November 12, 2018

November 12, 2018

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U.S. Supreme Court Opens the Door to Allow Patent Owners to Recover Foreign Lost Profits

The United States Supreme Court ruled on Friday that a patent owner can, at least in some situations, recover lost profits for the unauthorized use of its patented technology abroad.  The 7-2 decision in WesternGeco LLC v. ION Geophysical Corp. overturned the Federal Circuit’s opinion, which relied on the presumption against extraterritorial application of U.S. law to vacate a jury’s award of $93.4 million in profits that the patent owner would have earned on overseas contracts.

In the opinion, the Supreme Court soundly rejected the Federal Circuit’s view that profits lost outside the United States are categorically unavailable as a matter of United States patent law.   But the Court declined to go as far as the patent owner requested and find that the “presumption against extraterritoriality should never apply to statutes, like 35 USC § 284 [the patent damages statute], that merely provide a general damages remedy for conduct Congress has declared unlawful.”  (For more details on the Federal Circuit decision and briefing, see our prior posts here and here.)   The Court instead focused on the narrower question of “whether the case involves a domestic application of the statute.”

According to the Court, even if “other conduct occurred abroad,” a case involves a “permissible domestic application” if “the conduct relevant to the statute’s focus occurred in the United States.” Based upon the statutory focus, the Court determined that “the conduct relevant to the statutory focus in this case is domestic” and so damages based on foreign lost profits were not prohibited.

In reaching this conclusion, the Court reconciled the parties’ views as to whether the case presented a question of infringement under 35 U.S.C. § 271 or one of damages under 35 U.S.C. § 284.  The Court noted that where a statutory provision at issue “works in tandem with other provisions, it must be assessed in concert with those other provisions” when determining the “focus” of the statute.  Turning first to 35 USC § 284, the Court found that the focus of this statute, which provides a general damages remedy for various types of patent infringement, is “the infringement”—not damages.  And because 35 USC § 271 identifies various ways in which a United States patent can be infringed, determining the focus of Section 284 in a given case requires the Court to look at the type of infringement that occurred under Section 271.

Here, 35 USC § 271(f)(2) was the basis of the patent owner’s infringement claim and the lost profits damages that it received.  Section 271(f)(2) provides that a defendant is “liable as an infringer” if it:

supplies in or from the United States all or a substantial portion of the components of a patented invention . . . as to actively induce the combination of such components outside of the United States in a manner that would infringe the patent if such combination occurred within the United States.

Given that the conduct regulated by Section 271(f)(2) is domestic—i.e., “suppl[ying] in or from the United States”—the Court found that the focus of Section 284 was domestic infringement through the act of exporting components from the United States.  The Court concluded, on this basis, that damages based upon contracts to be performed outside of U.S. territory were permitted.

WesternGeco thus opens the door to patent owners recovering lost profits they would have earned overseas—at least in some situations.  The Court was careful to limit the scope of its decision to infringement under Section 271(f)(2) and expressly refused to declare that Section 284 is not subject to the presumption against extraterritorial application of United States law.  Accordingly, the Federal Circuit’s decision in Power Integrations, Inc. v. Fairchild Semiconductor International, Inc. continues to bar the recovery of damages from foreign sales for infringement under 35 USC § 271(a).

In light of this decision, litigators should be sure to assert infringement under Section 271(f) if there is any conceivable “combination” of exported parts so as to preserve the opportunity to obtain damages from infringing foreign sales and use.  Patent prosecutors may also wish to include claims for products that are likely to be assembled outside of the U.S., and that include inventive components manufactured within the U.S.

© Copyright 2018 Squire Patton Boggs (US) LLP

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About this Author

Tamara Fraizer Ph.D., Palo Alto, Squire Patton, IP Lawyer, Patent Litigation,
Principal

Tamara Fraizer is an attorney with Squire Patton Boggs in Palo Alto, California, who helps her clients assess intellectual property (IP) related issues, leverage and enforce IP rights and defend against IP claims. Her expertise is patent litigation and she has litigated numerous patent cases in federal courts across the nation and at the US International Trade Commission. She is also a patent lawyer qualified to prosecute patents before the US Patent and Trademark Office (PTO) and handle post-grant challenges to them. In addition to fighting for her clients in the courts...

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Jeremy W Dutra Lawyer Squire Patton Boggs
Of Counsel

Jeremy Dutra is a member of the Intellectual Property & Technology Practice Group. His practice focuses on intellectual property litigation, antitrust litigation and complex commercial business disputes.

Jeremy represents clients before federal district courts throughout the country and the International Trade Commission, as well as courts of appeals and numerous state courts. He has litigated cases involving a diverse array of technologies, including automation, stainless steel processing, software, automotive products and consumer electronics. He has also litigated cases involving trade secret misappropriation, false advertising and unfair competition. Jeremy has been involved in multiple trials, hearings and oral arguments in his 13 years of practicing law.

In addition to his litigation experience, Jeremy counsels clients concerning trademark, trade dress and intellectual property license agreements. He also guides clients concerning government contracts, teaming agreements and subcontracts, bid protests before the Court of Federal Claims, and internal audits and investigations.

Experience

  • Successfully challenged, before the US Court of Federal Claims and US Court of Appeals for the Federal Circuit, a competition conducted by the US Department of Housing and Urban Development for failure to comply with the Federal Grant and Cooperative Agreement Act.
  • Successfully defended a network services company against a protest filed at the US Court of Federal Claims (Case No. 15-1541) and appealed to US Court of Appeals for the Federal Circuit (Appeal No. 2012-1655) against an information technology services contract.
  • Successfully defended major US metals distributor in a trade secrets-based Section 337 unfair imports dispute before the US International Trade Commission involving stainless steel, resulting in termination of distributor from the investigation and no remedy issued against it.
  • Successfully defended power management company in patent infringement suit involving electronic power distribution units.
  • Representing the manufacturer of a high-performance blending system in appeal to US Court of Appeals for the Federal Circuit of Board of Patent Appeals and Interferences decision in inter partes reexamination. Successfully defended a network services company against multiple protests filed at the US Court of Federal Claims (Case Nos. 11-400C & 11-416C) and appealed to US Court of Appeals for the Federal Circuit (Appeal No. 2012-5039) against a US$500 million information technology services contract. In securing complete victory for our client, we made new law clarifying the requirements for timely filing protests challenging the terms of a solicitation.
  • Successfully defended a GAO protest of an award to a client by the US Agency for International Development.
  • Obtained a favorable jury verdict on behalf of an employer defending against breach of a sales commission agreement.
  • Representing a multifamily real estate investment firm before the Virginia Supreme Court, securing reversal of a lower court decision, which resulted in a vacatur of a multimillion-dollar arbitration award. In securing complete victory for our client, we made new law in Virginia clarifying that the court, not an arbitrator, has jurisdiction in the first instance to determine whether an arbitration agreement exists between the parties.
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