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Foreign Lost Profits Recoverable for Patent Damages
The U.S. Supreme Court recently held that a patent owner may recover lost foreign profits for infringement under 35 U.S.C. §271(f)(2). WesternGeco LLC v. ION Geophysical Corp., No. 16-1011, 138 S. Ct. 2129 (June 22, 2018). This holding rejects the Federal Circuit's categorical exclusion of lost profits damages for foreign sales, and expands the potential for increased damages from domestic competitors operating in foreign markets.
Factual Background
WesternGeco and ION both manufacture devices for acoustically mapping the seabed, technology used by the energy industry to locate oil and gas drilling sites. WesternGeco manufactures a system called the Q-Marine, and sells its services performing surveys for oil companies. ION makes the DigiFIN, which is manufactured in the United States, but sold to customers overseas who assemble the systems and perform the surveys themselves. In 2009, WesternGeco sued ION for infringement of four patents related to this technology.
The jury found the patents infringed under §§271(f)(1) and (f)(2), and awarded WesternGeco both a reasonable royalty of $12.5 million and lost profits damages of $93.4 million, basing its lost profits award on 10 surveys performed by ION's customers using the DigiFIN. The survey contracts were all entered into abroad and performed on the high seas — that is, outside the borders of the United States.
On appeal, the Federal Circuit affirmed the finding of liability under §271(f)(2), but agreed with ION's argument that the award of lost profits was improper as the survey contracts were outside the jurisdictional reach of the United States. It found that WesternGeco could not receive lost profits from this extraterritorial activity.
The Federal Circuit's Proscription of Foreign Lost Profits
In agreeing with ION, the Federal Circuit looked to the history of §271(f). Congress enacted this section in response to the Supreme Court's 1972 decision in Deepsouth Packing Co. v. Laitram Corp., 406 U.S. 518, 92 S. Ct. 1700 (1972), which allowed a domestic manufacturer to export components of an infringing product for assembly abroad without facing liability under §271(a). The Federal Circuit concluded that §271(f) was “designed” to put entities who export components “in a similar position” to entities liable under §271(a) for exporting final products. WesternGeco L.L.C. v. ION Geophysical Corp., 791 F.3d 1340, 1350–51 (Fed. Cir. 2015) (WesternGeco I). It reasoned that as extraterritorial use of a product assembled domestically does not give rise to liability under §271(a), use of a product assembled abroad similarly cannot give rise to liability under §271(f). Under Federal Circuit precedent, a patentee cannot recover lost profits for foreign use of a product when infringement lies under §271(a). Id. at 1350. It had previously explained that “entirely extraterritorial” use of an invention is not infringement, and United States patent laws do not provide compensation for such “foreign exploitation.” Power Integrations, Inc. v. Fairchild Semiconductor Int'l, Inc., 711 F.3d 1348, 1371–72 (Fed. Cir. 2013). It extended this line of reasoning to hold that a patentee cannot recover lost profits for foreign use when infringement lies under §271(f).
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