Patent Act (Sometimes) Permits Recovery of Profits Lost on Foreign Soil
In the globalized economy, it can be hard for businesses to know what country’s laws apply. The stakes can be especially high in patent cases, which often involve millions and even billions of dollars.
The United States Supreme Court gave patent owners a victory on one aspect of this controversy last week. In Westerngeco LLC v. Ion Geophysical Corp., Slip Op. No. 16-1011 (June 22, 2018), the Court held that an owner of a United States patent can be awarded lost profits that a competitor earns outside the United States.
Westerngeco owned U.S. patents for a system used to survey the ocean floor. A competitor, ION Geophysical Corp., began selling competing systems. ION made some of those competing systems in the United States; they were found to infringe Westerngeco’s patents, and a trial jury awarded Westerngeco $12.5 million in royalties. That award was not at issue before the Supreme Court.
What the Supreme Court did consider was the jury’s additional award of $93.4 million in lost profits for sales outside the U.S. ION made some specialized components inside the U.S. and then shipped them overseas, where there were assembled into systems that would infringe Westerngeco’s U.S. patents if made or sold in the U.S. ION sold these systems to foreign customers who, presumably, would otherwise have purchased from Westerngeco.
Patents are issued on a jurisdiction-by-jurisdiction basis. Generally, an owner of a U.S. patent cannot recover for conduct in a foreign country, even if that conduct would infringe the U.S. patent. In other words, conduct outside the U.S. generally cannot infringe a U.S. patent because the U.S. patent owner’s rights are limited to the U.S. To recover for conduct in a foreign country, that conduct generally must infringe a valid patent issued in that foreign country and the patent owner must sue the infringing party in that foreign country.
The Patent Act, however, has a section that arguably gives U.S. patents “extraterritorial” effects in specific circumstances. One of those circumstances is when someone “especially make[s] or especially adapt[s]” components of a U.S.-patented invention “for use in the invention” knowing it will be used overseas in a way that would infringe the U.S. patent if made or used on U.S. soil. 35 U.S.C. § 271(f)(2). Under this provision, a person who makes a specially designed component in the U.S. with the intention that it be used outside the U.S. in a way that would infringe the U.S. patent is an infringer of the U.S. patent. That is what the jury found ION did.
The question before the Supreme Court was whether Westerngeco could recover lost profits that the infringer, ION, earned from sales abroad. The Supreme Court held that it can. The Court reasoned that the infringing activity – the manufacture of the specially-made components on U.S. soil – was a domestic, not a foreign, act. The Court held the statute permitted recovery of lost overseas profits for that domestic act of infringement. The Court therefore affirmed a $93.4 million foreign lost profits award that dwarfed the $12.5 million in royalties awarded for ION’s sales on U.S. soil.
The Supreme Court’s decision was arguably narrow. It turned on a particular section of the Patent Act that seeks to redress clear efforts to evade U.S. patent law. It remains to be seen whether the decision will be given a wider interpretation. Nonetheless, as Westerngeco itself shows, the dollar consequences of splitting otherwise infringing conduct among multiple jurisdictions can be substantial.
As the law continues to evolve on these matters, please note that this article is current as of date and time of publication and may not reflect subsequent developments. The content and interpretation of the issues addressed herein is subject to change. Cole Schotz P.C. disclaims any and all liability with respect to actions taken or not taken based on any or all of the contents of this publication to the fullest extent permitted by law. This is for general informational purposes and does not constitute legal advice or create an attorney-client relationship. Do not act or refrain from acting upon the information contained in this publication without obtaining legal, financial and tax advice. For further information, please do not hesitate to reach out to your firm contact or to any of the attorneys listed in this publication.