On June 22, 2018, in a 7-2 decision, the U.S. Supreme Court held that a patent owner may recover lost foreign profits under 35 USC 284 for infringement under Section 271(f)(2). WesternGeco LLC v. Ion Geophysical Corp., 585 U.S. __ (2018). WesternGeco LLC, owner of four patents relating to lateral-steering technology for surveying the ocean floor, performs surveys for oil and gas companies using its patented technology. ION Geophysical manufactured components in the US and shipped to companies abroad who combined them to create a competing system indistinguishable from WesternGeco. WesternGeco sued for patent infringement under Section 271(f)(1) and (f)(2). At trial, WesternGeco proved that it lost 10 contracts due to ION's infringement and the jury awarded damages of $12.5 million in royalties and $93.4 million in lost profits. The district court denied ION's post-trial motion to set aside the verdict and dismissed the arguments that 271(f) does not apply extraterritorially to lost profits. On appeal, the Federal Circuit reversed the award of lost-profits damages holding that Section 271(a) does not allow patent owners to recover for lost foreign sales. The Court granted cert, vacated the Federal Circuit's judgment and remanded it in light of its Halo Elec. v. Pulse Elec. decision. On remand, the Federal Circuit reinstated its decision regarding the extraterritoriality of Section 271(f). The Court again granted cert.
In his opinion, Justice Thomas acknowledged that there's a presumption against extraterritoriality of federal statutes but questions of extraterritoriality are determined using a two-step framework. The first step asks whether the presumption has been rebutted by a clear indication of extraterritorial application in the statutory text. The second step asks whether the case involves a domestic application of the statute, which is determined by identifying the statute's focus and asking whether the conduct relevant to that focus occurred in the U.S territory. If it did, then it's a permissible domestic application of the statute. In resolving this case under step two using the court's discretion, the Court reasoned that step one would require resolving difficult questions that do not change the outcome of the case but could have far-reaching effects in future cases.
Justice Thomas, citing the Court's decision in RJR Nabisco v. European Community, which found that conduct relevant to a statute's focus which occurs in the U.S. involves a permissible domestic application of the statute, even if other conduct occurred abroad. The Court found that the focus of Section 284, in a case involving infringement under Section 271(f), is on the act of exporting components from the U.S. and therefore, the focus is domestic conduct. Because ION's domestic act of supplying the components that infringed WesternGeco's patents, lost-profits damages that were awarded were a domestic application of Section 284.
In his dissenting opinion, joined by Justice Breyer, Justice Gorsuch agreed with the Federal Circuit's result in concluding that the Patent Act forecloses claim for lost profits because in their view the Act's terms prohibit the lost profits sought in the case whatever the general presumption against extraterritoriality applicable to all statutes might allow.
In his opinion, Justice Thomas acknowledged that there's a presumption against extraterritoriality of federal statutes but questions of extraterritoriality are determined using a two-step framework. The first step asks whether the presumption has been rebutted by a clear indication of extraterritorial application in the statutory text. The second step asks whether the case involves a domestic application of the statute, which is determined by identifying the statute's focus and asking whether the conduct relevant to that focus occurred in the U.S territory. If it did, then it's a permissible domestic application of the statute. In resolving this case under step two using the court's discretion, the Court reasoned that step one would require resolving difficult questions that do not change the outcome of the case but could have far-reaching effects in future cases.
Justice Thomas, citing the Court's decision in RJR Nabisco v. European Community, which found that conduct relevant to a statute's focus which occurs in the U.S. involves a permissible domestic application of the statute, even if other conduct occurred abroad. The Court found that the focus of Section 284, in a case involving infringement under Section 271(f), is on the act of exporting components from the U.S. and therefore, the focus is domestic conduct. Because ION's domestic act of supplying the components that infringed WesternGeco's patents, lost-profits damages that were awarded were a domestic application of Section 284.
In his dissenting opinion, joined by Justice Breyer, Justice Gorsuch agreed with the Federal Circuit's result in concluding that the Patent Act forecloses claim for lost profits because in their view the Act's terms prohibit the lost profits sought in the case whatever the general presumption against extraterritoriality applicable to all statutes might allow.
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