Cotter on Extraterritorial Damages in Patent and Copyright Law

I have posted on ssrn the final pre-publication draft of my paper Extraterritorial Damages in Patent Law, which will soon be coming out in volume 39 of the Cardozo Arts & Entertainment Law Journal, as well as a new paper titled Extraterritorial Damages in Copyright Law, 73 Florida Law Review __ (forthcoming 2022).  Here is the abstract for the patent law paper:

 

In 2018, the Supreme Court in WesternGeco LLC v. ION Geophysical Corp. held that the owner of a U.S. patent could recover its lost profit on sales it would have made outside the United States, but for the defendant’s violation of 35 U.S.C. § 271(f)(2)—a rarely-used provision of the Patent Act that prohibits, subject to certain conditions, the export of patented components for combination abroad. The Court left open the question of whether owners also can recover extraterritorial damages resulting from the (much more common) setting in which the defendant is accused of an initial act of making, using, or selling the invention within the United States, in violation of § 271(a). Consideration of this question exposes an ostensible tension between two long-established principles of U.S. patent law: first, that owners are, in general, entitled to full compensation for their losses; and second, that patent rights are territorial, that is, unenforceable against conduct occurring outside a nation’s borders.

In this Article, I argue that allowing patent owners to recover damages for extraterritorial losses stemming from violations of § 271(a) does not, in fact, undermine the territoriality principle, as long as courts are consistent in their application of three limiting principles. The first is that the domestic infringement must be the cause-in-fact (or “but-for” cause) of the defendant’s subsequent foreign sales. While this requirement might seem obvious, in the present context it means that, if the defendant could have avoided infringing the U.S. patent by outsourcing production, then as a matter of economic logic the domestic infringement is not a cause-in-fact of the extraterritorial sales, and at most the patent owner is entitled to a royalty reflecting the lower cost, if any, of domestic manufacture. Second, even if the domestic infringement is the cause-in-fact of foreign sales, the patent owner cannot recover damages unless those sales also are proximately caused by the domestic infringement. Contrary to the views of some commentators, however, there is nothing inherently unforeseeable, indirect, remote, or speculative about foreign sales tied to domestic infringement, and no sound public policy reason for categorically excluding them from consideration. The third principle is that courts should not compensate patent owners twice for the same loss. Fortunately, courts in the U.S. and elsewhere have considerable experience applying, under a range of circumstances, the “single recovery” rule (otherwise known as the rule against double recovery). Taken together, application of these principles should enable courts to avoid the parade of horribles that some commentators fear will result from any slackening of the territoriality principle.

And here is the abstract for the copyright paper:  

 A recurring fact pattern in U.S. copyright infringement litigation involves a defendant who makes an unauthorized copy of a copyrighted work, in the United States; exports it to another country, where it is used to generate additional copies; and then profits from the use or sale of these copies (outside the United States). Under these circumstances, the question sometimes arises whether a U.S. court can award damages or profits reflecting the foreign uses and sales, without overstepping traditional territorial limitations on the application of U.S. copyright law. Several courts, over the years, have concluded that the answer is yes, as long as the initial act of U.S. infringement is what enables the subsequent foreign exploitation. In this article, I argue that this “predicate act” doctrine is largely correct, both doctrinally and as a matter of policy, though subject to certain limitations. More specifically, I argue that, if the defendant proves that it could have exploited the work in another country by employing a cognizable noninfringing alternative to the predicate act of domestic infringement—for example, by acquiring a lawfully-made copy in the U.S. and exporting that copy for further use abroad—the only damages or profits that are properly attributable to the U.S. infringement are those that reflect the incremental loss or benefit occasioned by the defendant’s avoidance of this alternative. In such a case, consistent with the territoriality principle, the amount awarded specifically for the U.S. infringement may be minimal—though U.S. courts should be receptive to exercising jurisdiction over supplemental claims arising under foreign copyright law, and where appropriate awarding monetary relief under foreign law. In other cases, by contrast, where the defendant could not have engaged in the foreign activity without a predicate act of U.S. infringement, the courts are right to award damages or profits reflecting the foreign exploitation, albeit subject to traditional proximate cause principles and to the single recovery rule. Application of these standards will enable courts to abide by the territorial limitations of U.S. copyright law while at the same time ensuring full compensation, as the facts warrant. 

 

Comments welcome.