A recent ruling from the US Court of Appeals for the Federal Circuit in the matter of Brumfield v. IBG LLC (Case No.22-1630) clarified reasonable royalty damages can be awarded on foreign sales.
The recent Federal Circuit ruling in Brumfield v. IBG stems from a 2010 case wherein Trading Technologies International, Inc. (“TT”) brought an action against IBG, LLC and its subsidiary Interactive Brokers LLC (together, “IBG”) alleging infringement of several TT-owned patents. The jury awarded approximately $6.6 million of royalty damages based on domestic sales. The District Court however excluded a damages theory presented by TT’s damages expert, Ms. Lawton which argued that TT should also recover “foreign damages” flowing from “making” the Accused Products in the United States. In excluding the damages theory, the District Court applied the Federal Circuit precedent from Powers Integration which said damages were not available for foreign sales resulting from domestic infringement.1
In its appeal, TT argued that the District Court should have applied the extraterritoriality analysis articulated by the Supreme Court in WesternGeco rather than more restrictive principles the District Court drew from Power Integrations. In June 2018, the Supreme Court ruled in WesternGeco v. ION Geophysical Corp., S. Ct. 16-1011 (2018) that a company can be liable for lost profit damages if it ships components of a patented invention overseas to be assembled and sold there.2
The Appeals Court agreed with TT finding that the framework established by the Supreme Court in WesternGeco rather than Power Integrations should now be followed for royalty damage claims as well. Unfortunately for TT however, the Appeals Court also found “the infringement” itself must “have the needed causal relationship to the foreign conduct for which recovery is sought” and TT had not established this.
In summary, although the damages at issue in WesternGeco were lost-profits damages, the Court in Brumfield v. IBG explicitly concluded that the WesternGeco framework also applies to a reasonable royalty award. Given the relative difficulty of proving lost profits damages, the Court’s recognition of reasonable royalty based damages on foreign sales under the WesternGeco framework provides patent owners a viable path to recovery.
NOTE: The opinions and thoughts expressed herein are the opinions of Ronald A.Bero, Jr. and James McGovern. They are not necessarily the opinions of The BERO Group.
1 In 2013 the US Court of Appeals for the Federal Circuit ruling in Power Integrations Inc. v. Fairchild Semiconductor Corp., (Case No. 2011-1218) interpreted 35 U.S. Code § 271(f)(1) narrowly finding that Power Integrations was not entitled to damages for injury caused by infringing activity that occurred outside the territory of the United States even though Fairchild sold semiconductor chips in Asia that other companies later incorporated into infringing chargers sold in the U.S. The Court held that “Power Integrations has not cited any case law that supports an award of damages for sales consummated in foreign markets, regardless of any connection to infringing activity in the United States. To the contrary, the entirely extraterritorial production, use, or sale of an invention patented in the United States is an independent, intervening act that, under almost all circumstances, cuts off the chain of causation initiated by an act of domestic infringement.”
2 In June 2018, the Supreme Court ruled in WesternGeco v. ION Geophysical Corp., S. Ct. 16-1011 (2018) that a company can be liable for lost profit damages if it ships components of a patented invention overseas to be assembled and sold there. Under WesternGeco the Court found that a patent owner can receive foreign damages if a causal relationship between an infringing domestic act and the requested relief is proven. In WesternGeco the infringing domestic act involved manufacturing of components of patent-claimed systems in the US and then sending those components abroad to companies that would use them in assembling the overall systems used to compete with WesternGeco overseas.
Ronald A. Bero, Jr.
CPA/ABV, CFF
James L. McGovern
CPA/CFF, CVA, Fellow