The U.S. Supreme Court ruled late last week in a case with important implications for international exports and patent law. In WesternGeco LLC v. ION Geophysical Corp., the Supreme Court held that a patent owner can "recover for lost foreign profits" when a defendant "ships components of a patented invention overseas to be assembled there." This decision reversed a 2015 Federal Circuit decision finding that United States patent law does not extend outside the country and, therefore, a patent owner could not recover profits it would have earned overseas absent defendant's infringement.
Writing for a 7-2 majority, Justice Clarence Thomas said that since the defendant infringed patents owned by the plaintiff when it shipped components of its product outside the United States, then the plaintiff was entitled to damages that include profits it lost abroad due to those actions. The law at issue was subsection 271(f) of the Patent Act, which makes it an act of infringement to ship patented components from the United States with the intent that they be combined abroad in an infringing manner. Justice Thomas quoted from the court's 2007 ruling in Microsoft Corp. v. AT&T Corp., noting that subsection 271(f) "expands the definition of infringement to include supplying from the United States a patented invention's components."
Justice Thomas articulated, "The conduct that §271(f)(2) regulates—i.e., its focus—is the domestic act of 'suppl[ying] in or from the United States.'" He continued that "§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.'"
In short, it is the conduct that occurred in the United States – defendant's domestic act of supplying the components that infringed plaintiff's patents – that resulted in the lost-profits damages that were awarded to plaintiff as a domestic application of the Patent Act.
Although WesternGeco was directly focused on conduct under subsection 271(f)(2), the dissenting opinion warned that it could have a broader impact on damage awards. Justice Neil Gorsuch wrote in his dissent, joined by Justice Stephen Breyer, "Permitting damages of this sort would effectively allow U.S. patent owners to use American courts to extend their monopolies to foreign markets."
While this may not exactly be the case, patentees will undoubtedly argue that it should apply broadly to allow awards of foreign lost profits in other situations. Subsection 271(a) of the Patent Act makes it an act of infringement to make, use, offer to sell, or sell a patented invention "within the United States," while subsections 271(b) and (c) make it an act of infringement to induce or contribute to third-party infringement in the United States. WesternGeco did not address whether a patentee is entitled to foreign lost profits for infringement under these sections.
In light of WesternGeco, this question will undoubtedly be litigated and patent owners should consider how this case will impact their overall patent strategy for assessing international infringement.
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