Supreme Court Reverses Federal Circuit, Holds Patent Owners May Recover Lost Foreign Profits

On Friday, June 22, 2018, the Supreme Court issued its decision in WesternGeco LLC v. ION Geophysical Corporation, 585 U.S. ___, Slip. Op.  No. 16-1011 (June 22, 2018), reversing the Federal Circuit and holding that WesternGeco’s award for lost foreign profits was a permissible application of the damages provision of the Patent Act, 35 U.S.C. § 284.[1]  Justice Thomas wrote the opinion for a seven-justice majority while Justice Gorsuch wrote a dissent joined by Justice Breyer.

The dispute related to WesternGeco’s patents covering systems used to perform surveys of the ocean floor for oil and gas companies.  ION Geophysical manufactured the components of an infringing system in the United States and exported those components to companies abroad.  Those companies then combined the components of the infringing system and used the system to compete with WesternGeco in the market for ocean-floor surveys.  WesternGeco sued ION for patent infringement under § 271(f)(2), which prohibits the supply of components of a patented invention from the United States with the intent that they be combined abroad.  A jury found ION liable and awarded WesternGeco $12.5 million in royalties and $93.4 million in lost profit damages for ten specific survey contracts that WesternGeco proved it had lost due to ION’s infringement.  On appeal, the Federal Circuit reversed the award of lost profits.  Applying the presumption against extraterritorial application of U.S. law, the circuit court adopted a per se bar to recovery of such foreign damages, even when domestic patent infringement is established and proximately caused the damages.  WesternGeco appealed.

The Supreme Court reversed, holding that a patentee who proves infringement under § 271(f)(2) may be entitled to lost foreign profits under § 284.  The Court explained that the “focus” of § 284 in a case involving infringement under §271(f)(2) is the defendant’s domestic act of infringement: exporting components from the United States.  Slip op. at 7-8.  Thus, the Court held that awarding lost foreign profits to compensate a patentee for infringement under § 271(f)(2) constitutes a permissible domestic application of § 284.

Justice Gorsuch dissented.  He would have affirmed the Federal Circuit’s decision on the basis that WesternGeco’s lost profits were the result, not of ION’s domestic infringement, but of “noninfringing foreign uses” of WesternGeco’s patented invention by ION’s customers abroad.  Slip dissent at 4.  According to the dissent, “WesternGeco is not entitled to lost profits caused by the use of its invention outside the United States.”  Id. at 3 (emphasis in original).  Justice Gorsuch viewed the ocean surveys performed by ION’s customers, rather than ION’s domestic infringement, as the cause of WesternGeco’s lost profits.

There are three key takeaways from the WesternGeco decision:

First, the Supreme Court’s reasoning should apply broadly to other types of infringement under § 271.  Although Justice Thomas’s opinion focused on the question presented, infringement under § 271(f)(2), its logic and reasoning should apply to other types of infringement.  Indeed, other infringement provisions also focus on the infringer’s domestic conduct.  Lost foreign profits awards should therefore be available in cases where damages are shown to flow from other types of domestic infringement.

Second, the majority specifically noted that it was not addressing other doctrines that could limit damages awards, such as proximate cause.  WesternGeco, for example, was only able to prove that it lost ten specific contracts due to ION’s infringement, totaling $93.4 million.  In its opening brief to the Court, WesternGeco said that trial evidence showed ION and its customers generated more than $3 billion from the infringement.  WesternGeco Br. at 13.  WesternGeco’s award was a fraction of that.

Third, both the majority and the dissent rejected the Federal Circuit’s application of the presumption against extraterritoriality.  Applying the framework of RJR Nabisco, Inc. v. European Community, 136 S. Ct. 2090 (2016), Justice Thomas held that the lost profits award in this case was a permissible domestic application of § 284 and § 271(f)(2).  Slip op. at 6-8.  Justice Gorsuch agreed that the presumption did not prohibit WesternGeco’s lost profits claim, and would have affirmed the Federal Circuit’s result on other grounds.  Slip dissent at 1.  The Federal Circuit may rein in its use of the presumption accordingly.


[1] The authors of this post submitted an amicus brief in the case on behalf of the New York Intellectual Property Law Association, advocating for reversal of the Federal Circuit’s per se bar to the recovery of foreign damages and for a rule that instead allows prevailing patentees to recover foreign damages proximately caused by domestic acts of infringement.

 

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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