Supreme Court to Consider Availability of Extraterritorial Patent Infringement Damages

Friday, January 19, 2018

On January 12, 2108, the U.S. Supreme Court agreed to hear an appeal addressing whether a patent owner proving infringement under 35 U.S.C. § 271(f) is entitled to damages suffered outside the United States, or whether a presumption against any extraterritorial reach of U.S. law excludes recovery for foreign injuries. The case presents an important issue that could expand the availability of damages in cases involving the export of components used to assemble infringing products outside the United States. WesternGeco LLC v. ION Geophysical Corp., No. 16-1011 (U.S. Jan. 12, 2018) and possibly to more broadly cover any instance where a company lost profits around the world due to patent infringement under U.S. law.

Background

Under 35 U.S.C. § 271(f), a defendant infringes a patent if it manufactures all or a substantial portion of the components of a patented apparatus and exports the components for final assembly outside the U.S., if assembly of the apparatus inside the U.S. would be an infringement:

Whoever without authority supplies or causes to be supplied in or from the United States all or a substantial portion of the components of a patented invention, where such components are uncombined in whole or in part, in such manner as to actively induce the combination of such components outside of the United States in a manner that would infringe the patent if such combination occurred within the United States, shall be liable as an infringer.

  • 271(f)(1). In addition, the Patent Act provides that a patentee that proves infringement is entitled to “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[.]” 35 U.S.C. § 284.

In this case, WesternGeco LLC alleged that ION Geophysical Corporation infringed four patents relating to marine seismic surveys used to search for oil and gas beneath the ocean floor. The patents cover improvements in seismic survey equipment towed by ships, resulting in more efficient surveys that yield better quality data. ION fabricated the components of its accused product in the U.S., and then sold the components to foreign buyers, who assembled the components outside the U.S. to create survey equipment covered by WesternGeco’s patents.

A jury found ION liable for infringement under § 271(f) and awarded damages including $93.4 million in lost profits based on the WesternGeco’s loss of survey contracts outside the U.S. as a direct result of ION’s infringing activity. The Federal Circuit, in a divided opinion, vacated that portion of the damage award on the grounds that WesternGeco could not recover for injuries that resulted from infringing activities outside the U.S.

Supreme Court Grants Certiorari

The Supreme Court granted WesternGeco’s petition for certiorari on the following question:

Whether the court of appeals erred in holding that lost profits arising from prohibited combinations occurring outside of the United States are categorically unavailable in cases where patent infringement is proven under 35 U.S.C. § 271(f).

WesternGeco argued that the Federal Circuit’s decision vacating lost profit damages for extraterritorial activities was inconsistent with § 271(f), which expressly creates an infringement claim based on the extraterritorial combination of exported components, and § 284, which provides for damages to compensate for any infringement. It noted that Congress added § 271(f) to the Patent Act in order to overrule the result in Deepsouth Packing Co. v. Laitram Corp., 406 U.S. 518 (1972). In the Deepsouth case, the Court ruled that the export of a kit of components for assembly outside the United States was not an act of infringement. WesternGeco further argued that it was illogical for Congress to provide a claim for infringement under such circumstances, but deprive a patent owner of the ability to recover damages:

To limit the damages inflicted by those combinations and sales because they occurred abroad is to eviscerate what Congress intended in enacting § 271(f) and overruling Deepsouth. If the components were exported from the United States with the requisite intent, then Congress positively wanted to provide a damages remedy for the resulting foreign combinations and sales. While it makes perfect sense to apply the presumption [against extraterritorial application of U.S. law] to the condition, it positively frustrates Congress’ will to apply it to limit damages where, as here, the condition is satisfied.

Pet. at 18. As a result, it argued, the decision would “swallow most of § 271(f), largely negating the exception created by the statute’s plain language.” Id.

In addition, WesternGeco criticized the Federal Circuit for relying on an earlier case, Power Integrations, Inc. v. Fairchild Semiconductor Int’l, Inc., 711 F.3d 1348 (Fed. Cir. 2013). In that case, the appeals court held that profits lost outside of the United States generally are unavailable as a matter of law, but the case only involved claims for infringement under § 271(a) and (b), not § 271(f).

Furthermore, highlighting the Supreme Court’s recent tendency to look to copyright law when interpreting the Patent Act, due to the “kinship” between the two statutes, WesternGeco argued that the Federal Circuit’s decision was at odds with the Copyright Act’s “predicate act doctrine,” which holds that a copyright owner can obtain damages for sales outside the United States as long as the initial infringement occurred in the country and the foreign sales are directly linked to that infringement. See Sheldon v. Metro-Goldwyn Pictures Corp., 106 F.2d 45 (2d Cir. 1939)(L. Hand, J.), aff’d 309 U.S. 390 (1940).

ION opposed the petition largely on the grounds that the case was a poor vehicle for the Court to consider extraterritorial damages under §271(f) because of other issues in the case, including that the USPTO’s Patent Trial and Appeal Board subsequently found several claims in WesternGeco’s patent to be unpatentable in an inter partes review proceeding. The Solicitor General of the United States filed a brief supporting the petition for review and further urged the high court to expand extraterritorial reach beyond 271(f)—to consider awarding lost profits in any situation where a transnational company suffers lost profits around the world due to patent infringement under U.S. law

Practical Impact

In earlier cases, the Supreme Court has been hesitant to extend the reach of U.S. patent law outside the country, invoking a presumption against extraterritoriality. See, e.g., Microsoft Corp. v. AT&T Corp., 550 U.S. 437 (2007) (noting the general rule that no patent infringement occurs when a patented product is made and sold in another country). The decision to hear a case that reviews whether a patent owner can recover profits lost outside of the U.S. due to infringement under 271(f) could have significant consequences on damages awards.

"A decision reversing the Federal Circuit would have the effect of expanding available damages for infringement claims made under § 271(f) and could directly or indirectly provide a basis for other types of extraterritorial damages claims in the future."