American patent law is evolving to allow damages for foreign sales of infringing products. Both American companies making sales abroad and foreign companies with exposure to American supply chains should take note. Previous strategies to potentially escape the reach of the U.S. patent laws may no longer be useful. This uncertainty may be worthy of additional legal scrutiny.
Brief background – rare to obtain relief in U.S. courts for foreign sales
Damages for patent infringement are available under 35 U.S.C. § 271.
- Subsection (a) deals with direct infringement; and
- Subsection (f) deals with the exportation of components of a patented invention which are then combined “in such a manner that would infringe the patent if such combination occurred within the United States.”
In 2013, the Federal Circuit reversed a jury award for patent infringement that included foreign sales of domestically manufactured power supply units in its damages calculation under § 271(a). See Power Integrations, Inc. v. Fairchild Semiconductor Int'l, Inc., 711 F.3d 1348, 1371-72 (Fed. Cir. 2013) (“Power Integrations is incorrect that, having established one or more acts of direct infringement in the United States, it may recover damages for Fairchild's worldwide sales of the patented invention because those foreign sales were the direct, foreseeable result of Fairchild's domestic infringement. 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.”) (emphasis added).
Two years later, the Federal Circuit extended Power Integrations to indirect infringement damages calculated under § 271(f). See WesternGeco L.L.C. v. ION Geophysical Corp., 791 F.3d 1340, 1350-51 (Fed. Cir. 2015) (affirming exclusion of foreign sales evidence for oil exploration device components that infringed when assembled abroad). Though this appeared to be a straightforward application of established precedent, the Supreme Court reversed the Federal Circuit, which held that evidence of foreign sales was potentially admissible under § 271(f). WesternGeco LLC v. ION Geophysical Corp., 585 U.S. 407, 417 (2018). The Supreme Court echoed Power Integrations’ discussion of the causal connection between the domestic infringing act and the foreign sales. WesternGeco, 585 U.S. at 417 n.3. (declining to “address the extent to which other doctrines, such as proximate cause, could limit or preclude damages in particular cases.”)
Today – courts are more open to awarding foreign patent damages
Today, foreign patent damages are available even for direct infringement under § 271(a), and even when using a reasonable royalty theory of damages, leaving the world of Power Integrations behind completely. Of course, there remain serious questions about whether limits will exist on such damages. The language about causation in WesternGeco suggests such a doctrinal limit, in theory, but it will be up to trial courts to begin coloring in the picture of what kind of causal connection must connect the domestic infringing act and the foreign sales. One recent federal district court declined to find such a causal connection where software was developed and tested in the United States, and Plaintiff sought to include sales of a foreign version of the software, implemented and sold abroad. Synopsys, Inc. v. Siemens Indus. Software Inc., No. 20-CV-04151-WHO, 2024 WL 1683637, at *14 n.17 (N.D. Cal. Apr. 17, 2024) (“The parties have not identified anything in the record illuminating how that causal connection is satisfied here, with respect to the alleged infringement of the 915 Patent, other than that Aprisa was developed in the United States.”).
The takeaway for global companies is twofold:
- larger damages awards; and
- increased difficulty in insulating global supply lines from exposure to U.S. patent law liability.
Global companies should also beware the corresponding increase in the scope of discovery in US patent cases alleging foreign sales. Materials proving foreign sales will now be fair game in many disputes where they previously wouldn’t have been. More than ever before, both offensive and defensive global IP strategies require deep understanding of U.S. patent law in combination with comparable advice in other key jurisdictions, conveniently, efficiently, and accountably unified in one house.
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