Opinion ID: 3066248
Heading Depth: 4
Heading Rank: 1

Heading: We begin with the governing law. The Supreme

Text: Court has confirmed that the patent laws, like other laws, are to be understood against a background presumption against extraterritorial reach. Microsoft Corp. v. AT&T Corp., 550 U.S. 437, 454 (2007); Deepsouth Packing Co. v. Laitram Corp., 406 U.S. 518, 531 (1972) (superseded by statute, see Microsoft, 55 U.S. at 442–45); Halo, 769 F.3d at 1378–81; see Kiobel v. Royal Dutch Petro. Co., 133 S. Ct. 1659, 1669 (2013) (similar principle applied to Alien Tort Statute); Morrison v. Nat’l Australia Bank Ltd., 561 U.S. 247, 255 (2010) (Securities Exchange Act). The background principle applies not just to identifying the conduct that will be deemed infringing but also to assessing the damages that are to be imposed for domestic liability-creating conduct. Power Integrations, Inc. v. Fairchild Semiconductor Int’l, Inc., 711 F.3d 1348, 1371– 72 (Fed. Cir. 2013) (applying principle in lost-profits case, precluding damages for certain lost foreign sales); see also WesternGeco LLC v. ION Geophysical Corp., No. 20131527, 2015 WL 4032980, at –10 (Fed. Cir. July 2, 2015) (rejecting lost-profits damages as improperly based on foreign use in case under 35 U.S.C. § 271(f)(2)). Domestic actions often have extraterritorial effects, and foreign actions domestic connections. Two sovereigns CARNEGIE MELLON UNIVERSITY v. MARVELL TECHNOLOGY 37 GROUP, LTD often might be able to apply their laws to closely related aspects of what amount to an integrated economic activity—such as making something one place and selling it elsewhere, or selling something one place to be put to essentially its only use elsewhere. What constitutes a territorial connection that brings an action within the reach of a United States statute must ultimately be determined by examining the “ ‘focus’ of congressional concern” in the particular statute. Morrison, 561 U.S. at 266–67. For the present context, we think that § 271(a) provides the basis for drawing the needed line. It states a clear definition of what conduct Congress intended to reach—making or using or selling in the United States or importing into the United States, even if one or more of those activities also occur abroad. 5 Where a physical product is being employed to measure damages for the infringing use of patented methods, we conclude, territoriality is satisfied when and only when any one of those domestic actions for that unit (e.g., sale) is proved to be present, even if others of the listed activities for that unit (e.g., making, using) take place abroad. Significantly, once one extends the extraterritoriality principle to confining how damages are calculated, it makes no sense to 5 35 U.S.C. § 271(a) provides: “Except as otherwise provided in this title, whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefor, infringes the patent.” We need not separately discuss “offers to sell,” which, we have held, requires a United States location for the sale that is offered, not for the offer. See Transocean Offshore Deepwater Drilling, Inc. v. Maersk Contractors USA, Inc., 617 F.3d 1296, 1309 (Fed. Cir. 2010). 38 CARNEGIE MELLON UNIVERSITY v. MARVELL TECHNOLOGY GROUP, LTD insist that the action respecting the product being used for measurement itself be an infringing action. Thus, here the claim is a method claim, but the damages- measuring product practices the method in its normal intended use, cf. Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008) (applying exhaustion to sale of unit that sufficiently embodies a method claim); and the hypothetical negotiation would have employed the number of units sold to measure the value of the method’s domestic use (before production and after), as discussed above. In these circumstances, the inquiry is whether any of the § 271(a)-listed activities with respect to that product occur domestically. This approach accords with precedent. In Goulds’ Manufacturing Co. v. Cowing, 105 U.S. 253 (1881), the Supreme Court approved an award, based on an accounting of the defendant’s profits, reaching units made in the United States though some were to be used only abroad. Id. at 256. In Railroad Dynamics, Inc. v. A. Stucki Co., 727 F.2d 1506 (Fed. Cir. 1984), this court held that a royalty award could reach units made in the United States—valued at their sale price—regardless of whether they were sold abroad. Id. at 1519. On the other hand, in Power Integrations, we rejected a claim to lost-profits damages based on the defendant’s “entirely extraterritorial production, use, or sale of an invention patented in the United States,” pointing to § 271(a). 711 F.3d at 1371–72; see also WesternGeco, 2015 WL 4032908, at – 10 (rejecting foreign use as basis for lost-profits damages). There are significant conceptual differences between different measures of monetary compensation for infringement—including between what agreement the parties would have reached to value a defendant’s use of the patentee’s technology (reasonable royalty) and what amount of otherwise-made profits, based on sales at certain prices, the patentee lost as a result of the defendant’s use of the patentee’s technology (lost profits). See CARNEGIE MELLON UNIVERSITY v. MARVELL TECHNOLOGY 39 GROUP, LTD AstraZeneca, 782 F.3d at 1334–35; Warsaw Orthopedic, Inc. v. NuVasive, Inc., 778 F.3d 1365, 1377 (Fed. Cir. 2015). But in the respect that is crucial here, we think that there is a related constraint. In the lost-profits context, this court indicated in Power Integrations that, where the direct measure of damages was foreign activity (i.e., making, using, selling outside § 271(a)), it was not enough, given the required strength of the presumption against extraterritoriality, that the damages-measuring foreign activity have been factually caused, in the ordinary sense, by domestic activity constituting infringement under § 271(a). 711 F.3d at 1371–72. We think that the presumption against extraterritoriality, to be given its due, requires something similar in the present royalty setting. Although all of Marvell’s sales are strongly enough tied to its domestic infringement as a causation matter to have been part of the hypothetical-negotiation agreement, that conclusion is not enough to use the sales as a direct measure of the royalty except as to sales that are domestic (where there is no domestic making or using and no importing). As a practical matter, given the ease of finding cross-border causal connections, anything less would make too little of the presumption against extraterritoriality that must inform our application of the patent laws to damages. See Morrison, 130 S. Ct. at 2884 (“[I]t is . . . a quite valid assertion . . . that that presumption here (as often) is not self-evidently dispositive, but its application requires further analysis. For it is a rare case of prohibited extraterritorial application that lacks all contact with the territory of the United States. But the presumption against extraterritorial application would be a craven watchdog indeed if it retreated to its kennel whenever some domestic activity is involved in the case.”). b. Marvell implicitly recognizes the significance of the line for this case when it effectively limits its challenge to inclusion in the royalty base of chips that were “manufactured, sold, and used abroad without ever entering the 40 CARNEGIE MELLON UNIVERSITY v. MARVELL TECHNOLOGY GROUP, LTD United States.” Marvell Opening Br. 52; id. at 55 (“total sales are an impermissible measure of damages because they correlate with the number of chips used worldwide, and thus do not estimate use of the patented method in the United States”); id. at 58 (making a similar argument against the jury instruction). In any event, we see no extraterritoriality bar to including within the royalty base those chips which were imported into the United States for use in the United States. Section 271(a) makes clear that Congress meant to reach such “import[ation]” and “use[]” as domestic conduct. And we have been presented no basis on which to deem legally insufficient, or of deficient weight for new-trial purposes, the evidence CMU submitted to the jury, based on industry data sources, of how many of Marvell’s hard-drive chips were imported into the United States. We therefore deny JMOL as to the royalty based on those chips. We also deny a new trial as to royalties based on those chips. Marvell’s claim of error in the jury instructions affects only royalties based on chips whose inclusion depends entirely on the location of sale. We therefore affirm the judgment insofar as the royalty rests on imported chips. The amount is certain (stated above) up to the close of the damages period before the jury. On the other hand, a recalculation by the district judge is needed to confine the supplemental damages to such chips (pending a retrial on the remaining-chip issue), and a similar narrowing is needed for the collection of ongoing royalties (pending retrial). c. As to the remaining chips, avoiding extraterritoriality in relying on those chips in the royalty base depends here on whether they were sold in the United States, there being no other applicable basis in § 271(a) to justify CARNEGIE MELLON UNIVERSITY v. MARVELL TECHNOLOGY 41 GROUP, LTD including those chips. 6 As to those chips, we draw two conclusions. First, Marvell is not entitled to JMOL on the evidence and legal arguments presented to us. Second, a new trial is needed to determine whether the sales are properly said to have been in the United States. The standards for determining where a sale may be said to occur do not pinpoint a single, universally applicable fact that determines the answer, and it is not even settled whether a sale can have more than one location. See Halo, 769 F.3d at 1378–79 (collecting cases; relying in part on N. Am. Philips Corp. v. Am. Vending Sales, Inc., 35 F.3d 1576, 1579 (Fed. Cir. 1994)). Places of seeming relevance include a place of inking the legal commitment to buy and sell and a place of delivery, see id.; Transocean, 617 F.3d at 1311; cf. Norfolk & W. Ry. Co. v. Sims, 191 U.S. 441, 447 (1903), and perhaps also a place where other “substantial activities of the sales transactions” occurred, Halo, 769 F.3d 1379 & n.1 (focusing on where “substantial activities of the sales transactions” occurred, but declining to decide whether the location of contract formation on the facts of that case would have established a sales location). At this point, we do not settle on a legal definition or even to say whether any sale has a unique location. The governing legal standards have not been the subject of meaningful briefing here. Identifying those standards, along with relevant factual development, is better undertaken in the remand we order, in part because further factual development may narrow the legal issues actually requiring decision. At present, we do not have a full understanding of, among other things, what a “design win” meant legally and practically, how such a “design win” in the United States in this case compares 6 For the ongoing royalty, the question is a presentand future-tense question. For simplicity, we refer just to the past in our discussion. 42 CARNEGIE MELLON UNIVERSITY v. MARVELL TECHNOLOGY GROUP, LTD with the activities that occurred in the United States in Halo (which were insufficient), and where specific chip orders were negotiated and made final. Until fuller exploration of factual and legal issues occurs on remand, it is premature to rule on whether sales occurred in the United States for the chips at issue. We do hold that, on the arguments presented to us, Marvell is not entitled to JMOL that the sales did not occur in the United States. The district court explained that Marvell had the opportunity to present evidence at trial that the sales took place only abroad and simply failed to do so. Carnegie Mellon, 986 F. Supp. 2d at 644. The court concluded that the record made at trial, including but not limited to a joint stipulation about the sales process, permitted the “jury to find that the sales occurred in the United States.” Id. at 645, 646. We cannot conclude otherwise on the record here and on the limited effort Marvell has made to develop legal arguments about sale-location standards. Chip designers like Marvell sell customized chips with designs specifically tailored for incorporating into customers’ products. J.A. 42,123–24 (Marvell VP of sales: “[E]very chip that Marvell designs for a customer is specifically aimed for that particular customer. It’s not, cannot be sold to the, you know, in the general market.”). Because of the customized nature of the chips, designers and potential customers put themselves through a lengthy “sales cycle,” involving extensive joint work over several years, before any sale is made and chips enter mass production. Only at the end of that sales cycle, if the chip designer is successful, does it secure a “design win,” but that win generally results in a customer’s exclusive use of that designer’s customized chip for a certain period, amounting to tens or hundreds of millions of chips over several years. J.A. 43,654–55 (parties’ joint stipulation on the sales cycle); see J.A. 44,426 (executive at Western Digital testifying that when he “recommend[ed] CARNEGIE MELLON UNIVERSITY v. MARVELL TECHNOLOGY 43 GROUP, LTD that Marvell be selected as the read chip channel supplier,” Marvell would become “the exclusive read chip channel supplier”). One executive from a now-defunct chip maker called the industry a “winner takes all business.” J.A. 42,121. Marvell’s facilities are in northern California, and CMU’s industry expert, Dr. Bajorek, showed that “with the exception of the chip making . . . all the activities related to designing, simulating, testing, evaluating, qualifying the chips by Marvell as well as by its customers occur[ ] in the United States.” J.A. 42,159; see also J.A. 35,075–77 (charts showing relevant activity and where it occurred); J.A. 43,650–55 (parties’ joint stipulation). He also used Marvell’s records to show that Marvell, from California, provided potential customers with samples and simulations incorporating its designs. E.g., J.A. 42,147–48; J.A. 53,570, 53,572, 53,612, 53,613. Marvell itself stipulated that “[d]uring [its] sales cycle, [its] engineers assist [its] customers in implementing [its] solutions into their product.” J.A. 43,654. And there was some evidence suggesting that specific contractual commitments for specific volumes of chips were made in the United States. Carnegie Mellon, 986 F. Supp. 2d at 645 (referencing testimony that sales were “signed off on” in California); J.A. 42,162 (similar testimony by CMU’s industry expert). Marvell points us to no evidence to the contrary. On this record, we cannot say that a jury could not find the chips to have been sold in the United States (perhaps not only in the United States). The parties’ chip stipulation, cited above, suggests a substantial level of sales activity by Marvell within the United States, even for chips manufactured, delivered, and used entirely abroad. That evidence is strengthened by the record details regarding Marvell’s contracting process, and Marvell has not pointed us to significant evidence that would block an inference that sales commitments oc- 44 CARNEGIE MELLON UNIVERSITY v. MARVELL TECHNOLOGY GROUP, LTD curred in the United States. On this record, and the current set of legal arguments about “sale” standards, Marvell is not entitled to JMOL that the royalty base must exclude chips not imported into the United States. On the other hand, we do not think that CMU is enti- tled to affirmance with respect to those chips. In the portion of the jury instructions at issue here, the district court first confirmed a limit on infringement liability: “Marvell cannot be found to have directly or indirectly infringed in connection with chips that are never used in the United States.” J.A. 45,456. It then added: “To the extent, however, that Marvell achieved sales resulting from Marvell’s alleged infringing use during the sales cycle, you may consider them in determining the value of the infringing use.” J.A. 45,456. Marvell challenges that instruction on the ground that it “includ[ed] sales of chips manufactured and sold abroad without entering the United States.” Marvell Opening Br. 58. Marvell is wrong to the extent it argues that the objected-to sentence is incorrect. The jury properly was told that it “may consider” any sales that resulted from the infringing use in order to value that use: for the reasons stated above, consideration of such sales was a sound part of determining the reasonable royalty for the infringing use. But Marvell is right in identifying something missing from the instructions, namely, an instruction that required the jury to find a domestic location of sale as to those chips not made or used in, or imported into, the United States. For those chips, but not for those which did enter the United States, the instructions did not “properly apprise[] the jury of the issues and the applicable law.” Dressler v. Busch Entertainment Corp., 143 F.3d 778, 780 (3d Cir. 1998) (quotation marks and citation omitted). If Marvell had properly objected to the omission of such an instruction, we would apply the usual instruction- CARNEGIE MELLON UNIVERSITY v. MARVELL TECHNOLOGY 45 GROUP, LTD review standards to find the omission erroneous, and we would find the error harmful as to those chips not made or used in, or imported into, the United States. See Forrest v. Beloit Corp., 424 F.3d 344, 349 (3d Cir. 2005) (“An error will be deemed harmless only if it is ‘highly probable’ that the error did not affect the outcome of the case.”). Marvell makes no meaningful argument about the jury instructions except for the non-imported chips. And CMU makes no meaningful argument—at most it makes a passing assertion—that the record effectively compelled a finding as to the domestic location of all of the chip sales. As the district court pointed out, however, Marvell did not properly object to the omission of an instruction focusing on the place of sale for those chips which were not made or used in, or imported into, the United States. Carnegie Mellon, 986 F. Supp. 2d at 644–45. Marvell does not show otherwise on appeal. And it has pointed to no place in the record supporting its assertion that, before the time arrived for presenting proposals, objections, and arguments regarding jury instructions, the district court had declared that the location of sales was legally immaterial. Accordingly, we consider Marvell’s objection here only under the standard of “plain error.” See Franklin Prescriptions, Inc. v. New York Times Co., 424 F.3d 336, 339–40 (3d Cir. 2005) (“Where a party fails to object properly, we may review for ‘plain error in the instructions affecting substantial rights.’ Fed. R. Civ. P. 51(d)(2).”). We think that the plain-error standard is met in the circumstances of this case. “Plain error review is discretionary—it should be exercised sparingly and should only be invoked with extreme caution in the civil context.” Id. at 341 (internal quotation marks omitted). We are to determine if the error was “fundamental” and caused “prejudice resulting in a miscarriage of justice,” considering “the obviousness of the error, the significance of the interest involved, and the reputation of judicial proceed- 46 CARNEGIE MELLON UNIVERSITY v. MARVELL TECHNOLOGY GROUP, LTD ings if the error stands uncorrected.” Id. at 340–41 (internal quotation marks omitted). Here, we conclude, the standard is met because of the fundamental importance of the extraterritoriality principle; the degree of obviousness of the error in light of Power Integrations, decided after the trial in this case; and the centrality of a sale-location determination to satisfying the extraterritoriality principle for the bulk of the chips used for the royalty determination. That is enough for a “miscarriage of justice” under a rule whose function is to produce only a new trial, not a judgment as a matter of law for the objecting party. We accordingly must vacate the portion of the damages award, original and supplemented, and the portion of the ongoing-royalty order, which apply the royalty rate to chips not made or used in, or imported into, the United States. A new trial is required to determine whether those chips were sold in the United States.