Transocean Offshore Deepwater Drilling v. Maearsk Contractors USA (CAFC 2009-1556) precedential

Invalidity

A patent shall not issue "if the differences between the subject matter sought to be patented and the prior art are such that the subject matter would have been obvious at the time the invention was made to a person having ordinary skill in the art to which said subject matter pertains." 35 U.S.C. § 103(a); see KSR Int'l Co. v. Teleflex Inc., 550 U.S. 398, 40607 (2007). Obviousness is a question of law with underlying fact issues. Id. at 427; Dennison Mfg. Co. v. Panduit Corp., 475 U.S. 809, 811 (1986). What a particular reference discloses is a question of fact, see Para-Ordnance Manufacturing, Inc. v. SGS Imports International, Inc., 73 F.3d 1085, 1088 (Fed. Cir. 1995), as is the question of whether there was a reason to combine certain references, see McGinley v. Franklin Sports, Inc., 262 F.3d 1339, 1352 (Fed. Cir. 2001). Under the four part test for obviousness detailed in Graham v. John Deere Co. of Kansas City, 383 U.S. 1, 17-18 (1966), the court must consider (1) the scope and content of the prior art; (2) the difference between the prior art and the claimed invention; (3) the level of ordinary skill in the art; and (4) any objective evidence of nonobviousness. The objective evidence relevant to this appeal includes industry skepticism, long-felt industry need, commercial success, and copying. See Agrizap, Inc. v. Woodstream Corp., 520 F.3d 1337, 1344 (Fed. Cir. 2008); Iron Grip Barbell Co. v. USA Sports, Inc., 392 F.3d 1317, 1324 (Fed. Cir. 2005).

A combination of two prior art references (Lund & Horn) sunk Transocean's asserted rig at the district court. The CAFC also held that a prima facie case of obviousness had been established. But that should not have been "the end of the analysis."

Although we hold that Horn in view of Lund present a prima facie case of obviousness, this is not the end of the analysis. At the district court, Transocean presented significant objective evidence of nonobviousness. First, Transocean presented evidence of industry skepticism. A Transocean competitor, in an article discussing simultaneous drilling operations, stated that dual drill strings would be a "radical departure" from conventional systems and that there was a high potential for underwater collision. Others in the field described dual activity as "not being realistic" for the same reasons. Second, Transocean presented evidence of industry praise for its dual activity rig. An industry publication called the invention one of the top 50 innovations in offshore drilling history. Transocean also cites other examples of praise from clients and competitors, including Maersk USA. Third, Transocean presented evidence that its implementation of the dual activity invention has been a commercial success. It showed that its dual activity rigs command a higher licensing premium than standard rigs. Finally, Transocean presented evidence that the success of its invention caused others to copy it, including Maersk USA.

Naturally, Maersk disputed all that. And the district court...

In its opinion, the district court ignored this objective evidence of nonobviousness.

We hold that the district court erred by failing to consider Transocean's objective evidence of nonobviousness. Our case law is clear that this type of evidence "must be considered in evaluating the obviousness of a claimed invention." Iron Grip, 392 F.3d at 1323; Ruiz v. A.B. Chance Co., 234 F.3d 654, 667 (Fed. Cir. 2000); Richardson-Vicks, Inc. v. Upjohn Co., 122 F.3d 1476, 1483 (Fed. Cir. 1997). While it is true that we have held in individual cases that objective evidence of nonobviousness did not overcome the strong prima facie case - this is a case-by-case determination. See Leapfrog Enters., Inc. v. Fisher-Price, Inc., 485 F.3d 1157, 1162 (Fed. Cir. 2007); Agrizap, 520 F.3d at 1344. To be clear, a district court must always consider any objective evidence of nonobviousness presented in a case. Iron Grip, 392 F.3d at 1323; Ruiz, 234 F.3d at 667; Richardson-Vicks, 122 F.3d at 1483.

Maersk USA is correct that in at least one instance, we considered this type of objective evidence for the first time on appeal and held that the failure to consider it below was not reversible error. See Iron Grip, 392 F.3d at 1324. But in the context of summary judgment, this is only proper if, drawing all justifiable inferences in favor of the patent owner, the objective evidence cannot rebut the prima facie case. We decline to make that holding in this case. If all of the factual disputes regarding the objective evidence resolve in favor of Transocean, it has presented a strong basis for rebutting the prima facie case. Viewing the objective evidence of nonobviousness in a light most favorable to Transocean, we cannot hold that the claims would have been obvious as a matter of law.

Obviousness on summary judgment reversed.

Enablement

Whether a claim satisfies the enablement requirement is a question of law that we review de novo. Sitrick v. Dreamworks, LLC, 516 F.3d 993, 999 (Fed. Cir. 2008). A patent specification must "contain a written description of the invention . . . to enable any person skilled in the art . . . to make and use the same." 35 U.S.C. § 112, ¶1. The specification must "enable one of ordinary skill in the art to practice the claimed invention without undue experimentation." Nat'l Recovery Techs., Inc. v. Magnetic Separation Sys., Inc., 166 F.3d 1190, 1196 (Fed. Cir. 1999). Enablement under § 112 is a question of law with underlying questions of fact regarding undue experimentation. Liebel-Flarsheim Co. v. Medrad, Inc., 481 F.3d 1371, 1377 (Fed. Cir. 2007); CFMT, Inc. v. Yieldup Int'l Corp., 349 F.3d 1333, 1338 (Fed Cir. 2003).

We agree with Transocean that factual issues regarding undue experimentation remain in this case that preclude summary judgment of no enablement. As an initial matter, the district court erred in requiring Transocean to enable the invention to allow a person of ordinary skill in the art to take advantage of the "timesaving" aspect of the invention. A patent specification only must enable one of ordinary skill in the art "to practice the claimed invention without undue experimentation." Nat'l Recovery Techs., 166 F.3d at 1196. It is not required to enable the most optimized configuration, unless this is an explicit part of the claims... It is irrelevant whether the enabling disclosure would provide the most efficient transfer. In requiring disclosure of "programming" and relying on the difficulty of constructing Transocean's first dual activity rig, the district court erroneously required Transocean to enable the most efficient commercial embodiment, rather than the claims. CFMT, Inc., 349 F.3d at 1338.

The court also erred in its determination that there is no genuine issue of material fact regarding undue experimentation. The parties do not dispute that the specification discloses two different types of transfer mechanism: a rail-mounted system and a crane. '781 patent, col.7 ll.21-26, 53-55; fig.7. But the parties heavily dispute whether the development of the transfer equipment would be "trivial," or a much more complex task based on the evidence presented below. Drawing all justifiable inferences in favor of Transocean, we cannot agree with the district court that these claims are not enabled as a matter of law. Therefore, we reverse the grant of summary judgment.

Patents enabled, a reversal of the district court.

Infringement

At issue was whether signing a foreign contract gets an infringer off the hook.

The infringement issues in this case are unusual and require a discussion of the factual background. Trans-ocean accused Maersk USA's DSS-21 rig of infringement. Maersk USA's Danish parent company, Maersk A/S, contracted with Keppel FELS Ltd. in 2005 to build the accused rig in Singapore. Later, Maersk A/S negotiated with Statoil ASA (a Norwegian company) for Statoil's use of the accused rig. The companies came to an agreement for use of the rig and Maersk USA and Statoil Gulf of Mexico LLC (Statoil), a Texas Corporation, signed a contract in Norway. The contract specified that the "Operating Area" for the rig was the U.S. Gulf of Mexico but that Statoil had the right to use the rig outside the Operating Area with certain limitations. J.A. 7167; 7211.

In a previous litigation, Transocean v. GlobalSantaFe (GFS), Transocean got an injunction against GSF. GSF created a non-infringing workaround, which involved installing a "casing sleeve" to prevent the drilling platform from advancing tubes to the seabed as claimed.

The contract also included mention of Transocean's U.S. patents. Maersk USA specifically retained the right to make "alterations" to the accused rig "in view of court or administrative determinations throughout the world." J.A. 7190. One of these "determinations" came when Transocean asserted the same patent claims in this case against another competitor, GlobalSantaFe Corp. (GSF). Transocean prevailed in that case and the court issued an injunction requiring GSF to install a "casing sleeve" on one of its two advancing stations. Transocean Offshore Deepwater Drilling, Inc. v. GlobalSantaFe Corp., No. H-03-2910, 2006 U.S. Dist. LEXIS 93408 (S.D. Tex. Dec. 27, 2006). This casing sleeve prevents the auxiliary advancing station from lowering a drill string into the water. Id. at *32-34. The district court in GSF held that this avoids infringement because the cased advancing station can no longer advance tubes to the seabed as the independent claims require. Before delivering the rig to the U.S., Maersk USA learned of the injunction against GSF and modified the accused rig with the same casing sleeve to prevent one of the stations from advancing pipes to the seabed.

The district court granted summary judgment of non-infringement after determining that there was no sale or offer to sell under 35 U.S.C. § 271(a). Transocean Offshore Deepwater Drilling, Inc. v. Maersk Contractors USA, No. 07-2392, D.I. 148, *8-9 (S.D. Tex. May 15, 2009) (Willfulness Order). The court relied on the undisputed facts that the negotiation and signing of the contract took place outside the U.S. and that the contract gave Maersk the option to alter the rig to avoid infringement. Id. The district court also held that Transocean was collaterally estopped from arguing that the modified rig that Maersk USA delivered to Statoil (that included the casing sleeve to prevent advancing tubular members to the seabed) infringed the patent claims because this design was adjudicated as noninfringing in the GSF litigation [a previous litigation involving the patents in dispute here]. Noninfringement/Invalidity Order at *12.

A. Offer to Sell

Section 271(a) defines infringing conduct: "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). An offer to sell is a distinct act of infringement separate from an actual sale. An offer to sell differs from a sale in that an offer to sell need not be accepted to constitute an act of infringement. See MEMC Elec. Materials, Inc. v. Mitsubishi Materials Silicon Corp., 420 F.3d 1369, 1376 (Fed. Cir. 2005). Moreover, the damages that would flow from an unac-cepted offer to sell and an actual sale would likely be quite different. See Timothy R. Holbrook, Liability for the "Threat of Sale": Assessing Patent Infringement for Offering to Sell an Invention and Implications for the On-Sale Patentability Bar and other Forms of Infringement, 43 Santa Clara L. Rev. 751, 791-92 (2003). We analyze an offer to sell under § 271(a) using traditional contract principles. Rotec Indus., Inc. v. Mitsubishi Corp., 215 F.3d 1246 (Fed. Cir. 2000). There is no dispute that there was an offer to sell in this case, but Maersk USA argues that the offer was made in Norway, not the United States, thereby absolving it of § 271(a) liability.

Maersk A/S (a Danish company) and Statoil ASA (a Norwegian company) negotiated the contract that is the subject of this alleged offer to sell. Their U.S. affiliates, Maersk USA and Statoil executed the contract in Norway. The contract included an "Operating Area" of the U.S. Gulf of Mexico. The district court held that because the negotiations and execution took place outside the U.S., this could not be an offer to sell within the United States under § 271(a).

This case presents the question whether an offer which is made in Norway by a U.S. company to a U.S. company to sell a product within the U.S., for delivery and use within the U.S. constitutes an offer to sell within the U.S. under § 271(a). We conclude that it does. Section 271(a) states that "whoever . . . offers to sell . . . within the United States any patented invention . . . infringes." In order for an offer to sell to constitute infringement, the offer must be to sell a patented invention within the United States. The focus should not be on the location of the offer, but rather the location of the future sale that would occur pursuant to the offer.

The offer to sell liability was added to the patent statute to conform to the April 1994 Uruguay Round's Trade-Related Aspects of Intellectual Property Agreement (TRIPS). The underlying purpose of holding someone who offers to sell liable for infringement is to prevent "generat-ing interest in a potential infringing product to the com-mercial detriment of the rightful patentee." 3D Sys., Inc. v. Aarotech Labs., Inc., 160 F.3d 1373, 1379 (Fed. Cir. 1998). The offer must be for a potentially infringing article. Id. We are mindful of the presumption against extraterritoriality. 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. This presumption has guided other courts to conclude that the contemplated sale would occur within the United States in order for an offer to sell to constitute infringement. See, e.g., Semiconductor Energy Lab. Co. v. Chi Mei Optoelectronics Corp., 531 F. Supp. 2d 1084, 1110-11 (N.D. Cal. 2007). We agree that the location of the contemplated sale controls whether there is an offer to sell within the United States.

We hold that the district court erred because a contract between two U.S. companies for performance in the U.S. may constitute an offer to sell within the U.S. under § 271(a). The fact that the offer was negotiated or a contract signed while the two U.S. companies were abroad does not remove this case from statutory liability. We therefore vacate the district court's summary judgment of noninfringement.

B. Sale

As with the offer to sell, we hold that a contract between two U.S. companies for the sale of the patented invention with delivery and performance in the U.S. constitutes a sale under § 271(a) as a matter of law.

The sale was for a rig to be used in the Gulf of Mexico.

Our precedent establishes that a contract can constitute a sale to trigger infringement liability. See NTP, Inc. v. Research in Motion, Ltd., 418 F.3d 1282, 1319 (Fed. Cir. 2005). A "sale" is not limited to the transfer of tangible property; a sale may also be the agreement by which such a transfer takes place. Id. In this case, there was a contract to sell a rig that included schematics. On summary judgment, we must draw all justifiable inferences in favor of the non-movant, Transocean. Transocean argues that these schematics show sale of the patented invention. This is a genuine issue of material fact sufficient to withstand summary judgment.

We conclude that the district court erred in granting summary judgment that there was no sale within the U.S. in this case. As with the offer to sell, there remains a dispute over whether the unmodified rig that was sold was the patented invention, a question not reached by the district court thus far.

A previous litigation, referred to as GSF, held a particular design to be non-infringing.

We hold that the district court did not err in holding that Transocean is collaterally estopped from arguing that the rig modified in accordance with the GSF injunction infringes any of the asserted claims. On remand, Transocean may argue that the unmodified design (without the casing sleeve) was the subject of the Maersk USA/Statoil contract and that therefore there is infringement of the asserted claims based on both a sale and offer to sell. Transocean, however, is estopped from arguing infringement by the modified rig that Maersk USA actually delivered to the U.S.

Infringement back in play, with caveats, as the district court finding of noninfringement was reversed.

Willfulness

"Proof of willful infringement . . . requires at least a showing of objective recklessness." In re Seagate Tech., LLC, 497 F.3d 1360, 1371 (Fed. Cir. 2007) (en banc). The patent owner "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." Id. (citing Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47 (2007)). This objective standard is a threshold. Once met, the patentee must show that the infringer knew or should have known of the objectively high risk. Seagate, 497 F.3d at 1371.

The district court granted summary judgment of no willfulness. The court held that because Maersk USA modified its design to conform to the GSF injunction, it could not be "objectively reckless," and thus could not be willful as a matter of law. Willfulness Order at *9.

We agree with the district court that, as a matter of law, there is no willfulness. Although the contract does show that Maersk USA knew of Transocean's patents, it also shows intent to avoid infringement. Maersk USA reserved the right to modify the rig in response to any court proceeding that favored "the validity or infringement arguments of Transocean." J.A. 7190. In fact, Maersk USA did modify its rig once the court in the GSF litigation issued an injunction defining a noninfringing alternative. We hold, as a matter of law, that Maersk's actions were not objectively reckless and thus affirm the district court's holding of no willfulness.

Maersk minded its manners on using a workaround in US waters. No willfulness affirmed.

Reversed-in-part, vacated-in-part, affirmed-in-part, and remanded.