Source: https://www.brookskushman.com/news/client-alerts/supreme-court-rules-that-%C2%A7-284-permits-lost-profits-damages-based-on-lost-foreign-sales/
Timestamp: 2019-04-22 22:50:44+00:00

Document:
In a decision considering the extraterritorial effect of the U.S. Patent Act, the Supreme Court has ruled that damages for patent infringement under 35 U.S.C. § 271(f)(2) can – in at least some cases – include damages for lost profits suffered outside the United States. The decision raises the possibility that foreign market damages may be available for infringement claims under other provisions of the Act, but the Court’s decision leaves unanswered questions about applying the ruling in future cases. WesternGeco LLC v. ION Geophysical Corp., No. 16-1011 (U.S. June 22, 2018).
At trial, a jury found that ION infringed the patents and awarded lost profits damages of $12.5 million, based on lost contracts for the patented systems, which would have been made and performed overseas. The Federal Circuit reversed the damage award based on an earlier case, Power Integrations, Inc. v. Fairchild Semiconductor Int’l, Inc., 711 F. 3d 1348 (Fed. Cir. 2013). In that case, dealing with direct and induced infringement, the Federal Circuit ruled that a patent owner having established direct infringement in the United States, may not recover damages for the defendant's worldwide sales of the patented invention as the direct, foreseeable result of domestic infringement.
In a 7-2 decision, the Supreme Court reversed the Federal Circuit. Justice Thomas, writing for the majority, noted that U.S. statutes are presumed to only apply to conduct within the boundaries of the United States. A two-step test is applied to determine whether a statute has extraterritorial effect. The first step is to consider whether the text of the statute provides a “clear indication of an extraterritorial application.” Morrison v. National Australia Bank Ltd., 561 U. S. 247, 255 (2010). The second step is to evaluate “whether the case involves a domestic application of the statute.” RJR Nabisco, Inc. v. European Community, 579 U. S. ___ (U.S. 2016). “Courts make this determination by identifying the statute’s ‘focus’ and asking whether the conduct relevant to that focus occurred in United States territory. If it did, then the case involves a permissible domestic application of the statute.” Slip op. at 5 (citation and quotation omitted).
In sum, the focus of §284, in a case involving infringement under §271(f)(2), is on the act of exporting components from the United States. In other words, the domestic infringement is “the objec[t] of the statute’s solicitude” in this context. The conduct in this case that is relevant to that focus clearly occurred in the United States, as it was ION’s domestic act of supplying the components that infringed WesternGeco’s patents. Thus, the lost-profits damages that were awarded to WesternGeco were a domestic application of §284.
Slip op. at (citation omitted)(emphasis added).
The Court rejected ION’s argument, consistent with Power Integrations, that damages under the Patent Act are not available for infringing conduct outside the U.S, because those acts were not themselves infringement of the U.S. patent. The Court stated that “ION is mistaken to assert that this case involves an extraterritorial application of § 284 simply because ‘lost-profits damages occurred extraterritorially, and foreign conduct subsequent to [ION’s] infringement was necessary to give rise to the injury.’ Those overseas events were merely incidental to the infringement.” Slip op. at 8.
Although the Court held that WesternGeco’s damages award for lost profits was a permissible domestic application of §284, the Court did not address the standard governing foreign lost profits in patent infringement cases, such as causation and the evidence necessary to establish such damages. Instead, the decision expressly did “not address the extent to which other doctrines, such as proximate cause, could limit or preclude damages in particular cases.” Slip op. at 9, n.3.
Thus, the case establishes that foreign damages are potentially available, but leaves unresolved the applicable standards for winning those damages. Those issues, including causation and the proper calculation of reasonable royalty and lost profits damages, are likely to be addressed in future cases.

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