Supreme Court Decides Patent Holders Can Recover Lost Foreign Profits from an Infringer’s Sales Outside the US

Although the Supreme Court’s holding appears to be limited to infringement under Section 271(f)(2), which makes it an act of infringement to ship components of an infringing device abroad with the intent that they be combined into a device that would infringe a patent if made in the United States, litigants may attempt to argue that they should be able to recover lost profits—both domestic and foreign—for any infringing activity under Section 271. Domestic companies may be at risk of owing damages resulting from the patent holder’s lost profits on overseas activity that can be directly linked to domestic patent infringing activity.

Background

WesternGeco owns four patents used to create geological maps detecting oil beneath the ocean. WesternGeco alleged that ION infringed its patents when it manufactured components of a surveying system domestically and shipped them abroad for assembly into a copy of WesternGeco’s systems. WesternGeco further alleged that it had lost ten overseas contracts due to ION’s infringing activity, and that it should be able to recover its lost profits from those contracts. Originally, a jury awarded WesternGeco its lost profits on the overseas contracts; however, the Federal Circuit reversed the verdict and held that a patentee may not recover lost profits arising outside of the US.

Holding

In an opinion written by Justice Thomas, the majority found that damages for lost profits from international sales abroad were appropriate in order to give patent holders complete compensation for acts of infringement, as directed under 35 USC § 284. Because Section 271(f) “focuses on domestic conduct”—manufacturing of components of the infringing product in the US and shipping them abroad with intent that they be combined into a product that would infringe a patent if made in the United States—WesternGeco’s lost profits abroad arose from ION’s domestic patent infringement.

Justice Gorsuch, joined by Justice Breyer, wrote a dissenting opinion expressing concern that the majority’s holding could lead to recoveries of lost profits for extraterritorial conduct not qualifying as infringement under the Patent Act. The majority opinion criticized this position as “wrongly [conflating] legal injury with the damages arising from that injury,” noting that the act of infringement here was ION’s manufacture and exportation of components of a patented device.

In Practice

Patentees should closely examine whether they can prove lost profits on foreign sales due to domestic infringing conduct. In particular, patentees should examine whether proximate cause tying the foreign lost profits to a domestic patent-infringing activity exists.

In the first case to address the Supreme Court’s holding in WesternGeco, a district court held that the patentee has the burden of proving it would have received profits in foreign countries “but for” the accused infringer’s infringement. Verinata Health, Inc. v. Ariosa Diagnostics, Inc, 2018 WL 3472168, at *24 (ND Cal. July 19, 2018). Verinata suggests that while the Supreme Court’s holding in WesternGeco might give rise to expansive theories of lost foreign profits due to infringing acts within the US, patent holders must demonstrate a causal nexus between the infringing conduct and foreign damages.