“[F]oreign sales are subject to the full panoply of U.S. patent damages any time there is infringement in the U.S.”
In late June of this year, the Supreme Court issued its WesternGeco ruling, deciding that a patentee could collect “lost profits” damages for sales made outside of the United States for infringement that occurred under an arcane section of the patent statute that relates to exporting components of an invention for combination abroad—section 271(f). The question at that time was whether the WesternGeco decision, which significantly increases the potential damages for foreign sales that infringe a U.S. patent, would apply only to its narrow setting. A key indicator last week pointed in the direction of a broad application of the WesternGeco principals to increase damages in patent infringement cases.
Most patent infringement cases involve direct infringement under section 271(a) of the patent statute. For those cases, the Federal Circuit has been clear that lost profits damages do not apply where direct infringement happens in the United States but the infringing product is sold abroad. In the Power Integrations case, a jury awarded $34 million in worldwide damages. Post-trial, the amount was reduced to around $6 million, the amount of damages incurred just in the U.S. The appeals court was clear that the jury award was contrary to law because it based the damages on worldwide sales. Power Integrations, Inc. v. Fairchild Semiconductor Int’l, Inc., 711 F.3d 1348 (Fed. Cir. 2013).
As the WesternGeco case wound its way up to the Supreme Court, the Federal Circuit again confirmed the Power Integrations result, calling Power Integrations “[t]he leading case on lost profits for foreign conduct.” WesternGeco LLC v. ION Geophysical Corp., 791 F.3d 1340 (Fed. Cir. 2015). The Federal Circuit then relied on Power Integrations to deny lost profits for worldwide sales in the WesternGeco case—but the Supreme Court reversed. The Court seemed impressed by a hypothetical posed during oral argument involving a French tourist in Washington, D.C. If that tourist was injured by a negligent driver and had to stay in the U.S. for medical treatment, would her damages include her lost wages because she was unable to return to her job in France? Because the lost wages are reasonably foreseeable, a court would award them, even though they accrue in France, because the tort, the car accident, happened in the U.S.
Justices Gorsuch and Breyer were less impressed. In their dissent, they argued that the patent statute does not permit lost profit damages for foreign sales—and that if it did, we could expect other countries to demand symmetrical damages. The majority disagreed:
Two of our colleagues contend that the Patent Act does not permit damages awards for lost foreign profits. Their position wrongly conflates legal injury with the damages arising from that injury.
WesternGeco LLC v. ION Geophysical Corp., 138 S.Ct. 2129 (2018) (citations omitted). That is, like the French tourist, if the legal wrong occurs in the U.S., the damages accruing from that wrong can reach outside the U.S. in order to fully compensate the plaintiff. The Supreme Court reversed the Federal Circuit and ordered that lost profit damages were available for foreign sales in the context of section 271(f). Interestingly, the Supreme Court mentioned the Power Integrations case, but did not expressly overrule it.
Power Integrations lives on, however. Last week, Chief Judge Stark issued a ruling from the District Court in Delaware that applies WesternGeco broadly to increase patent damages from foreign sales resulting from direct infringement. Power Integrations, Inc. v. Fairchild Semiconductor International, Inc., Civil Action No. 04-1371-LPS (Slip Op., October 4, 2018). This might occur where a patented product is made in the U.S., but sold abroad, or where the distribution channel for an infringing article includes warehousing in the U.S. The Judge ruled that WesternGeco overruled the prior law limiting these damages to U.S. sales—now, foreign sales are subject to the full panoply of U.S. patent damages any time there is infringement in the U.S. The Judge also certified this decision for interlocutory appeal, paving the way for the Federal Circuit to consider this development sooner rather than later.
This decision will necessarily change the balance of risk for companies that manufacture or assemble products in the U.S. While the Federal Circuit will have to have the final say, the Supreme Court’s logic does apply more broadly to infringement beyond the circumstances of the WesternGeco case. The Federal Circuit has been seen as limiting damages for patent infringement in recent years, but this new law cuts the other way, raising the stakes in patent cases by increasing the potential of foreign sales to incur higher damages. The risk will be higher not only for large multinational corporations, but also for smaller manufacturing firms with significant foreign sales. In this sense, these new rulings could be seen as contrary to the administrative branch’s goal of increasing U.S. manufacturing activity. Only time will tell whether these newly increased risks draw a legislative or other response.
Image Source: Deposit Photos.