Boundaries, extraterritoriality, and patent infringement damages.

Author:Holbrook, Timothy R.
Position:Negotiating IP's Boundaries in an Evolving World

ABSTRACT

Patents are generally considered to be the most territorial of all the various forms of intellectual property. Even patent law, however, has confronted issues involving the application of a U.S. patent to extraterritorial activity. The Supreme Court has expressed an interest in both issues--the extraterritorial application of U.S. law and patent law. At times, these interests have intersected. Notwithstanding the Court's recent elaborations on extraterritoriality, the approach by the U.S. Court of Appeals for the Federal Circuit has been, at best, inconsistent. At times the court has afforded extraterritorial protection, even in the face of strong territorial language in the patent statute itself. At other times, however, it has approached the issue of extraterritoriality more restrictively, even when the statute itself expressly contemplates the regulation of activities outside of the United States. This dynamic has been addressed by myself and other scholars.

More recently, however, the Federal Circuit has addressed the issue of patent damages for extraterritorial activities. These scenarios have arisen because there necessarily has been an act of domestic patent infringement. The damages theory advocated by the patent holder, however, has attempted to ensnare overseas sales, either under a lost-profits or reasonable-royalty theory. Additionally, the Federal Circuit has begun to address the appropriate scope of damages for infringement under section 271(f) of the Patent Act, a provision that defines infringement as the exportation of all the components of an invention, or a single component with no substantial noninfringing use, where it is to be assembled abroad. Necessarily, this provision contemplates the regulation of foreign markets through the domestic hook of acts of exportation. The Federal Circuit, nevertheless, rejected the patentee's requested remedy in this case.

This Article turns to the issue of the extraterritorial reach of patent damages. It analyzes the Federal Circuit's recent pronouncements using the two-step method articulated by the Supreme Court in RJR Nabisco, Inc. v. European Community. 'This analysis suggests that damages for infringement under various aspects of the Patent Act can be treated differently with respect to extraterritoriality. This Article goes on to suggest that the Federal Circuit's approach lacks nuance to account for the particular economic and legal circumstances that differentiate the different infringement provisions at stake. It draws on earlier work where I advocated for a conflicts-based approach to extraterritorial application of U.S. patents, and extends that work to these scenarios, offering a more balanced approach to assessing whether damages are appropriate in these circumstances.

Finally, this Article, explores whether the various damages theories involved in these cases, regardless of the territorial limits, suggest it is time to revisit the foreseeability/proximate cause aspect of Rite-Hite. The theories of damages seem quite far removed from the actual acts of infringement, even if they occurred within the United States. Some scholars have begun work on this enterprise, and these cases suggest such consideration is ripe.

ABSTRACT INTRODUCTION I. THE PRESUMPTION AGAINST EXTRATERRITORIALITY AND PATENT LAW A. The Policies Underlying the Presumption Against Extraterritorial Application of U.S. Law B. The Supreme Court's Recent Reinvigoration of the Presumption C. Application to Patent Law Generally 1. Examples of the Federal Circuit Limiting the Extraterritorial Reach of Patents 2. Examples Where the Federal Circuit Extends the Extraterritorial Reach of Patents II. DAMAGES AND EXTRATERRITORIALITY A. The Law of Patent Damages Generally B. Damages for Infringement Under [section] 271(a) C. Damages Under [section] 271(f) III. SHOULD THESE PROVISIONS BE TREATED THE SAME? RETHINKING THESE OUTCOMES IN LIGHT OF RJR NABISCO A. Applying the RJR Framework to [section] 284 Damages for Infringement Under [section] 271(a) B. Applying the RJR Framework to [section] 284 Damages for Infringement Under [section] 271(f) C. Application of RJR to These Cases Demonstrates a "One-Size Fits-Air Approach Is Not Appropriate IV. AN ALTERNATIVE APPROACH--CONSIDERING CONFLICTS WITH FOREIGN LAW V. IS IT TIME TO REVISIT RITE-HUE'S PROXIMATE CAUSE/ FORESEEABILITY PRINCIPLE? CONCLUSION INTRODUCTION

Two areas of interest at the Supreme Court in recent years have been patent law and extraterritoriality. As to the former, after nearly two decades of relatively little involvement in patent law, (1) the Supreme Court turned its attention to the patent system, and this interest has continued to the present. (2) As to the latter, the Supreme Court has addressed the presumption against extraterritoriality four times since 2007, (3) following a dearth of nearly fourteen years. (4) The Court appeared poised to address the presumption twice more in its October 2016 term, (5) although it ultimately did not address the presumption in one of those cases.

The Court's review of the presumption in a variety of contexts is not surprising given the confusion surrounding its applicability among the lower courts. (6) The Court's cases have considered the extraterritorial reach of U.S. laws in a variety of contexts, such as the Racketeer Influenced and Corrupt Organizations Act (RICO), (7) the Alien Tort Statute, (8) and United States securities laws. (9) Given the Court's interest in both patent law and extraterritoriality, it should come as no surprise that the Supreme Court has considered the intersection of these concerns, addressing the presumption in the context of patent law. (10) The Court has noted that "[t]he presumption that United States law governs domestically but does not rule the world applies with particular force in patent law." (11)

The strength of the presumption in the patent context has its roots in the lengthy history recognizing the domestic nature of patent law. (12) The Patent Act also contains very explicit territorial limits. For example, 35 U.S.C. [section] 271(a)--the basic infringement provision of the Patent Act--specifically notes that all of the acts of infringement must take place "within the United States." (13) Donald Chisum, author of the influential multi-volume patent law treatise Chisum on Patents, has stated that "[o]f the three principal forms of intellectual property, patent rights are most explicitly territorial." (14)

Notwithstanding the "particular force" of the presumption and the express language in the statute, the U.S. Court of Appeals for the Federal Circuit has been rather inconsistent in assessing the extraterritorial reach of U.S. patents. (15) At times, the court expressly has applied the presumption, giving it forceful effect. (16) Other times, the court mentions the presumption yet dismisses its application. (17) And yet at other times, the court fails to mention the presumption explicitly, ignoring the significant body of law that that underlies it. (18) The court has at times afforded extraterritorial reach in the face of seemingly clear language, while other times rejecting such scope.

With a global market place, issues of extraterritoriality have become more pressing in patent law. A significant literature has developed addressing the extraterritorial scope of U.S. patent law in a variety of contexts. (19) Typically these issues have addressed liability: whether a party should be considered an infringer in light of extraterritorial activity. More recently, however, the Federal Circuit has addressed extraterritoriality in the context of patent damages. (20) In these latter contexts, the court did apply the presumption against extraterritoriality forcefully, refusing to allow the patent owner damages for overseas sales even in the face of a domestic nexus for such damages. (21)

This Article will explore the Federal Circuit's approach to, and reasoning in, these cases in light of the Supreme Court's recent elaboration of the presumption. It will assess whether the two sets of cases--those from infringement under [section] 271(a) and those under the expressly extraterritorial provision of [section] 271 (f)--merit similar or different treatment. It ultimately concludes that the Federal Circuit's analysis as to these provisions is inconsistent with Supreme Court precedent. These provisions should not necessarily be treated similarly under current law. The Article then provides an approach that would look to various comity factors in determining whether such damages are appropriate. It then addresses a concern beyond extraterritorial damages: whether the law needs to develop a more coherent theory of the harm from patent infringement that should be redressable, even for domestic acts of infringement.

The Article proceeds as follows. Part I explores the presumption against extraterritoriality generally and its particular application in patent law. It begins with an overview of the Supreme Court's recent caselaw that has resulted in a formalized, two-step methodology for assessing the extraterritorial reach of U.S. law. It then reviews the Federal Circuit's inconsistent approach to determining the extraterritorial reach of U.S. patents. Part III then looks at the Federal Circuit's treatment of extraterritorial damages. Turning to the RJR Nabisco two-step process, it evaluates the appropriateness of the Federal Circuit's application of a strict territorial rule. Part IV offers an alternative, harmonized approach for these issues. Part V suggests that, beyond territorial concerns, the recent caselaw on damages shows a considerable lack of an appropriate theory for damages. The foreseeability prong of Rite-Hite'seems to have been stretched beyond its proper contour, suggesting the need for courts and commentators to begin to rethink the proximate cause aspect of damages. Part VI concludes.

  1. THE PRESUMPTION AGAINST...

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