June 22, 2018

Supreme Court Decides WesternGeco LLC v. ION Geophysical Corp

On June 22, 2018, the Supreme Court decided WesternGeco LLC v. ION Geophysical Corp., No. 16-1011, holding that the damages provision of the Patent Act, 35 U.S.C. § 284, allows a plaintiff to recover lost foreign profits stemming from a defendant’s violation of 35 U.S.C. § 271(f)(2) by shipping parts abroad to be assembled into an infringing product.

Section 271(f)(2) of the Patent Act creates liability for infringement where a defendant exports components that are specially adapted for a patented invention, “intending that such component[s] will be combined outside of the United States in a manner that would infringe the patent if such combination occurred within the United States.” 35 U.S.C. § 271(f)(2). The Patent Act’s damages provision, 35 U.S.C. § 284, authorizes an award of damages “adequate to compensate for the infringement” at issue, including the type defined by § 271(f)(2). WesternGeco, which holds a patent for an ocean-floor surveying system, successfully sued ION for violating § 271(f)(2) by domestically manufacturing components that it shipped abroad to be assembled into a surveying system indistinguishable from WesternGeco’s patented system. The jury awarded WesternGeco damages of $12.5 million in royalties and $93.4 million in lost profits. ION moved to set aside the trial verdict on the grounds that § 271(f) does not apply extraterritorially, and the district court denied the motion. The Federal Circuit reversed the district court’s award of lost-profits damages, reasoning that § 271(f)(2) should be construed similar to § 271(a), which the Federal Circuit had previously held not to permit recovery for lost foreign sales. The Supreme Court vacated that decision and remanded for further consideration in light of its decision in Halo Electronics, Inc. v. Pulse Electronics, Inc., 579 U.S. ___ (2016), which struck down the Federal Circuit’s standard of review for treble damages awards under § 284. On remand, the Federal Circuit again ruled that foreign lost-profits damages were not recoverable because § 271(f) does not apply extraterritorially.

The Supreme Court reversed, holding that the award of foreign lost profits was a permissible domestic application of § 284. The Court addressed the question under the two-step framework governing its application of the presumption against extraterritoriality. Generally, the first step asks whether the presumption has been rebutted by some clear indication of an extraterritorial application in the statute’s text. If not, the second step asks whether the case nonetheless “involves a domestic application of the statute.” The Court elected to resolve the case at step two of the test to avoid difficult questions whose resolution could have more “far-reaching” effects than necessary to decide the case. In applying step two, the Court looked to the “focus” of the Patent Act provisions at issue, noting that a statute’s focus is “the object of its solicitude, which can include the conduct it seeks to regulate, as well as the parties and interests it seeks to protect or vindicate.” (internal quotations omitted). Section 284, the Court reasoned, focuses on the infringement the patent owner has suffered, and on providing patent owners “complete compensation” for that infringement. The Court reached the same conclusion with respect to the infringement provision, § 271(f)(2): “The conduct that § 271(f)(2) regulates—i.e., its focus—is the domestic act of ‘suppl[ying] in or from the United States.’” Because the “object of the statute’s solicitude” is domestic infringement, the Court concluded that an award of lost-profits damages, even if those lost profits would have been earned outside the United States, constitutes a domestic application of the Patent Act’s damages provision.

The Court briefly addressed two counterarguments. First, it rejected the contention that § 284 should be read as “focusing” on damages simply because the section governs damages. “[W]hat a statute authorizes is not necessarily its focus . . . . Here, the damages themselves are merely the means by which the statute achieves its end of remedying infringements.” Second, the Court rejected ION’s argument that its decision in RJR Nabisco, Inc. v. European Community, 579 U.S. ___ (2016), in which it held that RICO damages claims based “entirely on injury suffered abroad” involve an extraterritorial application of the RICO statute, should supply a general rule that “damages awards for foreign injuries are always an extraterritorial application of a damages provision.” The Court concluded that this argument misread RJR Nabisco, which applied the presumption against extraterritoriality only to preclude damages as to which there was no proof of a corresponding domestic injury.

Justice Thomas delivered the opinion of the Court, in which Chief Justice Roberts and Justices Kennedy, Ginsburg, Alito, Sotomayor, and Kagan joined. Justice Gorsuch filed a dissenting opinion, in which Justice Breyer joined.

Download Opinion of the Court.

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