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Supreme Court Opens the Door to Recovering Lost Foreign Profits in Patent Cases

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Former Associate
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By Peter R. Montecuollo and David G. Barker

In a 7-2 decision, the Supreme Court of the United States has opened the door for patent owners to recover lost foreign profits under §§ 284 and 271(f)(2) of the Patent Act. Although the Court’s decision in WesternGeco LLC v. ION Geophysical Corp. represents a marked shift from the lost-foreign-profits calculus courts applied previously, it does not create an automatic right to recover lost foreign profits.  Instead, the Court supplanted the Federal Circuit’s rigid prohibition against recovering lost foreign sales (see Power Integrations, Inc. v. Fairchild Semiconductor Int’l, Inc.) with a case-by-case approach that requires courts to grapple with the general presumption against extraterritoriality in light of the specific claims at issue in the suit.

WesternGeco owns various patents covering a lateral-steering system for surveying the ocean floor. This system provides more accurate, higher quality data than WesternGeco’s competitors.  WesternGeco sued ION Geophysical under § 271(f)(2) of the Patent Act, which establishes a cause of action for patent infringement against a company that “supplies or causes to be supplied in or from the United states any component of a patented invention . . . where 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[.]”  WesternGeco alleged that ION Geophysical manufactured components for a lateral-steering system “indistinguishable from WesternGeco’s and used the system to compete with WesternGeco.”

The Supreme Court held that WesternGeco could recover the full $93.4 million in lost-profits awarded by the jury. The Court examined the presumption against extraterritoriality — the presumption that federal statutes “apply only within the territorial jurisdiction of the United States” — and the two-part test for rebutting the presumption.  Though the first step in the test typically requires courts to consider whether the statute contains a “clear indication of an extraterritorial application,” the Court resolved the dispute on the second step: “whether the case involves a domestic application of the statute.”  The Court held that recovery of lost-foreign profits under §§ 284 and 271(f)(2) of the Patent Act “involves a domestic application of the statute,” because the focus of the Patent Act is to provide a complete remedy for infringement — in this case, ION Geophysical’s domestic manufacture and export of components violated § 271(f)(2) of the Patent Act, even though the components were assembled overseas.

Though WesternGeco does not create an automatic right for all patent owners to recover lost foreign profits, it opens the door for recovery in  § 271(f)(2) lawsuits.  Also, the Court’s narrow holding leaves for another day issues such as proximate causation and extraterritorial damages under § 271(a).