Intellectual Property Law Representation

The Supreme Court’s Extraterritoriality Test in WesternGeco Applies to Section 271(a) Infringement and Reasonable Royalty Damages

by | Apr 12, 2024 | Case Updates

Brumfield, Trustee for Ascent Trust v. IBG LLC, No. 2022-1630, — F.4th —- (Fed. Cir. Mar. 27, 2024)

Trade Technologies International, Inc. (“TT”) (whose successor in interest is Harris Brumfield) sued IBG LLC for infringement of four U.S. patents in the U.S. District Court for the Northern District of Illinois.  The patents are directed to graphical user interfaces for commodities trading and methods for placing trade orders using those interfaces.  The asserted claims of two of the patents-in-suit were found invalid under 35 U.S.C. § 101.  The asserted claims of the other two patents-in-suit were found infringed, resulting in $6.6 million in damages.

The district court also excluded certain testimony of TT’s damages expert based on foreign activities flowing from IBG’s “making” of the accused products in the U.S., and denied TT’s motion for a new trial on damages, in which TT alleged that IBG mispresented, by statement or omission, how it was calculating damages figures it presented to the jury.

TT appealed to the Federal Circuit, challenging the district court’s exclusion of its expert’s damages theory, § 101 invalidity holding, and denial of its post-verdict motion for a new trial on damages.  In this article, only the decision relating to exclusion of the damages theory is discussed.

TT argued that the district court erred in excluding one basis for damages proposed by its damages expert, specifically that TT should recover “foreign damages” flowing from “making”—i.e., “designed and made” and “developed”—the accused products in the United States.  Specifically, TT sought to recover damages from the activities of foreign users of the accused software.  TT argued that the district court should have applied the extraterritoriality analysis in the Supreme Court’s decision WesternGeco, not the more restrictive principles in Power Integrations, Inc. v. Fairchild Semiconductor Int’l, Inc., 711 F.3d 1348, 1370-71 (Fed. Cir. 2013).  The Federal Circuit agreed with TT, holding that WesternGeco displaces Power Integrations as the required framework of analysis for determining whether patent damages are properly awarded based partly on conduct abroad.  The Federal Circuit further clarified the framework for patent damages as follows:

The WesternGeco extraterritoriality framework for damages under U.S.C. 35 § 284 applies to the infringement under § 271(a).  It also applies to a reasonable-royalty award, not just a lost-profits award.  Thus, in situations where the patentee is seeking reasonable-royalty damages based on foreign conduct that is not independently infringing, the hypothetical negotiation would focus on why that foreign conduct increases the value of the domestic infringement itself.  But the Federal Circuit did not decide the level of causation required for foreign conduct to qualify as a factor in calculating patent damages for domestic conduct.

The Federal Circuit held even under the WesternGeco framework, the exclusion was proper because the expert failed to start from an act of “infringement.  The asserted claims at issue were two types: method claims and claims to a computer readable medium (CRM).  But the expert’s opinion was based on “making the accused product” which the Federal Circuit found “cannot reasonably be read to refer to the method claims” under patent law.  The expert also focused on certain software as the accused product, which is not the claimed CRM.  The Federal Circuit further noted that the expert failed to present focused, coherent explanation of a causal connection between foreign conduct to prohibited domestic infringement.

The Federal Circuit decision presents a more attainable way to recover foreign damages, especially in light of the fact that it overruled Power Integrations which held that a patentee may not recover foreign damages based on the theory that those foreign sales were direct foreseeable result of the infringer’s domestic infringement.  The challenge, though, will be proving the causal connection between infringement and foreign damages as the Federal Circuit did not specify the standard needed to prove it.