Lost Profits Case Awaits Supreme Court Review
Those of us in involved in patent litigation and damage analysis are following this case with interest. The U.S. Supreme Court has agreed to review a patent infringement case on the scope of damages.
The issue is whether a patent holder has a right to lost profits related to acts that occurred outside the United States, where the patentee has proven a domestic act of infringement.
The general rule is that there is no infringement when a patented product is made and sold in another country (presumption against extraterritoriality).
Patent Holders Never Sold Their Technology
Western Geco LLC, a subsidiary of Schlumberger Limited, developed and patented technology used in geological surveys to search for oil and gas under the ocean floor. Western Geco never sold its technology or licensed it patents. Instead, it performed surveys directly for oil companies. With no competition, it was able to charge a premium over conventional surveys. In 2007, ION, which describes itself as “a small company based in Houston,” began shipping components to surveying companies abroad for the latter to combine into a surveying system that violated Western Geco’s patents.
In 2009, Western Geco sued, claiming it lost survey contracts to ION’s foreign customers and was forced to lower its prices to compete with them. A jury found ION liable and awarded Western Geco $12.5 million in reasonable royalty and $93.4 million in lost profits. On appeal, the Federal Circuit affirmed on liability, but a majority of the court found $93 million were not recoverable because profits lost outside of the U.S. are unavailable as a matter of law.
In its Supreme Court petition, Western Geco argues the Federal Circuit misapplied the presumption against extraterritoriality. Section 271(f) of the Patent Act gives “clear indication” that Congress wanted to punish conduct that had a “U.S. nexus and a foreign impact.” This provision holds liable for infringement anyone that supplies in or from the United States components of a patented invention knowing or intending that the components be combined outside the U.S. in a way that would be considered infringement had the combining occurred in the United States. According to Western Geco, once liability is established, as it was here, it is improper to apply the presumption against extraterritoriality again to limit damages. This is “double counting” the presumption, Western Geco says.
ION’s brief argues that, under the law, the infringement is limited to export. It does not go beyond acts in the U.S. ION also claims that Western Geco and ION do not compete in the same market because ION does not sell surveys (or even the completed infringing system) but does sell equipment for marine oil exploration. Western Geco does not sell components or survey systems.
The U.S. has filed an amicus brief in support of Western Geco’s position. Stay tuned.
To read more about our recent Patent Infringement cases click here.