IP Hot Topic: Purchase Orders and IP Licenses: Recent ITC Decision Underscores Need for Caution

A recent opinion issued by the U.S. International Trade Commission in Certain Power Converter Modules and Computing Systems Containing the Same (Inv. No. 337-TA-1370) serves as a reminder for sellers to be cautious with any IP-related provisions woven into purchase orders submitted by their clients and buyers.

Respondent’s License Defense

In this Section 337 investigation, Complainant Vicor sued various respondents for patent infringement, including Respondent Foxconn. The scope of accused products included various power converter modules used in data center servers as well as artificial intelligence and cloud computing systems. Foxconn raised a license defense based on an IP licensing provision contained in its purchase orders for Vicor power converters. The provision granted Foxconn “a perpetual, irrevocable, non-transferable, and royalty-free license under all intellectual property rights included in the Products supplied” to Foxconn by Vicor, which the Commission found included the relevant patent asserted against Foxconn’s accused products. Because the Administrative Law Judge determined there was no valid acceptance of an offer, he concluded there was no binding contract or license provision. But the Commission disagreed and reversed.

The Commission’s Ruling

The Commission found that Vicor accepted a valid offer when its employee provided shipment dates in an email response pertaining to a purchase order. Importantly, the Commission found that the email resulted in a contract that included the IP license to Foxconn as a governing term, and excluded terms in Vicor’s standard order acknowledgement documents that contradicted or nullified Foxconn’s licensing terms. This IP license granted Foxconn a license to the sole asserted patent that covered the power converter sold by Vicor. In support of its reversal, the Commission made the following findings:

• The purchase orders constituted an offer and Vicor’s email responses with shipment dates constituted acceptances under the Uniform Commercial Code and Massachusetts law.
• The email responses constituted acceptances despite providing shipment dates that differed from those specified in the purchase orders—there was either no indication that the new shipment dates were unacceptable or that they were the source of a cancelation request (which was issued for one of the purchase orders based on lack of customer demand).
• The Commission rejected Vicor’s arguments that its standard Sales Order Acknowledgement forms, which contain contrary terms that contradict or negate the Foxconn licensing terms, was required for acceptance because the emails were “definite and reasonable expression of . . . written confirmation” and the emails did not indicate the acceptance was not final until Vicor issued a Sales Order Acknowledgement.
• Vicor’s argument that Note 6 of the purchase orders disclaimed contract formation until provision of a delivery notice or request was rejected by the Commission. Foxconn repeatedly requested delivery dates for at least one purchase order and sent an email requesting an ETA in another instance—Vicor did not establish what more of a “delivery request” was needed.
• Vicor’s argument that Note 3 of the purchase orders required confirmation sent within two working days in order to constitute acceptance within a “reasonable time” was likewise rejected because Note 3 permitted Vicor to accept the purchase orders by delivery. Notably, the initial delivery dates in the purchase orders were more than two days later.
• The Commission did agree, however, with Vicor’s assertion that the IP license should be limited to the particular patent(s) that the relevant product was found to practice. It also agreed with Vicor that the IP license should be limited solely to the relevant Foxconn entities.

The Commission concluded that the relevant Foxconn entities had a license to the asserted patent, despite an underlying violation finding, and narrowed the scope of the limited exclusion order and cease and desist order accordingly. Notably, the Commission’s ruling stands in contrast to a related action where the District of Massachusetts granted Vicor a preliminary injunction preventing Foxconn from arbitrating a license dispute in China based upon an arbitration provision Foxconn included in its purchase orders. In this instance, the District of Massachusetts determined that Vicor was likely to succeed in arguing no contract was formed by the purchase order.

Takeaways for Sellers with IP Rights

The Commission’s decision is a reminder for companies seeking to sell products subject to IP protection that business teams must work in close cooperation with in-house legal teams. Here, despite the existence of protective terms in Vicor’s own standard sales documents, emails from Vicor’s sales staff were found to have created a contract that excluded those terms and adopted Foxconn’s licensing terms. In-house legal teams must take care to implement policies for business teams that prevent agreements or transactions from forming outside approved processes and terms. Legal teams should also provide training and procedures for business teams to obtain review of incoming purchase orders and other documents to assess the potential impact of included terms prior to proceeding with any sale or agreement.