Supreme Court to Tackle Patent Damages Tied to Foreign Sales

  • United States
  • 04/16/2018
  • Bloomberg Law

The U.S. Supreme Court is about to weigh a case involving whether a patent owner can get damages for foreign sales lost because a U.S. patent was infringed.

The high court’s opinion in the case, WesternGeco v. ION, may have a far-ranging impact on how damages are calculated in many types of patent cases, especially those involving international supply chains. Oral argument is scheduled for April 16.

A jury found that ION Geophysical Corp. infringed WesternGeco LLC’s patents related to systems for scanning the ocean floor for oil and gas deposits. The U.S. Court of Appeals for the Federal Circuit reduced the jury’s $93.4 million damages award because some of that amount stemmed from lost overseas contracts. That part of the award would run counter to the presumption against applying U.S. patent laws to activities outside the country, the Federal Circuit reasoned.

Two provisions in federal law lie at the heart of the dispute. The trial court found ION infringed 35 U.S.C. §271(f), which makes supplying components of a patented invention from the U.S. for assembly abroad an infringing act in some instances. WesternGeco received damages under 35 U.S.C. § 284, which entitles it to “damages adequate to compensate for the infringement.”

The damages statute, Section 284, entitles patent owners to adequate damages and “embodies a congressional policy of ‘full compensation,’” WesternGeco argued in its brief to the high court. The presumption against applying U.S. law abroad doesn’t apply because the actual infringing conduct is not foreign but domestic: the supplying of parts for an infringing product, WesternGeco said.

Even if the presumption applies, Congress intended for Section 271(f) to apply to the shipping of components abroad, so the damages statute should cover lost international sales, WesternGeco argued.

ION says the Federal Circuit got it right. The presumption against the extraterritorial application of U.S. patent law must be respected unless Congress makes a clear exception, and the damages statute is completely silent on the issue, ION said.

Third Parties Weigh In

Eleven third-parties filed friend-of-the-court briefs. Most either supported WesternGeco or took no official position while still stating that patent owners should be able to get damages for lost foreign sales at least in some instances. Two briefs supported ION.

According to WesternGeco and its allies, allowing an infringement award to include lost profits from abroad won’t lead to oversized damages. The usual legal doctrines, such as only awarding damages that aren’t too remote from the wrongful act, would act as limits, they say.

Stephen Yelderman, a professor at the University of Notre Dame Law School, said in his brief that the Federal Circuit’s ruling makes patent law an anomaly. He contrasted WesternGeco’s claim to a hypothetical involving a factory damaged due to a neighbor’s negligence that had to shut down for repairs. The factory owner would be able to collect damages related to sales lost due to the shutdown, even if those sales were abroad, he said.

However, patent owners won’t be adequately compensated in the same way under the Federal Circuit’s ruling, and there’s no good reason for the distinction, Yelderman said.

Big Effect

Allowing recovery for lost international sales under Section 284 would have a big effect on all types of patent infringement claims, the Electronic Frontier Foundation, the R Street Institute, and two law professors, Bernard Chao of the University of Denver’s Sturm College of Law and Brian Love of Santa Clara University School of Law, argued in a brief supporting ION.

WesternGeco’s infringement claims arise under Section 271(f), which comes into play in a relatively small number of cases, Chao told Bloomberg Law. The real issue is that WesternGeco’s reading of the damages provision would have a negative effect on American businesses that sell globally, Chao contended.

For example, under WesternGeco’s interpretation, a company that designs semiconductors in the U.S., manufactures abroad, and sells chips embodying those designs may have to pay damages based on its worldwide sales if its U.S. processes infringe a patent, Chao said. By contrast, another company that designs its chips in another country would likely only have to pay damages based on U.S. sales, even if it infringes in the same way, he said.

Kirkland & Ellis LLP is representing WesternGeco, while Fish & Richardson PC is representing ION.

WesternGeco LLC v. ION Geophysical Corp., U.S., No. 16-1011, oral arguments 4/16/18

To contact the reporter on this story: Peter Leung in Washington at pleung@bloomberglaw.com

To contact the editor responsible for this story: Keith Perine at kperine@bloomberglaw.com

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