Can A Patent Owner Claim Foreign Damages Resulting from Domestic Infringement?
Until recently, a U.S. patent owner was barred from obtaining damages under 35 U.S.C. § 284 for lost sales outside the United States, even where those lost sales were the direct and foreseeable result of patent infringement inside the United States. In Brumfield v. IBG LLC, the CAFC recognized that the Supreme Court had largely overruled prior precedent on this issue, and held that recovery of patent damages based upon foreign activity is possible. While the alleged foreign activity in Brumfield ultimately did not support damages under the newly applied WesternGeco two-step framework, the CAFC’s Brumfield decision now provides a less restrictive standard for obtaining damages for foreign infringing activity.
Recovery of damages for patent infringement requires a finding one or more infringing activities as defined in 35 U.S.C. § 271, and damages for such infringement are defined under 35 U.S.C. § 284. In Power Integrations v. Fairchild Semiconductor[1], the United States Court of Appeals for the Federal Circuit (CAFC) had previously held that a patent owner is barred from obtaining damages under 35 U.S.C. § 284 for lost sales outside the United States, even where those lost sales are the direct and foreseeable result of patent infringement inside the United States. One of the questions at issue in Brumfield v. IBG LLC[2] is whether activity outside of the United States can support damages for patent infringement. To address the question, the CAFC held that Power Integrations no longer controls the issue, but rather the question is resolved under the two-step framework set forth by the United States Supreme Court in WesternGeco LLC v. ION Geophysical Corporation[3].
In Brumfield, the owner of the four patents at issue had sued IBG for infringement. The district court found two of the four patents invalid under 35 U.S.C. § 101, and awarded damages of $6.6 million for infringement of the remaining two patents. During the litigation the court had excluded proposed testimony from Brumfield’s damages expert based on “‘making’ the accused products in the United States with foreign damages.” The disallowed testimony promoted a position that a patentee is entitled to damages based on foreign activity for a product “deliberately market[ed] . . . worldwide,” and the experts “understand[ing] that [a patentee] is entitled to worldwide patent damages for harm that is the foreseeable and but-for result of infringement in the United States.” Brumfield appealed, among other things, the court’s exclusion of the testimony.
On appeal, Brumfield argued that the expert testimony was improperly excluded based upon the more restrictive principles of Power Integrations, and that the district court should have instead applied the less restrictive two-step framework of WesternGeco. The CAFC agreed and held that the Supreme Court had overruled the relevant holding of Power Integrations, and that the WesternGeco analysis now controls. In contrast to the rule in Power Integrations where a patentee is not entitled to compensatory damages for injury caused by infringing activity that occurred outside the territory of the United States, in WesternGeco the Supreme Court held that an act of exporting components from the United States that infringes a patent would be considered as a domestic act of infringement under 35 U.S.C. § 271(f) and lost foreign profits that resulted from the act of exporting is recoverable under 35 U.S.C. § 284.
The two-step framework of WesternGeco includes:
(1) starting from a presumption that a statute lacks extraterritorial reach, and determining whether the presumption against extraterritoriality has been rebutted by the statute; and
(2) if not rebutted, identifying “the statute’s focus” to determine whether the statutory application at issue is an allowed domestic application.
For step one of the framework the CAFC followed the Supreme Court’s holding that the patent statute does not provide a clear indication of extraterritorial application sufficient to rebut the presumption against extraterritorial reach.
The CAFC turned to the second step of the framework where it found that “the statute’s focus” to “award the claimant damages adequate to compensate for the infringement” as found in 35 U.S.C. § 284, and that the “overriding purpose . . . is to afford patent owners complete compensation for infringements.”
Having identified the focus of the statute as completely compensating harmed patentees, the CAFC next concluded that the framework of WesternGeco applies to any infringement under 35 U.S.C. § 271 and is not limited to just in the infringement under 35 U.S.C. § 271(f) at issue in WesternGeco. The expert’s testimony at issue in Brumfield alleged that the infringement was “making” under Section 271(a) which was compensable under the focus of the patent statute identified by the CAFC.
While a domestic “making” of the patented product could support foreign patent damages, the CAFC determined that there was not a sufficient causal link between the damages sought by the patentee and domestic conduct of the alleged infringer. The CAFC explained, “[u]nder WesternGeco we must examine the particular acts alleged to constitute infringement under particular statutory provisions to determine if the allegations focus on domestic conduct.” The district court had found it indisputable that “a user located in a different country downloads the [allegedly infringing product] to her computer located in that country and uses a mouse and a monitor located in that country to [use the product]” outside of the United States. However, the excluded expert testimony was not directed to the downloading activity, but rather to a foreign user “making the accused product” when they use the product. After two of the patents were invalidated, the only claims that remained were method and computer readable medium (CRM) claims. The CAFC found that “[t]here is no established recognition in patent law of direct infringement by ‘making’ a ‘method’.” As to the CRM claims, the expert testimony did not address making a CRM, but rather only made a loose connection to foreign use of a product constituting making the product. The court stated that even if the mismatch between the proposal and the claims is put aside, the patentee presented no focused, coherent explanation of the required causal connection between the damages and the domestic infringement. Ultimately, because the excluded testimony did not connect back to a domestic infringement, the CAFC upheld the district court’s exclusion of the expert’s testimony.
Although Brumfield established that the WesternGeco framework applies to the analysis of foreign damages resulting from domestic infringement, the CAFC did not provide the proper approach to determining when foreign conduct can properly play a role in calculating damages, noting the unaddressed issues of the scope of the causation requirement in WesternGeco: “[o]ne such question is whether the “reasonable, objective foreseeability” presumptive standard for lost profits … is applicable where the damages are for a (non-established) reasonably royalty …. We need not and do not here suggest answers to, or further explore, those or other questions.”
In sum, the CAFC established that the WesternGeco analysis applies to recovering damages based on foreign conduct. The CAFC further expanded WesternGeco and concluded that WesternGeco applies to different types of infringements and damages, but causation must be established that clearly connects the domestic infringement to the foreign damages. Thus, while Brumfield may have expanded ways in which a patent owner could possibly seek damages resulting from foreign conduct, the lack of a clear standard may mean that the path to getting foreign damages awarded is still unclear and will be determined in future cases.
