Can’t Avoid Infringement Liability For Overseas Deliveries Merely By Off-Shoring Manufacturing

June, 13th, 2017

Categories: Articles, Blog Tags: computer, litigation, patent, precedential, software

By Wesley W. Whitmyer, Jr.

In denying a motion for partial summary judgment that no reasonable jury could find “sales within the United States” based on Defendant’s products that are “ordered, manufactured, shipped, billed, and delivered to buyers abroad,” the Court in Godo Kaisha IP Bridge 1 v. Broadcom Limited et al, 2-16-cv-00134, at *2-4 (E.D. Tex. May 18, 2017) ruled that “[a] reasonable jury could find that many substantial activities related to sales transactions occurred within the United States.” Among the activities recited by the Court were: master purchase agreements entered in the US governed future purchase orders, overseas purchase orders were processed by a domestic sales team, defendant organized sales and engineering staff based on customer location, and commissions for overseas sales were tracked as though they were domestic sales. Id. at *4.

Defendant Broadcom is a fabless semiconductor company. They organize sales and engineering teams nearby large customers such as IBM and Apple. Broadcom employees working in the US help design and develop chips used in domestic companies’ overseas products. Once the chips are developed, manufacturing takes place at offshore foundries for delivery to offshore assemblers of IBM/Apple products for sale to their overseas customers. According to this arrangement, Broadcom sought to avoid liability for infringement of a US patent on summary judgment.

The Court disagreed with Broadcom that there was no possible US patent infringement liability as a matter of law, and permitted the issue to go to a jury. The Court seemed persuaded by both the customized nature of the chip designs (work done in the US) and the economic benefit of sales commissions (paid in the US).

Although it would be easy to dismiss this case as a Magistrate Judge’s ruling from a US District Court (E.D. Texas) that will have a diminished role in patent infringement litigation following TC Heartland LLC v. Kraft Foods Grp. Brands LLC, No. 16-341, 2017 WL 2216934 (U.S. May 22, 2017), the rationale followed by the Court is equally applicable to infringement cases based on “offers to sell” as opposed to “sales” in the US. See 35 U.S.C. § 271(a). Most patent infringement suits are based on sales in the US. Offers to sell rarely, alone, justify the expense of federal patent litigation. This is especially true in the post-AIA world in which defendants can stay infringement proceedings by filing an IPR Petition obligating patent owners to reprove entitlement to their patent.

Practice Tip:

When an accused product is customized by a domestic staff who gain economic benefit, it would be prudent to consider suit based on “offer to sell” infringement even if the accused product is made and delivered abroad.

WHIPgroup is leading counsel for U.S. and international technology companies. We specialize in patent and trademark law.

© 2017 Whitmyer IP Group, Stamford, Connecticut.