The Federal Circuit has ruled that a US patent-holder plaintiff may be able to recover damages for a defendant’s foreign sales of infringing products if the foreign sales were proximately caused by the defendant’s improperly making, using, selling, offering to sell, or importing the patented invention in the United States.

The case is Brumfield v. IBG LLC.

Trading Technologies International, Inc. (TT) — whose successor is the plaintiff-appellant in the case — brought an action against IBG LLC and its subsidiary Interactive Brokers LLC (together, IBG) in 2010 in the Northern District of Illinois, alleging infringement of several TT-owned patents: U.S. Patent Nos. 6,766,304, 6,772,132, 7,676,411, and 7,813,996.

The patents are for improved graphical user interfaces for commodity trading and methods for placing trade orders using those interfaces

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 infringed (and not proved invalid for obviousness) and awarded $6,610,985 in damages.

TT appealed, seeking additional damages.

Before 2018, it was clear that the owners of US patents couldn’t recover damages based on a defendant’s conduct that took place entirely outside the United States.

35 U.S.C. § 271(a) states:

whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefor, infringes the patent.

(Emphasis added.)

The Federal Circuit explained in 2013 in Power Integrations, Inc. v. Fairchild Semiconductor International, Inc.:

“[i]t is axiomatic that U.S. patent law does not operate extraterritorially to prohibit infringement abroad,” and there can be no “compensation for a defendant’s foreign exploitation of a patented invention, which is not infringement at all.”

In 2018, the US Supreme Court ruled in WesternGeco LLC v. ION Geophysical Corp. that a US patent owner could recover damages in the form of foreign lost profits that were proximately caused by a domestic infringement.

As the Federal Circuit explained in the Brumfield case,

WesternGeco was the owner of several patents covering systems for surveying the ocean floor by use of sound-sending-and-receiving devices on long streamers towed by ships, where relevant claims required particular features for steering the streamers. … As relevant to the Supreme Court decision, a jury found the defendant ION Geophysical liable for infringement of the patent claims under 35 U.S.C. § 271(f)(2),5 where the infringement consisted of ION Geophysical’s domestic manufacturing of components of patent-claimed systems and its sending of the components abroad to companies that would use them in assembling the overall systems and then use the systems to compete with WesternGeco in selling surveying services (to oil companies looking for undersea oil).

The jury awarded lost-profits damages to WesternGeco, under 35 U.S.C. § 284, for the foreign survey-services sales WesternGeco lost to its survey-services competitors that had been supplied by ION Geophysical. The Federal Circuit, relying on Power Integrations, held that award to be an impermissible extraterritorial application of § 284. As noted above, the Supreme Court reversed, concluding that the lost-profits award was not impermissibly extraterritorial.

In Brumfield, the Federal Circuit found that the Supreme Court’s reasoning in WesternGeco also applied to infringement under Section 271(a) and to damages based on reasonable patent royalties as well as lost profits. 

However, in order for the plaintiff to recover in such a case there must be a proximate cause between the foreign activity and the US activity.

Noted the court:

The requirement of the foregoing framework that is dispositive here is that “the infringement… have the needed causal relationship to the foreign conduct for which recovery is sought.”

While elucidating this standard, the court in Brumfield noted that the plaintiff’s expert’s testimony didn’t meet it and thus those claimed damages were excluded.

The decision is good news for US patent holders competing in a global marketplace where activities outside the US can have a damaging ripple effect within the US.

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