Patents: Lost & Found WesternGeco Provides for Recovery of Lost Foreign Profits

Miles & Stockbridge P.C.

Patents are valuable intellectual property assets that grant their owners a limited monopoly over the sale and use of the patented subject matter for a fixed period of time. The patent permits its owner to recover potentially significant sums of money when their patents are infringed. Damages for patent infringement may include reasonable royalties, lost profits, and in the event of willful infringement, trebled damages. Each jurisdiction with a patent system grants patents that provide protection within that jurisdiction’s territory and control. In other words, patents must be secured in each country where intellectual property protection is desired.

However, with the Supreme Court’s decision in WesternGeco, [1] owners of U.S. patents may now potentially seek damages for lost profits earned in foreign jurisdictions. To seek lost profits, the damages must be from the sale of a product infringing a U.S. patent and an infringing activity under U.S. law must have occurred within the jurisdiction of the United States. For example, under the U.S. Patent Act, [2] a party may be liable for patent infringement if it ships components of a patented invention overseas to be assembled there. [3] A patent owner that proves patent infringement is entitled to recover damages. [4]

In the instant case, petitioner WesternGeco, LLC, created a system for mapping the ocean floor and patented the idea in the United States. Respondent ION Geophysical Corporation (“ION”) provided the components to overseas purchasers that, when assembled, infringed U.S. patents belonging to WesternGeco. At the trial court level, ION was found to have infringed WesternGeco’s patents and ordered to pay royalties of approximately $12 million for manufacturing and shipping the components. ION was also ordered to pay damages of approximately $90 million in lost profits that WesternGeco could have earned had WesternGeco sold directly to the foreign purchasers. On appeal, the Federal Circuit threw out the foreign lost profits because of their extraterritorial nature.

The Supreme Court considered the facts of the case in view of the language of the relevant statutes—35 USC §271(f)(2) and §284—and concern regarding the extraterritorial nature of foreign lost profits and impacts on comity with other nations. In fact, there is a presumption against U.S. law applying extraterritorially. [5] The Supreme Court has established a two-step framework for deciding questions of extraterritoriality. The first step asks “whether the presumption against extraterritoriality has been rebutted.” [6] The second step, if the presumption has not been rebutted, asks “whether the case involves a domestic application of [a] statute.” [7]

The Court focused on step two and recognized that if conduct relevant to the statute’s focus, which may include the conduct it seeks to regulate, as well as the parties and interests it seeks to protect, occurred within the United States, then the case involves a permissible domestic application of the statute. [8] Here, the Court analyzed §271 in conjunction with §284 and determined that the overriding purpose of §284 is to afford patent owners complete compensation for infringements. [9]

The Court also examined the type of infringement that occurred to ascertain the appropriate compensation. 35 USC §271(f)(2) defines a type of infringement as the supplying in or from the United States of components of a patented invention that have no substantial non-infringing uses and intending that the components will be assembled outside of the United States into the patented device overseas. Thus, the focus of the statute and the conduct sought to be regulated was found to be the domestic activity of supplying domestically produced components of a patented invention to producers overseas for assembly into the infringing product.

Further addressing the concerns about extraterritoriality, the Court noted that any analysis must separate a legal injury from any damages arising from that injury. In this case, the damages sought by WesternGeco—the lost profits generated overseas—occurred outside of the United States, but the legal injury according to statute occurred within the United States. As such, the Court found that the statutes taken together allow a patent owner to recover lost foreign profits.

In this case, the infringing act under the statute—the sending of the components intended to be assembled into an infringing product—happened within the United States and thus was considered to be under the Court’s jurisdiction. Thus, WesternGeco was eligible to recover profits generated overseas through ION’s distribution of components to a foreign destination for assembly into an infringing product, which was then sold.

In light of this decision, there is new hope that a patent owner, in some circumstances, may be able to fully recover damages related to the infringement of an invention patented in the United States even if the invention is ultimately assembled and sold outside the nation’s borders.

[1] WesternGeco, LLC, v. ION Geophysical Corporation, 585 U.S. ____ (2018).
[2] 35 USC §§1-376.
[3] 35 USC §271(f)(2).
[4] 35 USC §284.
[5] Foley Bros., Inc., v. Filardo, 336 U.S. 281, 285 (1949)
[6] RJR Nabisco, Inc. v. European Community, 579 U. S. ___, ___ (2016) (slip op., at 9), 136 S.Ct. 2090.
[7] Id.
[8] Id.
[9] General Motors Corp. v. Devex Corp., 461 U. S. 648, 655 (1983).

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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