17 January 2018
Washington DC
Reporter: Barney Dixon

SCOTUS to hear extraterritorial damages question

The US Supreme Court is to hear a case that considers whether patent owners should be able to recover lost profits from infringement outside of the US.

WesternGeco brought its case against ION Geophysical Corp to the Supreme Court, appealing a Federal Circuit ruling, which held that lost profits arising from prohibited combinations occurring outside of the US are “categorically unavailable” in patent infringement cases.

The Federal Circuit ruling itself was on remand from the Supreme Court to be considered in light of the ruling in Halo Electronics v Pulse Electronics.

On remand, the Federal Circuit vacated a ruling from the US District Court for the Southern District of Texas that found infringement and awarded WesternGeco $93.4 million in lost profits.

According to WesternGeco’s petition for certiorari, under the US patent act, it is an “act of patent infringement to supply ‘components of a patented invention,’ ‘from the US,’ knowing or intending that the components be combined ‘outside of the US’ in a manner that ‘would infringe the patent if such combination occured within the US’”.

“Patent owners who prevail in litigation are entitled to ‘damages adequate to compensate for the infringement,” it explained.

“In this case, despite affirming that [ION] was liable for infringement under section 271(f) [of the US patent act], the majority of a divided panel of the court of appeals held that [WesternGeco] was not entitled to lost profits caused by the proscribed combination.”

“The court of appeals reasoned that even when Congress has overridden the presumption against extraterritorial application of the law in creating liability, the presumption must be applied a second time to restrict damages.”

WesternGeco questioned “whether the court of appeals erred in holding that lost profits arising from prohibited combinations occurring outside of the US are categorically unavailable where patent infringement is proven under section 271(f) of the US patent act”.

In its opposition brief, ION rephrased the WesternGeco’s question, and argued that the court would be overruling a previous Supreme Court ruling in Microsoft v AT&T and “eliminate the presumption against extraterritoriality so that infringers are subject to damages under section 284 [of the US patent act] based on non-infringing foreign use by third parties”.

“In Microsoft v AT&T this Court held that the presumption against territoriality applied to all laws, and especially the patent laws, including the interpretation of section 271(f) of the US patent act. This statute was enacted to “plug a hole” in liability in the statute governing direct infringement; it was enacted after a defendant successfully avoided infringement by exporting non-infringing components of an infringing device in three sub-assemblies that could be easily connected upon receipt,” the brief said.

“Section 271(f) puts the exporter of non-infringing components that can be combined into an infringing device on the same footing as an exporter of the infringing device itself. However, unlike other indirect infringement statutes, it eliminates the requirement of direct infringement: that is, proof of assembly or use abroad is not part of the cause of action.”

“Since for section 271(f) the act of infringement is complete upon export, damages must be based on the export from the US,” ION said.

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