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The Federal Circuit Is Amenable, Under Certain Circumstances, To Allowing A Patent Owner To Seek Foreign Damages For Domestic Infringement
04/23/2024On March 27, 2024, the United States Court of Appeals for the Federal Circuit (the “Federal Circuit”) issued an opinion, affirming a United States District Court for the Northern District of Illinois (the “district court”) decision relating to U.S. Patent Nos. 7,676,411 (the “’411 patent”); 7,813,996 (the “’996 patent”); 6,766,304 (the “’304 patent”); and 6,772,132 (the “’132 patent”), (collectively, the “patents-in-suit”). The district court held the asserted claims of the ’411 and ’996 patents invalid, and a jury found the asserted claims of the ’304 and ’132 patents valid and infringed and awarded $6,610,985 in damages. The Federal Circuit affirmed. Brumfield, Tr. for Ascent Tr. v. IBG LLC, No. 2022-1630, __F.4th__, 2024 WL 1292151 (Fed. Cir. Mar. 27, 2024).
Trading Technologies International, Inc. (“TT”)—whose successor was plaintiff-appellant, Harris Brumfield—brought a patent infringement lawsuit against IBG LLC and its subsidiary Interactive Brokers LLC (collectively, “IBG”), alleging infringement of the patents-in-suit. The patents-in-suit have materially the same specifications, describing improved graphical user interfaces for commodity trading and methods for placing trade orders using those interfaces. The patents-in-suit include various claims—some claiming a method, some a system, and some a computer readable medium (“CRM”) having program code recorded thereon for execution on a computer.
Prior to trial, the district court excluded TT’s damage expert, Catherine Lawton’s, proposed testimony relating to recovery of “foreign damages” flowing from “[m]aking the Accused products in the United States.” TT challenged this determination on appeal. Specifically, TT argued that the district court should have applied the extraterritoriality analysis the Supreme Court articulated in WesternGeco LLC v. ION Geophysical Corp., 585 U.S. 407 (2018), rather than the more restrictive principles the district court drew from Power Integrations Inc. v. Fairchild Semiconductor International, Inc., 711 F.3d 1348, 1370–71 (Fed. Cir. 2013). The Federal Circuit agreed that WesternGeco superseded Power Integration as law.
In WesternGeco, a jury awarded lost-profits damages to WesternGeco under the patent statute’s damages provision, 35 U.S.C. § 284, for foreign survey-services sales WesternGeco lost to its survey-services competitors that had been supplied by defendant, ION Geophysical. In that case, the Supreme Court articulated a two-step framework for deciding when an application of a statute is impermissibly extraterritorial. Under that framework—which begins with a presumption that the statute lacks extraterritorial reach—the first step is considering whether the presumption has been rebutted by clear congressional action. Absent such action, the next step is to consider whether the case involves a domestic application of the statute. The Supreme Court decided that addressing the first step “would require resolving ‘difficult questions’ that do not change ‘the outcome of the case,’ but [which] could have far-reaching effects in future cases,” so it proceeded directly to the second. 585 U.S. at 413. In evaluating whether a statutory application is domestic, courts need to identify “the statute’s focus.” Id. When determining the “statutory focus” for its extraterritorial analysis, the Supreme Court “[b]egan with § 284,” the patent damages provision, id. at 414, and stated that “the infringement is plainly the focus of § 284,” id. at 415. Having identified the focus of § 284, the Supreme Court—to complete its determination that the relevant conduct is domestic—analyzed the statutory provision defining the infringement at issue in the case, § 271(f)(2). It reasoned that the conduct regulated by § 271(f)(2) is the domestic act of supplying in or from the United States.
Thus, the Supreme Court held that § 284 permits a patent owner to recover lost foreign profits when justifiable under § 284’s directive to provide complete compensation for infringements, as applied to the infringing actions specified in § 271(f)(2), which the Supreme Court held to be domestic conduct. In other words, it concluded that the lost-profits award for a § 271(f)(2) infringement was a permissible domestic application—not impermissibly extraterritorial. 585 U.S. at 408–17. Further, WesternGeco acknowledges that a but-for causation requirement is part of the § 284 standard, which authorizes an award adequate to compensate for the infringement, placing a patentee “in as good a position as he would have been in if the patent had not been infringed,” id. at 417 (quoting General Motors Corp. v. Devex Corp., 461 U.S. 648, 654–55 (1983)).
In the case at hand, the Federal Circuit concluded that the WesternGeco framework applies even when “the infringement” at issue is an infringement under § 271(a). It stated that nothing about the WesternGeco analysis of § 284, the damages provision, or about § 281, the cause-of-action provision, is altered when “the infringement” at issue is infringement under § 271(a) rather than § 271(f).
Additionally, the Federal Circuit concluded that the WesternGeco framework applies to a reasonable-royalty award, not just a lost-profits award under § 284, although its application must reflect the established differences in standards for the two types of awards. The Federal Circuit stated that the Supreme Court described § 284 as providing “a general damages remedy,” and its essential point about § 284 was that damages were for “the infringement.” Id. at 414–15. The Federal Circuit then asserted that, if the patentee seeks to increase the amount a hypothetical infringer would pay to engage in domestic acts constituting “the infringement,” by pointing to foreign conduct that is not itself infringing, the patentee must, at the very least, show why that foreign conduct increases the value of the domestic infringement itself, while respecting the apportionment limit that excludes values beyond that of practicing the patent. It found that this kind of causal connection, framed in terms of the agreement-to-pay aspect of a hypothetical negotiation, is a necessary beginning, but did not state whether it is sufficient for a foreign-conduct analysis in a reasonable-royalty case.
In applying the above principles, however, the Federal Circuit affirmed the district court’s exclusion of Ms. Lawson’s proposed testimony relating to recovery of “foreign damages” flowing from “[m]aking the Accused products in the United States.” The Federal Circuit found Ms. Lawson’s proposal legally insufficient under the WesternGeco framework. Specifically, it found her proposed testimony focused on domestic designing and software programing, but software was not covered in the method and CRM-asserted claims of the ’304 and ’132 patents. Thus, the Federal Circuit held that her proposed testimony did not start from an act of “infringement”—making a claimed CRM (or practicing a claimed method)—in asserting the required causal connection between the domestic infringement and the foreign conduct for which the proposal sought royalty damages. Additionally, the Federal Circuit found error in Ms. Lawson’s testimony in that it sought damages for activity occurring prior to the issuance of the ’304 and ’132 patents. Nevertheless, the Federal Circuit indicated that IBG’s later domestic making of the accused CRMs could be infringing, and properly subject to a royalty. But the Federal Circuit found that TT did not “offer a concrete, coherent account of why, in the hypothetical negotiation, the royalty for [these] new domestic acts of making claimed CRMs (or practicing claimed methods)…, would have properly been increased to reflect the prospective making and sale of CRMs abroad for use abroad.”
Although the Federal Circuit stopped short of providing a guideline for proving the necessary connection between domestic infringement and foreign conduct that will generate foreign damages, it has opened an avenue through which patentees potentially can recover extraterritorial damages. While this avenue is now available, it is important to note that recovering such damages is not a simple matter. Specifically, the Federal Circuit suggests there needs to be a “focused, coherent explanation” of the causal connection between the domestic infringement and the foreign conduct—which may be impacted by the timing of relevant events.
