Supreme Court Expands the Scope of Damages to Include Foreign Sales

The Supreme Court in WesternGeco LLC v. ION Geophysical Corp. opened a new door to recover for patent damages in its holding that a patent owner can recover damages for patent infringement under 35 U.S.C. §271(f)(2) and §284 of lost foreign profits.

The Patent Act outlines several ways an alleged infringer may be liable for patent infringement, including §271(f) which “expands the definition of infringement to include supplying from the United States a patented invention’s components.” 35 U.S.C. §284 authorizes “damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer.”

In this case, WesternGeco developed technology for surveying the ocean floor for oil and gas companies. ION Geophysical Corp. sold a competing system where the components were manufactured in the United States and shipped abroad. The Southern District of Texas found that ION Geophysical Corporation infringed WesternGeco’s patents, and that WesternGeco lost specific contracts due to ION’s infringement. The district court awarded $93.4 million in lost profits and $12.5 million in royalties. On appeal, the Court of Appeals for the Federal Circuit reversed the award of lost-profit damages following its precedent in Power Integrations, Inc. v. Fairchild Semiconductor Int’l, Inc., 711 F. 3d 1348 (Fed. Cir. 2013) which held that 35 U.S.C. §271(a) does not allow recovery for lost foreign sales.

In reaching its opinion, the Supreme Court assessed whether the presumption against extraterritoriality, that is, that federal statues apply only within the territorial jurisdiction of the United States, applied to this case. The presumption against extraterritoriality is a principle of statutory interpretation which is intended to prevent the unintended clash between U.S. laws and those of other nations which could result in “international discord.” WesternGeco LLC v. ION Geophysical Corp. No. 16-1011, 585 U.S. __ at *6 (2018).

To determine whether the presumption against extraterritoriality applies, the Court can either determine that the statutory text provides a “clear indication of an extraterritorial application” or that the “case involves a domestic application of the statute.” Id. at *5. A case involves a domestic application of a statute if the conduct relevant to the statute’s focus, the “object of its solicitude, which can include the conduct it seeks to regulate as well as the parties and interests it seeks to protect or vindicate . . . involves a permissible domestic application of the statute, even if other conduct occurred abroad.” Id. at *6 (internal citations and quotations omitted).

The Court concluded that conduct relevant to §284 involved a permissible domestic application of the statute. The focus of §284 is patent infringement, as §284 states that “the court shall award the clamant damages adequate to compensate for the infringement.” To determine the focus of §284 also requires an assessment of the type of infringement that has occurred. The basis of WesternGeco’s infringement claim was 35 U.S.C. §271(f)(2), which “provides that a company shall be liable as an infringer if it supplies 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.” Id. at *7. The Court concluded that §271(f)(2) focuses on and regulates domestic conduct as it protects against “domestic entities who export components . . . from the United States” and was drafted in response to a gap in our patent laws. Id. at *7. Thus, the focus of §284, which relies on infringement under §271(f)(2), is domestic.

Because the presumption against extraterritoriality does not apply to patent damages for infringement under §284 and §271(f)(2), WesternGeco could recover lost-profit damages abroad stemming from that infringement. The Supreme Court’s interpretation of §284 creates a new avenue for recovery by plaintiffs which likely will also lead to new questions of how to calculate damages, impact the scope of fact and expert discovery and help plaintiffs in assessing whether to bring patent suits going forward.

Tryn T. Stimart is a Director in the Gibbons Intellectual Property Department.
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