This article originally was published at Law360.com.
Does Amazon offer to sell the items which can be purchased on Amazon.com? At least one federal court has said it does not, and a panel of three judges from Court of Appeals for the Federal Circuit has been asked to weigh in on this question. On November 3, 2015, Judge Martinez of the Western District of Washington adopted an advisory jury verdict finding that Amazon.com, Inc. did not “offer to sell” several third-party products available for purchase through Amazon.com which allegedly infringed certain design patents of Milo & Gabby, LLC. The Federal Circuit heard oral arguments on the appeal of this holding on December 12, 2016.
At first blush, hearing the conclusion that Amazon does not offer to sell a product on its website is eerily reminiscent of a movie scene in which someone incredulously looks to the mafia Don and asks, “You pushed him out the 12th floor window?!” And of course the reply, in the presence of his enforcers smiling in the background, is “I didn’t lay a hand on him! I hear he had some money problems and was deeply disturbed. Maybe he jumped?” Perhaps on its face such an assertion has some factual truth, but every cinema goer knows exactly what happened.
Such a framing, likely to the delight of Milo & Gabby, makes it easy to demonize Amazon, a massive company with a pervasive online presence. However, the counter portrayal is equally compelling—Amazon has made buying and selling online extremely easy for buyers and sellers alike, often to the benefit of all through increased sales volume for sellers at a decreased price for buyers. It has also opened the online market—and thus the world—for small sellers who might never find international or cross-country buyers otherwise. Milo & Gabby now ask the courts to not only hold retailers such as Amazon accountable for truly culpable conduct after becoming aware of intellectual property infringement and failing to take action (action which Amazon actually did take in this case), but also for policing every sale through its online market and to be accountable for any infringing sales, whether or not they knew or had reason to know of the infringing activity at the time of the sale
Under 35 U.S.C. § 271, anyone who “makes, uses, offers to sell, or sells any patented invention” has committed patent infringement. A fundamental part of all American law school curriculums from the earliest days of a contracts course is understanding the legal concepts of contract formation, which requires not only acceptance and consideration, but also the initial offer to sell. And while determining whether something is offered for sale is a legal conclusion, it is premised on several factual considerations.
The district court wisely took this into consideration in relying on an advisory jury verdict to help establish the factual findings necessary to draw the resulting legal conclusion. The jury was asked a series of questions regarding Amazon’s relationship with the third-party seller and the content on Amazon.com, such as whether Amazon communicated a description, price, or quantity of the allegedly infringing items, or whether Amazon manifested any intent to enter into a bargain to sell the items. To all of these inquiries, the jury said no, and in the absence of such essential elements of a contract the district court found that as a matter of law there could not be an offer to sell by Amazon.com.
Milo & Gabby has appealed this ruling, asking the Federal Circuit to consider this factual scenario as the internet equivalent of buying and selling on consignment. Its argument is essentially that legal title to an article is not required to be a seller of that item. Milo & Gabby urge the Federal Circuit to adopt the law of the Uniform Commercial Code (UCC) to find that much like a brick-and-mortar consignment shop, Amazon has full control over the allegedly infringing articles, and thus like consignment sellers, Amazon is a seller of the goods. Alternatively, Milo & Gabby posit that since Amazon sells similar goods itself, it is at least in the position of a seller under the logic of the UCC and can still be accountable as a “person in the position of a seller” of the allegedly infringing goods. The logic would seem to flow that if Amazon is a seller or in the position of a seller, then surely is has offered to sell those goods as well. However, nowhere in the brief for Milo & Gabby was this logical inference asserted, and only twice in the brief to the court do the phrases “offer for sale” or “offer to sell” even appear—once in the statement of the issues, and once in a parenthetical while arguing Amazon is a seller. It does not appear that Milo & Gabby actually argued the issue of whether Amazon offered to sell the allegedly infringing product in its written brief, the only patent issue on appeal.
As may be expected, oral argument before the panel of Judges O'Malley, Wallach, and Taranto did not sound favorable to Milo & Gabby. In catching the absence of any argument in the written brief on the issue of whether Amazon offers for sale and of the allegedly infringing products, the Court noted, “So what we’re left with is a waived sale question, and an un-appealed offer for sale question. That’s, that’s the puzzle.” Further, the Court repeatedly remarked that Amazon’s conduct plainly did not satisfy all the elements of being a consignment seller under the UCC, and asked Milo & Gabby how to resolve that shortcoming, to which it had no clear answer. Amazon’s argument seemed to be better received by the judges, and while not entirely favorable, the judges did seem to appreciate that Amazon spends “tens of millions” of dollars a year trying to enforce IP rights, and in the instant case, Milo & Gabby never so much as sent a demand letter asking for the allegedly infringing products to be reviewed or removed. There was simply a complaint filed in federal court to notify Amazon of its potential patent infringement liability.
Squarely before the Federal Circuit is the question of how much participation and control is needed in a transaction in an online retail market for an entity like Amazon to “offer to sell” an article allegedly infringing a valid US patent under 35 U.S.C. § 271. Much like Judge Martinez’s district court opinion, the Federal Circuit’s ultimate opinion may in fact turn on underlying beliefs of whether any such future development in the law of patent infringement is the domain of the federal courts or of the US Congress. More likely, the Federal Circuit may deny review of any question of whether Amazon made an offer to sell due to Milo & Gabby’s failure to brief that issue before the court. Regardless, if this “loophole” persists, it is easily portrayed as a detriment to the enforcement rights of patent holders and deserves to be addressed as the law catches up to the realities of the internet age, but hopefully not in a way that is of great expense or detriment to the millions of lawful users of online markets or the hosts themselves such as Amazon.