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Supreme Court Holds Lost Foreign Profits Can Be Included in Damages Calculation

On June 22, 2018, the Supreme Court issued its ruling in WesternGeco LLC v. ION Geophysical Corp. This case centered around the question of whether, under the damages provisions of the Patent Act, a patent owner can recover for lost foreign profits when components of a patented invention are shipped overseas for assembly and use. Justice Thomas, writing for a 7-2 majority, held that they can.

WesternGeco developed and got four patents related to a system for surveying the ocean floor. They did not sell or license the technology; instead, WesternGeco would perform surveys using its technology for customers. In 2007, during the term of WesternGeco’s patents, ION began selling a competing system. ION manufactured the components for its system in the United States and shipped them to companies abroad; the companies would then assemble the components into a system indistinguishable from WesternGeco’s patented system.

Section 271(f) of the Patent Act specifically provides liability for infringement for exporting the components of a patented invention with the intent that the components will be combined outside the United States. Thus, by providing the components of the competing system, ION infringed WesternGeco’s patents. The question remained, however, whether WesternGeco could recover for the cost of the ten survey contracts they had lost due to ION’s infringement.

The Supreme Court held that WesternGeco could recover. Although the patent laws of the United States apply only in the United States, the Court determined that the text of §271(f) focuses on the domestic conduct of an infringer, namely, manufacturing components in the United States to ship out of the country with the intention that they will be assembled into an infringing product. Thus, ION had violated §271(f) (and ION did not challenge this finding). The damages provision of the Patent Act, §284, was found by the Court to have the purpose of “afford[ing] patent owners complete compensation for infringements.” Since the conduct that makes up the focus of the particular infringement statute occurred in the United States, the Court reasoned, the lost profits suffered by WesternGeco were a domestic application of the damages provision, despite being profits that would have come in from international use of the technology, because the underlying focus and applications of the provisions in question were ultimately domestic in nature.

As a result, companies will now need to ensure that they are not aiding overseas infringement of a United States patent by sending the components of the patented invention abroad. Failure to do so may result in a large damages award to the holder of the infringed patent. For more information and assistance, contact your Davis & Kuelthau attorney, the author noted above or our Intellectual Property Team Chair linked here.