US May Extend Its Patent Damages Worldwide

On January 12, the US Supreme Court agreed to hear a case that could produce a major change in US patent law, with effects reaching far beyond America’s borders. At issue in WesternGeco LLC v. ION Geophysical Corp. is whether and when a US patent owner can collect infringement damages on a global basis.

The case began after WesternGeco obtained four US patents on devices for locating oil and gas deposits under ocean floors. Without authorization, ION manufactured components of these patented devices in the US and exported the components, so they could be combined into completed devices outside the US. This constituted patent infringement under Patent Act Section 271(f), a trial court found.

The trial court ordered ION to pay $12.5 million in royalties – equivalent to the amount ION would have paid to license the rights to make and export the patented components. This recompensed WesternGeco for the harm it suffered within the US.

In addition, the court ordered ION to pay an extra $93.4 million, to compensate WesternGeco for harm it suffered outside the US. The court found WesternGeco was entitled to these damages because the company does not merely make patented devices for undersea oil exploration, it uses the devices in another part of its business: performing undersea surveys on behalf of others. The court found that WesternGeco lost 10 contracts for performing surveys because the contracts were given to other firms using infringing devices obtained from ION. Had those firms not obtained the infringing devices, WesternGeco would have won the contracts and reaped $93.4 million in profits, the court determined.

ION appealed, and the Federal Circuit reversed the $93.4 million award for lost profits. The three judge panel declared [pdf] in 2015 that US patent law covers only damages that occur within the nation’s borders. An infringer is not liable for any harm that its infringement produces outside US borders.

In 2016, the Federal Circuit revised [pdf] its earlier ruling and allowed WesternGeco to seek additional damages for willful infringement. The court, however, reaffirmed its prohibition against lost extraterritorial profits.

WesternGeco appealed. The issue of extraterritorial damages case will go before the US Supreme Court later this term.

A Pressing Issue

In this case, the high court will examine one issue: What happens when a US patent is infringed in the US but damages occur outside the US?

This issue isn’t new. “In 1881, the Supreme Court had a case where US patent law was violated, but the infringing goods were sold in Canada,” noted Prof. Sapna Kumar of University of Houston Law Center. The high court approved extraterritorial damages in that case, but because it was decided under a prior version of America’s patent statute, the ruling fails to resolve the issue today.

That uncertainty is unfortunate, because the issue has become far more pressing in today’s global economy, where companies often do business across borders. The issue of extraterritorial damages “is becoming increasingly common,” said Kumar. So the stakes in WesternGeco are high.

The case’s outcome is, for most experts, relatively clear. The Supreme Court will reverse the Federal Circuit and allow extraterritorial patent damages under at least some circumstances.

Experts base this prediction on several factors. First, the Supreme Court has little reason to review a correctly-decided Federal Circuit ruling. “For the most part, the Supreme Court only takes Federal Circuit cases when it wants to reverse,” said Kumar.

Second, the Supreme Court has displayed a strong dislike of bright line rules in patent law. The high court, over the last decade, has repeatedly struck down the Federal Circuit’s adoption of such rigid standards. This bodes ill for the Federal Circuit’s decision in WesternGeco. “I think the Supreme Court will reject the Federal Circuit’s bright line rule against extraterritorial damages,” said Prof. Timothy R. Holbrook of Emory Law School.

Third, the Federal Circuit’s decision is based on a dubious interpretation of Patent Act Section 271(f), according to many experts. The Federal Circuit correctly noted that a US statute is presumed to have no extraterritorial effect, unless the statute indicates otherwise. Then the court went on to find no indication that Section 271(f) was intended to have extraterritorial effect. That reading of the statute is incorrect, most experts believe. “The statute here is unusual; Section 271(f) clearly considers extraterritorial application, because it is a provision dealing with foreign markets,” said Holbrook.

Congress’ intent here is clear, concurred David V. Lucas, a partner in the law firm of Bradley Arant Boult Cummings. He said, “Section 271(f) indicates Congress thought we need to allow extraterritorial damages in certain circumstances.”

Comity Tonight

It thus appears likely that the Supreme Court will allow extraterritorial patent damages under certain circumstances – but it is unclear under what circumstances. “The Justices could follow the Justice Department’s brief and rule that patent infringement damages are available for all harms proximately caused by actions done in the US. See what the economic consequences are and get damages for that, regardless of whether of those consequences occur inside or outside the US,” said Holbrook.

Such a rule, however, could create problems with international comity. The US could wind up applying its patent law rules to actions taken in other nations.

“In this case [WesternGeco], the extraterritorial damages occurred on the high seas, so the Supreme Court can impose such damages without having to worry about interfering with other countries. But suppose the situation was different – say [a German company made infringing components in the US, then] the infringing components were exported, assembled, and used in Germany. Germany might get upset if a German company was hit with damages by a US court for actions committed in Germany,” said Holbrook.

Many experts thus call for a less expansive application of extraterritorial damages. “The Supreme Court should not always award extraterritorial damages where other countries are involved.  We need a more nuanced, balancing approach in order to protect the sovereignty of other countries,” said Kumar. He explained, “The Court should look at whether applying US law and damages would conflict with the policy goals of other countries. For instance, countries have major differences on the extent of patent protection for pharmaceuticals. It would be bad for the US [with its strong protection of pharmaceuticals] to impose US-style damages for actions in a country that has weak patent protection for pharmaceuticals.”

Holbrook shares this concern. “I think the US should look for potential conflicts with foreign law,” he said. “If there is no conflict, a US court can award extraterritorial damages. If there is a potential conflict, then maybe the US court should award no extraterritorial damages, because the remedy for those damages should come from the other country.” Most nations have adopted this type of policy, Holbrook noted.

That approach, however, may not appeal to the US Supreme Court, because it requires US courts to determine whether granting extraterritorial patent damages would conflict with unfamiliar foreign laws. “Such an analysis is complicated and would require US courts to examine foreign law, which the Supreme Court may not want them to do,” said Holbrook.