01/20/15

Halo v Pulse: Foreign Sales Outside U.S. not protected by U.S. patent law; Waive Right to Challenge Jury Findings If No Motion filed Prior to Trial


Category: Infringement
 
 
 
By: Abby Lin, Contributor 
 
Case:Halo Electronics, Inc. v. Pulse Electronics, Inc., No. 2013-1472, -1656 (Fed. Cir. Oct. 22, 2014).
Issues
1. “Halo argues that the district court erred in granting summary judgment of no direct infringement with respect to products that Pulse delivered abroad. Halo contends that those products were sold and offered for sale within the United States because negotiations and contracting activities occurred within the United States, which resulted in binding contracts that set specific terms for price and quantity. Halo argues that the location of the sale or offer for sale should not be limited to the location of delivery. Halo also argues that it suffered economic harm in the United States as a result of Pulse’s sales.”
Halo Electronics, at *8-9.
2. “Halo challenges [the district court’s holding that Pulse did not willfully infringement due to relying on its obviousness defense] mainly by arguing that Pulse did not actually rely on any invalidity defense pre-suit when selling the accused products because Pulse’s obviousness defense was developed after the lawsuit was filed in 2007. Halo also contends that after Pulse received Halo’s notice letters in 2002, the Pulse engineer only performed a cursory review of the Halo patents and Pulse did not rely on that analysis to assess whether it was infringing a valid patent. Halo asserts that the court erred in holding that the objective prong was not met simply because Pulse raised a non-frivolous obviousness defense.”
Id. at *17 (text added).
3. “Pulse cross-appeals from the judgment that the asserted claims of the Halo patents were not invalid for obviousness[based on the jury’s findings]”.
Id. at *19 (text added).
Holdings
1. “We agree with Pulse that the district court did not err in granting summary judgment of no direct infringement with respect to those products that Pulse manufactured, shipped, and delivered outside the United States because those products were neither sold nor offered for sale by Pulse within the United States. [Because the products were not sold/offered for sale within the U.S., Halo also did not suffer economic harm.]”
Id. at *9(text added).
2. “We agree with Pulse that the district court did not err in holding that the objective prong of the willfulness inquiry was not satisfied. “Seagate’s first prong is objective, and ‘[t]he state of mind of the accused infringer is not relevant to this objective inquiry.’” DePuy Spine, Inc. v. Medtronic Sofamor Danek, Inc., 567 F.3d 1314, 1336 (Fed. Cir. 2009) (alteration in original) (quoting Seagate, 497 F.3d at 1371). The court properly considered the totality of the record evidence, including the obviousness defense that Pulse developed during the litigation, to determine whether there was an objectively-defined risk of infringement of a valid patent.”
Id. at *18.
3. “Pulse did not file a motion during trial under Fed. R. Civ. P. 50(a) on the issue of obviousness before that issue was submitted to the jury and thus waived its right to challenge the jury’s implicit factual findings underlying the nonobviousness general verdict. The district court thus correctly presumed that the jury resolved all factual disputes relating to the scope and content of the prior art and secondary considerations in Halo’s favor. Based upon those presumed factual findings, the court did not err in reaching the ultimate legal conclusion that the asserted claims were not invalid for obviousness.”
Id. at *19-20.
 
 
 
Procedural History
Contributor Note: Relevant procedural history has been summarized below. See the opinion on pages 3—8 for this information.
Halo and Pulse are suppliers of electronic components. Pulse delivers its products to contract manufacturers for companies such as Cisco. The products were then incorporated into Cisco’s products, which were then sold around the world.
Halo sued Pulse for patent infringement in the U.S. District Court for the District of Nevada. Pulse counterclaimed that Halo infringed Pulse’s patent and that Halo patents were invalid.
Pulse moved for summary judgment that it did not directly infringe Halo patents by selling or offering to sell products outside the U.S. The district court granted the motion.
Next, jury trial ensued on infringement:
1) direct infringement by products that Pulse shipped into the United States
2) inducement of infringement by products that Pulse shipped outside the United States but were incorporated into end products that were ultimately imported into the United States.
The Jury awarded Halo $1.5 million in reasonable royalty damages and found:
(1) Pulse directly infringed the Halo patents with products that it shipped into the United States;
(2) it induced others to infringe the Halo patents with products that it delivered outside the United States but ultimately were imported into the United States in finished end products;
(3) it was highly probable that Pulse’s infringement was willful (However, upon Pulse’s post trial motion, the district court held that Pulse’s infringement was not willful because it relied on obviousness defense) ; and
(4) the asserted claims of the Halo patents were not invalid for obviousness.
Pulse also moved for JMOL of invalidity for alleged obviousness of the Halo patent claims, which the district court denied because Pulse had waived its right to challenge the jury findings by not filing a pre-verdict motion under Fed.R. Civ. P. 50(a) on the issue of obviousness.
Halo timely appealed and Pulse timely cross-appealed.
 
 
 
Legal Reasoning (LOURIE, O’Malley, Hughes)
Legal Standard: Standard of Review and Sale/Offer to Sell
We review the district court’s grant or denial of summary judgment under the law of the regional circuit, here the Ninth Circuit. Lexion Med., LLC v. Northgate Techs., Inc., 641 F.3d 1352, 1358 (Fed. Cir. 2011). Applying the law of the Ninth Circuit, we review the grant or denial of summary judgment de novo. Humane Soc’y of the U.S. v. Locke, 626 F.3d 1040, 1047 (9th Cir. 2010). Summary judgment is appropriate when, drawing all justifiable inferences in the nonmovant’s favor, “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).
Halo Electronics, at *8.
Section 271(a) of the patent statute provides in relevant part that “whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States . . . infringes the patent.” 35 U.S.C. § 271(a) (emphases added); Microsoft Corp. v. AT&T Corp., 550 U.S. 437, 441 (2007) (“It is the general rule under United States patent law that no infringement occurs when a patented product is made and sold in another country.”).
Id. at * 9.
Analysis: 1A. U.S. Patent Law Only Protects Sale Within U.S.; Purchase orders received abroad made by third party foreign contractors does not constitute a sale within the U.S.
We first consider whether the products that Pulse manufactured, shipped, and delivered to buyers abroad were sold within the United States for purposes of § 271(a).
Halo Electronics, at *9.
Although the place of contracting may be one of several possible locations of a sale to confer personal jurisdiction, we have not deemed a sale to have occurred within the United States for purposes of liability under § 271(a) based solely on negotiation and contracting activities in the United States when the vast majority of activities underlying the sales transaction occurred wholly outside the United States. For such a sale, one must examine whether the activities in the United States are sufficient to constitute a “sale” under § 271(a), recognizing that a strong policy against extraterritorial liability exists in the patent law. See Microsoft, 550 U.S. at 455 (“The traditional understanding that our patent law operate[s] only domestically and do[es] not extend to foreign activities is embedded in the Patent Act itself.” (alterations in original) (citation and quotation marks omitted)); MEMC, 420 F.3d at 1375–76 (“[T]he reach of section 271(a) is limited to infringing activities that occur within the United States.”)…While we have held that a sale is “not limited to the transfer of tangible property” but may also be determined by “the agreement by which such a transfer takes place,” Transocean Offshore Deepwater Drilling, Inc. v. Maersk Contractors USA, Inc., 617 F.3d 1296, 1311 (Fed. Cir. 2010) (citing NTP, 418 F.3d at 1319), the location of actual or anticipated performance under a “contract for sale” remains pertinent to the transfer of title or property from a seller to a buyer, see id. at 1310 (considering the location of delivery and performance under a contract). Consistent with all of our precedent, we conclude that, 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 within the United States for purposes of § 271(a). On undisputed facts, the products under discussion here were manufactured, shipped, and delivered to buyers abroad. Halo, 810 F. Supp. 2d at 1207 (“All accused products [at issue] were at no point, in transit or otherwise, in the United States.”). In addition, Pulse received the actual purchase orders for those products abroad. Although Pulse and Cisco had a general business agreement, that agreement did not refer to, and was not a contract to sell, any specific product. J.A. 15135–37. While Pulse and Cisco engaged in quarterly pricing negotiations for specific products, the negotiated price and projected demand did not constitute a firm agreement to buy and sell, binding on both Cisco and Pulse. Instead, Pulse received purchase orders from Cisco’s foreign contract manufacturers, which then firmly established the essential terms including price and quantity of binding contracts to buy and sell. Moreover, Pulse was paid abroad by those contract manufacturers, not by Cisco, upon fulfillment of the purchase orders. Thus, substantial activities of the sales transactions at issue, in addition to manufacturing and delivery, occurred outside the United States. Although Halo did present evidence that pricing negotiations and certain contracting and marketing activities took place in the United States, which purportedly resulted in the purchase orders and sales overseas, as indicated, such pricing and contracting negotiations alone are insufficient to constitute a “sale” within the United States.
Id. at *11-13.
We therefore hold that the district court did not err in granting summary judgment that Pulse did not sell within the United States those products that Pulse manufactured, shipped, and delivered abroad.
Id. at * 15.
Analysis: 1B. No offer for sale in the U.S. because sales were outside of the U.S.
An “offer to sell” generally occurs when one “communicate[s] a manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.” MEMC, 420 F.3d at 1376 (internal quotation marks omitted)….More importantly, we have held that “the location of the contemplated sale controls whether there is an offer to sell within the United States.” Transocean, 617 F.3d at 1309 (emphasis added). “In order for an offer to sell to constitute infringement, the offer must be to sell a patented invention within the United States.” Id. In Transocean, contract negotiations occurred outside the United States for delivery and performance in the United States. This court held that the location of the contemplated sale controlled and that the offer to sell infringed the patent at issue. The case now before us involves the opposite situation, where the negotiations occurred in the United States, but the contemplated sale occurred outside the United States. We adopt the reasoning of Transocean and conclude here that Pulse did not directly infringe the Halo patents under the “offer to sell” provision by offering to sell in the United States the products at issue, because the locations of the contemplated sales were outside the United States. Cisco outsourced all of its manufacturing activities to foreign countries, and it is undisputed that the locations of the contemplated sales were outside the United States. Likewise, with respect to other Pulse customers, there is no evidence that the products at issue were contemplated to be sold within the United States…For the foregoing reasons, we affirm the summary judgment of no direct infringement with respect to those products that Pulse manufactured, shipped, and delivered abroad.
Halo Electronics, at *15-16.
Analysis: 2. Failure to Win on A Defense Does not Equate to Willful Infringement
Establishing willful infringement of a valid patent requires a two-prong analysis entailing an objective and a subjective inquiry. First, “a patentee must show by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent.” In re Seagate Tech., LLC, 497 F.3d 1360, 1371 (Fed. Cir. 2007) (en banc). “The state of mind of the accused infringer is not relevant to this objective inquiry.” Id. Second, if the “threshold objective standard is satisfied, the patentee must also demonstrate that this objectively-defined risk (determined by the record developed in the infringement proceeding) was either known or so obvious that it should have been known to the accused infringer.” Id. The objective prong is subject to de novo review. Bard Peripheral Vascular, Inc. v. W.L. Gore & Assocs., Inc., 682 F.3d 1003, 1005 (Fed. Cir. 2012).
Halo Electronics, at *17.
The record shows that although Pulse was ultimately unsuccessful in challenging the validity of the Halo patents, Pulse did raise a substantial question as to the obviousness of the Halo patents. Spine Solutions, Inc. v. Medtronic Sofamor Danek USA, Inc., 620 F.3d 1305, 1319 (Fed. Cir. 2010) (reversing the trial court’s denial of JMOL of no willfulness because the infringer raised a substantial question as to the obviousness of the asserted patent). Pulse presented evidence that the prior art disclosed each element of the asserted claims, that it would have been predictable to combine and modify the prior art to create the claimed electronic packages, and that there were differences between the prior art considered by the PTO and the prior art introduced at trial. See Halo, 2013 WL 2319145, at *15 (summarizing evidence presented by Pulse on obviousness). Pulse also challenged Halo’s evidence of secondary considerations. Id. In light of the record as a whole, we agree with the district court that Pulse’s obviousness defense was not objectively unreasonable. Accordingly, having considered all of Halo’s arguments on appeal concerning willfulness and found them unpersuasive, we affirm the district court’s judgment that Pulse’s infringement of the Halo patents was not willful.
Id. at *18-19.
Analysis: 3. No Motion on Obviousness Prior to Jury Trial Constitutes Waiver to Challenge Jury Findings
It is true that the record evidence indisputably shows that almost all the limitations in the asserted claims were known elements of electronic packages that existed in the prior art. However, Pulse did not file a motion during trial under Fed. R. Civ. P. 50(a) on the issue of obviousness before that issue was submitted to the jury and thus waived its right to challenge the jury’s implicit factual findings underlying the nonobviousness general verdict. The district court thus correctly presumed that the jury resolved all factual disputes relating to the scope and content of the prior art and secondary considerations in Halo’s favor. Based upon those presumed factual findings, the court did not err in reaching the ultimate legal conclusion that the asserted claims were not invalid for obviousness. We therefore affirm the judgment that the asserted claims of the Halo were not invalid for obviousness.
Halo Electronics, at *19-20.
Conclusion
For the foregoing reasons, we affirm the judgment that Pulse did not directly infringe the Halo patents by selling or offering to sell within the United States those accused products that Pulse manufactured, shipped, and delivered outside the United States. We also affirm the judgment that Pulse’s infringement was not willful. On the cross-appeal, because we discern no reversible error in the contested claim constructions, we affirm the judgment of direct infringement with respect to products that Pulse delivered in the United States and the judgment of inducement with respect to products that Pulse delivered outside the United States but were imported into the United States by others, as well as the judgment of noninfringement of Pulse’s ’963 patent.
Halo Electronics, at *20.
 
 
 
 
Concurring Opinion (O’Malley joined by Hughes). Halo Electronics, O'Malley Op., at *1.
I write separately because, although we are bound by our precedent at the panel stage, I believe it is time for the full court to reevaluate our standard for the imposition of enhanced damages in light of the Supreme Court’s recent decisions in Highmark Inc. v. Allcare Health Management Systems, Inc., 134 S. Ct. 1744 (2014) and Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749 (2014), and the terms of the governing statutory provision, 35 U.S.C. § 284 (2012).
Halo Electronics, at *1 (O’Malley, J. concurring).
Although § 284 does not limit enhanced damages to “exceptional cases” as does § 285 for attorneys’ fees, the Supreme Court has explained that increased damages are only available “in a case of willful or bad-faith infringement.” Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U.S. 476, 508 (1964). As such, our standard for the award of enhanced damages under § 284 has closely mirrored our standard for the award of attorneys’ fees under § 285. See, e.g., Bard Peripheral Vascular, Inc. v. W.L. Gore & Assocs., Inc., 682 F.3d 1003, 1007 (Fed. Cir. 2012) (“Our holding is consistent with similar holdings in other parallel areas of law. Our precedent regarding objectively baseless claims, which allow courts to award enhanced damages and attorneys’ fees under 35 U.S.C. § 285, and the Supreme Court’s precedent on ‘sham’ litigation are instructive.”); Indeed, our willfulness test, as described in Seagate and Bard, and our old § 285 test, under Brooks Furniture, both were predicated on our interpretation of the Supreme Court’s decision in Professional Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc. (“PRE”), 508 U.S. 49 (1993), which we believed required a two-step objective/ subjective inquiry before either enhanced damages or attorneys’ fees could be awarded. The Supreme Court has now told us that our reading of PRE was wrong. In Octane Fitness, the Court explained that the PRE standard was crafted as a very narrow exception for “sham” litigation to avoid chilling the exercise of the First Amendment right to petition the government for redress of grievances with the threat of antitrust liability. This narrow test required that a“sham” litigation be “objectively baseless” and “brought in an attempt to thwart the competition.” Octane Fitness, 134 S. Ct. at 1757 (citing PRE, 508 U.S. at 60–61). In rejecting Brooks Furniture’s reliance on PRE in the § 285 context, the Supreme Court stated that the narrow PRE standard “finds no roots in the text of § 285” and the chilling effect of shifting attorney’s fees is not as great as the threat of antitrust liability. Id. at 1757–58. Because we now know that we were reading PRE too broadly, and have been told to focus on the governing statutory authorization to determine what standards should govern an award of attorneys’ fees, we should reconsider whether those same interpretative errors have led us astray in our application of the authority granted to district courts under § 284. … In rejecting the rigid two-prong, subjective/ objective test for § 285 under Brooks Furniture, the Supreme Court told us to employ a flexible totality of the circumstances test. Id. at 1756. We should now assess whether a similar flexible test is appropriate for an award of enhanced damages.
Id. at *3-4 (O’Malley, J., concurring).
[Burden of Proof] As the Supreme Court explained in Octane Fitness, however, the ordinary rule in civil cases, and specifically patent infringement cases, is proof by a preponderance of the evidence. Herman & Mclean v. Huddleston, 459 U.S. 375, 390 (1983); see also Octane Fitness, 134 S. Ct. at 1758 (citing Bene v. Jeantet, 129 U.S. 683, 688 (1889)). In fact, other courts only require proof of willfulness by a preponderance of the evidence in similar contexts. As with § 285, moreover, § 284 has no language that would justify a higher standard of proof; it just demands a simple discretionary inquiry and imposes no specific evidentiary burden. See Octane Fitness, 134 S.Ct. 1758. This court should evaluate whether there are any reasons to maintain a standard that is at odds with the ordinary standard in civil cases for a finding of willfulness where nothing in the statutory text even hints that we do so.
Id. at *4 (O’Malley, J., concurring)(text added).
[Standard of Review for Willfulness in Lieu of Exceptional Cases:] The Supreme Court also rejected de novo review of a fee award under § 285. Highmark, 134 S. Ct. at 1748. According to the Supreme Court, “whether a case is ‘exceptional’ under § 285 is a matter of discretion,” which “is to be reviewed only for abuse of discretion.” Id. Section 284 also leaves the issue of enhanced damages to the discretion of the court. Compare 35 U.S.C. § 284 (“[T]he court may increase the damages . . . .” (emphasis added)) with 35 U.S.C. § 285 (“The court in exceptional cases may award reasonable attorney fees to the prevailing party.” (emphasis added)). Indeed, other appellate courts review similar willfulness findings with more deference. E.g., Dolman v. Agee, 157 F.3d 708, 714–15 (9th Cir. 1998) (reviewing a finding of willful copyright infringement for clear error). As such, we must also consider whether a district court’s finding of willfulness should be subject to de novo review.
Id. at *4-5 (O’Malley, J., concurring)(text added).
[Remedy] Although not directlyvaddressed by the Supreme Court, when we reevaluate thevproper test for an award of enhanced damages, this court should also consider whether § 284 requires a decision on enhanced damages to be made by the court. The mere presence of factual components in a discretionary inquiry does not remove that inquiry from the court to whom congress reposed it. See Markman v. Westview Instruments, Inc., 52 F.3d 967, 992 (Fed. Cir. 1995), aff’d, 517 U.S. 370 (1996) (“Even within the realm of factual questions, whether a particular question must always go to a jury depends ‘on whether the jury must shoulder this responsibility as necessary to preserve the substance of common law right of trial by jury.’” (quoting Tull v. United States, 481 U.S. 412, 417 (1987))).
Id. at *5-6 (O’Malley, J., concurring)(text added).
 
 
 
 
 
 
 
 
 
 
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