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U.S. Supreme Court Holds Some Foreign Sales May be Included in Patent Infringement Damages

By Procopio Partner Robert H. Sloss

The U.S. Supreme Court has weighed in on yet another patent law matter that, in contrast to other decisions in recent years, actually favors many U.S. patent owners and technology companies. As companies look to market their products across international borders, they have found it necessary to navigate the maze of national and regional laws regarding the protection of intellectual property in order to guard against the theft of their key technologies. Holders of U.S. patents have historically attempted to gain such protection by attempting to expand the territorial reach of U.S. patent laws. Those efforts were rewarded when, in 1984, Congress added subsection (f) to 35 U.S.C. §271, which permits claims of infringement of a U.S. patent for products that, under certain circumstances, are made and/or sold outside of the U.S. On June 22, 2018, the High Court added teeth to section 271(f) when it held that a patent owner can recover lost foreign profits on foreign sales of products found to be infringing under that section: WesternGeco LLC v. ION Geophysical Corp., --- U.S. --- (June 22, 2018).

WesternGeco, which makes equipment used by the oil industry to survey the ocean floor, owns several U.S. patents relating to that technology. It sued ION for infringing some of those patents and obtained a verdict of infringement and an award of damages that included lost profits on foreign sales. The Federal Circuit reversed the damages award because its precedent did not permit patent owners to recover for lost foreign sales. WesternGeco LLC v. ION Geophysical Corp., 791 F.3d 1340 (Fed. Cir. 2015). WesternGeco then successfully petitioned the Supreme Court for certiorari.

The Supreme Court reversed and remanded. Justice Clarence Thomas, writing for the 7-2 majority, based the Court’s decision on the interplay between section 271(f)(2) and 35 U.S.C. §284.  Section 271(f)(2) states:

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 noninfringing 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.

According to the Court, “[p]atent owners who prove infringement under §271 are entitled to relief under §284, which authorizes ‘damages adequate to compensate for the infringement ….’”
The Court acknowledged that there is a presumption that “federal statutes ‘apply only within the territorial jurisdiction of the United States,’” citing Foley Bros., Inc. v. Filardo, 336 U.S. 281, 285 (1949), but noted that the presumption can be rebutted by a showing that the case involves a domestic application of the statute in question (in this case, sections 271(f)(2) and 284), which in turn depends upon “the statute’s focus.” To resolve this issue, the Court first looked at the focus of section 284, which has an “overriding purpose” of affording patent owners complete compensation for infringements.  The Court concluded that “the infringement is plainly the focus of §284.”  However, “[t]o determine the focus of §284 in a given case” requires an assessment of “the type of infringement that occurred,” which, in the case before it, depended on section 271(f)(2).

Turning to section 271(f)(2), the Court first observed that the section “focuses on domestic conduct” – the act of exporting components from the U.S.  It then held:

The conduct in this case that is relevant to that focus clearly occurred in the United States, as it was ION’s domestic act of supplying the components that infringed WesternGeco’s patents. Thus, the lost-profits damages that were awarded to WesternGeco were a domestic application of §284.

Accordingly, the Court ruled the district court judgment awarding WesternGeco lost profits on foreign sales resulted from “a permissible domestic application of §284,” and remanded the case “for further proceedings consistent with this opinion.”

While obviously an important decision for both patent owners and technology companies, it is unclear how many patent disputes may actually be impacted. The issue in WesternGeco related only to infringement under section 271(f)(2), which is not a frequent basis of an infringement claim. However, patent owners may look to Justice Thomas’s expansive language that the purpose of section 284 is to make patentees whole as a vehicle to expand damage theories in ways other than foreign sales, and courts may show a willingness to apply the reasoning of the WesternGeco decision to claims that do not arise out of section 271(f)(2). WesternGeco may also lead to an increase in the value of some U.S. patents because it broadens the scope of potential damages for infringement. In any event, the WesternGeco ruling will undoubtedly be seen by patent owners as a positive development.

Robert H. Sloss is a Partner in Procopio’s Silicon Valley office. He advises clients on a matters pertaining to intellectual property counseling and litigation. Bob leverages his experience as a senior in-house lawyer at a major technology company to provide a unique set of skills to resolve clients’ legal disputes. He has broad experience in litigating patents related to a variety of technologies, including software, computer peripherals, mechanical devices and biotechnology, as well as matters involving copyright, trademark and trade secrets.