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Supreme Court Extends Reach of Patentee to Recover Lost Foreign Profits



The Supreme Court on Friday held that WesternGeco, LLC ("WesternGeco"), owner of patents for a system used to survey the ocean floor, can recover profits from sales it lost outside the U.S. due to Ion Geophysical Corp.'s ("ION") infringement of its patents. Under section §271(f) of the Patent Act, a company can be liable for patent infringement if it ships components of a patented invention overseas to be assembled there. A patent owner who proves infringement is entitled to recover damages under section §284. The question was whether these statutes allow the patent owner to recover for profits it lost from foreign sales that did not occur because of the infringing activity. The Supreme Court held that they do.

At trial, a jury found that ION was liable for infringement under §271(f) for selling a system that was built from components manufactured in the United States, shipped to companies abroad, and assembled there into a system indistinguishable from WesternGeco’s patented system. The jury awarded WesternGeco damages in royalties and lost profits. ION moved to set aside the verdict, arguing that WesternGeco could not recover damages for lost overseas sales because §271(f) does not apply extraterritorially. The District Court denied the motion, but the Federal Circuit reversed. After an earlier Supreme Court decision remanding the case in light of Halo Electronics, Inc. v. Pulse Electronics, Inc., the Federal Circuit reinstated the portion of its decision regarding §271(f)’s extraterritoriality, and denied the patent holder recovery of the profits it lost from overseas sales.

This latest decision reversed and again remands the decision to the Federal Circuit. The Supreme Court found that the conduct relevant to the statutory focus occurred in the U.S., as it was ION's domestic act of supplying the components that infringed WesternGeco's patents. Thus, the lost profits that were awarded to WesternGeco were a domestic application of §284. The "overseas events were merely incidental to the infringement. In other words, they do not have 'primacy' for purposes of the extraterritoriality analysis." In sum, WesternGeco's damages award for lost profits was a permissible domestic application of §284.

Justices Gorsuch and Beyer dissented, voicing concern that "[p]ermitting damages of this sort would effectively allow U.S. patent owners to use American courts to extend their monopolies to foreign markets. That, in turn, would invite other countries to use their own patent laws and courts to assert control over our economy."

Regardless of that warning, U.S. patent holders may be able now to recover for the sales lost outside the U.S. if they can show that the infringing activity occurred within the U.S. Combined with the increased availability of attorneys fees and treble damages for willful infringement, this strengthens a patent holder’s hand in pursuing infringement cases.

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