Argument Recap

An interesting case that was set to be argued this week involved Power Integrations, Inc. and Fairchild Semiconductor International, Inc. This case presented the question of whether foreign lost profits may be recovered when patent infringement is proven under 35 U.S.C. § 271(a)—that is, for direct patent infringement, which requires that the infringement occur within the United States. This case—involving a rare interlocutory appeal—was one of only two cases set to be argued this month that included an amicus brief. The parties, however, settled the case and the Federal Circuit granted a joint motion to dismiss the appeal. Thus, while this blog post ordinarily would have been a recap of the oral argument, instead we are limited to analyzing the briefing in the case, highlighting the lingering question the case presented and the parties’ arguments on point.

In more detail, the parties in this case disputed the impact of the Supreme Court’s decision in WesternGeco LLC v. ION Geophysical Corp. (WesternGeco II) that foreign lost profits may be recoverable under 35 U.S.C. § 284 for infringement pursuant to 35 U.S.C. § 271(f), which defines infringement based on exportation. According to Power Integrations, pursuant to the reasoning of WesternGeco II, it is entitled to foreign lost profits under 35 U.S.C. § 284 for infringement pursuant to 35 U.S.C. § 271(a), which defines direct infringement. It argues this is so because the Supreme Court effectively overruled the Federal Circuit’s contrary conclusion in a prior appeal involving these same parties, Power Integrations, Inc. v. Fairchild Semiconductor International, Inc., 711 F.3d 1348 (Fed. Cir. 2013) (Power Integrations I).

Fairchild filed the appeal, while Power Integrations filed a cross-appeal. In Fairchild’s opening brief, it noted that the Federal Circuit granted it leave to file this interlocutory appeal because, in the words of the court, “the issue of whether WesternGeco . . . implicitly overruled Power Integrations is a controlling question of law as to which there is substantial ground for difference of opinion and for which an immediate appeal may materially advance the ultimate termination of the litigation, and warrants immediate review under [28 U.S.C.] § 1292(b).”

On the merits, Fairchild argued that “[t]he Supreme Court expressly limited WesternGeco to the narrow context of 35 U.S.C. § 271(f)(2), so that decision can have no bearing on this Court’s holding in Power Integrations I that § 271(a) provided no basis on the record here to award infringement damages based on worldwide sales.” But, according to Fairchild, even were the court “to apply WesternGeco’s analysis to § 271(a), it would not change Power Integrations I’s result: Whereas § 271(f)(2)’s ‘focus’ is on the prohibited act of exporting components of an invention from the United States with the intention that they be combined abroad, § 271(a)’s ‘focus’ is on (as relevant here) the manufacture and sale of complete inventions.” And Fairchild argued that, “in this case, the vast majority of the conduct relevant to § 271(a)’s ‘focus’ took place abroad: the evidence overwhelmingly concerned Fairchild’s manufacture of chips in Korea and sales to a Korean customer.” Thus, argued Fairchild, “[t]o award damages for those foreign sales would be to extend U.S. patent law into another country’s jurisdiction.”

In Power Integrations’ opening cross-appeal brief, it argued that “[t]he rationale of the Supreme Court’s decision in WesternGeco II,” where the Court decided that 35 U.S.C. § 271(f) allows patentees to recover foreign lost profits, “is fully applicable to 35 U.S.C. § 271(a).” This is so, according to Power Integrations, “because the focus of Section 271(a)—even more than Section 271(f)—is on infringement in the United States.” Thus, “[i]f such U.S. infringement actually causes damages abroad, as it did here, the Supreme Court’s holding is binding.” Power Integrations further argued that the Federal Circuit is “not free to disregard the Supreme Court’s holding in WesternGeco II for policy reasons,” that it was “not seeking to expand the definition of infringement,” and that “WesternGeco II’s effect on damages is self-limiting because it will be rare that parties can prove that U.S. infringement causes foreign harm.”

Fairchild’s subsequent combined response and reply brief argued that the Supreme Court’s decision in WesternGeco did not overrule Power Integrations I. Instead, Fairchild indicated that the Supreme Court’s decision in WesternGeco was a “narrow decision, expressly limited to § 271(f)(2).” Lastly, Fairchild argued that even if WesternGeco is “not expressly limited to § 271(f)(2) . . . . [t]he opinion’s analysis confirms that Power Integrations cannot recover worldwide damages on its § 271(a) claim on the facts of this case.”

In its reply brief, Power Integrations argued for reinstatement of the jury’s verdict because “[t]he Jury in this case found that Fairchild’s acts of infringement in the United States were the but-for cause of lost profits for sales Power Integrations would have made to a customer (Samsung) located in Korea.”

Notably, Intel Corporation filed an amicus brief in support of Fairchild. Intel made two main arguments. First, Intel argued that the Supreme Court has a long-standing precedent that “U.S. patent laws apply only domestically.” Second, Intel argued that overruling the Court’s precedent in WesternGeco “would be an unwarranted expansion of U.S. patent law into areas properly subject to regulation by other countries.”

As mentioned, the settlement of the case by the parties resulted in its dismissal, which prevented the Federal Circuit from answering the question the case presented. But two aspects of the case signal the importance of that question: the fact that the Federal Circuit granted leave for it to be presented to the court in an interlocutory appeal, and the interest of a third party (here Intel) that rose to the level of filing an amicus brief in the case. It remains to be seen whether this question is so significant and re-occurring that it will be presented to the court again for resolution in another, future case.