Boundaries, Extraterritoriality, and Patent Infringement Damages

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