Designing around patents is an accepted way to avoid infringement. But can someone design around the patent law itself? Competitors may forgo the often burdensome and expensive process of designing around specific patent claims in favor of a design around the patent law. This new "design around" -- fueled by technological advances -- involves moving an establishment offshore and continuing to market and sell the patented invention to customers in the United States. Does the geographic scope of the patent laws extend far enough to reach offshore activities? The answer is most likely fact-dependent, but courts analyzing the question have established some guidance as to what the answer may be.
THE NEW TREND -- TAKE IT OFFSHORE
Patents are territorial, and an act of infringement may occur only in a country where the patent owner has a valid patent. The territorial nature of the patent laws is reflected in 35 U.S.C. §271(a), the principal infringement statute in the United States. Under §271(a) "whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefor, infringes the patent."1 The geographic limitations on the "makes" and "uses" prongs of §271(a) are clear -- if a potential infringer makes or uses a patented invention in the United States, it has committed infringement. But the range of activities captured within the scope of the "offers to sell" and "sells" prongs remains unclear.
The design around of the patent laws has become more creative as the ability to reach customers through technology increases. The latest trend goes something like this: An entrepreneur (the Competitor) sees a lucrative business in selling an item, but learns that the item is covered by a patent in the United States. Competitor does some research to determine in what other countries the patentee has filed for a patent, and learns that the patentee did not file in Country Y. Competitor creates an establishment in Country Y to make the item covered by the patent. That item is then marketed and sold (perhaps through a website powered by an offshore server) to customers located in the United States.2 Is this infringement under §271(a)? Recent caselaw suggests that it is.
The language of §271(a) does not offer express direction on the extraterritorial application of its offer to sell and sale prongs. The statute makes clear, however, and the Federal Circuit has confirmed, that the only activities relevant to direct infringement are those activities that take place within the borders of the United States.3 In order for a potential infringer to be liable for direct infringement, then, the patentee must establish that the potential infringer offered to sell or sold the patented invention within the borders of the United States.
The caselaw addressing the exterritorial applicability of the offer to sell and sale prongs of §271(a) is not fully developed, but there is a distinct movement favoring the protection of these patent rights.
The key to this issue boils down to location: Where did the offer to sell or sale occur? The answer is not as simple as one might think. With respect to the location of a sale, the Federal Circuit and some district courts have set forth a framework to determine whether a sale takes place in the United States for purposes of §271(a). As a starting point, the Federal Circuit has concluded that a sale "does not only occur at a single point where some legally operative act took place."4 For example, the location of the passage of title is relevant to the inquiry, but not dispositive.5 Other factors include the place of performance, delivery, sales negotiations, payment, and receipt of sales proceeds.6
The Federal Circuit concluded that a sale existed for purposes of §271(a) where delivery and performance occurred within the United States.7 Likewise, in Litecubes v. Northern Light Products, the court found evidence of a sale under §271(a) where the alleged infringer sold and shipped infringing products to customers located in the United States.8 Some district courts have reached similar results. In Fellowes v. Michilin Prosperity Co., the district court ruled that a foreign manufacturer who sold paper shredders committed a sale under §271(a) because the United States was the primary destination of the infringed paper shredders, and the manufacturer directly negotiated with its customers inside the United States.9 In Ensign-Bickford v. ICI Explosives USA, the sale of an infringing product (an explosive initiation device) occurred in the United States when a foreign corporation conducted marketing meetings regarding the infringing product in the United States, and received payment for the product inside the United States.10
Courts have declined to extend the protection of §271(a) to sales containing an extraterritoriality component where there is little or no activity by the alleged infringer within the United States. For example, in Wing Shing Products v. Simatelex Manufactory, the Southern District of New York declined to extend §271(a) protection where the infringing product (a coffee maker) was manufactured in Hong Kong, delivered to a buyer that was located in Hong Kong, and then subsequently imported by the buyer into the United States. In addition, all the sales negotiations, including execution of the sales contract, occurred in Hong Kong.11
An offer to sell is different from a sale -- an offer to sell need not be accepted to constitute infringement.12 Under the patent statute, an offer to sell exists when a communication includes: (1) a description of the product, and (2) a price at which it can be purchased.13 Thus, when the competitor sends a postcard from Country Y to customers located in the United States, and that postcard contains both a description of the infringing item and its price, that activity is likely an "offer to sell" under §271(a). But what happens when that description and price are made available to patentee's customers solely through a website powered by an offshore server? Courts are inclined to afford protection to the patentee in this instance as well.