Federal Circuit Applies WesternGeco Framework to Expert’s Effort to Seek Royalties Flowing from Customers Overseas | Sheppard Mullin Richter & Hampton LLP

In 2010, Trading Technologies International, Inc. (“TT”) filed suit against IBG LLC and its subsidiary Interactive Brokers LLC for patent infringement. The four patents in question, U.S. Patent Nos. 6,766,304; 6,772,132; 7,676,411; and 7,813,996 — were related and directed to graphical user interfaces used by commodity traders. TT alleged that IBG’s software, TWS BookTrader, which is used by traders to buy and sell on exchanges, infringed its patents.

Before trial, the district court ruled that the ‘411 and ‘996 patents were invalid on summary judgment and excluded TT’s damages expert from testifying on a damages theory based on overseas royalties. At trial, a jury found the ‘304 and ‘132 patents were infringed and awarded TT approximately $7 million. TT then appealed three rulings made by the district court: the invalidation of the ‘411 and ‘996 patents under 35 U.S.C. § 101, the exclusion of one of TT’s damages theories as evidence at trial, and the denial of TT’s motion for a new trial on damages. The Federal Circuit affirmed all three rulings.

Background[1]

On cross-motions for summary judgment, the district court found that two of TT’s patents, ‘411 and ‘996 were invalid because they claimed subject matter that is ineligible for patenting under 35 U.S.C. § 101. Specifically, TT did not show how the broader patents provided a specific solution to the problem solved by ‘304 and ‘132 patents, and the district court concluded the patents merely amounted to an abstract idea of buying and selling on an electronic exchange.

Before the district court’s § 101 ruling, IBG moved to exclude testimony of TT’s damages expert under FRE 702. The district court excluded one of TT’s damages theories, which proposed including foreign users of TWS BookTrader in the royalty calculation. In addressing this ruling, the Federal Circuit applied several decisions, including Western Geco and Power Integrations, to determine whether an application of a statute is impermissibly extraterritorial.

Finally, TT argued that discovery deficiencies warranted a new trial. TT argued that IBG withheld key information which included a list of various features offered on TWS BookTrader. The district court denied TT’s motion for a new trial, finding that TT had plenty of time to uncover the problems with IBG’s evidence before trial.

Issues

1. Whether the district court erred in finding that TT’s patents, ‘411 and ‘996, were invalid.
2. Whether TT is entitled to reasonable royalties from IBG because it made the accused product in the United States even though they were used by customers overseas.
3. Whether the district court erred in denying TT a new trial.

Holdings

1. No, ‘411 and ‘996 patents claim abstract ideas which are ineligible subject matter.
2. No, TT is not entitled to reasonable royalties from IBG “making” the accused products in the Unites States, even though they were used by customers overseas.
3. No, the district court did not abuse its discretion in denying TT a new trial.

Reasoning

1. The Federal Circuit already issued precedential decisions concerning patents from the same patent family and found such patents to be invalid as abstract ideas. The facts of this case were not found to be materially different to justify a different ruling.
2. Under the WesternGeco framework, a court takes a two-step approach. First, the court asks “whether the presumption against extraterritoriality has been rebutted” by way of congressional action and if the presumption had not been rebutted, it then asks, “whether the case involves a domestic application of the statute.” WesternGeco LLC v. ION Geophysical Corp., 585 U.S. 407 (2018) TT focused on where the software was developed and failed to show the “needed causal relationship” between the overseas conduct and the alleged infringement. The Federal Circuit noted that TT instead should have established where the actual computer readable media were manufactured.
3. The Federal Circuit did not see clear error in the district court’s rejection of TT’s assertion that IBG sponsored false testimony. Thus, the Court agreed with the district court’s reasoning and emphasized that parties should always conduct thorough investigation of facts before trial.

FOOTNOTES

[1] Harris Brumfield, Trustee for Ascent Trust v. IBG LLC, Interactive Brokers LLC, 2022-1630 (Fed. Cir. Mar. 27, 2024)

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