Source: https://bannerwitcoff.com/ip-alert-did-congress-create-a-new-form-of-infringement-without-providing-full-compensation/
Timestamp: 2019-04-24 19:47:54+00:00

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Did Congress Create a New Form of Infringement Without Providing Full Compensation?
The Supreme Court heard oral arguments April 16, 2018, in WesternGeco LLC v. ION Geophysical Corporation (No. 16-1011), another of a series of patent cases in which it may find that a rigid Federal Circuit rule conflicts with the Supreme Court’s precedent. The rigid rule holds that damages in the form of lost foreign profits are categorically unavailable to compensate for patent infringement under 35 U.S.C. § 271(f), which codifies infringement liability for exported goods.
WesternGeco owns patents that claim systems used to search for gas and oil deposits under the ocean floor, which WesternGeco uses to perform surveys for its customers. ION Geophysical manufactured a component of such a system in the U.S. and sold it to overseas customers who assembled the system and performed surveys. WesternGeco proved that ION infringed its claims under 35 U.S.C. § 271(f)(2) (export of a specially adapted component of an invention patented in the U.S.) and was awarded $12.5 million in reasonable royalties and $93.4 million in lost profits for 10 lost overseas contracts. Because of the different business models of the two litigants, the lost profits of the petitioner dwarf the profits earned by the infringer on the component.
Generally, a patent owner can obtain damages by proving either its lost profits or a reasonable royalty. The relevant statute broadly mandates that “the court shall award the [successful infringement] claimant damages adequate to compensate for the infringement….for the use made of the invention by the infringer.” 35 U.S.C. § 284. But the Federal Circuit in its panel decision on damages denied lost profits ($93.4 million) as awarded by the Texas jury, because of a “presumption that U.S. law governs domestically but does not rule the world.” 791 F.3d 1340, 1350 (Fed. Cir. 2015). The presumption is particularly strong for patent law, the panel stated, citing Deepsouth Packing Co. v. Laitram Corp., a 1972 Supreme Court case that was legislatively overruled by enactment of § 271(f), the very law at issue in the present case. The Federal Circuit affirmed the reasonable royalty awarded ($12.5 million).
The Federal Circuit acknowledged that Congress expanded the territorial scope in 35 U.S.C. § 271(f), but found that Congress failed to expand the scope of the damages provision of § 284, which was not concomitantly amended. The decision also noted that “under § 271(a) the export of a finished product cannot create liability for extraterritorial use of that product.” Judge Wallach, in a vigorous dissent, disagreed with the majority’s statutory construction and reading of relevant Supreme Court precedent. Indeed, Judge Wallach was so adamant on the issue that he wrote an additional dissent when the case was again before the Federal Circuit on a different issue. 837 F.3d 1358, 1364-69 (Fed. Cir. 2016).
The U.S. filed an amicus brief in favor of petitioner, patent owner WesternGeco. The U.S. urged that barring lost profits measured by activities abroad would prevent adequate compensation within the meaning of § 284. The amicus urged that the location in which the economic loss to the patentee occurred was irrelevant because the infringement itself was domestic, as defined in § 271(f). Additionally, it urged that permitting lost profit calculations based on foreign losses would not regulate foreign conduct or implicate extraterritoriality.
Respondent, ION, in its brief characterized the foreign acts as “injuries” that were entirely foreign and separate from the respondent. The foreign acts were the combination by the respondent’s customers of the exported components to form the patented system and the use of the system in marine geological surveys. The use of the combined systems by third party customers abroad should not be available as a measure of damages for the respondent’s act of supplying the component, it urged.
The petitioner, the respondent, and the U.S. as amicus differed in their characterizations of the acts creating liability as well as the legal basis supporting their desired outcome. The petitioner and the amicus characterized the supplying of the component from the U.S. to customers abroad as a domestic injury. They urged that the domestic injury had foreseeable consequences, which damaged the business interests of the petitioner abroad. The foreseeable consequences were the combination of the component into the system and the use of the system in competition with the petitioner. The respondent, in contrast, urged that the supplying was a domestic injury but the damaged business interests were a separate injury that its customers inflicted by using the combined system outside of the U.S. The respondent should not, it urged, be responsible for the separate injury inflicted by others. The remedy for such separate injury, it urged, is patent suits against the customers in foreign countries.
The justices questioned the petitioner and amicus about how narrowly the presumption against extraterritoriality should be applied. Did the presumption not apply to § 271(f) because it specifically contemplated foreign combination? Did it not apply to all patent damages under § 284? Should the presumption ever apply to damages provisions in general? The petitioner had originally argued only that the presumption should not apply to § 271(f), but the amicus had argued that it should not apply to any patent infringement under § 284. When pushed in oral argument, the U.S. could not think of a reason why the presumption should apply to any damage provision. The respondent’s argument focused on the application of the presumption to § 284, which failed to explicitly state that damages for foreign losses were compensable.
If the petitioner is correct, a ruling in its favor will not change the law but restore status quo ante the Federal Circuit’s decision below. The hypothetical floodgates of international comity violations posited by the respondent would thus be unlikely to occur. Some pundits have speculated that a ruling against application of the presumption against extraterritoriality would lead patent owners to more creative damages theories and larger damages awards in the U.S. If true, that might make U.S. patents more valuable.
Click here to download the transcript of the arguments in WesternGeco LLC v. ION Geophysical Corporation.
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