”The question in this case is whether these statutes allow the patent owner to recover for lost foreign profits. We hold that they do.”
Earlier today the United States Supreme Court issued a decision in WesternGeco LLC v. ION Geophysical Corp., which in a 7-2 decision ruled that a patent owner may recover lost foreign profits for infringement under 35 U. S. C. 271(f)(2). The question decided, as set forth in the opinion by Justice Thomas, writing for the majority, was: “The question in this case is whether these statutes allow the patent owner to recover for lost foreign profits.” Thomas simply answered the question in the opening paragraph saying: “We hold that they do.”
The prototypical patent infringement action occurs when someone without authority makes, uses, offers for sale, sells, or imports any patented invention within the United States. See 35 U.S.C. 271(a). Section 271(f)(2) expands the definition of what qualifies as infringement to encompass the supplying of a patented invention’s components from within the United States. There are caveats in Section 271(f)(2), such as the component must not be a “staple article or commodity of commerce suitable for substantial noninfringing use”. Further, the supplier must know that the component supplied from within the United States is made or adapted that “such component will be combined outside the United States in a manner that would infringe the patent is such combination occurred within the United States.” Further still, there must be intent.
The dispute between WesternGeco, a company that develops technology for surveying the ocean floor, and ION Geophysical Corporation, a competitor, dates back to late 2007. In late 2007, ION began manufacturing components for its competing surveying system and shipping them to companies abroad. Those companies combined the components to create the surveying system that was indistinguishable from WesternGeco’s patented systems.
WesternGeco sued for patent infringement under §§271(f)(1) and (f)(2). At trial, WesternGeco proved that it had lost 10 specific survey contracts due to ION’s infringement. The jury found ION liable and awarded WesternGeco damages of $12.5 million in royalties and $93.4 million in lost profits. ION filed a post-trial motion to set aside the verdict, arguing that WesternGeco could not recover damages for lost profits because §271(f) does not apply extraterritorially. The District Court denied the motion. 953 F. Supp. 2d 731, 755–756 (SD Tex. 2013).
On appeal, the Federal Circuit found ION liable for infringement under §271(f)(1) but reversed the award of lost-profits damages under §271(f)(2). WesternGeco LLC v. ION Geophysical Corp., 791 F. 3d 1340 (2015). The Federal Circuit had previously held that §271(a), the general infringement provision, does not allow patent owners to recover for lost foreign sales. See Power Integrations, Inc. v. Fairchild Semiconductor Int’l, Inc., 711 F. 3d 1348 (Fed. Cir. 2013). The Federal Circuit reasoned that Section 271(f) should be interpreted the same way.
While the Supreme Court acknowledged that courts ordinarily presume that statutes apply only within the territorial jurisdiction of the United States, quoting Foley Bros. v. Filardo, 336 U.S. 281, 285 (1949), Justice Thomas explained there is an established two-step framework to decide questions of extraterritoriality. RJR Nabisco, Inc. v. European Community, 136 S.Ct. 2090 (2016). The first step asks whether the presumption of extraterritoriality has been rebutted. If the presumption of extraterritoriality has not been rebutted, the second step asks whether the case involves a domestic application of a statute, and whether the conduct relevant to that focus occurred in the United States territory. If it did, then the case involves a permissible domestic application of the statute.
While ordinarily courts address the first step first, in this case the Supreme Court exercised its discretion to forgo the first step and address the second prong of the test. They did this, no doubt, because they concluded that the conduct relevant to the statutory focus was domestic.
Justice Thomas explained:
Section 271(f)(2) focuses on domestic conduct. It provides that a company “shall be liable as an infringer” if it “supplies” certain components of a patented invention “in or from the United States” with the intent that they “will be combined outside of the United States in a manner that would infringe the patent if such combination occurred within the United States.” The conduct that §271(f)(2) regulates—i.e., its focus—is the domestic act of “suppl[ying] in or from the United States.” As this Court has acknowledged, §271(f) vindicates domestic interests: It “was a direct response to a gap in our patent law,” Microsoft Corp., 550 U. S., at 457, and “reach[es] components that are manufactured in the United States but assembled overseas,” Life Technologies, 580 U. S., at ___ (slip op., at 11). As the Federal Circuit explained, §271(f)(2) protects against “domestic entities who export components . . . from the United States.” 791 F. 3d, at 1351.
Thomas would go on to rather emphatically state: “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.”
To the dissenters – Justices Gorsuch and Breyer – Thomas and the majority made a rather stinging rebuke, correctly recognizing: “Their position wrongly conflates legal injury with the damages arising from that injury.”
The opinion concludes rather powerfully stating:
[A] patent owner is entitled to recover “‘the difference between [its] pecuniary condition after the infringement, and what [its] condition would have been if the infringement had not occurred.’” Aro Mfg. Co., supra, at 507. This recovery can include lost profits. See Yale Lock Mfg. Co. v. Sargent, 117 U. S. 536, 552–553 (1886). And, as we hold today, it can include lost foreign profits when the patent owner proves infringement under §271(f)(2).
The only caveat of consequence is found in footnote 3, which states the Court did not address matters of proximate cause that could limit or preclude damages in particular cases, which obviously makes sense.
This one is a win for patent owners. About time!
Join the Discussion
12 comments so far.
Jianqing WuJuly 2, 2018 08:09 am
Anon, thank you for helping me.
I propose the following facts: An American company runs worldwide services delivered by a server. To avoid patent infringement, it sets up a site in a foreign nation. All code is developed there and the server is run in that nation. The services delivered by the server uses 100 U.S. PROCESS patents.
Compared with the facts your mentioned is just one step difference: in that case, the code was developed in the U.S. while in this hypothetical case, code is developed in a foreign nation UNDER THE INSTRUCTION of a U.S. executive team.
I see a problem. It could drive the U.S. code development business out of the border for the sake of avoiding infringing U.S. process patents. The U.S. might lose technology, tax, employment opportunities….
I have not found a direct case on this point, could you point a case on the point? If no such a case, then how would a court rule? Is this a reason for many cloud companies to fly to foreign nations?
AnonJune 27, 2018 08:52 am
By the way, Mr. Wu, I take it that you are not an attorney. An attorney would be in immediate trouble if in court an attempt to use a lower court decision that was changed by a higher court was attempted. Your post at 7 then, and your earlier post to which I first responded at 4, are flawed to the extent that you attempted to use law (case law) that was no longer valid.
Now if you wanted to use that law to argue a change in the currently controlling law, that would be a different story. But that would require acknowledging the existence of the controlling law that is different than the point you present with your presentation of a particular case,a long with a reason why the controlling law is in error.
An example: the controlling law as to “signals” is In re Nuitjen. However, that case is based on a clearly erroneous understanding of the physical universe. Thus, any time that a view that runs counter to the controlling case law in regards to signals (especially those signals that also fall into the patent law definition of “manufacture”), one SHOULD note that the view runs against he controlling law of In re Nuitjen, but since Nuitjen is based on error, a correct legal view based on how the real universe exists would provide….[insert argument here].
AnonJune 25, 2018 09:54 pm
AnonJune 25, 2018 09:28 pm
…I may have mispoken on the “Golden Master” case – I was looking for the case to verify my position, and have not found that verification.
AnonJune 25, 2018 09:07 pm
One would decide US origin based on the factual nature of the accused items.
Your point as to whether or not the item could be practiced in a foreign nation is a bit secondary to that factual predicate. The case makes that point very clear: for the law to reach, there must be a nexus with the US.
In that regard, your follow-up question is a bit simple: Software developed in the US – if exported may very well invoke the law. (Contrast with the Microsoft “Golden Master” case, in which the golden master was developed in the US, but only (merely?) copies from the Golden Master were assembled overseas. The Court in that case found that the items actually assembled to be the foreign-made copies, and not the (original) US made item.
(I have other issues with that case, by the way, so I use it in a somewhat limited manner).
I do not see the uncertainty that you mention.
Jianqing WuJune 25, 2018 11:37 am
Anon at 6,
In Eolas Technologies, Inc. v. Microsoft Corp., 399 F.3d 1325 (Fed. Cir. 2005).
In AT&T Corp. v. Microsoft Corp., 414 F.3d 1366, 1367 (Fed. Cir. 2005).
See an article:
Anon at 5,
My original question is how to decide u.s. origin for a process which could be practiced in a foreign nation (for example, if Google is hosted in India). If the software is developed in the U.S., it may be considered as a U.S. component. If the U.S. company instructs overseas employees to develop code, then what?
While the law is uncertain, it would be very important to U.S. inventors: all or nothing.
AnonJune 23, 2018 09:59 pm
Jianqing Wu @ 4,
Do you have a citation for the case that you are referencing?
AnonJune 23, 2018 08:48 pm
What type of help are you looking for?
Jianqing WuJune 23, 2018 06:30 pm
I found the following holding:
The Federal Circuit found that the statutory language of section 271(f) is not limited to “machines” or “physical structures”. The Court reasoned that “every component of every form of invention deserves protection” under section 271(f). Id. at 1339. Furthermore, the Court held that software code on a disk could constitute a “component” of a patented computer-program invention since it forms a “component” of a patented process or computer-program product, both of which are statutory inventions under Title 35. Id.
Then, an infringer can avoid liability by developing infringing code/data/information in a foreign nation.
How to decide where the code is from and where it ends?
Jianqing WuJune 23, 2018 05:51 pm
If a U.S. patent owner owns a patent on a process,
The core premise for liability under 271(f)(2) is the supply of at least a single component “especially made” or “especially adapted” for use in the patented invention.
271(g) can be considered an extension of existing law that provided some protection to process patent owners from the International Trade Commission.
Now, I show two scenarios:
A company provides worldwide internet service in the U.S. and gets revenues from users from the whole world. The vendor may be liable for a patent if the service infringes the patent.
If the company moves its server to India or other nation, and runs the same services there. Some of the users might be U.S. citizens.
If the company is not liable in case B, all cloud companies just move to foreign nations. Then, the U.S. would will suffer adverse impacts. Those nations without patent laws would the the most attractive to companies.
I hope anyone can help me?
TimothyJune 23, 2018 03:11 pm
Can somebody please elaborate upon the minority opinion of Justice Gorsuch and Breyer? Why do they say “Their position wrongly conflates legal injury with the damages arising from that injury.”?
SteveJune 22, 2018 05:43 pm
Question: Does this decision apply to a patented-in-the-U.S.-only process?