In the case that patent infringement is proven under 35 U.S.C. § 271(f), is a patentee entitled to recover lost profits incurred from a third party’s patent infringing conduct outside of the United States?
The Supreme Court will decide the correct statutory interpretation of the Patent Act concerning the availability of extraterritorial damages for domestic patent infringement. Petitioner WesternGeco LLC (“WesternGeco”) argues that the texts of 35 U.S.C. § 271(f) and 35 U.S.C. § 284 support the recovery of lost profits due to infringing activity conducted outside of the territorial jurisdiction of the United States. WesternGeco claims that in enacting Section 271(f), Congress intended to close a loophole in the Patent Act that left patent holders vulnerable to infringing conduct that occurs abroad. Respondent ION Geophysical Corporation (“ION”) contends that the Patent Act does not permit the recovery of damages caused by a third party’s patent infringement. ION claims that absent a clear, affirmative direction from Congress that the statute is intended to apply extraterritorially, the presumption against extraterritoriality prevails particularly in patent cases, because intellectual property law differs internationally. From a policy perspective, this case is important because of its potential to broadly impact intellectual property rights in the United States, technological innovation, and relations between the United States and foreign countries.
Questions as Framed for the Court by the Parties
Whether the U.S. Court of Appeals for the Federal Circuit erred in holding that lost profits arising from prohibited combinations occurring outside of the United States are categorically unavailable in cases in which patent infringement is proven under 35 U.S.C. § 271(f).
This case involves a suit by WesternGeco against ION for allegedly violating four patents owned by WesternGeco. These patents cover improvements made to certain technology used to create geological maps of the ocean subsurface, which are in turn used by oil companies in the process of determining drilling locations for oil and gas underneath the ocean floor. WesternGeco manufactures technologies (the “Q-Marine”) based on its patents and directly performs surveys for oil companies using the Q-Marine. Meanwhile, ION manufactures allegedly “patent-practicing” technologies (the “DigiFINs”) and sells them to its customers; these customers then perform surveys for oil companies. WesternGeco claims that ION’s DigiFINs infringes on the patents used in the Q-Marine, and that WesternGeco has lost out on ten survey contracts to ION customers using DigiFINs, resulting in lost profits totaling over $90 million.
At trial, the jury found that ION had infringed on WesternGeco’s patents and awarded WesternGeco $105.9 million in damages—$93.4 million for lost profits and $12.5 million as a reasonable royalty. Additionally, the jury found that ION had been “subjectively reckless” in infringing on WesternGeco’s patents. WesternGeco then moved to have its damages increased, arguing that ION had willfully infringed on its patents. The district court denied WesternGeco’s motion, holding that ION had not acted recklessly under an objective standard.
Subsequently, ION appealed the damages and WesternGeco filed a cross-appeal based on the district court’s decision to not award enhanced damages. The Federal Circuit reversed the district court’s award of lost profits, finding that WesternGeco should not receive damages for lost profits that were caused by uses of its patents abroad, but upheld the district court’s refusal to award WesternGeco enhanced damages.
On February 26, 2016, WesternGeco petitioned the Supreme Court for certiorari pending the Court’s decision in Halo Electronics, Inc. v. Pulse Electronics, Inc. and Stryker Corp. v. Zimmer, Inc., which had been argued a few days earlier on February 23 and involved an issue related to the standard for enhanced damages. Based on its decision in Halo, the Supreme Court granted WesternGeco’s petition for certiorari, vacated the Federal Circuit’s decision, and remanded the case back to the Federal Circuit to reconsider its decision post-Halo.
Because Halo only addressed the standard of enhanced damages related to patent infringement, the Federal Circuit reinstated its earlier decision except for the parts addressing the issue of enhanced damages. In light of the Supreme Court’s decision in Halo, the Federal Circuit vacated the district court’s finding that ION had not been willful in infringing on WesternGeco’s patents, which had been the basis of its decision to not award enhanced damages. The Federal Circuit then remanded the case to the district court for consideration of whether there was sufficient evidence to uphold the jury’s finding of subjective willfulness, and, if so, whether WesternGeco should be awarded enhanced damages. Subsequently, WesternGeco again petitioned the Supreme Court for certiorari, which the Court granted.
WesternGeco claims that the plain text of both 35 U.S.C. § 271(f) and 35 U.S.C. § 284 inevitably supports the full recovery of lost profits flowing from foreign combinations that allegedly infringed on WesternGeco’s patent. WesternGeco argues that, by enacting § 271(f), Congress intended to close a loophole in the Patent Act that left patent holders vulnerable to infringing activity that occurs abroad. WesternGeco adds that the language of § 284 indicates a policy providing for full compensation for a patent holder who has proven infringement, including damages from foreign combinations and lost sales abroad. Furthermore, WesternGeco points to the language of § 271(f), which specifies the conduct and requisite intent necessary to constitute a patent infringement overseas, such as requiring the supply of components to be from the United States, as well as requiring the components to be combined abroad in a manner that would infringe on the patent if they were combined domestically. WesternGeco argues that the specific language of § 271(f) defines the precise amount of domestic conduct necessary for patent infringement and demonstrates congressional understanding that foreign combination also has the capacity to injure patent holders, thus making ION liable for its foreign combinations that injured WesternGeco.
ION contends that the Patent Act does not allow a patent holder to recover profits lost due to a third party’s infringing conduct that occurred outside of the territorial jurisdiction of the United States. ION argues that the presumption against extraterritoriality applies to patent law in particular because it has a primarily domestic application since intellectual property laws vary worldwide. ION explains that because Congress did not specifically intend to extend the reach of § 284 extraterritorially, the presumption against extraterritoriality is applicable. ION further contends that because Congress did not specifically ban foreign combinations when enacting § 271(f), even though it anticipated that such conduct may result in patent infringement, there is an insufficient basis to extend extraterritorial reach to § 284.
DAMAGES AND THE PRESUMPTION AGAINST EXTRATERRITORIALITY
WesternGeco argues that the Federal Circuit incorrectly concluded that a presumption against extraterritoriality applied absent a clear congressional intent to the contrary, and that such an interpretation was “dramatic [and] wholly unwarranted.” WesternGeco claims that there are at least three reasons that the Federal Circuit’s interpretation is incorrect: first, the presumption against extraterritoriality is inapplicable because § 271(f) applies only to infringing domestic actions and does not take foreign liability into consideration; second, if the presumption were applicable, the text of § 271(f) would overcome it because Congress intended it to close the loophole protecting foreign infringement; and third, because Congress intended for § 271(f) to reach the underlying conduct giving rise to liability, the presumption against extraterritoriality is not properly applicable to damages provisions.
ION counters that the Supreme Court has applied the presumption against extraterritoriality to different types of statutes regardless of the function of the statute and, therefore, the presumption applies whether a statute “regulates conduct, affords relief, or merely confers jurisdiction.” ION notes that the Supreme Court’s application of the presumption against extraterritoriality to private rights of action in the Racketeer Influenced and Corrupt Organizations Act, independent of its substantive provisions, was particularly relevant, because the Court rejected the argument that the presumption against extraterritoriality applied only to statutes that directly regulated conduct or afforded relief. ION contends that the Supreme Court uses a two-step framework to analyze whether statutes apply outside of the territorial jurisdiction of the United States: first, the Court decides whether a statute indicates clearly that Congress intended it to apply extraterritorially, and, if the statute does not apply extraterritorially, whether the case at hand involves a domestic application of the statute. In applying this two-step test, ION argues first that § 284 does not include a clear, affirmative indication that it applies extraterritorially, and second, in the case at hand, compensating WesternGeco for lost profits would be considered a foreign application of § 284. Finally, ION asserts that WesternGeco’s argument that lower courts have provided damages for foreign harm caused by domestic patent infringement did not involve the type of foreign activity in this case.
CONSEQUENCES OF AWARDING LOST PROFITS
The Intellectual Property Law Association of Chicago (“IPLAC”), in support of WesternGeco, argues that the Federal Circuit’s holding will negatively impact innovation. Specifically, IPLAC contends that failing to award lost profits to WesternGeco will discourage businesses from seeking patents. Instead, IPLAC maintains that businesses will attempt to protect their inventions through other means, which will inhibit technological advances because these means do not include the public disclosure that accompanies a successful patent application. Similarly, the American Intellectual Property Law Association (“AIPLA”), in support of neither party, asserts that patent protection backed by full relief for domestic infringement, regardless of where the losses occur, allows for innovation to flourish because it creates incentives for significant investment and risk-taking. Additionally, AIPLA argues that harm caused abroad by domestic infringement will only increase as the market continues to globalize, further weakening incentives for innovation if the Federal Circuit’s decision is upheld. The Intellectual Property Owners Association (“IPO”), in support of neither party, contends that not only is patent protection meant to spur innovation, but such protection has important implications for the United States’ economy. Specifically, IPO maintains that the export of manufactured goods contributes billions of dollars to the U.S. economy every year; many of these manufactured goods are a result of patent protections that allow for innovation to occur. IPO further asserts that the Federal Circuit’s decision fails to provide a full remedy for patent infringement and undercuts innovation by removing the incentives to invest and take risks. Finally, WesternGeco argues that allowing lost-profit damages for cases involving domestic patent infringement will not negatively affect foreign relations. WesternGeco contends that awarding such damages creates no questions of international law and does not represent an attempt by the United States to legislate the conduct of foreign countries—rather, foreign events are only considered in the context of compensating harm caused by unlawful acts occurring in the United States.
ION counters that the Federal Circuit’s decision will not negatively impact innovation or domestic companies. Specifically, ION argues that U.S. companies already seek and obtain patents in foreign countries in order to protect their intellectual property abroad. Further, ION contends that the foreign jurisdictions’ legal remedies made available to domestic companies are sufficient to protect against patent infringement that occurs in those countries. In support of its argument, ION notes that
WesternGeco has obtained patents for the technology involved in this case in a number of foreign countries. Additionally, ION maintains that adopting WesternGeco’s position and overturning the Federal Circuit’s decision would create serious comity concerns. Specifically, ION asserts that allowing recovery for lost profits in this context is problematic because it would infringe on the decisions made by foreign countries as to appropriate remedies for patent infringement by incentivizing patent holders to sue in the United States because American courts are reputed for granting much higher damage awards than foreign courts. ION further argues that WesternGeco’s position would allow American courts to regulate conduct occurring in foreign countries in situations where an act occurring in the United States infringes on a patent because the award of lost profits under that understanding is based on the use of the patent-infringing item abroad. Additionally, ION contends that other countries would similarly be able to interfere with American interests if they decided to award lost-profit damages in this context—a concern that has played a role in other patent-related cases decided by the Federal Circuit. ION maintains that by agreeing to the terms of the International Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), the United States has already agreed to not interfere with the policies of foreign countries in the intellectual property context.
- Jeffrey J. Catalono and Judy K. He, Are Foreign Lost Profits Really Lost?, The National Law Review (Mar. 21, 2018).
- Robert Maier, The Expanding Strength of U.S. Patents Beyond U.S. Shores, New York Law Journal (Mar. 27, 2018).