No Lost Profits for Extraterritorial Lost Contracts WesternGeco L.L.C. v. ION Geophysical Corp.
Addressing whether a patentee could recover lost profits for foreign uses of a product manufactured domestically, the U.S. Court of Appeals for the Federal Circuit reversed the district court’s lost profits award, holding that U.S. patent law does not cover foreign uses of exported components. WesternGeco L.L.C. v. ION Geophysical Corp., Case Nos. 13-1527; 14-1121; -1526; -1528 (Fed. Cir., July 2, 2015) (Dyk, J.) (Wallach, J., dissenting in part).
WesternGeco and ION make products used to survey for oil and gas beneath the ocean floor. WesternGeco manufactured its patented product in the United States and then performed surveys outside of the United States, on the open ocean, on behalf of its customers. ION also manufactured its product inside the United States, but then shipped it abroad to its own customers. Those customers, in competition with WesternGeco, used the infringing product to perform their own surveys in international waters.
WesternGeco identified 10 surveys—which resulted in over $90 million in profits—that it lost to ION’s customers. WesternGeco argued that it should be able to recover damages for these lost surveys, even though the surveys were performed outside of the United States, because ION’s customers would not have won contracts for those surveys without access to ION’s products.
A jury found that ION infringed WesternGeco’s patents under § 271(f), which covers the export of a component of a patented system, as opposed to the patented system as a whole. The jury then awarded lost profits for the 10 foreign surveys. After the district court entered final judgment, ION appealed.
The Federal Circuit reversed the district court’s damages award, holding that WesternGeco could not recover lost profits in connection with contracts for services to be performed outside of the United States. Emphasizing the presumption that U.S. patent law applies only domestically, the Court explained that § 271(f) covers infringement for shipping components abroad, but not foreign uses of those components. Thus, even though ION sold an infringing component, the customers’ subsequent foreign use of those infringing products was not an infringing act under U.S. patent law. Under § 271(a), an exporter of a complete infringing product cannot be liable for uses of that infringing product abroad. Similarly, under § 271(f), an exporter of a component of an infringing product cannot be liable for uses of that component abroad.
The Court also addressed the three arguments raised in the dissent. First, the majority explained that contrary to the dissent’s arguments, no Supreme Court precedent has approved of awards of lost profits for foreign uses. At most, Supreme Court precedent suggests that a patentee can recover when a U.S. manufacturer sells an infringing product abroad. Second, the foreign surveys did not constitute convoyed sales because no precedent supported such an extension of the convoyed-sales doctrine. Finally, the fact that WesternGeco may not be able to recover any lost profits whatsoever was not a basis for awarding lost profits in this case. Although the surveys were conducted on the high seas and outside the territorial reach of any patent jurisdiction, WesternGeco might be able to recover in the jurisdiction where the contracts were negotiated or where the surveying ships were based. Regardless, none of these concerns justified disregarding the presumption against extraterritoriality. The patentee could not recover lost profits for foreign uses of an exported component.