Supreme Court Says Patent Act Permits Claim for Foreign Lost Profits

The Court's holding applies when the infringing party exports infringing parts from the United States for assembly in foreign countries.

** LEGAL UPDATE **

In a case that was closely watched by patent holders and their lawyers, the U.S. Supreme Court held that patent holders may be entitled to recover lost foreign profits from certain types of infringement. Learn more about the background and implications of WesternGeco LLC v. ION Geophysical Corp. (2018).

Factual and Legal Background

WesternGeco is an American company that performs various surveys of the ocean floor for oil and gas companies. It does so using so-called "lateral-steering technology" to produce high-quality data. Its technology is protected by four patents, which it does not license to other companies but rather uses itself.

Sometime in 2007, ION Geophysical Corporation started selling a competing system for ocean surveying. The components were manufactured within the United States and then sold to companies abroad, which would then compete directly with WesternGeco.

After learning of the nature of the components that were sold, WesternGeco sued for patent infringement, citing Sections 271(f)(1)-(2) of the Patent Act, the primary legislation controlling patents in the United States. WesternGeco won the trial and the jury found that ION had infringed on WesternGeco's duly-owned patents. During the trial, WesternGeco also established that it lost many surveying contracts due to ION's infringement. Consequently, the jury awarded nearly $100 million in lost profits.

ION filed a motion to the trial judge arguing that this damage amount should be set aside as a matter of law. The motion asserted that Section 271(f) of the Patent Act applies only within the United States, and not to damages that occurred outside of the United States. The trial court denied ION's motion. However, the U.S. Court of Appeals for the Federal Circuit―which oversees most patent-related appeals―reversed the trial court and denied the award of lost profits. The Federal Circuit agreed with ION that the Patent Act does not permit patent owners to recover damages associated with lost foreign sales.

The U.S. Supreme Court agreed to hear the case to resolve the issue of whether awarding damages for lost foreign profits to a patent owner who proves patent infringement under 35 U.S.C. § 271(f)(2) is compatible with the broad legal presumption that federal statutes apply only within the territorial jurisdiction of the United States.

The Supreme Court's Decision

In a 7-2 decision released on June 22, 2018 authored by Justice Clarence Thomas, the U.S. Supreme Court reversed and remanded the decision of the U.S. Court of Appeals for the Federal Circuit. In doing so, the Court found that patent owners could indeed seek lost profit damages for sales of infringed products abroad.

The Court's decision interpreted 35 U.S.C. § 271(f)(2), which permits liability for patent infringement when an infringer ships components of a patented invention outside of the United States and that invention is then assembled or used in a manner that would constitute patent infringement within the United States: "Whoever without authority supplies... from the United States any component of a patented invention that is especially made or especially adapted for use in the invention... intending that such component will be combined 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."

Another provision of the Patent Act, 35 U.S.C. § 284, permits patent owners who successfully prove infringement, including under § 271, to obtain money damages. However, both sections are silent on the question of whether lost profits outside of the United States are appropriate damages for a successful plaintiff.

Meanwhile, the Supreme Court noted, "Courts presume that federal statutes 'apply only within the territorial jurisdiction of the United States.'" This principle, known as the presumption against extraterritoriality, "has deep roots" in American law.

Resolving that doctrinal conflict, the Supreme Court held that awarding damages for foreign lost profits is permissible under the Patent Act, and does not conflict with any presumptions against extraterritorial applications of federal law.

Conclusion and Implications

WesternGeco creates a new avenue for patent holders to collect lost profits from foreign sales resulting from infringement. While this decision is somewhat unlikely to have major implications for smaller amateur inventors, whose inventions are not infringed at a large scale internationally, the case could be significant for larger entities who must worry about global infringement.

Effective Date: June 22, 2018