Intellectual Property: Patent Damages and Infringement

Intellectual Property: Patent Damages and Infringement

In the case WESTERNGECO LLC v. ION GEOPHYSICAL CORP. N.16-1011, decided on June 22, 2018, the Supreme Court of The United States gives us its opinion in theme of Intellectual Property and, in particular, about the determination of lost profits damages arising from Patent Infringement.

Summary: 1. The issue – 2. Case background – 3. Legal backround – 4. Decision – 5. The outcome – 6. Conclusion – 7. Comment

1. The issue

The questions in this case are two: whether the Patent Act (35 U. S. C.) §271(f)(2)[1] and §284[2] statutes allow the patent owner to recover for lost foreign profits, and whether the Federal Circuit made a mistake in holding that lost profits arising from prohibited combinations occurring outside of the United States are categorically unavailable in cases where patent infringement is proven under 35 U.S.C.§ 271(f).

2. Case background

Petitioner WesternGeco LLC owns four patents relating to a system that it developed for surveying the ocean floor.

The system uses lateral-steering technology to produce higher quality data than previous survey systems.

In late 2007, respondent ION Geophysical Corporation began selling a competing system. It manufactured the components for its competing system in the United States and then shipped them to companies abroad. Those companies combined the components to create a surveying system indistinguishable from WesternGeco’s and used the system to compete with WesternGeco.

For these reasons WesternGeco sued for patent infringement under 35 U. S. C. §§271(f)(1) and (f)(2).

At trial, WesternGeco proved that it had lost 10 specific survey contracts due to ION’s infringement. The jury found ION liable and awarded WesternGeco damages of $12.5 million in royalties and $93.4 million in lost profits.

On appeal, the Court of Appeals for the Federal Circuit reversed the award of lost-profits damages[3].

The Federal Circuit had previously held that §271(a)[4], the general infringement provision, does not allow patent owners to recover for lost foreign sales[5].

3. Legal backround

Under the Patent Act (35 U.S. Code), a company can be liable for patent infringement if it ships components of a patented invention overseas to be assembled there[6].

A patent owner who proves infringement under this provision is entitled to recover damages[7].

The Patent Act gives patent owners a “civil action for infringement[8]“.

Section 271 outlines several types of infringement: the general infringement provision[9] covers most infringements that occur “within the United States.” The subsection at issue in this case, §271(f), “expands the definition of infringement to include supplying from the United States a patented invention’s components[10].”.

Patent owners who prove infringement under §271 are entitled to relief under §284, which authorizes “damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer.

4. Decision

The Supreme Court holding that these statutes allow the patent owner to recover for lost foreign profits, reversed the previous decisions.

The Supreme Court observes that the Courts have presumed that federal statutes “apply only within the territorial jurisdiction of the United States[11].”

The Supreme Court observes that these principles, commonly called the presumption against extraterritoriality, has deep roots[12].

5. The outcome

For deciding questions of extraterritoriality, the Supreme Court has established a two-step framework.

The first step asking “whether the presumption against extraterritoriality has been rebutted[13].”

If the presumption against extraterritoriality has not been rebutted, the second step of the framework asking “whether the case involves a domestic application of the statute.[14]

The Supreme Courts has made this determination by identifying “the statute’s focus ” and asking itself whether the conduct relevant to that focus occurred in United States territory. 

The Supreme Court resolved this case at step two.

After a long and logic reasoning, the Supreme Court has concluded that the conduct relevant to the statutory focus in this particular case is domestic. 

The Court has explained that §284 provides a general damages remedy for the various types of patent infringement identified in the Patent Act.

On the basis that portion of §284 at issue here states that “the court shall award the claimant damages adequate to compensate for the infringement.”, the S.C. has concluded that “the infringement” is the focus of this statute.

In the opinion of the Supreme Court, the conduct in this case that is relevant to that focus clearly occurred in the United States, as it was ION’s domestic act of supplying the components that infringed WesternGeco’s patents. Thus, the lost-profits damages that were awarded to WesternGeco were a domestic application of §284.

6. Conclusion

The Supreme Court holds that WesternGeco’s damages award for lost profits was a permissible domestic application of §284, and consequently in general patent owners may now recover foreign lost profits tied to domestic acts of infringement under §271(f)(2).

The Judges also observe that because the act of patent infringement must be domestic, a patent owner’s recovery should be restricted to its own domestic activities, not its international activities.

For these reasons the Supreme Court has reversed the judgment of the Federal Circuit and has remanded the case for further proceedings consistent with this opinion.

7. Comment

This important decision on patent damages and infringement gives us an interesting point of view on the legislation concerning the Patent Act and on the ability of a patent owner to recover the appropriate amount damages due to the loss of profits.

The decision provides a remedy tied to the domestic acts of indirect infringement and appears to open up some more chances for a full remedy for infringement, which addresses foreign consequences.

The Supreme Court interpreted 35 U.S.C. § 284 flexibly and the decision is undoubtedly a win for U.S. patent owners that will be able to recover foreign lost profits tied to domestic acts of infringement under § 271(f)(2).

[1] 35 U.S.C. 271 INFRINGEMENT OF PATENT: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.
[2] 35 U.S.C. 284 DAMAGES: Upon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court.
When the damages are not found by a jury, the court shall assess them. In either event the court may increase the damages up to three times the amount found or assessed. Increased damages under this paragraph shall not apply to provisional rights under section 154(d).
The court may receive expert testimony as an aid to the determination of damages or of what royalty would be reasonable under the circumstances.
[3] WesternGeco LLC v. ION Geophysical Corp., 791 F. 3d 1340, 1343 (2015)
[4] 35 U.S.C. 271(a)  INFRINGEMENT OF PATENT: Except as otherwise provided in this title, whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States, or imports into the United States any patented invention during the term of the patent therefor, infringes the patent.
[5] Power Integrations, Inc. v. Fairchild Semiconductor Int’l, Inc., 711 F. 3d 1348 (CA Fed. 2013).
[6] 35 U. S. C. §271(f)(2)
[7] §284.
[8] §281
[9] §271(a)
[10] Microsoft Corp. v. AT&T Corp., 550 U. S. 437, 444-445 (2007).
[11] (Foley Bros., Inc. v. Filardo, 336 U. S. 281, 285 (1949).
[12] (See A. Scalia & B. Garner, Reading Law: The Interpretation of Legal Texts §43, p. 268 (2012)
[13] (RJR Nabisco, Inc. v. European Community, 579 U. S. (2016) (slip op., at 9)
[14](RJR Nabisco, Inc. v. European Community, 579 U. S. (2016) (slip op., at 9)

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Laura Usanza

Laureata in Giurisprudenza con Lode presso l'Università "Insubria Varese-Como" con tesi in diritto processuale civile su "La e-discovery e gli strumenti di prova dell'ordinamento italiano: un confronto". Attualmente tirocinante ex art.73 presso la Corte d’Appello di Milano.

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