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Precision Patent®

On June 22, 2018, the U.S. Supreme Court issued a decision in WesternGeco LLC v. ION Geophysical Corp., a patent case involving the recovery of foreign lost profits damages.  The Supreme Court reversed the Federal Circuit, and held that the damage award for lost profits in favor of WesternGeco was a permissible domestic application of Section 284 of the Patent Act, as compensation for infringement under Section 271(f)(2) of the Patent Act, even though the lost profits were based upon acts that occurred outside of the United States.

At issue in this case is WesternGeco’s patented marine seismic survey system.  ION sold a competing system that was made from parts that were manufactured in the U.S. and later shipped abroad for assembly and use by customers outside of the United States.  At trial, ION was found to infringe WesternGeco’s U.S. patents under Section 271(f)(2) of the Patent Act, which prescribes that “[w]hoever without authority supplies or causes to be supplied in or from the United States any component of a patented invention that is especially made or especially adapted for use in the invention and not a staple article or commodity of commerce suitable for substantial noninfringing use, where such component is uncombined in whole or in part, knowing that such component is so made or adapted and intending that such component will be combined outside of the United States in a manner that would infringe the patent if such combination occurred within the United States, shall be liable as an infringer.”  35 U.S.C. § 271(f)(2).  Section 284 of the Patent Act provides remedies for patent infringement including “damages adequate to compensate for the infringement.”  35 U.S.C. § 284.  WesternGeco was awarded damages for both royalties and lost profits, the lost profits being based upon survey contracts that WesternGeco lost overseas to ION’s customers who assembled and used the patented system.  However, on appeal, the Federal Circuit reversed the award of damages for lost profits, reasoning that Section 271(f)(2) does not apply extraterritorially and therefore does not allow for recovery of foreign lost profits.

The Supreme Court has now overturned the Federal Circuit’s decision, finding that the award of damages for lost profits under Section 284 to compensate for patent infringement under Section 271(f)(2) is a permissible domestic application of Section 284 rather than an extraterritorial enforcement of U.S. law abroad.  In arriving at its decision, the majority parses the act of infringement from the award of damages.  The Court found that Section 284’s focus was to remedy infringement, and that infringement can be determined many ways under Section 271.  Section 271(f)(2) regulates domestic actions that give rise to infringement.  Thus, the focus of damages under Section 284 is for the domestic action of exporting components from the United States.  Since the acts of infringement occurred in the U.S., the fact that some of the damages necessary to fully compensate for the infringement under Section 284 occurred outside of the U.S. does not run afoul of presumption against extraterritoriality.  In other words, the act of infringement (cause of action) is the key focus in determining whether application of the law is domestic, while the assessment of damages is merely the remedy for the cause of action and need not be based entirely on domestic activity.

The Court’s opinion is specifically applicable to damages for infringement under 271(f)(2), but could be applied to 271(f)(1) or any other patent infringement provision under similar circumstances where the acts that give rise to infringement occur in the U.S., but the damages occur at least in part outside the territorial boundaries of the U.S.

The dissent contrarily took the position that compensation in damages for the infringement must only be specifically tied to those acts that occurred in the U.S., not for acts that occurred abroad.  The dissent noted that in order to have a cause of action for infringement, the acts of infringement must occur within the borders of the United States.  The dissent also noted that the patent monopoly granted by a U.S. patent only extends to the borders of the U.S., and therefore any foreign use is not an interference with the U.S. monopoly and should not give rise to damages.  Thus, the dissent finds that the majority’s decision violates the bedrock rule that foreign uses of an invention do not infringe a U.S. patent, because the damages for lost profits were assessed on foreign uses.  In contrast to the majority, the dissent took the position that the only damages that can be assessed for infringement under Section 271(f)(2) are for those acts that took place or would have taken place in the U.S., i.e. royalties and lost profits that WesternGeco would have received for making its invention in the U.S. and exporting it abroad to ION’s customers.  The dissent also noted that the loophole Section 271(f)(2) closes is the situation in which an entity ships the unassembled components of an invention out of the U.S. so as to not make the invention in the U.S.  Therefore, the compensation for this infringement should only be for the damages that would have arose had the entity made the invention in the U.S.

 A copy of the WesternGeco decision may be accessed at https://www.supremecourt.gov/opinions/17pdf/16-1011_6j37.pdf.

 

U.S. Supreme Court Issues Decision in the WesternGeco Case – Foreign Lost Profits