By Joseph W. Bauer, Summer Associate

Summary:

The Supreme Court in WesternGeco LLC v. ION Geophysical Corp.[1] awarded WesternGeco foreign lost profits for ION’s indirect infringement. The outcome of the case clarifies damages for infringement under 35 U.S.C. § 271(f)(2) can include foreign lost profits. The Court held that 35 U.S.C. § 284 in view of § 271(f)(2) allows WesternGeco to recover foreign lost profits because the infringing conduct occurred when ION manufactured the components in the United States, and the appropriate damages should put WesternGeco in the position it would be in if the infringing conduct had not occurred.

Background:

WesternGeco sells a patented system for surveying the ocean floor. ION manufactured components in the United States and then exported the components to a foreign company, which assembled the components into a system identical to WesternGeco’s patented system. WesternGeco lost ten survey contracts to companies due to ION’s exporting of components manufactured in the United States. WesternGeco sued to recover lost foreign profits under § 271(f).

Section 271(f) imposes patent infringement liability on suppliers who manufacture components in the United States which are exported and assembled into an infringing system. The Court limited its analysis in this case to § 271(f)(2). 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.

The Federal Circuit found ION guilty of infringement under § 271(f)(2). However, the Federal Circuit determined that damages under § 284 could not include foreign lost profits because the statute did not overcome the presumption against extraterritoriality.

Majority Opinion:

There is a presumption that federal statutes only apply within the territorial jurisdiction of the United States. To determine whether WesternGeco should recover loss of profits from foreign sales, the Court looked at whether § 284, in a case in which infringement is found under § 271(f)(2), overcomes this presumption against extraterritoriality. The Court applied a previously-established two-step framework to determine if the statute under question overcomes the presumption against extraterritoriality. Under step one, if the statute’s text has “a clear indication of an extraterritorial application,” the presumption is rebutted. If the presumption is not rebutted, then under step two courts are to determine whether the case on hand involves a domestic application of the statute.

The Court first used its discretion to skip step one because it would not have impacted the outcome of this case and would have potentially created a precedent with unintended effects. Under step two, the Court determined the focus of damages remedy in § 284 is on “the infringement,” for the purpose of § 284 is to “afford patent owners complete compensation for infringements.”  The analysis then turned to ION’s infringement under § 271(f)(2). The Court found that the type of infringement defined in § 271(f)(2) and committed by ION is domestic because the infringing conduct is the manufacturing and exporting of components from the United States. Accordingly, although the lost profits resulted from lost contracts for services to be performed outside of the United States, the Court held “WesternGeco’s damages award for lost profits was a permissible domestic application of § 284.”

Impact:

The Court has clarified that damages compensating infringement under § 271(f)(2) can include foreign lost profits. A company involved with the manufacturing of components in the United States to be exported and assembled abroad may now be liable for foreign lost profits if the component is combined in a manner that infringes a United States patent. However, § 271(f)(2) requires: (1) the exporting component is made especially for use in the patent invention; (2) knowing the component is made for use in the patent invention; and (3) intending the component be combined outside of the United States in a manner which infringes a patented invention. Therefore, the holding in this case is significant for allowing a company to recover foreign profits but is limited to actors and infringing activities that meet the elements of § 271(f)(2).


[1] WesternGeco LLC v. ION Geophysical Corp., No. 16-1011 (2018).