Damages for Extraterritorial Infringement of U.S. Patents

Even if the product is sold by a U.S. company, it is likely that foreign subsidiaries are performing many of the functions of that U.S. company. Indeed, it is easier than ever before for multinational companies to delegate specific functions of their business to specific parts of the globe. For example, foreign subsidiaries typically purchase components used in end-products from foreign vendors. And then virtually all manufacturing of the components, as well as the assembly of the devices, happens outside the U.S., either by other subsidiaries or by contract manufacturers. But much of the design and marketing activity for these devices occurs in the U.S. As does decision-making about which vendor's component to use and what price to pay for that component, such as a computer chip. These decisions about which components to incorporate into a product are significant, since those components likely will be used for all products, regardless of where in the world these products are sold.

These modern supply-chain realities have created headaches for courts for years, particularly in patent cases. When the owner of a U.S. patent sues the manufacturer of a computer chip for patent infringement, that manufacturer will surely claim it does not make or sell any of those chips in the U.S. And, indeed, it likely can point to purchase orders and invoices between two foreign entities, with shipment and delivery occurring outside the U.S. At most, the manufacturer will argue, any damages awarded by a jury must be calculated based on only those chips eventually imported into the U.S. within an end-product. Not only is this complicated to determine, but the damages claim will be limited to only a fraction of the total sales of the infringing chips. This leaves the patent owner asking why foreign sales must be excluded, when so much of the business activity that led to those foreign sales took place in the U.S.