Fujitsu Limited v. Tellabs, Inc., No. 09 C 4530, 2013 WL 2285794 (N.D. Ill May 23, 2013).
In Fujitsu Limited, the court followed case law and precluded a foreign parent/sole patent holder from recovering lost profits for sales lost by a wholly-owned subsidiary/non-exclusive licensee. The court also certified to the Federal Circuit two key questions regarding the ability of a foreign parent to recover for sales lost by a subsidiary. If the Federal Circuit takes the appeal, it could provide clarity for Poly-America and Mars or could make new law.
Plaintiff Fujitsu Limited, the sole plaintiff and sole owner of patents relating to telecommunications systems, sued Defendant Tellabs for patent infringement. Id. at *1. Fujitsu Limited (“FL”) does not sell telecommunications systems in the U.S., but domestic sales of such systems are made by its wholly-owned subsidiary and non-exclusive licensee, Fujitsu Network Communications, Inc. (“FNC”). Id.
FL filed an expert report outlining damage calculations based on a theory of lost profits resulting from contracts that FNC lost to Tellabs. Id. at *2. Tellabs moved for summary judgment on the issue of whether FL could recover lost profits, either on its own behalf or on behalf of FNC. Id.
Granting the motion, the court said FL would not be allowed to present the theory of lost profits as a theory of recoverable damages at trial. Id. at *9. In reaching this conclusion, the court:
- Cited to Poly-America, and decided FL did not compete in the U.S. and thus lost no profits as a result of the alleged infringement. Id. at *3, *8.
- Concluded none of the payments by FNC to FL were the transfer of profits or the “inexorable flow” of profits from FNC to FL required by Mars. Id. at *8.
- Found the fact that customers and others did not appear to differentiate between FL and FNC was not material to the lost profits issue. Id.
- Found a fee paid by FNC for use of the “Fujitsu” brand was more of an inter-corporate penalty than a flow of profits. Id.
- Found FL’s tax strategy was not the “inexorable flow” of profits required by Mars. Id.
Importantly, the court also certified two questions for appeal under 28 U.S.C. § 1292(b);
(1) Can a foreign patent owner that does not sell any products in the U.S. market collect lost profits damages based on sales lost by its wholly-owned U.S. subsidiary, which is a non-exclusive licensee under the patent?
(2) Can a foreign patent owner that manufactures and sells component parts to its wholly-owned U.S. subsidiary via a transfer pricing mechanism designed to comply with the Internal Revenue Code, 26 U.S.C. § 482, recover as lost profits the lost payments from its wholly-owned U.S. subsidiary for these component parts? Id. at *9.