Patent Damages Award May Include Foreign Lost Profits Under Certain Limited Circumstances

By: Peter Schechter

A damages award under 35 U.S.C. § 284 for infringement under § 271(f)(2) may include foreign lost profits, regardless of the presumption against extraterritorial reach of federal statutes, the U.S. Supreme Court held in a 7-2 decision on June 22, 2018. WesternGeco LLC  v. Ion Geophysical Corp., ___ U.S. ___, No. 16-1011 (June 22, 2018).  The Court noted that the relevant conduct, that is, the infringing acts, “clearly occurred in the United States, as it was ION’s domestic act of supplying the components that infringed WesternGeco’s patents.”  Thus, WesternGeco’s damages award for its foreign lost profits was a permissible domestic application of § 284.

While some commentators are describing WesternGeco as greatly increasing the scope and magnitude of patent damages awards, the facts of the case indicate that the holding applies to only a narrow set of circumstances and a particular (and relatively unusual) type of patent infringement.

WesternGeco’s patents relating to a complete system, comprising many different components, for surveying the ocean floor.  WesternGeco uses the patented system to perform surveys for oil and gas companies in petroleum exploration areas throughout the world.  ION Geophysical competed with WesternGeco by manufacturing the individual, unassembled components for its own system in the United States and then before shipping them to companies abroad. Those companies then combined the individual components outside the United States to create a surveying system indistinguishable from WesternGeco’s patented system.

The U.S. patent laws provide that infringement of a U.S. patent may occur in a number of different ways.  Under 35 U.S.C. § 271(f)(2), the domestic (i.e., within the U.S.) act of supplying components of a patented invention “in or from the United States” with the intent that they are “combined in a manner” that would “infringe the patent if such combination would occur within the United States,” constitutes patent infringement in the United States, a “domestic” act.

While federal statutes are presumed to only apply within the territorial jurisdiction of the United States, the U.S. Supreme Court had previously established a two-step framework for deciding questions of extraterritorial application of U.S. law. The first step, not relevant here, asks whether the presumption against extraterritoriality has been rebutted by a clear indication of an extraterritorial application in the text of the statute. The second step asks whether the case involves a domestic application of the statute, which is determined by identifying the statute’s “focus” and asking whether the conduct relevant to that focus occurred in United States territory. If it did, then the case involves a permissible domestic application of the statute.

The Court found it unnecessary to discuss the first step of its own two-step test, stating that the result would be the same but that the opinion would necessarily require resolution of “difficult questions” better left for another day.  Under the second step, where conduct relevant to a statute’s focus occurs in the United States, then an aspect of the statute’s extraterritorial application involves a permissible domestic application of the statute, even if some of the conduct occurred outside the U.S.  Such was the case in the WesternGeco infringement lawsuit.  On the other hand, if the relevant conduct occurs outside the U.S., then the case involves an impermissible extraterritorial application regardless of any other conduct that occurred in United States territory.

ION’s “relevant conduct” occurred within the U.S.: its manufacturing, selling, and exporting components of WesternGeco’s patented system with the intent that they would be combined outside the U.S. in a manner that would directly infringe WesternGeco’s patents if such combination was made within the U.S.  All that was left under the patent damages statute, 35 U.S.C. § 284, was the determination of a reasonable compensatory award to WesernGeco for ION’s infringement, and it was not impermissible to base that award on the particular facts and circumstances of the case, even if some of the acts supporting the damages award occurred outside the United States.