Patent owners have a new arrow in their quiver. The Supreme Court has held that patent owners can recover foreign lost profits for the use or sale of infringing products abroad if the products were assembled from components of the patented invention exported from the United States.
In WesternGeco v. Ion Geophysical, issued today, the Court explained that the purpose of the damages provision in the Patent Act is to put patent owners in as good a position as they would have been in if the infringement had never occurred. Infringement under the section 271(f)(2) of Patent Act includes exporting components of a patented invention for assembly and use abroad in a manner that would infringe the patent if such assembly and use had occurred in the United States. Making patent owners who have suffered such infringement whole means allowing them to recover foreign lost profits, the Court said.
The patent owner, WesternGeco LLC owns patents relating to a system for surveying the ocean floor using a lateral-steering technology that produces higher quality data than previous surveying systems. It neither sells nor licenses its technology but makes and uses the technology itself to perform surveys for oil and gas companies. In 2007, ION Geophysical Corporation began selling an infringing system abroad. The infringing system was assembled from components made in the United States and shipped overseas.
At trial, WesternGeco won its infringement case against ION and proved it had lost 10 overseas survey contracts because of ION’s infringement. They jury awarded WesternGeco over $12 million in royalties and over $93 million in lost profits. The Federal Circuit reversed the lost-profits damages award on the grounds that patent owners are not entitled to recover profits lost abroad.
The Supreme Court reversed. It explained that the focus of the Patent Act—“the object of its solicitude”—is infringement. Section 284 of the Patent Act provides that “the court shall award the claimant damages adequate to compensate for the infringement” suffered by patent owners. And the overriding purpose of that provision, the Court said, is to give patent owners full compensation for the infringement.badin
The focus of section 271(f)(2), in turn, is to protect patent owners against domestic entities that export components of patented inventions from the United States for use or sale abroad. The object of the statute’s solicitude, the Court said is the domestic act of exporting components from the United States. Because the infringing conduct at issue was ION’s domestic act of supplying from the United States the components that infringed WesternGeco’s patents, WesternGeco was entitled to recover the profits it lost from that infringement, even if those profits were made overseas. Were it otherwise, patent owners would not be restored to the position they would have been in had the infringement not occurred, contrary to the overriding purpose of the damages provision of the Patent Act.
Today’s opinion is good news for patent owners who have long been unable to recover for the unauthorized sale and use of their inventions abroad. Of course, patent owners will only be able to recover for foreign use or sale if the infringer committed the domestic act of supplying from the United States the infringing components assembled and used abroad. And it remains to be seen whether today’s restoration of patent owners’ entitlement to the full measure of their loss will include recovery not just of profits abroad but also of reasonable royalties. This question will be especially pressing for companies that, unlike WesternGeco, do not make or sell their patented inventions themselves but license them to others.
Stay tuned for developments.