Supreme Court Rules Patent Owners Can Recover Foreign Lost Profits

Supreme Court Rules Patent Owners Can Recover Foreign Lost Profits

In WesternGeco, LLC v. ION Geophysical Corp., the U.S. Supreme Court Held that the Patent Act Allows Patent Owners to Recover for Foreign Lost Profits

The U.S. Supreme Court recently handed patent owners a significant victory. In WesternGeco, LLC v. ION Geophysical Corp., the Court held that the Patent Act allows patent owners to recover for foreign lost profits. Accordingly, plaintiff WesternGeco was entitled to lost profits resulting from the export of infringing components of a patented system, which were assembled and sold outside of the United States.

Presumption Against Extraterritoriality 

Under the presumption against extraterritoriality doctrine, courts presume that federal statutes “apply only within the territorial jurisdiction of the United States.” Foley Bros., Inc. v. Filardo, 336 U.S. 281, 285 (1949). 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.” RJR Nabisco, Inc. v. European Community, 579 U. S. ___, ___ (2016). It can be rebutted only if the text provides a “clear indication of an extraterritorial application.” Morrison v. National Australia Bank Ltd., 561 U. S. 247, 255 (2010).

If the presumption against extraterritoriality has not been rebutted, the second step of the analysis requires asking “whether the case involves a domestic application of the statute.” RJR Nabisco, 579 U.S., at ___. Courts make this determination by identifying “the statute’s focus” and asking whether the conduct relevant to that focus occurred in United States territory. If it did, then the case involves a permissible domestic application of the statute.

WesternGeco’s Patent Infringement Suit

WesternGeco developed and patented technology used in geological surveys to search for oil and gas under the ocean floor. In late 2007, ION Geophysical Corp. began selling a competing survey system. ION shipped components of its system from its Louisiana warehouse to surveying companies abroad for those companies to combine the components into a surveying system. Equipped with ION’s system, ION’s customers would compete directly with WesternGeco for survey contracts.

WesternGeco sued ION for infringement under 35 U.S.C. §§ 271(f). Pursuant to that statute, it is an act of patent infringement to supply “components of a patented invention,” “from the United States,” knowing or intending that the components be combined “outside of the United States,” in a manner that “would infringe the patent if such combination occurred within the United States.”

The jury found ION liable for patent infringement and awarded damages, which included a $12.5 million royalty component and a $93.4 million lost profits component. The district court upheld the verdict. Despite affirming that ION was liable for infringement under § 271(f), the majority of a divided panel of Federal Circuit held that WesternGeco was not entitled to lost profits. The Court of Appeals reasoned that even when Congress has overridden the presumption against extraterritorial application of the law in creating liability, the presumption must be applied a second time to restrict damages. The dissenters disagreed with the interpretation, arguing that it created a “near-absolute bar to the consideration of a patentee’s foreign lost profits [that] is contrary to the precedent both of this court and of the Supreme Court.”

Supreme Court’s Decision

By a vote of 7-2, the Supreme Court reversed. “WesternGeco’s award for lost profits was a permissible domestic application of §284 of the Patent Act,” Justice Clarence Thomas wrote on behalf of the Court.

In reaching its decision, the Court relied on step two of the framework for deciding questions of extraterritoriality. While the Court acknowledged that those federal statutes are presumed to “apply only within the territorial jurisdiction of the United States,” it also found that the conduct of issue occurred in the United States.

The Court looked to Section 284, the Patent Act’s general damages provision, which states that “the court shall award the claimant damages adequate to compensate for the infringement,” and determined that the focus of this provision is “the infringement.” It then reasoned that §271(f)(2), which was the basis for the WesternGeco’s infringement claim and the lost-profits damages, regulates the domestic act of “suppl[ying] in or from the United States,” which the Court had previously acknowledged that it vindicates domestic interests. “In sum, the focus of §284 in a case involving infringement under §271(f)(2) is on the act of exporting components from the United States,” Justice Thomas wrote. “So the conduct in this case that is relevant to the statutory focus clearly occurred in the United States.”

The Court went on to reject ION’s contrary arguments as “unpersuasive.” As Justice Thomas explained, “The award of damages is not the statutory focus here. The damages themselves are merely the means by which the statute achieves its end of remedying infringements, and the overseas events giving rise to the lost-profit damages here were merely incidental to the infringement.” He added: “In asserting that damages awards for foreign injuries are always an extraterritorial application of a damages provision, ION misreads a portion of RJR Nabisco that interpreted a substantive element of a cause of action, not a remedial damages provision.”

Justice Neil Gorsuch authored a dissenting opinion, which was joined by Justice Stephen Breyer. “Because an infringement must occur within the United States, that means a plaintiff can recover damages for the making, using, or selling of its invention within the United States, but not for the making, using, or selling of its invention elsewhere,” Justice Gorsuch argued. The dissenting justices also expressed concern that the majority opinion “would effectively allow U.S. patent owners to use American courts to extend their monopolies to foreign markets.”

Implications for Patent Owners

While the Supreme Court’s decision in WesternGeco exclusively addressed damages under § 271(f)(2), the holding will likely clear the way for the recovery of foreign lost profits under other statutory bases for patent infringement.

If you have any questions, contact us

If you have any questions or if you would like to discuss how the Court’s decision may impact your company’s patent rights, please contact me, David Einhorn, at 201-806-3364.