions on whether the contemplated sale should be within the United States in order to constitute an "offer for sale" infringement. (18) In addition, courts used different laws to interpret what constitutes an "offer." (19)

   Courts consistently relied on one or two of the following principles when interpreting the "offer to sell within the United States" language. (20) First, courts read [section] 271(a) in conjunction with [section] 271(i). (21) Under the combined language of [section] 271(a) and [section] 271(i), to constitute "offer to sell" infringement, the offer must be made in the United States, (22) and the intended sale must occur before the expiration of the patent term. (23) Under this interpretation, "offer to sell" infringement serves to advance the date at which a patentee can bring a patent infringement action against the accused infringer before the actual sale occurs. (24) Second, courts consider the economic impact on the patentee. (25) The economic benefit conveyed to a patentee from "offer to sell" is through a commercial offer. (26) A patent infringer will likely cause detrimental economic effect on a patentee not only by an actual sale of patented invention, but also by non-infringing sales. (27) Under the second approach, "the geographic location and physical destination of the subject matter of the offer appear to be immaterial to the analysis, so long as the offer was made in the United States." (28) Finally, the courts were generally cautious about the exterritorial effect of the United States patent law. (29)

   The Federal Circuit's recent decision in Transocean Offshore Deepwater Drilling, Inc. v. Maersk Contractors (30) created a non-precedential interpretation of "offer to sell within the United States." (31) Specifically, the court held that "an offer" does not need to be within the United States to constitute an infringement as long as the contemplated sale would occur within the United States. (32) The court's construction departed from precedent which held that to constitute infringement, at a minimum, an offer must be made in the United States. (33) Another issue in the case is that the accused infringer not only offered the infringing product, but also a non-infringing article as an alternative, and only delivered a non-infringing product. (34) Ignoring the noninfringing alternative, the court held that offering an infringing product controlled the infringement analysis, and whether the product sold was infringing was irrelevant. (35)

   This note will discuss the issues involved in the Transocean case. Part II of this note will address the presumption against extraterritorial reach of the United States patent law, and the interpretation of "offer to sell within the United States" in the Federal Circuits and the district courts. Part III will focus on the facts and analysis in the Transocean case. Part IV will analyze the court's construction of "offer to sell within the United States" from the perspectives of statutory language, precedent, and public policy. Finally, this note will conclude that precedent, statutory language, and the policy objectives do not justify the court's holding.

2. History

   1. Presumption Against Extraterritorial Application of the United States Patent Law

      The United States patent law is territorial in nature. (36) The presumption against the extraterritorial reach of United States patent law is embraced by the Court and the infringement statute. (37) The first case that addressed the extraterritorial effect was Brown v. Duchesne in which the Supreme Court held that the power of Congress, granted by the Constitution, to enact the patent acts is domestic in nature, and the exclusive right granted to the patentee will not go beyond the United States territory, even though the alleged infringer may get the benefit from the patented invention. (38) In Dowagiac Manufacturing Co. v. Minnesota Moline Plow Co., (39) the Supreme Court affirmed the domestic nature of the United States patent law by ruling that a patentee could not recover profits or damages on infringing drills sold in Canada because sales in Canada were not subject to the United States patent law. (40)

      Congress's response to Deepsouth Packing Co. v. Laitram (41) substantially expanded the scope of the patent law. (42) In Deepsouth Packing, a majority of the Supreme Court refused to overrule precedent and expand patent rights unless "a clear and certain signal [was sent] from Congress." (43) In adopting [section] 271 (f), Congress effectively gave the "clear and certain signal" the Supreme Court required in Deepsouth, thus effectively overruling Deepsouth. (44) Under [section] 271 (f), exporting either a substantial portion of a component, or any component of a patented invention for which there is no non-infringing use, constitutes an infringement. (45) From the statutory language, [section] 271 (f) only increased the scope of what constitutes infringing activity that occurs within the United States, it did not expand the territorial application of the patent law. (46)

      The subsequent codification of [section] 271(f) did not change the Court's hesitation to expand patent rights outside the United States. (47) In Microsoft v. AT&T, (48) the alleged infringer, Microsoft, exported a master disk encoded with software, which was copied by the foreign recipient for installation on...