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Supreme Court Expands the Territorial Scope of Lost Profits Damages

On June 22, 2018, in the case WesternGeco LLC v. ION Geophysical Corp. No. 16–1011, the Supreme Court held that 35 U.S.C. § 284 allows a patentee to recover foreign lost profits when the patentee proves infringement under 35 U.S.C. § 271(f)(2).
June 28, 2018

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By Brendan McDermott

On June 22, 2018, in the case WesternGeco LLC v. ION Geophysical Corp. No. 16–1011, the Supreme Court held that 35 U.S.C. § 284 allows a patentee to recover foreign lost profits when the patentee proves infringement under 35 U.S.C. § 271(f)(2). In doing so, the Court reversed the Federal Circuit which had held that the presumption against extraterritoriality bars recovery of foreign lost profits. WesternGeco LLC v. ION Geophysical Corp., 791 F. 3d 1340, 1343 (2015).

At trial, a jury found ION Geophysical infringed WesternGeco’s patents under § 271(f)(2) which states:

Whoever without authority supplies or causes to be supplied in or from the United States any component of a patented invention that is especially made or especially adapted for use in the invention and not a staple article or commodity of commerce suitable for substantial noninfringing use, where such component is uncombined in whole or in part, knowing that such component is so made or adapted and 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.

The jury found that ION manufactured the components for its competing system for surveying ocean floors in the United States, and then shipped them to companies abroad to combine them. The district court awarded lost profits on 10 foreign contracts that ION had won over WesternGeco. On appeal, the Federal Circuit reversed the foreign lost profits award, applying the presumption against extraterritoriality.

WesternGeco appealed the Federal Circuit’s refusal to award foreign lost profits. It argued that the general patent damages statute, section 284, allows foreign lost profits especially in the context of 271(f). Section 284 allows for recovery of “damages adequate to compensate for the infringement, but in no event less than a reasonable royalty.”

At the Supreme Court, the main focus was on the contours of the presumption that federal statutes only apply within the territorial jurisdiction of the United States. Following precedent, the Supreme Court identified a two-part framework for analyzing questions of extraterritoriality. The first step asks “whether the presumption against extraterritoriality has been rebutted.” The second step looks to the focus of the law and asks “whether the case involves a domestic application of the statute.” The Court exercised its discretion to forgo the first step and resolved the case on the second step. After analyzing the statutes, the Court concluded that “the focus of §284, in a case involving infringe¬ment under §271(f)(2), is on the act of exporting compo¬nents from the United States. . . [t]hus, the lost-profits damages that were awarded to WesternGeco were a domestic application of §284.” Slip op. at 7-8. The Court’s decision, however, did not go so far as to find the presumption against extraterritoriality inapplicable to all general damages statutes. In a footnote, the Court also noted that the opinion does not address how the doctrine of proximate cause could limit damages in some situations.

Although limited to infringement under § 271(f)(2), the opinion opens the door to challenge other Federal Circuit case law on damages that does not permit recovery of “damages adequate to compensate for the infringement” as required by 35 U.S.C. § 284.

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