A patentee is entitled to damages that are "adequate to compensate for the infringement."1 This statutory mandate provides a two-part analysis: first, assessing what constitutes infringement; and second, valuing the damages owed to appropriately "compensate" for that infringement.
This analysis has proven to be a challenging task when at least some of the relevant infringing activities occur abroad and/or when an act that occurs in the United States harms the patentee abroad.
The Federal Circuit recently addressed these issues in Brumfield v. IBG LLC.2 While the Federal Circuit clarified the governing legal framework for assessing what damages might be owed based on foreign conduct, it left unresolved several questions.
Infringing Here and There: Foreign Activity as U.S. Infringement
A predicate to damages is a finding of infringement. By statute, "whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent ... infringes."3 The inquiry often focuses on the provision "within the United States."
Indeed, a patentee is typically unable to receive damages for products "manufactured, sold, and used abroad without ever entering the United States." But as long one infringing act occurs in the United States, then infringement may be found (and damages subsequently awarded).4 Whether a product is made or used in the United States, or imported into the United States, is often a straightforward analysis. But brief discussion is due to what constitutes a sale or an offer for sale in the United States.
Past cases confirm that a product may be "sold" in the United States when significant activities related to that sale occur in the United States.5 This is a fact-intensive inquiry that hinges on the scope and nature of United States activity related to the sale.
Brumfield did not disturb this established precedent. The district court in Brumfield allowed the patentee to introduce multiple damages theories, including (i) that the accused infringer made the accused software in the United States by copying it onto a United States server and (ii) that the accused infringer sold the accused software (to foreign consumers) in the United States by entering into a "Customer Agreement" and offering the software for download from a United States-based server.
Neither theory was raised on appeal. And the fact-intensive inquiry previously blessed by the Federal Circuit remains. The damages available for any infringement touching foreign activity must be carefully considered, however, following Brumfield.
Infringing Here and Harm There: The Scope of Damages Owed
Once infringement has been established, the focus turns to what damages are owed to offer "adequate" compensation to a patentee for that infringement.
Typically, a damages analysis focuses on sales a patentee may have lost out on (or made at a lower price) in the United States because of the infringement,7 or the reasonable royalty an infringer would hypothetically have agreed to pay the patentee for a license, with a royalty base focused on activities in the United States (appropriately apportioned to cover the patented feature, rather than the unpatented components of a commercial product).8
In WesternGeco L.L.C. v. ION Geophysical Corp., the Supreme Court went one step further and evaluated when harm a patentee incurs abroad can be relevant to a damages award.
There, the patentee owned patents for surveying the ocean floor using sound-sending-and-receiving devices. The defendant infringed under § 271(f)(2), by (i) making components for infringing systems in the United States, and (ii) sending those components to companies abroad who would, in turn, use the components in products competing with the patentee's products.9
The patentee sought damages for sales it lost out on abroad because of the new competition. And the Supreme Court awarded such "lost foreign profits,"10 finding the patentee's harm (foreign competition) was sufficiently tied to specific domestic conduct (making in and supplying from the United States), and thus the patentee could recover damages adequate to compensate for that harm.
The Brumfield case was tried after the WesternGeco decision. In Brumfield, the patentee owned several patents related to "a computer readable medium," for example, a memory stick or hard drive, that contained instructions for execution on a computer.
The software that was accused of infringing these patents (BookTrader module) was "made" on a United States server and loaded onto computers by traders around the world for buying and selling on exchanges, like commodities exchanges.
The patentee submitted multiple damages theories seeking to recover from the defendant's infringement. One theory in particular was at the heart of the appeal. For that theory, the patentee sought damages based upon the defendant "making the accused products in the United States with foreign damages."
It argued it should receive damages for "foreign users' use of copies of [accused products]" made in the United States because foreign use of the software was a foreseeable and a but-for result of the direct infringement (i.e., making and offering for sale in the United States).11 Relying on this theory, the patentee's damages expert included foreign software users in the per-user, per-month royalty that she proposed as a damages model.
The district court excluded this damages theory. As an initial matter, the court stated that it was unclear if WesternGeco would apply to infringement other than infringement under § 271(f), or if it would apply to damages theories other than a lost-profits analysis.
The district court then applied the Federal Circuit's then-existing Power Integrations framework,12 which had rejected the notion that damages incurred abroad could be recovered for domestic infringement based upon the theory that those damages were a foreseeable result of domestic infringement. The patentee appealed.
On review, the Federal Circuit first clarified the law. Addressing the scope of the Supreme Court's WesternGeco decision, the court clarified it applies (i) to all types of infringement, and (ii) to an assessment of a reasonable royalty award (not just lost profits). Thus, regardless of what type of infringement is asserted (e.g., direct or indirect infringement), and regardless of what measure of damages is sought (e.g., a reasonable royalty or lost profits), the WesternGeco framework controls.
Under that framework, the Federal Circuit explained, patent damages are intended to award a patentee "complete compensation" for the infringement, which, per statute, is the "making, using, selling , ... within the United States" that violates the patent claims.13
While foreign conduct that does not itself infringe may nevertheless impact the value of domestic infringement (for example, because the domestic infringement might "enable[] and is needed to enable otherwise-unavailable profits from conduct abroad"), a patentee must still claim damages based on the domestic activities that constitute infringement under § 271.14
Although the district court had applied the superseded Power Integrations framework, the Federal Circuit nevertheless determined the district court correctly excluded the patentee's foreign damages theory. The patentee had argued that foreign uses of the software should be factored into its damages award for the defendant's "making" of the software in the U.S., but the relevant claims covered the computer-readable medium, not the software, in the abstract.
To show damages, the Federal Circuit held that the patentee needed to tie the foreign harm to the actual infringement (that is, the making of individual memory devices including the claimed instructions). Because the patentee failed to do so, the Federal Circuit held foreign damages could not be recovered.
The patentee's damages case collapsed at the first gate — it failed to tie the claimed damages to the specific infringement claimed. As a result, the Federal Circuit did not resolve what other evidentiary showing or, in particular, what showing of proximate cause would be needed to properly tie foreign damages to domestic infringement.
The court specifically noted that these remain open questions, but it suggested both (i) the foreseeability of the claimed damages, and (ii) the general presumption against extraterritorial statutes, may be important factors in future cases.
Regardless of how these future cases play out, after Brumfield, the patentee must at minimum show a causal connection between the foreign damages and the specific infringement at issue under the claims. Damages that are not adequately tied to the specific infringing conduct will not survive, and some showing that damages proximately resulted from infringement will likely be required.
Footnotes
2 97 F.4th 854 (Fed. Cir. 2024).
3 Id. § 271(a).
4 See, e.g., Carnegie Mellon Univ. v. Marvell Tech. Grp., Ltd., 807 F.3d 1283, 1305-06 (Fed. Cir. 2015) (concluding the jury could reasonably find a U.S. sale where chips were purchased following a lengthy customization process that included designing, simulating, testing, providing samples in the U.S.).
5 See, e.g., Texas Advanced Optoelectronic Sols., Inc. v. Renesas Elecs. Am., Inc., 895 F.3d 1304, 1329 (Fed. Cir. 2018) (affirming that no United States sale occurred where negotiations related to the final agreements to sell occurred in the United States, but the final agreements did not refer to specific products or prices, which were set separately); Halo Elecs., Inc. v. Pulse Elecs., Inc., 831 F.3d 1369, 1378 (Fed. Cir. 2016) (affirming summary judgment of no United States sale where parties were located in the United States but substantial activities related to the sale did not occur in the United States); Carnegie Mellon, 807 F.3d at 1305-06; see also California Inst. of Tech. v. Broadcom Ltd., No. CV 16-3714-GW (AGRX), , at *2 (C.D. Cal. Oct. 6, 2017) (describing "factors" for consideration based on Carnegie Mellon and Halo); California Inst. of Tech. v. Broadcom Ltd., 25 F.4th 976, 993 (Fed. Cir. 2022) (confirming inquiry regarding "substantial activities" of a sales transaction to determine existence a United States sale).
6 See Trading Techs. Int'l, Inc. v. IBG LLC, No. 10 C 715, , at *2 (N.D. Ill. July 23, 2021) (determining patentee had offered sufficient evidence to present these damages theories at trial). Of note, prior to the Federal Circuit's decision, plaintiff Trading Technologies International, Inc., the patentee, was sold, and the patents were assigned to Ascent Trust. See Brumfield, 97 F.4th at 858 n.1. The trustee, Mr. Harris Brumfield, was accordingly substituted as the plaintiff on appeal. Id.
7 An award of lost profits generally depends on showing the existence and the magnitude of profits that the patentee lost out on (either sales the patentee did not make or had to make at a lower price) as a result of the infringement. See, e.g., Mentor Graphics Corp. v. EVE-USA, Inc., 851 F.3d 1275, 1283-90 (Fed. Cir. 2017).
8 A reasonable royalty is a commonly used measure of damages for infringement. By statute, a patentee must receive "damages adequate to compensate for the infringement," and "in no event less than a reasonable royalty for the use made of the invention by the infringer." 35 U.S.C. § 284. "The reasonable royalty theory of damages ... seeks to compensate the patentee not for lost sales caused by the infringement, but for its lost opportunity to obtain a reasonable royalty" an infringer "would have been willing to pay if it had been barred from infringing." AstraZeneca AB v. Apotex Corp., 782 F.3d 1324, 1334 (Fed. Cir. 2015).
10 Id. at 412-17.
11 97 F.4th at 866.
12 See id. In Power Integrations, Inc. v. Fairchild Semiconductor Int'l, Inc., the Federal Circuit explained that, "[g]enerally, even after establishing one or more acts of infringement in the United States, a patentee may not recover damages for worldwide sales of the patented invention on the theory that 'those foreign sales were the direct [and] foreseeable result of [the infringer's] domestic infringement.'" 711 F.3d 1349, 1371 (Fed. Cir. 2013) (third alteration in original).
13 97 F.4th at 873, 876; see also 35 U.S.C. § 271.
14 97 F.4th at 876-77 ("The foundational principle is that the royalty due for patent infringement should be the value of what was taken — the value of the use of the patented technology. One aspect of that principle is that the royalty base for reasonable royalty damages cannot include activities that do not constitute patent infringement, as patent damages are limited to those adequate to compensate for the infringement." (internal citations and quotations omitted)).
Originally published by Westlaw Today
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