SCOTUS to decide if lost profits can be awarded for infringement committed on high seas

Supreme Court to Decide if Patent Owners Can Be Awarded Lost Profits for Infringement Committed on High SeasOn Friday, January 12th, the U.S. Supreme Court granted a writ of certiorari to take up an appeal from the Court of Appeals for the Federal Circuit in WesternGeco LLC v. ION Geophysical Corp. This case asks SCOTUS to decide whether the Federal Circuit erred in holding that lost profits arising from prohibited combinations occurring outside of the United States are categorically unavailable in cases where patent infringement is proven under 35 U.S.C. § 271(f), the statute governing acts of patent infringement where components of a patented invention are supplied from the United States for use in foreign jurisdictions in such a way that would constitute infringement if the same use were performed in the U.S.

The case arises out of a patent infringement complaint filed by WesternGeco in the Southern District of Texas in June 2009; both WesternGeco and ION Geophysical are headquartered in Houston, TX. WesternGeco had asserted a series of five patents covering control systems for steerable streamers used in marine environments for seismic data collection, alleging that ION Geophysical had committed willful infringement of the patents through the sale of products and services such as the DigiFIN lateral streamer control system and the Orca navigation system. An amended complaint filed by WesternGeco in March 2011 alleged willful patent infringement committed by subsidiaries of Norwegian marine-towed streamer survey conductor Fugro with the use of ION Geophysical’s infringing products and services. Fugro had allegedly used the infringing products to conduct geophysical data acquisition activities for the collection of 3D marine seismic data in the Chukchi Sea off the coast of Alaska as well as the Gulf of Mexico.

WesternGeco would wind up winning about $126.8 million at the district court, the largest portion of which was a $93.4 million award for lost profits awarded by a jury verdict filed in August 2012. The jury found that ION Geophysical willfully infringed four patents asserted by WesternGeco. Each of the asserted patents survived validity challenges offered by ION Geophysical at trial. Along with lost profits, the jury also awarded $12.5 million as a reasonable royalty. WesternGeco would be awarded another $20 million through a final judgement on the merits filed in May 2014, including just over $11 million in prejudgment interest and another $9.4 million in supplemental damages. The final judgment also carried a permanent injunction against ION Geophysical enjoining it from supplying DigiFIN products.


ION Geophysical would appeal from the district court and in July 2015, the majority opinion from a Federal Circuit panel consisting of Circuit Judges Timothy Dyk, Evan Wallach and Todd Hughes affirmed most of the lower court’s ruling except for the court’s award of lost profits for conduct occurring abroad. Citing to the Federal Circuit’s 2013 decision in Power Integrations v. Fairchild Semiconductor, the panel found that U.S. patent laws “do not thereby provide compensation for a defendant’s foreign exploitation of a patented invention, which is not infringement at all.” ION Geophysical manufactured the infringing products domestically but because lost profits damages were awarded for lost contracts for services to be performed on the high seas, outside of the jurisdiction of U.S. patent law, the Federal Circuit reversed that $93.4 million award. Although barred from lost profits, the Federal Circuit noted that WesternGeco was entitled to its reasonable royalty award from the foreign use of its patented invention. Circuit Judge Wallach penned a dissent to this July 2015 decision, arguing that precedents set by both the Federal Circuit and the Supreme Court required the consideration of lost foreign sales as part of the damages calculation.

In February 2016, WesternGeco filed a petition for writ for the case to be taken up on appeal by the Supreme Court. In June 2016, SCOTUS granted the petition for writ and promptly vacated and remanded the case for further proceedings consistent with Halo Electronics v. Pulse Electronics. The Federal Circuit issued an updated decision in the case in September 2016 featuring the same panel of Circuit Judges Dyk, Wallach and Hughes, which vacated the district court’s findings of no willful infringement committed by ION Geophysical, remanding the case for further proceedings consistent with Halo and reinstating its July 2015 decision in all other respects. This case featured another dissent from Circuit Judge Wallach on the subject of the Federal Circuit’s earlier vacature of the lost profits award to WesternGeco.

In its petition for writ filed February 2017, WesternGeco noted the Federal Circuit split on the lost profits issue under Section 271(f), which governs acts of patent infringement resulting in the supply of components of a patented invention from the United States in a manner that the components would be used in such a way that would constitute patent infringement within the United States. WesternGeco argued that court precedent indicated that patent owners proving infringement under Section 271(f), including acts committed abroad, affords the patent owner the full breadth of damages available under 35 U.S.C. § 284. WesternGeco argued that the Federal Circuit’s decision in Power Integrations only concerned Sections 271(a) and (b), not 271(f).

In Power Integrations, the patent owner sought damages for the worldwide sale of infringing electronic power supply chips, not just the sale of those components which were manufactured in the United States. Although the Court had limited the scope of liability under the presumption of extraterritoriality, such a presumption has not been applied to limit damages once liability has been established. In its brief opposing the granting of writ filed in April 2017, ION Geophysical argued that WesternGeco was asking the Supreme Court to overrule its own 2007 decision in Microsoft Corp. v. AT&T Corp., which vacated a finding of patent infringement against Microsoft under Section 271(f), to eliminate the presumption against extraterritorial application of U.S. patent law and thus “transform United States patents into worldwide patents.”

In December 2017, the office of Solicitor General Noel Francisco filed a brief for the United States as amicus curiae in the case and argued that this case was a suitable vehicle for resolving the presented question, which is both an important and recurring question. The Solicitor General argued that petitioner WesternGeco may recover all lost profits proximately caused by respondents domestic infringement, including profits it would have earned by performing surveys on the high seas. WesternGeco’s entitlement to damages should be informed by the traditional common-law rule that a victim of a tort should be returned to the position that victim would have occupied if not for the defendant’s legal wrong. “That traditional remedial principle is just as ‘borderless’ as the common-law exhaustion principle that the Court applied in Impression Products,” the Solicitor General argued.


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