“The expansion of lost profits to include foreign lost profits enhances the ability of a patent owner to recover the appropriate amount damages that would make them whole,” said Efrat Kasznik. “It’s economic justice.”
Earlier today the United States Supreme Court issued a decision in WesternGeco LLC v. ION Geophysical Corp., which in a 7-2 decision ruled that a patent owner may recover lost foreign profits for infringement under 35 U. S. C. 271(f)(2). The question decided, as set forth in the opinion by Justice Thomas, writing for the majority, was: “The question in this case is whether these statutes allow the patent owner to recover for lost foreign profits.” Thomas simply answered the question in the opening paragraph saying: “We hold that they do.” See Supreme Court win for Patent Owners on Lost Foreign Profits.
As we do with all Supreme Court intellectual property decisions, immediately upon publication of the Supreme Court decision this morning we reached out to our distinguished panel of industry insiders. Below these experts offer their instant reaction to this important decision on patent damages and infringement. There will obviously be much to write and digest in the weeks and months to come, but our panel’s initial reaction is that this decision is a clear win for patent owners.
Partner, Oblon, McClelland, Maier & Neustadt, L.L.P.
This is another Supreme Court decision in line with its prior cases such as KSR Intern. Co. v. Teleflex Inc., 550 US 398 (2007), finding that the Federal Circuit had applied an unduly rigid rule in the application of U.S. patents laws. Here the Federal Circuit applied 35 U.S.C. § 284 on a wooden basis that because extraterritorial activity was involved foreign lost profits were precluded. However, ION’s exportation of parts from the U.S. for assembly in a foreign country occurred within the U.S., and compensation for infringement was sought for “the lost-profits damages resulting from the exportation. The patent owner, WesternGeco convincingly argued that lost profits, including foreign lost profits, were available to compensate them for infringement under 35 U.S.C. § 271(f), when they proved the acts of ION’s domestic infringement caused the lost foreign profits. The Supreme Court interpreted 35 U.S.C. § 284 flexibly “to ‘affor[d] patent owners complete compensation’ for infringements.”
Stephen Kunin serves as an expert witness and consultant on patent policy, practice and procedure. Mr. Kunin served three decades at the USPTO, including 10 years as Deputy Commissioner for Patent Examination Policy.
Partner, Lewis Baach Kaufmann Middlemiss
Today’s decision in WesternGeco is clearly a win for patent owners, though the Court made considerable efforts to limit its ruling, including focusing specifically on § 271(f)(2), reserving decision on proximate cause, and prioritizing its reasoning to avoid addressing the plaintiff’s broader contention that the presumption against extraterritoriality should never apply to a general damages provision such as 35 USC 284 – which the Court observed “could implicate many other statutes.” On the latter point, the Court addressed only the second part of the usual two-part test, concerning “whether the case involves a domestic application of the statute.” “The statute” for purposes of this test was § 271(f)(2), which indeed requires and makes illegal specified domestic acts. Section 284 – the actual provision that speaks to damages – was thus “remedial” in nature, not in itself a basis for extending recovery to damages arising abroad, but still available as a remedy for violations that occur here. Thus, it still requires a tie to a statutory wrong committed in the U.S. to justify a remedy extending outside of the U.S. On the other hand, a full remedy for a statutorily proscribed act that occurs in the U.S. may include resulting damages that are incurred abroad.
Is this decision really as limited as the Court suggests? The decision seems to turn on that portion of § 271(f)(2) that triggers liability based on U.S. conduct analogous to contributory infringement but where the underlying direct infringement occurs abroad. The decision does not provide a remedy for the underlying foreign acts that would be direct infringement (had they occurred in the U.S.), but rather, provides a remedy tied to the domestic acts of indirect infringement. However, the relevant factor here appears to be that liability is triggered by domestic acts – not the part of the statutory provision that expressly extends to conduct outside the U.S. So, then, what about an infringement under §271(a) that occurs in the U.S. but gives rise to foreign damage? Numerous examples might be conjured in the Internet context, for example where a domestic patented method, directly infringed in this country under § 271(a), gives rise to a “signal” (e.g., stream) and not a “component,” which is ultimately consumed and paid for outside the U.S.? Such a case appears to fit within the Court’s rationale, even though it would not fit under §271(f). In short, the decision is expressly not limited to § 271(f)(2) (indeed § 271(f)(1) does not look materially different) and may not be limited to § 271(f) at all. Nor for that matter is the rationale of this decision necessarily limited to patent damages. The decision does appear to open up some more room for a full remedy for infringement (or other violation or tort), which addresses foreign consequences.
Ron Abramson is a litigator with many years of experience in the software, telecommunications and Internet industries. Mr. Abramson is recognized by Super Lawyers as a top-rated intellectual property litigation attorney in New York, and has been selected as a Fellow of the Litigation Counsel of America.
President, Foresight Valuation Group
Parties seeking to evade US patent laws have, and always will, seek to find new methods of achieving this goal. This ruling reinforces the strength of the US patent system by aligning foreign lost profit damages with the definition of infringement, which includes the act of supplying components of patented invention that were intended to be incorporated into a device in a manner than would trigger liability as an infringer, had the acts been committed in the US. As stated by the Court: “The damages themselves are merely the means by which the statute achieves its end of remedying infringements, and the overseas events giving rise to the lost-profit damages here were merely incidental to the infringement.”
The Court’s opinion that the overseas events were merely incidental to the infringement is a common-sense approach that will prevent future bad-faith actors from leveraging the US patent system to their benefit, while at the same time seeking to shield themselves from its reach through the intentional act of exporting the infringement. When infringement can be proven, there necessarily must be infringement within the territorial reach of the US patent laws. The damaged party is allowed to recover damages, including lost profits, that are adequate to compensate for infringement and the Court has determined that the recovery of lost profits is not limited to domestic lost profits. The expansion of lost profits to include foreign lost profits enhances the ability of a patent owner to recover the appropriate amount damages that would make them whole, without artificially excluding foreign lost profit damages from the pool of available damages. It’s economic justice.
Efrat Kasznik is a valuation and intellectual property (IP) expert, with close to 20 years of consulting experience, focusing on assisting clients with the creation, commercialization and protection of their intangible assets. She specializes in performing business valuations and valuations of intangible assets.
Nutter McClennen & Fish
Importantly, the Court rejected the categorical rule that damages must be limited to domestic sales. On the other hand, it expressly did not address the broader issues of causation raised during oral argument. Moreover, Justice Thomas—and the six justices who joined in the majority opinion—indicated in a footnote that the Court’s analysis was limited to infringement under 35 U.S.C. §271(f)(2) thus signaling that this decision is intended to apply only to damages associated with infringement under that very specific subsection of the Patent Act.
Nonetheless, it can be expected that there will be much consternation about the broader implications of the Court’s ruling. For example, the Court drew what it deemed to be an important distinction between “legal injury” and the “damages arising from that injury.” It held that, because § 271(f)(2)—which is focused on the act of exporting components from the United States—is directed to a domestic injury, the lost profits damages suffered by WesternGeco were simply those damages flowing from that injury. It is likely that patentees in future cases will grasp to apply this same logic to justify capturing damages from extraterritorial sales in other situations.
In the end, regardless of its breadth, the Court’s holding will have real world implications. While the White House has been focused on bringing manufacturing back to America, U.S. companies that do business globally now have an additional motivation to move the entirety of their manufacturing offshores.
Heather Repicky is a partner in the Litigation Department of Nutter McClennen & Fish and a member of the firm’s IP Litigation practice group. She focuses her practice on civil litigation, with an emphasis on IP and complex commercial matters.
Patterson Belknap Webb & Tyler LLP
The Supreme Court handed patent owners a significant win today in WesternGeco LLC v. ION Geophysical Corp. The court overturned the Federal Circuit’s bright-line rule against recovery of lost profits that accrue overseas, even when caused by domestic patent infringement under Section 271(f)(2). The Federal Circuit’s per se bar to the recovery of such damages was at odds with the statute on patent damages and risked systematically undercompensating patent owners for damages resulting from U.S. infringement. The court’s ruling has widespread implications for pending and future lawsuits and helps ensure that patent owners receive adequate compensation for damages caused by U.S. patent infringement regardless of where they fall.
Irena Royzman is the co-chair of the firm’s biotechnology practice. She co-authored the NYIPLA’s amicus brief on the case, which urged reversal of the Federal Circuit’s per se bar to recovery of such damages to avoid undercompensating patent owners and encourage innovation.
Fitzpatrick, Cella, Harper & Scinto
The majority decision is short and to the point. It sidesteps thorny issues of extraterritoriality in favor of WesternGeco’s argument that the 271(f)(2) statute focuses on domestic conduct—that is, the supply of components from the United States. The Supreme Court typically likes to address questions about extraterritoriality directly, but here, I think the majority might have felt that the extraterritoriality arguments militated against the relief it thought was adequate to compensate patent owners under 271(f)(2). While proximate cause was a significant issue in the briefing and at oral argument, the majority’s decision expressly declines to address how proximate cause should apply to foreign lost profits damages.
Christopher Loh practices complex patent litigation in the areas of pharmaceuticals, biotechnology and chemistry. Over the past fifteen years, he has litigated patent cases involving anti-HIV therapies, anti-hepatitis drugs, antidepressants and statins, including as lead counsel.
Haynes and Boone
The Court’s decision was not surprising given the tenor of the oral argument, where several justices appeared willing to allow recovery for foreign effects of domestic infringement. Going forward, it will be interesting to see how broadly the Court’s decision is applied. The holding is narrow: foreign lost-profits damages are available for domestic acts that infringe section 271(f)(2). But the reasoning behind that holding is broad: a patentee must be made whole, even if the measure of harm includes foreign consequences of the infringement. Of course, the patentee must still prove proximate cause. Footnote 3 of the opinion invites litigants to look to other doctrines, like proximate cause, to limit or preclude damages in particular cases. In the future, defendants in similar cases will need to focus on these doctrines instead of relying on a blanket prohibition on foreign damages.
Russ Emerson is an experienced litigator who has served as lead counsel in scores of patent infringement and other intellectual property cases in Texas and across the country. His cases have involved a wide variety of technologies, from semiconductors to lasers, medical devices to pharmaceutical products, and drilling technology to information theory.
Robins Kaplan LLP
As expected, the Court allowed the patent owner to recover damages caused by extraterritorial activity arising from the domestic infringement. Two key takeaways indicate how this ruling may broadly change patent damages: First, the Court reversed the Federal Circuit’s categorical rule against extraterritorial damages—meaning patent owners and accused infringers should look beyond U.S. borders in evaluating damages for any kind of U.S. infringement. Second, the Court implicitly endorsed the application of tort causation for determining infringement damages—possibly inviting challenges to other damages-limiting “rules,” like EMVR and the smallest salable unit.
Aaron Fahrenkrog is a trial lawyer. He handles complex cases in a wide range of areas including patents, class actions, technology licensing, and publicity rights. Aaron enjoys patent cases because they present a fascinating interaction among technology, economics, business, and persuasion.