Lost Profits Arising from Foreign Sales: WesternGeco LLC v. ION Geophysical Corp.

By Alex Rhim

Summary:

The US Supreme Court held in favor of Petitioner WesternGeco LLC (“WesternGeco”) on the issue of whether 28 U.S.C. § 271(f)(2) (2010) and 28 U.S.C. § 284 (2012), taken together, entitled damages award for lost foreign profits against Respondent ION Geophysical Corp. (“ION”). Since the Court found that the combined focus of the two statutory provisions recognizes inclusion of foreign lost profits resulting from a domestic infringement, WesternGeco was entitled to damages award. 

Facts:

ION manufactured and shipped components to companies abroad. The shipped components were assembled by those foreign companies after shipment into a system used to survey the ocean floor. This system was indistinguishable from patents owned by WesternGeco. 

Procedural History:

WesternGeco sued ION for patent infringement under §§ 271(f)(1) and (f)(2) in the United States District Court for the Southern District of Texas. The jury found ION liable and awarded WesternGeco damages of $12.5 million in royalties and $93.4 million in lost profits under § 284. ION moved to set aside the verdict, arguing that WesternGeco could not recover damages for lost profits because § 271(f) does not apply extraterritorially. The District Court denied the motion.

On appeal by ION, the Court of Appeals for the Federal Circuit reversed the award of lost-profits damages. ION was liable for infringement under § 271(f)(2), the Federal Circuit reasoned, but § 271(f) does not allow patent owners to recover for lost foreign profits. WesternGeco petitioned for review in the US Supreme Court. On review, the Court vacated the Federal Circuit’s judgment and remanded for further consideration in light of Halo Electronics, Inc. v. Pulse Electronics, Inc., 136 S.Ct. 1923 (2016). The Federal Circuit reinstated the portion of its decision regarding § 271(f)’s extraterritoriality on remand. The Court granted certiorari again to review this case. 

Relevant Statutory Provisions:

“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 a 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).

“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 non-infringing 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.” § 271(f)(2).

“Upon finding for the claimant the court shall award the claimant 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, together with interest and costs as fixed by the court.” § 284.

Holding:

The US Supreme Court held WesternGeco’s damages award for lost profits was a permissible domestic application of § 284. The Court reversed the Federal Circuit’s decision to deny damages award and remanded for further proceedings.

Reasoning:

While there is a presumption against extraterritoriality when applying federal statutes, this presumption can be overcome by a two-step test: “whether the presumption against extraterritoriality has been rebutted” or “whether the case involves a domestic application of the statute.” The first step can be rebutted by a “clear indication of extraterritorial application” in the text of the statute. The second step can be determined by identifying the focus of the statute and whether a conduct relevant to that focus has occurred domestically.

The Court deliberately and expressly avoided discussing the first step because such discussion can potentially have far-reaching effects on statutory interpretation of statutes other than the Patent Act, which is not something the Court was ready to decide on.

Under the second step, a statute’s focus is identified by analyzing the provision at issue with attention to context. The focus and the overriding purpose of § 284 is the infringement. In addition, the focus of § 271(f)(2) is domestic conduct. Taken together, domestic infringement is the focus of the statute in this context. The conduct at issue here was directly relevant to the focus of domestic infringement because ION supplied the infringing components from the United States.

ION’s counterarguments were unsuccessful in overcoming the Court’s decision. First, ION claimed that the focus of § 284 is “self evidently on the award of damages.” However, the Court rejected this argument since what a statute authorizes, such as damages, is not necessarily the focus. Second, ION asserted that the Court’s decision was an extraterritorial application of § 284 but this argument was also mistaken since the overseas events after shipment were merely incidental to the infringing domestic act of supplying the components. Third, in light of the reasoning in RJR Nabisco, Inc. v. European Community, 136 S.Ct. 2090 (2016), ION extracted a general principle that “damages awards for foreign injuries are always an extraterritorial application of a damages provision.” However, this argument was unconvincing to the Court because the interpretation of § 1964(c) in RJR Nabisco was about applying the presumption against extraterritoriality of an injury requirement. Injury requirement and damages requirement are separate legal concepts.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s