WesternGeco: The Supreme Court Rules That Patent Damages Arising From Foreign Activities May Be Permitted

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On June 22, 2018, in a 7-2 opinion, the Supreme Court of the United States reversed the Court of Appeals for the Federal Circuit and held that under 35 U.S.C. § 271(f)(2), patent damages arising from foreign activities may be permitted. WesternGeco LLC v. ION Geophysical Corp., No. 16-1011 (Jun. 22, 2018).[1]

Section 271(f)(2) expands the definition of patent infringement to include supplying, from the United States, components that are specially adapted for a patented invention.[2] If there is infringement under §271(f)(2), the patentee is entitled to compensatory damages under §284.

In this case, WesternGeco's patent covers a system for surveying the ocean floor that utilizes lateral-steering technology allowing for higher quality data than previous systems. WesternGeco uses the technology to perform surveys for oil and gas companies. But WesternGeco does not sell or license the technology to competitors. In 2007, the accused infringer, ION Geophysical Corporation, began selling a competing system and then shipped the systems to customers outside the United States. These foreign customers combined ION components overseas to create a system indistinguishable from, and competing with, WesternGeco's patented system.

At trial, WesternGeco sued ION for patent infringement under both §271(f)(1) and (2). WesternGeco proved that it had lost at least 10 survey contracts because of ION's infringement. The jury found ION liable for patent infringement and awarded compensatory damages of $93.4 million in lost profits and $12.5 million in royalties. ION filed post-trial motions arguing that ION could not be liable for lost profits damages because §271(f) does not apply extraterritorially to actions taken outside the U.S. The District Court denied the Motion.

On appeal, the Federal Circuit reversed the award of lost-profit damages.[3] Previously, the Federal Circuit held that §271(a), the general patent infringement provision, does not allow patent damages for lost foreign sales.[4]

The Supreme Court began its analysis by confirming the deep roots of the presumption against extraterritorial application of federal statutes outside the United States.[5] This presumption is founded on the bases that Congress legislates with domestic concerns in mind and the presumption avoids "unintended" conflicts between laws in the U.S. and those of other nations.[6]

Next, the Supreme Court reaffirmed the established two-step framework for deciding questions of extraterritoriality: (1) whether the presumption against territoriality has been rebutted; and, if not rebutted, (2) whether the case involves a domestic application of the statute.[7] Here, the Supreme Court resolved the matter by going straight to step two.[8] The majority concluded that the conduct relevant to the statutory focus was domestic. First, the Court ruled that under §284, the focus of patent compensatory damages is on patent infringement because "the overriding purpose" of §284 is to provide complete compensation to patent owners for infringements.[9] The Court then turned to the type of infringement and ruled that under §271(f)(2), the focus of the infringement is on domestic conduct by the supply of components "in or from" the United States with the intent such components will be combined outside the United States.[10] Hence, the Court reasoned, "the conduct that §271(f)(2) regulates - i.e., its focus - is the domestic act of 'suppl[ying] in or from the United States."[11]

Finally, the Supreme ruled that the infringing conduct - ION's domestic act of supplying components that infringed WesternGeco's patents - occurred in the United States. Accordingly, "the lost-profits damages that were awarded to WesternGeco were a domestic application of §284."[12]

The Supreme Court rejected ION's argument that the focus is on the award of damages. Instead, the High Court explained that the focus is "the objec[t] of the statute's solicitude."[13] Here, the damages were merely the means by which the statute achieves its end of remedying the infringement. The Supreme Court also clarified that its ruling did not address whether other legal doctrines, e.g., proximate cause, might limit or preclude damages in particular cases.[14]

Justice Gorsuch dissented, to which Justice Breyer joined, because in their view U.S. patent owners do not possess rights and remedies to justify damages for acts that occurred outside the United States.

[1] Justice Thomas delivered opinion of the Court, in which Roberts, C.J., and Kennedy, Ginsburg, Alito, Sotomayor, and Kagan, JJ., joined. Gorsuch, J., filed a dissenting opinion in which Breyer, J., joined.
[2] 35 U.S.C. § 271(f)(2); WesternGeco, Slip Op. at 2.
[3] WesternGeco LLC v. ION Geophysical Corp., 791 F.3d 1340, 1343 (Fed. Cir. 2015), reinstated on remand, 837 F.3d 1358, 1361, 1364 (Fed. Cir. 2016). The Federal Circuit ruled that ION was liable for infringement under §271(f)(2). Id. at 1347-1349. It did not address whether there was infringement under §271(f)(1). Id. at 1348. Accordingly, the Supreme Court limited its analysis to §271(f)(2). Slip Op. at 7, n.2.
[4] Slip Op. at 3-4 (citing Power Integrations, Inc. v. Fairchild Semiconductor Int'l, Inc., 711 F.3d 1348 (Fed. Cir. 2013)).
[5] Slip Op. at 4.
[6] Id.
[7] Id. at 5 (citations omitted).
[8] Id.
[9] Id. (quoting General Motors Corp. v. Devex Corp., 461 U.S. 648, 655 (1983)).
[10] Id. at 7.
[11] Id. (quoting 35 U.S.C. §271(f)(2)).
[12] Id. at 8.
[13] Id. (quoting Morrison v. National Australia Bank Ltd., 561 U.S. 247, 267 (2010).
[14] Id. at 9, n.3.

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