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Supreme Court Upholds Lost Profits Award for Foreign Uses, Citing Exportation as a Domestic Injury

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On June 22, 2018, the U.S. Supreme Court ruled that patent infringement plaintiffs can recover lost profits on contracts performed entirely outside the U.S. under 35 U.S.C. § 271(f). WesternGeco LLC v. ION Geophysical Corp, No. 16-1011 (2018). This decision holds that damages for patent infringement can include lost profits from foreign service contracts that the patentee lost due to the use of infringing components exported by the defendant from the U.S.

In WesternGeco, defendant ION manufactured and exported components from the U.S. to foreign customers to perform a lateral steering technique for deep sea seismic surveys. WesternGeco alleged that those components were non-staple components of survey systems that infringed its patents, and sued for damages under § 271(f). WesternGeco does not sell any components or systems for performing the lateral steering techniques, and instead, performed surveys for customers using its own patented equipment. In the district court, WesternGeco identified ten survey contracts that it lost to foreign companies that performed surveys using ION’s allegedly infringing components. A jury found infringement, and awarded lost profits damages for the ten survey contracts. Prior cases had held that §271(a), the general infringement provision, did not allow patent owners to recover for lost foreign sales. See e.g., Power Integrations, Inc. v.Fairchild Semiconductor Int’l, Inc., 711 F.3d 1348 (Fed. Cir. 2013). The Federal Circuit had reasoned that §271 should be interpreted in the same way.

The Court disagreed. In a 7-2 opinion, the Court held that WesternGeco’s award for lost profits was a permissible domestic application of §284 of the Patent Act. Section 271(f)(2) pro­vides that a company “shall be liable as an infringer” if it “supplies” certain components of a patented invention “in or from the United States” with the intent that they “will be combined outside of the United States in a manner that would infringe the patent if such combination occurred within the United States.” Citing this text, the Court held that the conduct relevant to the statutory focus of §271(f)(2) was domestic. According to the Court’s analysis, § 271(f) does not implicate the presumption against extraterritoriality, because it addresses activities and injuries that occur domestically. The Court reiterated that the “overriding purpose” of §284 is to “affor[d] patent owners complete compensation” for infringements. General Motors Corp. v.Devex Corp., 461 U.S. 648, 655 (1983). Making no distinction between the types of damages that could be awarded for infringement under § 271(f), the Court affirmed the District Court’s award of lost profits.

Justice Gorsuch dissented (joined by Breyer), disagreeing with the Court’s reasoning that all damages are available under § 271(f). The dissent argues that § 271(f) is intended to provide damages for “the infringement” of the defendant, which here was the sale of components to buyers abroad.  Thus, WesternGeco should not be able to recover lost profits due to sales contracts obtained by ION’s customers because they are not part of ION’s “infringement,” but are merely the use of those components by third parties. Justices Gorsuch and Breyer would have affirmed the award of damages for the sales of survey system components to foreign buyers, but would have reversed the District Court’s award of lost profits damages for lost survey contracts.

What This Means For You

In view of the Court’s decision in WesternGeco, defendants in patent infringement suits should be aware that they may be subject to damages claims for activities of foreign customers, even if they only supply components of the accused device. And, patentees should keep track of any lost profits incurred in connection with an infringement claim under §271(f), regardless of where the infringement takes place.

Visit our website to learn more about V&E’s Intellectual Property practices. For more information, please contact Vinson & Elkins lawyers Devika Kornbacher or Parker Hancock.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.