U.S. Supreme Court Allows Lost Profits Damages On Foreign Sales For Patent Owners

Read Valuation Insights, Third Quarter 2018 

On June 22, 2018, the U.S. Supreme Court ruled that some damages on foreign sales may be available to U.S. patent owners.

According to the June 22 opinion in WesternGeco, LLC, v. ION GeoPhysical Corporation, the Patent Act provides that “a company can be liable for patent infringement if it ships components of a patented invention overseas to be assembled there.” The question the Supreme Court sought to answer in WesternGeco was whether the patent owner could recover damages for lost foreign profits under Section 271(f). The Supreme Court found that patent owners may be able to.

In 2012, a Southern District of Texas jury found that ION infringed four WesternGeco patents by supplying components of systems used to survey the ocean floor under 35 U.S.C. § 271(f)(2). The jury awarded WesternGeco $12.5 million in reasonable royalty damages and $93.5 million in lost profits.

ION filed a post-trial motion to set aside the verdict, arguing that WesternGeco could not recover damages for lost profits because Section 271(f) does not apply extraterritorially. The District Court denied the motion. On appeal, the Federal Circuit reversed the lost profits award, finding that Section 271(f) should be interpreted like Section 271(a), which it had previously ruled does not allow patent owners to recover for lost foreign sales. After a first review by the Supreme Court, and another review by the Federal Circuit, the Supreme Court found that lost profits in this case were appropriate:

In sum, the focus of §284, in a case involving infringement under §271(f)(2), is on the act of exporting components from the United States. In other words, the domestic infringement is “the objec[t] of the statute’s solicitude” in this context. Morrison, 561 U. S., at 267. 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.

The Supreme Court remanded the case back to the Federal Circuit for consideration of other arguments.

One outstanding question from this ruling is the impact on non-patent damages. As the Supreme Court indicated, resolving the presumption against extraterritoriality under the Section 284 “could implicate many other statutes besides the Patent Act.” As explained by Timothy Holbrook, Asa Griggs Candler Professor of Law at Emory University School of Law, in a recent post in the Patently-O newsletter, “beyond patent law, this case had implications for the Court’s jurisprudence on the presumption against extraterritoriality, particular as to whether the presumption applies to remedial provisions.”1 Professor Holbrook further added that “the Supreme Court wrote a narrow decision, expressly avoiding many of these broader issues” while also demonstrating a methodology for addressing these issues in the future.2

Valuation Insights Third Quarter 2018

Writing for the dissent, Justice Neil Gorsuch (joined by Justice Stephen Breyer) said that a U.S. patent “provides a lawful monopoly over the manufacture, use, and sale of an invention within this country only.” He continued, “[i]n measuring its damages, WesternGeco assumes it could have charged monopoly rents abroad premised on a U.S. patent that has no legal force there.” He warned that “permitting damages of this sort would effectively allow U.S. patent owners to use American courts to extend their monopolies to foreign markets” and that “in turn, would invite other countries to use their own patent laws and courts to assert control over our economy.”

To hear about this and other developments in the areas of damages and intellectual property valuation, join Duff & Phelps at the fifth annual IP Value Summit. This event will be held on November 29, 2018 at the Lodge at Torrey Pines in San Diego, California. The event is free to attend and offers CLE credit. Further information available here.

For more information, contact Julia Rowe, +1 312 697 4721;
julia.rowe@duffandphelps.com

 

Sources:
1. “Guest Post by Prof. Tim Holbrook: WesternGeco’s Implications for Patent Law and Beyond,” Patently-O, " June 24, 2018 (accessed: https://patentlyo.com/patent/2018/06/ holbrook-westerngecos-implications.html).
2. “Guest Post by Prof. Tim Holbrook: WesternGeco’s Implications for Patent Law and Beyond,” " Patently-O, rel="noopener noreferrer" June 24, 2018 (accessed: https://patentlyo.com/patent/2018/06/ holbrook-westerngecos-implications.html).

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