On March 6, 2026, the Federal Circuit issued a precedential opinion in the case of Exafer Ltd. v. Microsoft Corporation (No. 24-2296) reversing a district court’s exclusion of the patent owner’s damages expert’s opinion. A patent owner who successfully obtains a verdict of liability is entitled to “damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer.” 35 U.S.C. § 284. The patent owner almost universally presents its case for damages through an expert witness who provides an economic analysis of the rationale for the patent owner’s damages request. Having a damages expert’s opinion excluded is devastating and frequently case dispositive, as it was in this case because the district court also granted a motion for summary judgment based on the absence of a remedy. What was the district court’s reason for excluding the opinion and why did the Federal Circuit say the district court got it wrong?

Even if patent litigation is not your primary practice area, given the language of 35 U.S.C. § 284 your intuition is probably telling you that damages for patent infringement should be connected somehow to the invention in the asserted patent. That intuition is correct: “the governing rule is that the ultimate combination of royalty base and royalty rate must reflect the value attributable to the infringing features of the product, and no more.” Ericsson, Inc. v. D-Link Sys., Inc., 773 F.3d 1201, 1226 (Fed. Cir. 2014). A key point of tension in patent litigation is over what should form the royalty base. In a case in which the patent owner accuses a device or system of infringing, what parts of it are connected enough to the patented invention so that it would be fair to attribute the economic activity associated with those parts to the patented invention?

This tension played out in the district court in this case. Exafer’s expert used revenue associated with virtual machines (“VMs”), components not accused of infringing, as the royalty base. Microsoft objected to the “application of a royalty rate to sales of unaccused VMs,” reasoning that the caselaw “prevents [Exafer] from expanding its patent monopoly to unpatented products.” Exafer Ltd. v. Microsoft Corporation, No. 24-229, slip op. at 7 (Fed. Cir. Mar. 3, 2026). Now this may seem to be a slam dunk. The VMs were not even infringing. How could Exafer think it should get a piece of the VM sales as a royalty?

A full treatment of convoyed sales and similar collateral economic issues is beyond the scope of this post. But the general principle is that when there is economic activity generated by infringing a patent, not all that economic activity necessarily relates directly to the sale or use of infringing articles. There could be related economic effects, such as the sale of non-infringing articles that a defendant bundles with the infringing articles, or cost savings that a defendant would not have realized but for its infringing activities. That collateral economic activity can be part of the picture of what the use of the patented invention is worth to the defendant, and therefore what it would have been willing to pay had it sought a license instead of infringing. Analysis of this hypothetical license negotiation forms the core of a patent damages opinion. So, if there was economic activity tied to the VMs that Exafer could attribute to the patents, even if the VMs themselves did not infringe the patents, the VMs could potentially form part of the damages analysis.

The Federal Circuit held that Exafer had sufficiently connected the dots between its patents and the VMs. Exafer’s technical expert set up the damages opinion by opining that the network optimization and efficiency improvements achieved by the claimed inventions allowed Microsoft to operate more VMs on a single CPU and thus sell more VMs without the need for additional network infrastructure. Exafer at 8. Exafer’s damages expert used the incremental benefit of increased VM density to construct a damages model based on the additional sale of VM-hours Microsoft was able to realize due to the patented inventions. Id. The Federal Circuit said this was justified because “Microsoft’s own documents demonstrate that [Exafer’s damages expert] Mr. Blok’s VM-hour royalty base was based on a causal connection between the Accused Features of the Azure Platform and VMs.” Exafer at 6.

In contrast, the caselaw the district court and Microsoft relied on, Enplas Display Device Corp. v. Seoul Semiconductor Co., 909 F.3d 398 (Fed. Cir. 2018), involved a damages model that included products that “had no causal connection to the accused infringing products such that the royalty base improperly included activities that do not constitute patent infringement.” Exafer at 6 (citation modified). In other words, Enplas does not stand for a blanket rule that a patent owner cannot include non-infringing products in the royalty base.

Practice Tips: When representing a patent owner, establishing a technical basis for a causal connection to support this type of analysis may be time intensive, but possibly the least of your worries. Attempts to get discovery of internal financial, marketing, or business analyses of admittedly non-infringing activities will often be met with an accusation that you are “fishing.” The process of gathering this type of information should begin early and be bolstered by as much open source and proprietary information as possible, because it may require motion practice to convince a magistrate or district judge that you are entitled to the requested discovery.

When working on the defense side, you must poke holes in the purported technical nexus between the alleged infringing acts and the economic activity due to non-infringing activities. Also push hard for written discovery on the factual basis for a patent owner’s theory that non-accused activities should be part of the royalty base, even when met with an objection that the request is premature because it is the domain of expert opinion. The defendant is entitled to know the facts an expert will base his or her opinion on without waiting for a written report.

On February 25, 2026, a panel of the Seventh Circuit held oral argument in the case of Kangol LLC v. Hangzhou Chuanyue Silk Import & Export Co., Ltd., No. 25-2205. The appeal arises out of an unsuccessful attempt to void a default judgment against a Chinese entity in a Schedule A case (click here for a description of Schedule A cases). As fans of Schedule A cases know, however, the juicy issue being litigated across the country is whether and in what circumstances a plaintiff can serve a summons and complaint on a defendant in a Schedule A case by email. In particular, email service raises thorny issues in matters involving defendant entities from countries that have objected to service of process by postal channels, such as China, as I have written about previously. Appellant Hangzhou Chuanyue’s Statement of the Issues framed this as a question of whether (to paraphrase) the Convention on Service Abroad of Judicial and Extrajudicial Documents in Civil and Commercial Matters, Nov. 15, 1965 (the “Hague Service Convention”) provides for exclusive methods of service of process (when it is applicable), and whether email service is an objected to “postal channel” or otherwise inconsistent with the prescribed methods of the Hague Service Convention. I listened to the hearing to get a sense of what issues seemed to concern the judges on the panel. I do not intend to summarize the back and forth between the panel and the litigants or try to read the tea leaves about how the panel may rule based on its questions.

Some of the questions were about practicality. The panel asked Hangzhou Chuanyue’s counsel what impact a ruling in his client’s favor would have on other cases like it. Would it simply create an obligation for a plaintiff to tell a district court what efforts it made to identify a physical address for a defendant? This relates to the threshold question of whether the Hague Service Convention even applies, because it “shall not apply where the address of the person to be served with the document is not known.” (Hague Service Convention, Art. 1.)

Another question about the practical impact of the ruling related to whether the Seventh Circuit would be striking out on its own depending on how it rules. The panel asked Kangol’s counsel whether ruling in his client’s favor would create a circuit split. The panel alluded to rulings in the Second and Third Circuits that email service of process is not allowed if the Hague Service Convention applies. In further questioning during Hangzhou Chuanyue’s counsel’s rebuttal time, the panel also inquired about whether an opinion out of the Fifth Circuit was consistent with the Second and Third Circuits on this issue.

The panel peppered both counsel with the meaty questions of whether China has objected to service of process by email, and whether a district court may order service by “other means” under Rule 4(f)(3) of the Federal Rules of Civil Procedure without considering whether to apply “internationally agreed means of service” under Rule 4(f)(1) at all.

But it is possible that the resolution of this appeal will be anticlimactic if one is awaiting another take on email service from a Court of Appeals. This is because there are other questions at issue in the appeal that if decided adversely to Hangzhou Chuanyue would moot the need to rule on the substance of the Hague Service Convention questions. Kangol is challenging the timeliness of Hangzhou Chuanyue’s motion to void the judgment and asserting that Hangzhou Chuanyue’s conduct waived its right to contest the judgment based on improper service of process. If the Seventh Circuit affirms on either of these grounds, then it will not need to reach the merits of the Hague Service Convention issues.Click here to start customizing

Let’s begin with the bottom line: “In sum, we conclude that email service on the Chinese defendants is prohibited by the Hague Service Convention, and thus improper under Rule 4(f)(3).” Smart Study Co., LTD. v. Acuteye-US, No. 24-313, slip op. at 19 (2^nd Cir. December 18, 2025). Now how did we get here? It all began with a typical “Schedule A” case.

For those unfamiliar with Schedule A cases, here is a primer:

A typical Schedule A case follows a well-worn path: the plaintiff files a complaint, generally under seal and often under a pseudonym. Along with the complaint, the plaintiff also files motions to restrain the defendants' assets held in online marketplace accounts (most defendants are foreign storefronts doing business on popular e-commerce platforms such as Amazon, Etsy, and Walmart) and to enter a temporary restraining order barring further infringement. But these requests are typically not litigated in adversarial fashion, as plaintiffs almost always seek and obtain leave to proceed under seal and ex parte. By the time any defendant appears in the case, it is most often after the defendant's account has been frozen and its funds restricted. Schedule A cases almost exclusively get resolved after the entry of a preliminary injunction, dismissal of some defendants, settlements with others, and a default judgment against the remainder.

Eicher Motors Ltd. v. The P'ships & Unincorporated Ass'ns Identified on Schedule “A”, No. 25-cv-02937 at 1-2 (N.D. Ill. Aug 08, 2025).

There is one additional crucial detail: the initial relief via a temporary restraining order and/or preliminary injunction will also typically include a request for alternative service under Rule 4(f)(3) of the Federal Rules of Civil Procedure (which allows service “by other means not prohibited by international agreement”) permitting the defendants to be served the summons and complaint by email or by emailing a link to a website containing the summons and complaint. See, e.g., Smart Study at 10.

The Smart Study case followed this typical path, including securing leave to serve the summons and complaint by email. See Smart Study at 10. After dismissing two parties who made an appearance to challenge the preliminary injunction, Smart Study obtained a default judgment against 49 defendants for whom it did not have a physical address. So far there was nothing problematic because under Article I of the Convention on Service Abroad of Judicial and Extrajudicial Documents in Civil and Commercial Matters, Nov. 15, 1965 (the “Hague Service Convention”), “[t]his Convention shall not apply where the address of the person to be served with the document is not known.” However, as to two other defendants with known addresses, the district court issued an order to show cause why the action should not be dismissed, ultimately concluding that email service on those defendants was improper under Rule 4(f)(3) and that it thus lacked jurisdiction to enter a default judgment. See Smart Study at 12.

As noted above, the Second Circuit affirmed the district court in a case of first impression. The Court noted China’s formal objection to service of documents by postal channels, which service is permitted by default under Article 10 of the Hague Service Convention if not objected to. The Court further acknowledged the Supreme Court’s admonition that the Hague Service Convention “pre-empts inconsistent methods of service wherever it applies.” Water Splash, Inc. v. Menon, 581 U.S. 271, 273 (2017) (cleaned up). The Court concluded that email service was one such inconsistent method, the implication being that it is inconsistent with China opting out of service by postal channels. See Smart Study at 12. Thus, one cannot serve process on a Chinese defendant under Rule 4(f)(3). Service under Rule 4(f)(2) is also unavailable because it only applies “if there is no internationally agreed means.” See Smart Study at 19-20 & n.3. The Court also ruled that without proper service of process, the district court lacked personal jurisdiction to enter a default judgment. See Smart Study at 20.

What are the implications of Smart Study for parties to Schedule A cases? Due to the absence of caselaw on this issue from other circuits, it is likely to be widely cited in Schedule A litigation around the country. Given that this is the season for New Year predictions, I predict that plaintiffs in these actions will argue that the ruling narrowly applies to jurisdiction to enter a default judgment, and that all other exercises of personal jurisdiction district courts typically employ in these actions is not implicated (including jurisdiction over preliminary injunctive relief). I similarly predict that defendants in these actions (those who appear to defend themselves anyway) will argue that if the district court lacks personal jurisdiction for the purposes of a default judgment, how can it exercise any personal jurisdiction at all absent formal service under the Hague Service Convention?