Federal Circuit clarifies the application of WesternGeco to foreign damages

Case update: Brumfield v. IBG LLC, No. 22-1630 (Fed. Cir. 2024)

On March 27, 2024, the Federal Circuit clarified the impact of the damages framework set forth in WesternGeco LLC v. ION Geophysical Corp., 585 U.S. 407 (2018). The Federal Circuit has now confirmed the expansion of the Supreme Court’s WesternGeco damages framework into the § 271(a) and reasonable royalty contexts, displacing Power Integrations, Inc. v. Fairchild Semiconductor International, Inc., 711 F.3d 1348, 1370-71 (Fed. Cir. 2013) as the required framework.

Background

In 2018, the WesternGeco decision permitted lost profits recovery of the defendant’s overseas revenue where that revenue was traceable to a domestic act of infringement under § 271(f)(2). WesternGeco, 585 U.S. at 417. WesternGeco patented a system for surveying the ocean floor in the US; and rather than selling the system, it used its patented system to sell surveying services worldwide. Id. at 411. Ion Geophysical, by contrast, made components that were to be combined into a system that others could use to scan the ocean floor. Id.

At trial, the jury found infringement under both § 271(f)(1) and § 271(f)(2). Id. On appeal, Ion challenged both the § 271(f)(1) and § 271(f)(2) grounds for infringement, and the Federal Circuit concluded: “[w]e need not reach the question whether the district court applied the correct standard under § 271(f)(1). The verdict was clear that the jury found liability under § 271(f)(2) for all asserted claims.” WesternGeco LLC v. ION Geophysical Corp., 791 F.3d 1340, 1348 (Fed. Cir. 2015), cert. granted, judgment vacated sub nom. WesternGeco LLC. v. ION Geophysical Corp., 579 U.S. 915 (2016). While the systems that practice the patent were assembled abroad, they were exported from the US. WesternGeco, 585 U.S. at 415. As noted by the Court, the actual act of infringement under § 271(f)(2) is exportation (as opposed to assembling the system abroad). Id.

Relying on the fact that the infringing act occurred in the US, the Supreme Court concluded that lost foreign profits were properly recoverable by WesternGeco because the lost foreign profits were linked to a domestic act of infringement—namely, exporting the system from the US. Id. at 415-16. Put differently, the Supreme Court looked at what conduct § 271(f)(2) was intended to regulate: US conduct only. The Court concluded that if an act of infringement occurred in the US, then foreign revenue directly tied to the domestic act of infringement could be captured. 

Broad application to damages

In the wake of the WesternGeco decision, practitioners disagreed as to whether the Supreme Court’s framework should be applied narrowly—i.e. only to cases seeking lost profits damages for § 271(f)(2) infringement—or broadly—i.e. to all types of infringement and damages. This disagreement played out in the courts, which were initially split over the applicability of the WesternGeco framework. The Brumfield decision resolves that split, finding broad application is proper, stating: 

TT argues 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. The district court was reluctant to conclude, on its own, that WesternGeco displaces Power Integrations as the required framework of analysis for this case, involving 35 U.S.C. § 271(a) and a reasonable royalty. We now draw that conclusion, in agreement with TT.

Brumfield, Slip Op. at 25.

To reach its conclusion regarding broad applicability of WesternGeco, the Federal Circuit walks through the Supreme Court’s WesternGeco analysis, noting that despite the context of that case, there is nothing in the analysis that would necessarily restrict it to § 271(f) or lost profits damages. Id. at 34. As such, the Supreme Court’s logic applies with equal force in the broader contexts at issue in Brumfield.

While the Brumfield plaintiff did not successfully broaden its own damages to encompass foreign conduct, this was due to a failure of proof—not a narrow application of the WesternGeco framework. Id. at 40. The patent owner is required to show a “causal relationship” between the infringing conduct and the damages sought, and the expert did not meet this standard. Id. “[Her] basis for claimed damages did not meet this fundamental requirement—at least because [she] did not focus on ‘the infringement.’ That failure called for its exclusion.” Id.

Case takeaways

Because the Federal Circuit concluded that “WesternGeco displaces Power Integrations as the required framework of analysis for . . . [cases] involving 35 U.S.C. § 271(a) and a reasonable royalty,” patent plaintiffs may increasingly try to obtain reasonable royalty damages on foreign revenue stemming from domestic acts of infringement as well as related discovery. See id. at 25. In pursuing such damages, the Brumfield court emphasized the need for proximate cause between the act of infringement and foreign revenue, stating “[w]e have recognized that ‘proximate’ causation is required and that proximate causation requires but-for causation plus more, including the absence of remoteness.” Id. at 38. However, the Federal Circuit stopped short of providing any guidelines for when and if such damages are available, stating: “[w]e need not and do not here suggest answers to, or further explore, those or other questions.” Id. at 40. Figuring out that standard and when to apply it will be a key focus for litigants going forward.

Norton Rose Fulbright will continue to monitor relevant updates.