In its March 27, 2024 decision in Brumfield v. IBG LLC, the Court of Appeals for the Federal Circuit, among other things, clarified that patent holders may be able to recover damages based on wholly foreign sales under 35 U.S.C. § 271(a) if a domestic act of infringement—the “making, using, selling, offering for sale, or importing”—was the proximate cause of those damages. Although questions remain about the level of causation required to recover those damages, the court in Brumfield held that if an infringing product is “made” or “used,” or if a patented method is practiced in the United States and is the proximate cause of wholly foreign sales, it may be possible for a patent holder to recover damages resulting from those foreign sales, including under a reasonable royalty theory.
Background
In Power Integrations, Inc. v. Fairchild Semiconductor International, Inc., 711 F.3d 1348 (Fed. Cir. 2013), which involved damages under 35 U.S.C. § 271(a), the Federal Circuit opined that a patent holder may not be compensated for a defendant’s foreign exploitation of a patented invention, as such exploitation “is not infringement at all.” However, subsequently, in WesternGeco LLC v. ION Geophysical Corp., 585 U.S. 407 (2018), the Supreme Court held that, under 35 U.S.C. § 271(f)(2), a patent owner may recover foreign lost profits proximately caused by domestic infringement. The question presented in Brumfield was whether the WesternGeco framework displaces Power Integrations and therefore allows for recovery of foreign damages resulting from direct infringement under § 271(a), including under a reasonable royalty theory.
Brumfield v. IBG LLC
The appeal in Brumfield related to, in relevant part, whether an opinion of plaintiff’s damages expert was properly excluded. Plaintiff’s expert had opined that plaintiff should be entitled to recover damages from wholly foreign sales that flowed from defendant “making” the accused products (software user interfaces involved in commodity trading) in the United States. Plaintiff argued that the extraterritoriality analysis articulated by the Supreme Court in WesternGeco should apply, thereby allowing the opinion. Defendant argued that because the case involved patent infringement under § 271(a) and a reasonable royalty (whereas WesternGeco involved infringement under § 271(f)(2) and lost profits), Power Integrations applied instead, and plaintiff’s expert’s theory was therefore contrary to law. The district court agreed with defendant, excluding the opinion.
The Federal Circuit determined that the opinion was properly excluded, based on the specific distinction between developing software code and functionality—an abstract set of computer instructions—and the “making” of computer-readable media containing those computer instructions. But in its analysis, the Federal Circuit explicitly held that WesternGeco displaces Power Integrations as the required framework of analysis involving patent infringement under § 271(a) and reasonable royalty damages.
Implications
Under Brumfield, a patent holder may be able to recover damages based on wholly foreign sales if a domestic act of infringement under § 271(a) is the proximate cause of those foreign sales. However, the decision explicitly leaves open significant questions regarding what is required to show proximate cause in this context. For example, while the opinion stresses that establishing proximate cause requires more than just a showing of “but for” causation, the Federal Circuit did not specifically identify what degree of nexus or certainty is required to satisfy this standard. Thus, the question of whether a patent holder has met its burden of showing a sufficient nexus between the domestic infringing act and allegedly resulting foreign sales will likely lead to potential confusion moving forward. It is likely that the Brumfield decision will lead to an increase in discovery disputes over issues relating to foreign sales and the alleged causal connection to domestic acts of infringement. It is also unclear—particularly until a clear test as to causality is articulated—whether and to what extent this decision may affect summary judgment motions relating to inclusion or exclusion of foreign sales.
In addition, although Brumfield clarified that damages based on foreign sales may be recoverable under a reasonable royalty theory, it also remains unclear how these sales will be treated in such an analysis, particularly where the domestic act of infringement may be an isolated act.
In conclusion, although significant questions remain, Brumfield has clarified that if a product that meets the claims of a patent at issue is “made” or “used” in the United States, or if a patented method is practiced in the United States, it may be possible, if proximate cause is established, for a patent holder to collect damages based on wholly foreign sales, including under a reasonable royalty theory of recovery.
If you would like to discuss the foregoing or any related patent litigation matter, please contact the Ropes & Gray attorney with whom you regularly work or any attorney in our IP Litigation practice.
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