Lost Foreign Profits Recoverable in Certain Patent Infringement Claims

Lost profits from sales outside the U.S. (lost foreign profits) are generally thought not to be recoverable in claims brought under the U.S. Patent Act.  However, in a 5-2 majority decision in WesternGeco LLC v. ION Geophysical Corp., 138 S.Ct. 2129 (2018), the U.S. Supreme Court reversed the Court of Appeals and held that WesternGeco LLC (“WesternGeco”) can recover lost profits from sales outside the U.S.

WesternGeco owns four patents relating to a system that it developed for surveying the ocean floor using lateral-steering technology, which produces higher quality data than previously existing survey systems.  WesternGeco does not sell its technology or license it to competitors.  Rather, it uses the technology to perform surveys for oil and gas companies.

In 2007, ION Geophysical Corp. (“ION”) began selling a competing system, the components of which were manufactured in the U.S. but shipped abroad to be assembled.  WesternGeco sued for patent infringement under the Patent Act.  At trial, WesternGeco established that it had lost ten survey contracts due to ION’s infringement.  The jury found ION liable and awarded WesternGeco damages of $12.5 million in royalties and $93.4 million in lost profits.  ION filed a post-trial motion to set aside the verdict, arguing that WesternGeco could not recover damages for lost profits because the Patent Act does not apply to conduct occurring outside the U.S., i.e., foreign sales, where the lost profits occurred.  The district court disagreed and denied ION’s motion.

On appeal, the Court of Appeals for the Federal Circuit reversed the award of lost profits damages, stating that it had previously held that the Patent Act does not allow patent owners to recover lost profits from foreign sales.  However, Section 271(f)(2) of the Patent Act specifically precludes parties from manufacturing components of a patented invention in the U.S. intending those components to be assembled outside the U.S. in a manner that would infringe the patent if it were assembled in the U.S.

The Supreme Court held that although the Patent Act generally does not allow patent owners to recover lost profits from foreign sales, such profits are recoverable if a party supplies U.S. manufactured components of a patented invention to an entity outside the U.S. and the supplier intended those components to be assembled outside the U.S. in a manner that would infringe the patent if it were assembled in the U.S.

The Supreme Court, therefore, reversed the Court of Appeals’ decision holding that WesternGeco cannot recover lost foreign profits for its patent infringement claims.  Justice Thomas delivered the opinion of the Court.

Justice Gorsuch and Justice Breyer dissented.  In his dissenting opinion, Justice Gorsuch reasoned that a U.S. patent provides a lawful monopoly over the manufacture, use, and sale of an invention within the U.S., and that awarding damages to a U.S. patent owner for lost profits resulting from lost foreign sales “would effectively allow U.S. patent owners to use American courts 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”.  Justice Gorsuch stated: “Nothing in the terms of the Patent Act supports that result and much militates against it”.

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