Foreign Parent Could Not Seek Lost Profits Based On Sales Lost By Its United States Subsidiary

After Fujitsu Limited ("Fujitsu") filed a patent infringement action against Tellabs, Inc. ("Tellabs"), Tellabs filed a motion for summary judgment on the issue of lost profits. As explained by the district court, Fujitsu Limited, a Japanese corporation, is the sole owner of two United States patents that Fujitsu Limited asserted in the litigation, U.S. Patent No. 5,521,737 ("137 Patent") and U.S. Patent No. 5,526,163 ("163 Patent"). Although Fujitsu Limited owns the patents, which relate to telecommunications systems, Fujitsu Limited does not sell any telecommunications systems in the United States. Sales of Fujitsu Limited's patented telecommunications systems in the United States are made by a non-exclusive licensee, its wholly-owned United States subsidiary FNC, which is a California corporation and headquartered in Richmond, Texas.

Tellabs contended in its motion "that (1) Fujitsu Limited is not entitled to damages in the form of the lost profits because it sells no products in the United States and (2) Fujitsu Limited cannot claim the lost profits of its North American subsidiary and non-exclusive licensee, Fujitsu Network Communications, Inc." The district court explained that Fujitsu Limited sought to recover the profits that were allegedly lost by its domestic subsidiary, FNC, due to Tellabs' sales of the allegedly infringing systems pursuant to the 2005 Verizon and 2006 Quest contracts that Tellabs obtained.

To analyze whether Fujitsu could seek lost profits in this situation, the district court stated that "[t]he issue governing whether a parent company patent owner may be compensated under the damages theory of lost profits for its wholly-owned subsidiary's lost sales turns on whether the subsidiary's profits "flowed inexorably" to the patent-owner parent. Mars, 527 F.3d at 1367. The mere fact that the subsidiary's lost sales "may have caused harm" to the parent company is not sufficient, by itself, to establish lost profits damages. Id. at 1365."

As further explained by the district court to analyze the facts here, "Fujitsu Limited, a Japanese corporation, owns the patents-in-suit. FNC, a California corporation headquartered in Texas, is a separate entity from Fujitsu Limited but is its wholly-owned subsidiary. The sales in the United States of the Fujitsu FLASHWAVE 7500 operating system at issue are made only by FNC. FNC is a non-exclusive licensee of the Fujitsu Limited patents-in-suit. Fujitsu Limited has also licensed the...