The Federal Circuit's recent decision in Brumfield v. IBG LLC marks a new chapter for the global reach of U.S. patents.1 Per the Court's decision, U.S. patentees may— under the right circumstances— recover reasonable royalty damages in U.S. courts for non-U.S. sales and other activities. Brumfield builds upon the Supreme Court's 2018 decision in WesternGeco LLC v. ION Geophysical Corp.2 There, the Supreme Court found that foreign sales in other countries of a product that infringed a U.S. patent could contribute to the patent holder's damages for lost profits because the components that made the infringing product were made in the United States.
In the United States, there are two primary ways for a patentee to recover damages against an accused infringer. The first is through what is called a "reasonable royalty" – a calculation of the royalty the Court believes the parties would have agreed to had they decided upon a license before the infringement occurred. The second is through lost profits. Lost profits allow a competitor to recover for sales they would have made but-for the patent-infringing acts of one of their competitors.
But reasonable royalty damages are pursued far more often than lost profits by plaintiffs in U.S. Courts. As such, Brumfield may open the door to patent damages in the United States for sales that hap- pened outside of America's borders where they are causally connected to domestic infringement.
Case Overview
One of several questions before the Federal Circuit in Brumfield was whether or not a U.S. patentee could obtain reasonable royalty damages for a defendant's activities in other countries (such as foreign sales). The Federal Circuit had previously decided in 2013 in Power Integrations, Inc. v. Fairchild Semiconductor Int'l, Inc. that damages for a reasonable royalty could not consider foreign sales of a product or service that infringes a U.S. patent.3 Before the Court was whether or not the Supreme Court's decision in WesternGeco opened the door that Power Integrations closed. The Federal Circuit found that it did.4 In reaching this conclusion, the Court abrogated its earlier decision in Power Integrations. Under this new test,
[i]f the patentee seeks to increase [the damages] amount by pointing to foreign conduct that is not itself infringing, the patentee must, at the least, show why that foreign conduct increases the value of the domestic infringement itself—because, e.g., 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.5
In other words, the patentee must tie foreign activity to the value for the reasonable royalty that would be paid by a defendant in the U.S. for his or her U.S. patent. The Court stopped short of stating precisely what level of tying would be sufficient, leaving that question open for future litigation.6
Practical Consequences: Patent Owners May Increasingly Seek Recovery for Foreign Sales
Regardless of how much evidence will be required to tie foreign sales to a U.S. royalty rate, Brumfield's ruling on reasonable royalties could have ripple effects throughout patent litigation for global entities with activities in the U.S.
In U.S. patent litigation, plaintiffs are far more likely to pursue reasonable royalties at trial than lost profits. In fact, reasonable royalty damages are awarded nearly three times as often as lost profits.7 The reason is simple: a reasonable royalty can be obtained by any entity who owns a patent even where that entity does not compete with their accused infringer (assuming other elements supporting the royalty are present). This includes "patent assertion entities" (or "PAEs") – corporate entities that focus on holding, licensing, and litigating patents. In the last decade, PAEs were estimated to account for 96% of all plaintiffs in patent litigation in the United States.8
Brumfield may permit patent owners to pursue royalities based on a broader, global scope of economic activity. Such development may lead to an increase in patent litigation against international entities, as plaintiffs that previously might not have pursued certain cases due to geographical sales limitations may now find it economically viable to do so.
Conclusion
While Brumfield clarifies the avenues plaintiffs have available to recover damages for extraterritorial sales, it also raises questions about the extent of proximate causation required. Determining the necessary level of causation could result in complex litigation as parties dispute the connection between domestic acts and foreign sales.
Non-U.S. entities engaged in global commerce may wish to reassess their patent portfolios and infringement risks, considering how their operations might intersect with U.S. patents. Proactively managing patent risks, including re-evaluating supply chains and distribution channels in the U.S., could mitigate potential liabilities. Additionally, engaging in licensing negotiations and strengthening patent compliance measures may be prudent strategies to address the global scope of potential damages under U.S. patent law.
Footnotes
1. Brumfield, Tr. for Ascent Tr. v. IBG LLC, 97 F.4th 854 (Fed. Cir. 2024).
2. WesternGeco LLC v. ION Geophysical Corp., 585 U.S. 407 (2018).
3. Power Integrations, Inc. v. Fairchild Semiconductor Int'l, Inc., 711 F.3d 1348, 1372 (Fed. Cir. 2013)
(finding "neither compelling facts nor a reasonable justification for finding that Power Integrations is entitled to 'full compensation' in the form of damages based on loss of sales in foreign markets which it claims were a foreseeable result of infringing conduct in the United States.").
4. Brumfield, 97 F.4th at 875 (Fed. Cir. 2024) (annotations added).
5. Id. at 877.
6. Id. ("This kind of causal connection, framed in terms of the agreement-to-pay aspect of a hypothetical negotiation, is a necessary beginning—we need not here say it is sufficient—for a foreign-conduct analysis in a reasonable-royalty case.")
7. Chris Barry et al., 2016 Patent Litigation Study (May 2016), http://www. pwc.com/us/en/forensic-services/publications/assets/2016-pwc-patent-litigation-study.pdf.
8. FTC.gov, Patent Assertion Entity Activity: An FTC Study (Oct. 2016), https://www.ftc. gov/reports/patent-assertion-entity-activity-ftc-study.
Originally published by IP Litigator
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