Supreme Court Expands Patent Damages Beyond US Borders, Narrowly
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Justice Clarence Thomas, U.S. Supreme Court (Photo: Diego M. Radzinschi/ ALM)[/caption] The U.S. Supreme Court issued a narrow ruling Friday on overseas patent damages. But the outcome could still have broad ramifications for U.S. patent infringement litigation. The court ruled that an infringer found liable under Section 271(f) of the Patent Act, which prohibits the shipment overseas of parts meant to be assembled into an infringing product, can be forced to pay damages for infringement that occurs outside the nation. That's a new exception to the general rule that U.S. patent laws, including the Section 284 damages provision, applies only to domestic conduct. “As this court has explained,” Justice Clarence Thomas wrote for a 7-2 majority in WesternGeco v. Ion Geophysical, “the 'overriding purpose' of Section 284 is to affor[d] patent owners complete compensation' for infringements,” Thomas wrote.
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Thomas sidestepped the presumption against extraterritoriality, instead focusing on the domestic nature of the infringement. “The conduct that Section 271(f)(2) regulates—i.e., its focus—is the domestic act of `suppl[ying] in or from the United States." Justice Neil Gorsuch dissented, saying no damages should be awarded for extraterritorial conduct. “A U. S. patent provides a lawful monopoly over the manufacture, use, and sale of an invention within this country only,” he wrote. Awarding damages for overseas conduct “would invite other countries to use their own patent laws and courts to assert control over our economy,” wrote Gorsuch, who was joined by Justice Stephen Breyer. “Nothing in the terms of the Patent Act supports that result and much militates against it.” The ruling will likely lead to the reinstatement of a $93 million lost profits award for Schlumberger subsidiary WesternGeco in a dispute over mapping technology for oil deposits under the ocean floor.
WesternGeco patented methods for steering the sometimes milelong cables that scan for oil and gas deposits beneath the seabed. The company says it invested a decade of research and nearly $100 million to develop the process of “lateral steering” and held 100 percent of the market during the early 2000s. Houston-based ION manufactures a similar system that is assembled overseas then sold to WesternGeco’s competitors. A Houston federal jury found that WesternGeco lost at least 10 contracts worth $6 million to $45 million each to ION-supplied competitors.
U.S. patent laws generally limit liability to making, using or selling a patented invention in the United States. The U.S. Court of Appeals for the Federal Circuit upheld the infringement finding and $22 million in royalties under Section 271(f). But the appellate court threw out the additional $93.4 million for lost profits, on the ground that those damages occurred beyond the United States. Breyer had warned during the April oral arguments that allowing damages for patent infringement that occurs outside the country could lead to “chaos.” But he and a few other justices also suggested the problem could be overcome by applying traditional tort causation rules. Kirkland & Ellis partner Paul Clement had the winning argument for WesternGeco. Williams & Connolly partner Kannon Shanmugam argued for Ion, while Zachary Tripp of the solicitor general's office argued for the U.S. government as amicus curiae. Read the decision: [falcon-embed src="embed_1"]
