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Supreme Court Overturns Federal Circuit in WesternGeco LLC v. ION Geophysical Corp.

George "Trey" Lyons, IIIJune 22, 2018 (snippets Alert)

Authored by George “Trey” Lyons, III

The Supreme Court reversed the judgment of the Federal Circuit this morning in WesternGeco LLC v. ION Geophysical Corp. Justice Thomas (joined by Chief Justice Roberts and Justices Kennedy, Ginsburg, Alito, Sotomayor, and Kagan) interpreted the “focus” of 35 U.S.C. § 284 of the Patent Act (the general damages provision) when read in light of infringement under 35 U.S.C. § 271(f)(2) (which addresses acts of exporting components that are specifically adapted for a patented invention). The decision overruled the Federal Circuit’s practice of interpreting damages under § 271(f)(2) in the same fashion as § 271(a) (the general infringement provision), which does not allow patent owners to recover lost foreign profits. In the majority’s view, in spite of the “presumption against extraterritoriality” and enforcement of federal statutes, the second prong of RJR Nabisco, Inc. v. European Community, 136 S. Ct. 2090, 2101 (2016) (“whether the case involves a domestic application of the statute”), compelled a different result in this case.

Here, the majority noted that “the focus of § 284, in a case involving infringement under § 271(f)(2), is on the act of exporting components from the United States,” and that “domestic infringement is ‘the objec[t] of the statute’s solicitude’ in this context.” WesternGeco, at 7-8. In the majority’s view, to receive adequate compensation for domestic acts of infringement under the Patent Act, patent owners may recover damages that “‘plac[e] [the patent owner] in as good a position as he would have been in’ if the patent had not been infringed”—i.e., “the difference between [its] pecuniary condition after the infringement, and what [its] condition would have been if the infringement had not occurred.” Id. at 9. Thus, because WesternGeco demonstrated the loss of foreign contracts based on ION’s domestic act of supplying the components that infringed WesternGeco’s patents, the Court held that the foreign lost-profits damages that were awarded to WesternGeco were permissible—as they amounted a domestic application of § 284 vis-à-vis § 271(f)(2). Id. at 9-10.

The majority, however, expressly declined to address the permissibility of such damages due to extraterritorial inducement (i.e., the intersection of § 284 and § 271(f)(1)) and/or “the extent to which other doctrines, such as proximate cause, could limit or preclude damages in [this or other] cases.” See, e.g., id. at 3 n.1, 7 n.2, and 9 n.3.  

Justice Gorsuch dissented (joined by Justice Breyer). In these Justices’ view, the rights (and remedies) that a U.S. patent owner possesses are not so broad as to justify damages incurred due to infringing acts abroad. Specifically, Justice Gorsuch confirmed that a U.S. patent owner “enjoys” the right to exclude others from making, using, offering for sale, or selling the invention “throughout the United States,” but that those same acts “outside the [U.S.] do not infringe a U.S. patent right.” Id. at Dissent, 2. Turning to the statutory underpinnings of § 271(f)(2) (both Congressional and jurisprudential), Justice Gorsuch reiterated that § 271(f)(2) was designed and enacted to clarify that “someone who almost makes an invention in this country may be held liable as if he made the complete invention in this country . . . but does nothing to suggest that U.S. patents protect against—much less guarantee compensation for—uses abroad.” Id. at 6.

One practical consequence of this decision is that U.S. patent owners may now recover foreign lost profits tied to domestic acts of infringement under § 271(f)(2), as they are no longer prohibited, categorically, moving forward.

Decided June 22, 2018

The opinion can be found at https://www.supremecourt.gov/opinions/17pdf/16-1011_6j37.pdf.

George “Trey” Lyons, III, an MBHB attorney, helps clients protect their intellectual property by providing advice and crafting solutions related to the validity, enforcement, and infringement of patent, copyright, and trademark rights. He also litigates these and other intellectual property matters. lyons@mbhb.com

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