Patent owners can recover lost foreign profits

On 22 June 2018 the US Supreme Court issued a decision finding that patent owners can recover lost foreign profits resulting from a specific type of infringement (WesternGeco LLC v ION Geophysical Corp, 16-1011). Potentially opening the door for some to argue for broader applicability in other infringement scenarios, the court emphasised that damages are adequate when they place the patent owner in as good of a position as they would have been in if the patent had not been infringed. 

WesternGeco LLC, a unit of Schlumberger Ltd, owns four patents relating to a system for surveying the ocean floor that produces higher-quality data than previous survey systems (US 6,691,038, US 7,080,607, US 7,162,967 and US 7,293,520). WesternGeco sued ION Geophysical Corp for infringement under 35 USC Section 271(f)(1) and (f)(2), which focuses on shipping components of a patented invention outside of the country to be assembled “in a manner that would infringe the patent if such combination occurred within the United States”.

ION was found liable for infringement under Section 271(f)(2) and a jury awarded WesternGeco $12.5 million in royalties and $93.4 million in lost profits. At trial, WesternGeco proved that it had lost 10 specific survey contracts due to ION's infringement. ION filed a post-trial motion to set aside the verdict, arguing that WesternGeco could not recover damages for lost profits because Section 271(f) does not apply extraterritorially. The district court denied the motion, which was reversed by the Federal Circuit on appeal. The issue before the Supreme Court, therefore, was whether WesternGeco could recover damages for lost foreign profits due to infringement by ION. Reversing the Federal Circuit ruling, the Supreme Court found that patent owners can recover lost foreign profits resulting from a limited type of infringement.

ION manufactured in the United States and shipped to purchasers abroad components of a competing system which, when assembled abroad, was “indistinguishable from WesternGeco's [system] and used the system to compete with WesternGeco” (opinion, page 3). The court reasoned that WesternGeco was entitled to lost-profits damages because the infringing act occurred in the United States (rather than abroad) and that damages, which the court concluded can include lost foreign profits, are adequate when they place the patent owner in as good a position as they would have been in if the patent had not been infringed. “[I]t was ION's domestic act of supplying the components that infringed WesternGeco's patents”, and thus the “lost-profit damages that were awarded to WesternGeco were a domestic application of [35 USC] Section 284” (opinion, page 8). The court brushed aside ION's arguments that lost-profits damages occurred extraterritorially, stating that “[the] overseas events were merely incidental to the infringement” (opinion, page 8).

Although the court clearly limits this ruling to infringement under Section 271(f)(2), it is likely that some will argue for broader applicability of this ruling to other types of infringement. For example, one may use the court’s comments that damages for infringement are adequate when they “plac[e] [the patent owner] in as good a position as he would have been in” (opinion, page 9) if the patent had not been infringed in order to argue for foreign lost-profits damages for other patent infringement scenarios involving overseas sales.

In a dissenting opinion, Justice Gorsuch wrote that “[a] US patent provides a lawful monopoly over the manufacture, use, and sale of an invention within this country only… [and that] Section 271(f)(2) modifies the circumstances when the law will treat an invention as having been made within the United States” (dissenting opinion, pages 2 and 5). Gorsuch was concerned that:

permitting damages of this sort would effectively allow US patent owners to use American courts to extend their monopolies to foreign markets… [t]hat, in turn, would invite other countries to use their own patent laws and courts to assert control over our economy. (Pages 1-2 of the dissenting opinion.)

Nonetheless, the 7-2 decision has handed patent owners a significant win for now, as patent owners and attorneys wait to see how broad the lower courts will apply the ruling.