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IP Alert UPDATE: On Remand, Federal Circuit Rules on Extraterritoriality and Willfulness in Halo v. Pulse

August 8, 2016

On August 5, 2016, the Court of Appeals for the Federal Circuit issued its decision in Halo Electronics, Inc. v. Pulse Electronics, Inc., on remand from the Supreme Court. (See our previous alert on the Supreme Court opinion in this case here.) The remanded decision is significant in its own right for its discussion of the law of extraterritoriality and of the law of willful infringement.

The patentee, Halo, argued that the district court had erred in granting summary judgment of no direct infringement for products that the defendant, Pulse, delivered abroad. Halo contended that the products were both “sold” and “offered for sale” within the United States because negotiating and contracting activities had occurred within the U.S. Pulse responded that the products at issue were solely offered for sale outside of the U.S., and in fact were manufactured, ordered, invoiced, shipped, and delivered outside the U.S.

Considering these arguments, the Federal Circuit agreed with Pulse that there had been no sale within the U.S., holding “we have not deemed a sale to have occurred within the United States for purposes of [infringement] liability . . . based solely on negotiating and contract activities in the United States when the vast majority in activities underlying the sales transactions occurred wholly outside the United States.” Noting that all of the products were manufactured, shipped, and delivered to buyers abroad, the court characterized the activities occurring in the U.S. between Pulse and its customer as a “general business agreement” that did not constitute a contract to sell any specific product. The court noted that the presumption against extraterritorial application of U.S. laws resolved any doubt as to this question. The court rejected Halo’s argument that the sales at issue should be deemed to have occurred within the U.S. simply because Halo suffered economic harm as a result of those sales.

As to whether or not the commercial activities within the U.S. constituted an “offer for sale,” the court again agreed with Pulse. The court held that a critically important factor was the location of the contemplated sale, which “controls whether there is an offer to sell within the United States.” Because the locations of the contemplated sales were outside the U.S., held the court, it follows that there could be no “offer for sale” infringement liability. Significantly, the court held that “[a]n offer to sell, in order to be an infringement, must be an offer contemplating sale in the United States.” Otherwise, held the court, “the presumption against extraterritoriality would be breached.”

As to willful infringement, noting the Supreme Court’s rejection of the earlier Seagate test as “unduly rigid,” the court vacated the district court’s determination of no willful infringement. The court remanded for the district court to exercise its discretion and decide whether enhanced damages were warranted. Halo argued that Pulse had not actually relied 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. Significantly, because the Supreme Court had held that “culpability is generally measured against the knowledge of the actor at the time of the challenged conduct,” the Federal Circuit instructed the district court to “consider, as one factor in its analysis, what Pulse knew or had reason to know at the time of the infringement of the Halo patents.”

Both of the holdings in this case are important. The court’s holdings on extraterritorial conduct appeared to clarify the “sale” and “offer for sale” doctrines, especially the latter doctrine, as concerns extraterritorial sales. It is also significant that the court instructed the district court to consider Pulse’s state of mind at the time of infringement, irrespective of Pulse’s validity defense at the time of trial.

If you have any questions regarding this case, please contact Fitch Even partner Allen E. Hoover, author of this alert.

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