Federal circuit increases access to foreign damages in patent cases, but with a catch

In its recent decision in Brumfield, Trustee for Ascent Trust v. IBG LLC, 97 F.4th 854 (Fed. Cir. 2024), the Federal Circuit expanded the ability of patent owners to obtain foreign damages by applying the Supreme Court's framework in WesternGeco LLC v. ION Geophysical Corp., 585 U.S. 407 (2018) to other parts of the patent statute.

In WesternGeco, the Supreme Court held that a patentee may seek lost profits for foreign sales for infringement under 35 U.S.C. § 271(f)(2), which covers supplying components of a patented invention in or from the United States to be assembled abroad. The plaintiff sought lost-profits damages for foreign contracts it lost to the defendant due to the defendant exporting components for a competing system. WesternGeco, 585 U.S. at 411. The defendant argued that the plaintiff could not recover foreign lost profits because § 271(f) does not apply extraterritorially. Applying the extraterritoriality framework set forth in earlier precedent, the Supreme Court reasoned that because § 271(f)(2) focuses on a domestic act (supplying components "in or from the United States") and because the damages statute (§ 284) focuses on fully compensating patentees for that infringement, the statute was directed to domestic conduct. Id. at 413-16. The fact that harm incidental to the domestic act of infringement occurred abroad did not make a claim for foreign lost profits impermissible. Id. at 416-17.

District courts were split on whether the Supreme Court's holding also applied to infringement under § 271(a), which covers making, using, selling, offering to sell a patented invention within the U.S. or importing it into the U.S. Whereas § 271(f) explicitly references foreign conduct that results from a domestic act of infringement, § 271(a) solely focuses on the domestic act. This led some district courts, including the district court in Brumfield, to find that the Federal Circuit's prior holding in Power Integrations, Inc. v. Fairchild Semiconductor Int'l, Inc., 711 F.3d 1348 (Fed. Cir. 2013)--that damages may not be based upon foreign sales for infringement under § 271(a)--had not been overruled by WesternGeco. See, e.g., Trading Techs. Int'l, Inc. v. IBG, LLC, Case No. 10-cv-715, 2021 WL 5038754 (N.D. Ill. Jul. 23, 2021); MLC Intellectual Property, LLC v. Micron Tech., Inc., Case No. 14-cv-03657-SI, 2019 WL 2437073 (N.D. Cal. Jun. 11, 2019). Other district courts, including the district court in Power Integrations after remand, applied WesternGeco to § 271(a). See, e.g., Power Integrations, Inc. v. Fairchild Semiconductor Int'l Inc., et al., Case No. 04-1371-LPS, 2018 WL 4804685 (D. Del. Oct. 4, 2018); Plastronics Socket Partners, Ltd. v. Dong Weon Hwang, Case No. 2:18-cv-00014-JRG-RSP, 2019 WL 4392525 (E.D. Tex. Jun. 11, 2019), report and recommendation adopted, 2019 WL 2865079 (E.D. Tex. Jul. 3, 2019).

The Federal Circuit has now resolved the split decisions by confirming the WesternGeco framework does apply to § 271(a) and reasonably royalty damages. Applying the same logic as in WesternGeco, the appellate court concluded that § 271(a) is focused on domestic acts that occur "within the United States," and the damages statute--the same one at issue in WesternGeco--fully compensates patentees for that domestic infringement. Brumsfield, 97 F.4th at 874-76.

But this does not mean that patent owners may automatically sweep in a defendant's foreign sales in every case. Turning to a fundamental principle of patent damages law, the Federal Circuit held that the infringement (domestic conduct) must "have the needed causal relationship to the foreign conduct for which recovery is sought." Brumsfield, 97 F.4th at 878-79. Plaintiff's damages expert, however, focused solely on defendant making software, whereas the asserted patent claims required a computer-readable medium (e.g., hard drive, USB stick, or other memory devices) on which the software was stored. Id. By not starting from an act of infringement--making the CRM, not just the software--the expert's proposal was legally insufficient, and thus the Federal Circuit found it was properly excluded by the district court. Id.

So what impact does this have for practitioners? Patent owners should consider in every case going after appropriate damages for an infringer's foreign sales, which can vastly increase the damages calculation. But they must be diligent to establish a causal connection with domestic infringement. The Federal Circuit provided some guidance as to how to do so, such as by proving that "the domestic infringement enables and is needed to enable otherwise-unavailable profits from conduct abroad--while respecting the apportionment limit that excludes values beyond that of practicing the patent." Brumsfield, 97 F.4th at 877. The court also identified one of its pre-WesternGeco decisions where it found foreign sales did have sufficient causal connection to the domestic infringement, which provides further guidance to patentees on how to satisfy the causal requirement for foreign sales. See Carnegie Mellon Univ. v. Marvell Tech. Grp., Ltd., 807 F.3d 1283, 1307 (Fed. Cir. 2015).

Those defending patent infringement claims where the plaintiff is seeking damages based on foreign conduct should scrutinize the causal connection between the alleged infringement and foreign sales. Proximate causation is required for damages, and although how it applies to foreign conduct in the context of a reasonable royalty remains an open question, this provides defendants a means for excluding foreign sales that are tenuously tied to domestic conduct. See Brumsfield, 97 F.4th at 877-78. And Brumsfield confirms defendants can still exclude foreign damages prior to trial through a Daubert motion. The Federal Circuit has long been critical of damages theories that are not sufficiently tied to the alleged infringement, even where that infringement may drive the sales upon which damages are based. See, e.g., Packet Intelligence LLC v. NetScout Sys., Inc., 965 F.3d 1299, 1315 (Fed. Cir. 2020). These appellate decisions provide a good framework for defendants to craft Daubert motions to exclude foreign sales.

Yar Chaikovsky is a partner and global head of IP, and Radhesh Devendran is an associate at White & Case LLP.