In a decision considering the extraterritorial effect of the U.S. Patent Act, the Supreme Court has ruled that damages for patent infringement under 35 U.S.C. § 271(f)(2) can – in at least some cases – include damages for lost profits suffered outside the United States. The decision raises the possibility that foreign market damages may be available for infringement claims under other provisions of the Act, but the Court’s decision leaves unanswered questions about applying the ruling in future cases. WesternGeco LLC v. ION Geophysical Corp., No. 16-1011 (U.S. June 22, 2018).
Background:
WesternGeco LLC, a unit of Schlumberger Ltd., owns patents covering technologies for surveying the ocean floor. It filed suit in the U.S. District Court for the Southern District of Texas, alleging that ION Geophysical Corp. infringed the patents under § 271(f)(2), by manufacturing in the U.S. and supplying for use outside the U.S., critical components of the patented system. Section 271(f)(2) states that:
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.
At trial, a jury found that ION infringed the patents and awarded lost profits damages of $12.5 million, based on lost contracts for the patented systems, which would have been made and performed overseas. The Federal Circuit reversed the damage award based on an earlier case, Power Integrations, Inc. v. Fairchild Semiconductor Int’l, Inc., 711 F. 3d 1348 (Fed. Cir. 2013). In that case, dealing with direct and induced infringement, the Federal Circuit ruled that a patent owner having established direct infringement in the United States, may not recover damages for the defendant's worldwide sales of the patented invention as the direct, foreseeable result of domestic infringement.
Supreme Court Rules That Territoriality Concerns Do Not Bar Damages for Foreign Lost Sales Under § 271(f)(2)
In a 7-2 decision, the Supreme Court reversed the Federal Circuit. Justice Thomas, writing for the majority, noted that U.S. statutes are presumed to only apply to conduct within the boundaries of the United States. A two-step test is applied to determine whether a statute has extraterritorial effect. The first step is to consider whether the text of the statute provides a “clear indication of an extraterritorial application.” Morrison v. National Australia Bank Ltd., 561 U. S. 247, 255 (2010). The second step is to evaluate “whether the case involves a domestic application of the statute.” RJR Nabisco, Inc. v. European Community, 579 U. S. ___ (U.S. 2016). “Courts make this determination by identifying the statute’s ‘focus’ and asking whether the conduct relevant to that focus occurred in United States territory. If it did, then the case involves a permissible domestic application of the statute.” Slip op. at 5 (citation and quotation omitted).
In this case, the Court skipped the...
