U.S. Supreme Court Takes on Key IP Issue

U.S. Supreme Court Takes on Key IP Issue

WesternGeco LLC v. Ion Geophysical Corporation

© 2018 Adrienne B. Naumann, Esq. all rights reserved

The United States Supreme Court’ [hereinafter ‘the Court’] decided three intellectual property cases during its 2017-2018 term. One decision, WesternGeco LLC v. Ion Geophysical Corporation, 585 U.S. ____ (2018) [hereinafter ‘WesternGeco ‘and ‘Ion’] addressed the availability of lost profits resulting from use and sales of infringing products outside the United States. More particularly, the question for review was: Whether lost profits rising from these foreign activities is a remedy when  infringement activity occurred exclusively within the United States.

After WesternGeco commenced a patent infringement lawsuit, the jury concluded there had been subjectively reckless infringement by Ion. Nevertheless, the federal district court concluded that Ion had not been objectively reckless under the test for enhanced damages under 35 U.S.C. section 284 in effect at this time. However, the court did award lost profits for sales and use of the infringing products in other countries. The U.S. Court of Appeals for the Federal Circuit [hereinafter ‘the Federal Circuit’] affirmed the denial of enhanced damages, but it reversed the award of lost profits for foreign sales and use. After the Court granted certiorari on both issues, it then vacated and remanded the case to the Federal Circuit in view of its new standard for enhanced damages announced in Halo Electronics, Inc. v. Pulse Electronics Inc., 579 U.S. ___, 126 S. Ct. 1923 (2016).  The Federal Circuit then remanded the case to the federal district court on the enhanced damages issue, but it implicitly confirmed its denial of lost profits on foreign sales and use for Ion’s infringing products.

After the Court granted certiorari, WesternGeco first contended in its statutory interpretation argument that 35 U.S. C. 271(f)(2) provides a financial remedy for sales occurring abroad even when infringing activities occurs exclusively in the United States. As a result, if there is infringement liability under this statute, then there is no reason to restrict remedies under 35 U.S.C. 284. WesternGeco also contended that a lost profit award for foreign activities was a significantly more effective deterrent to infringing in the United States. For this policy argument, WesternGeco further contended although the cost of producing a ‘knock off’ is very low, the costs and investment by the original innovation owner to develop are extremely high. As a result, a significantly greater financial loss to the infringer, and which includes lost profits for foreign use and sales, encourages investment in legitimate development in the United States because the risk of losing an investor’s return on development is significantly reduced.

The Court agreed with WesternGeco, and so it held that an award for lost profits in other countries is a permissible domestic application of section 284. In reaching this conclusion the Court observed that that purpose of section 284 is to provide sufficient compensation for the economic harm caused by the infringement. Section 284 is therefore strictly remedial in effect and another statutory provision must provide liability based upon certain acts prior to the remedy. Section 271(f)(2) provides liability when certain infringing components are manufactured within the United States and thereafter assembled in another country. In this case, Ion’s liability was based upon infringing domestic acts under section 271(f)(2). Section 284 does not provide a separate barrier to the appropriate damage award, and so WesternGeco is entitled to the internationally based lost profits.

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