WesternGeco LLC v. ION Geophysical Corp.
2018 U.S. LEXIS 3842, 138 S. Ct. 2129, 201 L. Ed. 2d 584 (2018)
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Rule of Law:
The Patent Act allows a patent owner to recover damages for lost foreign profits when the infringement is based on the domestic act of exporting components for foreign assembly under 35 U.S.C. § 271(f)(2), as this constitutes a domestic application of the damages statute, § 284.
Facts:
- Petitioner WesternGeco LLC owned patents for a system used to survey the ocean floor with lateral-steering technology.
- WesternGeco did not sell or license its patented system; instead, it used the technology itself to perform surveys for oil and gas companies.
- For several years, WesternGeco was the only company using this type of technology for surveys.
- In late 2007, respondent ION Geophysical Corp. began manufacturing components for a competing system in the United States.
- ION shipped these components to companies abroad.
- Those foreign companies then assembled the components into a surveying system that was indistinguishable from WesternGeco's.
- These foreign companies used the assembled systems to compete directly with WesternGeco, causing WesternGeco to lose at least 10 specific survey contracts.
Procedural Posture:
- WesternGeco sued ION Geophysical Corp. in the U.S. District Court for the Southern District of Texas for patent infringement.
- A jury found ION liable and awarded WesternGeco $93.4 million in lost profits from foreign contracts and $12.5 million in royalties.
- The District Court denied ION's post-trial motion to set aside the lost-profits award.
- ION, as appellant, appealed to the U.S. Court of Appeals for the Federal Circuit.
- The Federal Circuit, as an intermediate appellate court, reversed the lost-profits award, holding that § 271(f) does not apply extraterritorially to permit recovery for lost foreign profits.
- WesternGeco petitioned the U.S. Supreme Court, which vacated the Federal Circuit's judgment and remanded for reconsideration in light of another case.
- On remand, the Federal Circuit reinstated its original decision to deny lost foreign profits.
- The U.S. Supreme Court granted WesternGeco's second petition for a writ of certiorari to review the Federal Circuit's decision.
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Issue:
Does the Patent Act permit a patent owner to recover damages for lost foreign profits resulting from an infringement under 35 U.S.C. § 271(f)(2), which prohibits supplying components of a patented invention from the United States for assembly abroad?
Opinions:
Majority - Justice Thomas
Yes. The Patent Act permits a patent owner to recover damages for lost foreign profits resulting from an infringement under 35 U.S.C. § 271(f)(2). The Court applies the two-step framework for extraterritoriality but proceeds directly to step two, which asks whether the case involves a domestic application of the statute. To determine this, the Court identifies the statute's 'focus.' The focus of the damages provision, § 284, is 'the infringement' for which it provides compensation. The specific infringement here occurred under § 271(f)(2), which prohibits the act of 'suppl[ying] in or from the United States' components for foreign assembly. Therefore, the focus of the statutory scheme in this case is the domestic act of exporting components. Because ION's infringing conduct—supplying the components—occurred in the United States, the application of § 284 to award damages for the resulting lost profits is a permissible domestic application of the statute, even if those profits would have been earned abroad. The overseas events are merely incidental to the domestic infringement.
Dissenting - Justice Gorsuch
No. The Patent Act itself, by its plain terms, prohibits the award of lost foreign profits because a U.S. patent's monopoly power is territorially limited to the United States. While agreeing with the majority that the presumption against extraterritoriality is not the primary barrier, the dissent argues that the text of the Patent Act is. A U.S. patent grants the right to exclude others from making, using, or selling an invention only 'within the United States.' Damages under § 284 are to 'compensate for the infringement.' Since use of an invention outside the U.S. is not an 'infringement' of a U.S. patent, damages cannot be awarded for harm caused by such non-infringing foreign use. Section 271(f)(2) was enacted to close a loophole, treating the domestic supply of components as equivalent to making the entire invention in the U.S., but it does not expand the territorial scope of a patent holder's rights. Awarding foreign lost profits effectively extends a U.S. patent monopoly into foreign markets and invites retaliation from other countries.
Analysis:
This decision significantly clarifies the geographic scope of patent damages, holding that they are not limited by where the ultimate economic injury is felt. By focusing the extraterritoriality analysis on the location of the infringing act rather than the location of the resulting harm, the Court strengthens the hand of U.S. patent holders. This ruling makes it more difficult for infringers to avoid substantial damages by offshoring the final assembly of products whose key components originate in the U.S. The decision creates a powerful deterrent against using the U.S. as a manufacturing base for components intended for infringing products abroad and is likely to lead to larger damage awards in § 271(f) cases.
