Supreme Court Finds Patent Damages Recoverable on Some Foreign Sales

Legal Alert

On Friday (June 22, 2018), the U.S. Supreme Court ruled that a patent owner can recover lost profits resulting from the infringing export of components of a patented product assembled and sold in another country. The decision in WesternGeco LLC v. Ion Geophysical Corp., No. 16-1011 (S. Ct. June 22, 2018) (7-2), reversed the Federal Circuit’s earlier ruling that such damages were not recoverable due to the presumption that U.S. patent law has no effect in other countries.

This decision strengthens the hand of patent owners, particularly with regard to domestic companies competing abroad, by allowing recovery of the full value of foreign lost sales resulting from a domestic company exporting from the United States components of an infringing article assembled outside the United States.

The Supreme Court’s Decision

Federal statutes are presumed to apply only within the United States, according to the so-called presumption against extraterritoriality. In WesternGeco, the alleged infringer, Ion, argued that it could not be liable under U.S. patent law for sales of products made abroad using components made in the U.S. Such liability, according to Ion, would effectively apply the patent statutes outside the U.S. and violate the presumption against extraterritoriality. At the court of appeals level, the Federal Circuit agreed with Ion and reversed the $93.5 million award of lost profits from a 2012 jury verdict against Ion.

In reversing the Federal Circuit and reinstating the lost profits damages award, the Supreme Court held that the infringing act under Section 271(f)(2) of the patent laws occurred in the United States, and therefore it was not an extraterritorial application of the law to award damages—from foreign sales—that directly resulted from the infringing act within the United States. Specifically, Section 271(f)(2) makes it an act of infringement to supply components adapted for use in the invention, intending that such components will be combined outside of the United States in a manner that would infringe if such combination occurred within the United States. 35 U.S.C. § 271(f)(2). Because Ion committed that act in the United States (supplying components with the intent that the components would be combined abroad in an infringing manner), the presumption against extraterritoriality did not apply. Slip op. at 5-8.

Key Implications

This decision benefits patent owners who face foreign competition that relies upon key components manufactured in the United States. In particular this decision impacts domestic suppliers of components that will be assembled abroad. Even though the finished foreign product never exists in the United States, and even though there is no foreign patent to prevent the sale or use of the product in that country, such suppliers can be liable for infringing a U.S. patent that reads on the foreign product.

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