Lost Foreign Profits May Be Recovered For Section 271(f)(2) Infringement
Written June 22, 2018
In a 7-2 decision, the Court concluded that an infringement case under Section 271(f)(2) involves a domestic application of the Patent Act, and declined to consider whether the text of the statute clearly rebuts the presumption against the extra territorial application of the law. A dissenting opinion by Justice Gorsuch (joined by Justice Breyer) argued that Act’s terms prohibit the lost profits award sought in this case because patent rights may only restrict domestic activities. He explained that permitting patentees to collect damages based on foreign acts effectively allows them to extend their monopolies to foreign markets.
WesternGeco owns patents covering a system for surveying the ocean floor using a lateral-steering technology. ION in 2007 began selling a competing system, manufacturing components in the United States and shipping them to companies abroad. A district court found that ION infringed WesternGeco’s patents under 35 U.S.C. §271(f)(2), which makes it an infringement to supply components from the United States to companies abroad with the intent that the components be assembled there. 953 F. Supp. 2d 731 (SD Tex. 2013).
The Federal Circuit reversed, relying on its decision in Power Integrations, Inc. v. Fairchild Semiconductor Int’l, Inc., 711 F. 3d 1348 (CA Fed. 2013), that patent owners may not recover for lost foreign sales for Section 271(a) infringement. It held that Section 271(f)(2) must be given the same interpretation.
Foreign Lost Profits Award Is Domestic Application of Statute
Determining whether a decision violates the ban on extraterritoriality, Justice Thomas began, usually entails a two-step inquiry: (1) does the text of the statute clearly rebut the presumption against extraterritoriality; and (2) if not, does the case involve a domestic application of the statute?
The Court exercised its discretion to forego the first inquiry because the question of the extraterritorial application of a general damages provision could unnecessarily implicate many other statutes. It thus proceeded to determine whether this case involves a domestic application of the statute, which requires a determination of the “focus” of the statute.
The focus of Section 284, Justice Thomas wrote, is plainly to provide a remedy for “infringement,” but he added that the Patent Act identifies several ways that a patent can be infringed, as illustrated by the provisions in Section 271(f). The focus of Section 271(f)(2) is the domestic act of “suppl[ying] in or from the United States,” the Court found, explaining as follows:
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.
Justice Thomas noted the dissenters’ view that damages are not permitted for foreign lost profits wrongly conflates legal injury with damages arising from that injury.
The Federal Circuit decision was reversed and the case was remanded for further proceedings consistent with the Court’s opinion.