Supreme Court allows patent owner to recover lost foreign profits

January 15, 2019
Patterson Thuente IP

A new U.S. Supreme Court ruling brings welcome news to patent holders who have found their inventions infringed overseas. The Court held that plaintiffs can recover lost foreign profits generated by the unlawful shipping of U.S. parts abroad for assembly into an infringing product.

Jury award

WesternGeco LLC owns patents for a system used to survey the ocean floor. ION Geophysical Corporation began selling a competing system built from components manufactured in the United States but shipped to companies abroad that assembled them into systems indistinguishable from WesternGeco’s.

A jury found ION liable for patent infringement and awarded WesternGeco lost profits. ION asked the trial court to set aside the verdict, arguing that the lost profits weren’t recoverable because the relevant provision of the U.S. Patent Act didn’t apply outside the United States. The court denied the request, but on appeal the U.S. Court of Appeals for the Federal Circuit reversed. The case was appealed to the Supreme Court.

SCOTUS upholds damages

The Court began its analysis by noting the presumption against the extraterritorial application of federal laws. It described the two-step framework for deciding extraterritoriality questions:

  1. Whether the presumption has been rebutted, and, if not,
  2. Whether the case involves a domestic application of the law.

The second question is answered by identifying the law’s “focus” and then asking whether the conduct relevant to that focus occurred in the United States. The Supreme Court explained that a statute’s focus can include the conduct it seeks to regulate, as well as the parties and interests it seeks to protect or vindicate.

The Court exercised its discretion to skip the first prong of the test and proceeded straight to considering the focus of Section 284 of the Patent Act. Section 284, the Act’s general damages provision, states that “the court shall award the claimant damages adequate to compensate for the infringement.” The Court identified its focus as “the infringement” the patent owner has suffered and compensating the owner for that.

But the Court explained that, when determining focus, the provision at issue isn’t examined in a vacuum. If it works in tandem with other provisions, it must be assessed in concert with them. Here, the Supreme Court determined that the type of infringement that occurred must be identified to determine Section 284’s focus in a given case.

Section 271 enumerates several ways a patent can be infringed; Section 271(f)(2) was the basis for WesternGeco’s infringement claim and the lost profits award. According to the Supreme Court, that provision regulates the domestic act of supplying components of a patented invention in or from the United States to be combined outside the country in an infringing manner.

Thus, the Court said, the focus of Section 284 in a case involving Section 271(f)(2) is on the act of exporting components. And the conduct in the case that was relevant to this focus clearly occurred in the United States.

With caveats

While the Supreme Court specified in a footnote that its analysis was limited to infringement under Section 271(f)(2), patent owners may attempt to extend application of the decision to recover lost foreign profits for other types of infringement. Whether they’re successful remains to be seen.

WesternGeco LLC v. ION Geophysical Corp., No. 16-1011, June 22, 2018, U.S.

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