Recovery of Lost Foreign Profits for Infringement of a U.S. Patent
July 11 2018
While a U.S. patent provides the patent owner with a monopoly to prevent others from “making, using, offering for sale, or selling the invention throughout the United States,” there are significant limits to the extraterritorial application of U.S. Patent law. The U.S. Supreme Court, however, just found that damages for one form of patent infringement extend not only to lost U.S. profits, but also to lost foreign profits. In what is seen as a big win for patent owners, the Court, in a 7-2 decision in WesternGeco v. Ion Geophysical, ruled patent owners may recover lost foreign profits for patent infringement under 35 U.S.C. §271(f)(2).
Section 271(f) addresses U.S. patent infringement resulting from exporting components of an invention for assembly abroad. The subsection at issue in WesternGeco, 35 U.S.C. §271(f)(2), specifically “addresses the act of exporting components that are specially adapted for an invention,” stating “[w]hoever without authority supplies or causes to be supplied in or from the United States any component of a patented invention that is especially made or especially adapted for use in the invention and not a staple article or commodity of commerce suitable for substantial noninfringing use, where such component is uncombined in whole or in part, knowing that such component is so made or adapted and intending that such component will be combined outside of the United States in a manner that would infringe the patent if such combination occurred within the United States, shall be liable as an infringer.”
When patent infringement is proven, 35 U.S.C. §284 provides for damages “adequate to compensate for the infringement but in no event less than a reasonable royalty for the use made of the invention by the infringer.” The question in WesternGeco was whether those damages for infringement of a U.S. patent (not a foreign patent) extend to lost foreign profits arising from assembled foreign products that are used abroad when the infringement claim arises merely from exporting specially-adapted components of the invention. Even though the foreign uses of the invention cannot infringe a U.S. patent, the Supreme Court found that lost foreign profits are recoverable for infringement under §271(f)(2).
In reaching its decision, the Court looked to whether extraterritorial application of the relevant statutes is permissible. While there is a presumption against extraterritorial application of U.S. statutes, there is a two-step framework for deciding whether extraterritorial application is permissible. “The first step asks ‘whether the presumption against extraterritoriality has been rebutted,’” which requires a “clear indication of an extraterritorial application.” The second step asks “whether the case involves a domestic application of the statute,” which requires courts to identify the statute’s focus and whether “the conduct relevant to that focus occurred in the United States territory.” Further, when “the statutory provision works in tandem with other provisions, it must be assessed in concert with those other provisions. Otherwise, it would be impossible to accurately determine whether the application of the statue in the case is a ‘domestic application.’”
The court exercised its discretion to begin with step two of this framework, and in this case, that required assessment of both 35 U.S.C. §284 and §271(f)(2) because they work in tandem. The Court found the focus of the damages statute, 35 U.S.C. §284, is “the infringement” and the “overriding purpose” of the statute is to “affor[d] patent owners complete compensation for infringements.” The Court then turned to §271(f)(2) and found it “focuses on domestic conduct”—“the domestic act of ‘suppl[ying] in or from the United States.” Therefore, the Court determined the relevant conduct in this case was domestic, and that awarding lost foreign profits as damages was a permissible domestic application of §284.
In dissent, Justice Gorsuch, joined by Justice Breyer, raised the point that the majority “does not explain why ‘damages adequate to compensate for the infringement should include damages for harm from noninfringing [foreign] uses.’” Justice Gorsuch also warns that by permitting damages of this sort, it effectively allows U.S. patent owners to extend their monopolies to foreign markets, which “in turn, would invite other countries to use their own patent laws and courts to assert control over our economy.” Finally, he pointed out that WesternGeco was seeking lost profits for uses of its invention beyond the U.S. borders, which rather than just completely compensating for infringement “puts the patent owner in a better position than it was before by allowing it to demand monopoly rents outside the United States as well as within.”
While the Court indicated it was limiting its holding to damages under 35 U.S.C. §271(f)(2), it remains to be seen how far it will ultimately reach. In a footnote, the Court did note it was not addressing “the extent to which other doctrines, such as proximate cause, could limit or preclude damages in particular cases.”