The Federal Circuit locked in the possibility of future patent infringement cases rising.

The Federal Circuit’s recent decision in Brumfield v. IBG LLC[1] made clear what the Supreme Court hinted at in WesternGeco LLC v. ION Geophysical[2]: For any domestic act of infringement, a patent holder may request compensation for internationalharms. The Supreme Court had established this rule in WesternGeco for the recovery of lost profits in connection with infringement under Section 271(f), and the Federal Circuit recognized in Brumfield that there is no reason for reasonable royalties and other types of direct infringement to be treated differently.[3]

The purpose of this article is to examine the immediate strategic implications of Brumfield, and the potential long-term significance of the case within the evolving landscape of patent damages. The potential expansion of patent damages under Brumfield has added significance in the context of current patent litigation trends. Reasonable royalty damages have become the default approach in most cases, especially in cases involving non-practicing entities.[4] The Supreme Court’s decision in TC Heartland LLC v. Kraft Foods Grp. Brands LLC—which tightened venue rules for patent infringement actions against domestic defendants—incentivizes patent holders to bring infringement actions against foreign companies.[5] In combination, this means that more patent cases are likely to involve requests for reasonable royalties against multi-national corporations, which will almost always implicate Brumfield.

History of Extraterritorial Patent Damages

Pre-WesternGeco

Prior to the Supreme Court’s decision in WesternGeco, there was an understanding that patent holders could not recover damages for foreign harm. This is reflected in the Federal Circuit’s decision in Power Integrations, Inc. v. Fairchild Semiconductor Int'l, Inc., where the Federal Circuit rejected a plaintiff’s attempt to recover lost profits for worldwide sales.[6] Specifically, the plaintiff argued that the jury was correct to award damages based on worldwide sales (including foreign sales) of infringing chips.[7] According to the plaintiff, it was entitled to recover lost foreign sales that it “would have made but for [the defendant]’s domestic infringement,” because “it was foreseeable that [the defendant’s] infringement in the United States would cause [the plaintiff] to lose sales in foreign markets.”[8] In support, the plaintiff cited the Federal Circuit’s statement in Rite-Hite Corp. v. Kelley Co. that, “[i]f a particular injury was or should have been reasonably foreseeable by an infringing competitor in the relevant market, broadly defined, that injury is generally compensable absent a persuasive reason to the contrary.”[9] The Power Integration court, however, rejected the plaintiff’s argument, holding that “[i]t is axiomatic that U.S. patent law does not operate extraterritorially to prohibit infringement abroad,” and that the law provides no “compensation for a defendant’s foreign exploitation of a patented invention, which is not infringement at all.”[10] The court viewed “the entirely extraterritorial production, use, or sale of an invention patented in the United States [as] an independent, intervening act that, under almost all circumstances, cuts off the chain of causation initiated by an act of domestic infringement.”[11]

The Federal Circuit subsequently applied this holding from Power Integrations (which was a lost profits case), to reasonable royalties. In Carnegie Mellon Univ. v. Marvell Tech. Grp., Ltd., the Court held it is not proper to include chips made and delivered abroad in the royalty base, “unless those chips can fairly be said to have been sold here.”[12] In reaching this conclusion, the Federal Circuit noted that, under Power Integrations,it is not sufficient that “the damages-measuring foreign activity have been factually caused, in the ordinary sense, by domestic activity constituting infringement under § 271(a).”[13] Thus, the Federal Circuit reasoned, “[a]lthough all of Marvell’s sales are strongly enough tied to its domestic infringement as a causation matter to have been part of the hypothetical-negotiation agreement,” in the absence of domestic making or using, or of importing, the foreign sales cannot be used as a direct measure of the royalty.[14] The court specifically noted that “[a]s a practical matter, given the ease of finding cross-border causal connections, anything less would make too little of the presumption against extraterritoriality that must inform our application of the patent laws to damages.”[15]

WesternGeco Changes Course

The Supreme Court’s decision in WesternGeco strongly departed from the Power Integrations line of Federal Circuit cases on extraterritoriality, at least in the context of lost profits for infringement under Section 271(f)(2). Infringement under Section 271(f)(2) provided a unique opportunity for the Supreme Court to assess damages for foreign harms because Section 271(f)(2) specifically prohibits providing components of a patented invention “knowing that such component is so made or adapted and intending that such component will be combined outside of the United States in a manner that would infringe the patent if such combination occurred within the United States.” 35 U.S.C. § 271(f)(2). In WesternGeco, the plaintiff owned patents for a system used in surveying the ocean floor, and the plaintiff alleged that the defendant infringed these patents under 35 U.S.C. §§ 271(f)(1) and (f)(2) by exporting components for use in a foreign country in a way that would infringe if done in the United States. As a result of this export, the plaintiff alleged that it lost contracts in foreign countries, and a jury agreed, awarding lost profits.