Supreme Court Decides Infringement Remedies May Include Foreign Lost Profits

June 25, 2018
Marshall Gerstein Alert

On June 22, 2018, the Supreme Court issued its decision in WesternGeco LLC v. ION Geophysical Corp., holding that a patent owner who proves infringement under 35 U.S.C. § 271(f)(2), which focuses on domestic conduct, exportation of components from the United States, is entitled to recover lost foreign profits resulting from that exportation. The Court reversed the Federal Circuit’s judgment that applied the judicially-created presumption against extraterritoriality to vacate a district court damages award based, in part, on lost foreign profits. The decision is important to businesses engaged in international commerce because it opens the door to patent infringement-damages awards based on profits lost to overseas sales caused by domestic infringement. Those businesses must therefore more carefully consider the consequences of their domestic behavior.

In 2013, a federal district court issued a judgment, following a jury trial, that ION had infringed certain patents owned by WesternGeco that claim systems that guide devices used to search for oil and gas under the high seas. Specifically, ION made components of the system in the United States and then sold and sent them to its customers overseas. ION’s customers assembled the components and then used the (infringing) system in competition with WesternGeco. The district court awarded WesternGeco a reasonably royalty of about $12 million and more than $93 million in lost profits—i.e., profits WesternGeco would have earned absent the competition ensuing from the infringement—but refused to enhance these awards because it found the infringement was not willful.

A split panel of the Federal Circuit affirmed the district court’s judgment of infringement but vacated the lost profits award. The lost profits award includes profits on activities occurring outside the United States that, according to the court, contravenes the presumption against extraterritorial application of U.S. patent laws. WesternGeco petitioned the Supreme Court to review that judgment, the vacated lost profits, and the district and circuit courts’ assessment of willful infringement. In turn, the Supreme Court addressed only the latter issue and returned the case to the Federal Circuit. On remand, in 2016, the Federal Circuit vacated the district court’s judgment of no willful infringement. On the lost profits issue, however, the Federal Circuit did not revise its prior decision. The case then returned to the Supreme Court in 2018 for resolution of the lost profits issue the Court did not earlier address.

In an opinion authored by Justice Thomas for a 7-2 majority, the Court concluded that the relevant statutory section of the Patent Act in this case has a domestic focus, on the act of exporting components from the United States, and that the ambit of lost profits the district court awarded did not implicate any presumption against extraterritoriality that concerned the Federal Circuit. Specifically, the Court recognized that 35 U.S.C. § 284 guarantees to a prevailing patent owner “damages adequate to compensate for the infringement.” The Court further acknowledged that infringement under § 271(f)(2) includes the supply of certain components of a patented invention “in or from the United States” with the intent that they “will be combined outside of the United States in a manner that would infringe the patent if such combination occurred within the United States.” The Court concluded that the “focus of § 284, in a case involving infringement under § 271(f)(2), is on the act of exporting components from the United States.” Here, ION’s domestic act of supplying components constituted infringement, and the Court concluded that “the lost-profits awarded to WesternGeco were a domestic application of § 284.” Slip Op. at 8. In deciding this case, the Court “[did] not address the extent to which other doctrines, such as proximate cause, could limit or preclude damages in particular cases.” Id. at 9 n.3.

Justice Gorsuch, joined by Justice Breyer, dissented. The two would have affirmed the Federal Circuit’s judgment on their view that the Patent Act and “the lessons” of a collection of the Court’s 19th Century decisions prohibit recovery of lost profits caused by the use of an invention outside of the United States.

For more information, please contact Sandip H. Patel or another attorney at Marshall Gerstein.

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