Precedential Brumfield opinion clarifies recovery of damages based on foreign sales

In a precedential opinion, the Court of Appeals for the Federal Circuit has clarified in that patent holders may be able to recover damages based on foreign sales under 35 U.S.C. § 271(a) if a domestic act of infringement – at least one of “making, using, selling, offering for sale, or importing” – was the proximate cause of those damages.

The decision in Brumfield v. IBG LLC[1] recognizes, for the first time, that for 35 U.S.C. § 271(a) cases, the Power Integrations[2] framework has been superseded by WesternGeco.[3]

The uncertainties before Brumfield

Before this decision, two separate frameworks affected patent cases involving domestic infringement and extraterritorial sales: WesternGeco and Power Integrations. It was generally unclear which of these applied to litigation involving § 271(a).

WesternGeco is a 2018 Supreme Court case related to lost profits, reasonable royalties, and the application of § 271(f) thereto. WesternGeco’s analytical framework starts from a presumption against extraterritoriality and then requires evaluation of (1) whether that presumption has been rebutted by clear enough congressional action and (2) if the presumption has not been rebutted, whether the case involves a domestic application of the statute rather than an extraterritorial one.

Analyzing under the second prong, the Supreme Court held that § 271(f) involved a domestic application of the statute rather than an extraterritorial one and allowed patent owners to recover for foreign lost profits proximately caused by domestic infringement.

Power Integrations, a 2013 case before the Court of Appeals for the Federal Circuit, related to lost profits and reasonable royalties, but the underlying acts of infringement related to § 271(a). Power Integrations held that a patent owner could not receive compensation for a defendant’s foreign exploitation of a patented invention when those foreign sales were the direct, foreseeable result of the domestic infringement.

The court reasoned that the entirely extraterritorial use or sale of an invention patented in the US is an independent, intervening act that, under almost all circumstances, cuts off the chain of causation initiated by an act of domestic infringement.

Taking these two cases together, it remained uncertain whether the holding in WesternGeco extended to § 271(a), superseding Power Integrations to allow patent owners to argue they are entitled to receive damages (either under a theory of lost profits or reasonable royalty) for foreign sales based on underlying acts of infringement under § 271(a).

The holding in Brumfield

Brumfield concerns an appeal of a district court patent lawsuit between Trading Technologies International, Inc. (TT) and IBG LLC and Interactive Brokers LLC (the defendants-appellees). Harris Brumfield, trustee for Ascent Trust (the plaintiff-appellant) is the successor to TT. At the district court, TT asserted several patents against the defendants’ Trader Workstation Platform (TWS), a software that traders use for buying and selling on exchanges, such as commodities exchanges.

Before trial, under Federal Rule of Evidence 702, the district court excluded one of the plaintiffs’ damages theories related to foreign activities – whether domestic design and programming of TWS entitled TT to damages based on worldwide sales. However, TT was permitted to present its evidence regarding other foreign activities.

At trial, TT successfully proved infringement and overcame the validity challenges. The jury awarded a reasonable royalty based on US domestic use of TWS.

TT’s appeal focused on whether the “making” damages theory related to foreign activities was improperly excluded. TT argued that the exclusion was improper because it was entitled to damages for harm that is foreseeable and the “but-for” result of infringement in the US. under WesternGeco.

First, holding that WesternGeco supersedes Power Integrations, the Court of Appeals confirmed that WesternGeco applies to § 271(a) as well as reasonable royalty damages. Thus, the court held that a patent owner is entitled to damages under § 271(a) for foreign sales that are the “proximate cause” of US infringement.

Second, the court analyzed whether there remained a dispute as to damages based on the TT’s excluded damages theory, finding that TT’s damages expert report failed to analyze damages based on the alleged infringing activity. Specifically, the two groups of asserted claims were either method or computer readable medium (CRM) claims. As TT’s excluded damages theory was based on “making” in the US, only the CRM claims were possibly at issue. Moreover, TT’s excluded damages theory was based on the act of designing the software – which had occurred before the asserted patents issued – rather than on the manufacturing of individual memory-device units. TT failed to proffer evidence of “making” that occurred after the patents were issued, creating a fundamental deficiency of evidence of any proximate cause that could tie the foreign sales to an act of infringement in the US.

Thus, the court concluded that the damages theory was properly excluded, but that the district court had applied the incorrect framework to determine exclusion.

Impact of Brumfield

It is now clear that damages based on foreign sales are available for acts of infringement under § 271(a) when the patent owner is able to assert that the US infringement is the proximate cause of damages due to the foreign sales.

Nonetheless, the path forward may still be rocky: to establish all elements of damages, the burden of proof remains on the patent owner.

Learn more about the implications of the Brumfield opinion by contacting the authors or your usual DLA Piper relationship attorney.


^{[1] Brumfield, Tr. for Ascent Tr. v. IBG LLC, No. 2022-1630, 2024 WL 1292151 (Fed. Cir. Mar. 27, 2024).
[2] Power Integrations, Inc. v. Fairchild Semiconductor Int’l, Inc., 711 F.3d 1348 (Fed. Cir. 2013), abrogated by Brumfield, Tr. for Ascent Tr. v. IBG LLC, No. 2022-1630, 2024 WL 1292151 (Fed. Cir. Mar. 27, 2024).
[3] WesternGeco LLC v. ION Geophysical Corp., 585 U.S. 407 (2018).}