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Westerngeco LLC. v. Ion Geophysical Corp.

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Supreme Court of the United States
Westerngeco LLC. v. Ion Geophysical Corp.
Term: 2017
Important Dates
Argument: April 16, 2018
Decided: June 22, 2018
Outcome
Federal Circuit reversed
Majority
Chief Justice John G. Roberts • Anthony Kennedy • Clarence Thomas • Ruth Bader Ginsburg • Samuel Alito • Sonia Sotomayor • Elena Kagan
Dissenting
Stephen Breyer • Neil Gorsuch


Westerngeco LLC. v. Ion Geophysical Corp. is a case argued during the October 2017 term of the U.S. Supreme Court. Argument in the case was held on April 16, 2018. The case came on a writ of certiorari to the United States Court of Appeals for the Federal Circuit.

HIGHLIGHTS
  • The case: Westerngeco LLC sued Ion Geophysical Corp. for patent infringement. A jury concluded that Ion had infringed on Westerngeco's patents and awarded Westerngeco damages, including lost profits. On appeal, the United States Court for the Federal Circuit reversed the lost profits award, ruling that Westerngeco could not recover lost profits that were based on Ion's business outside the United States.
  • The issue: Whether the court of appeals erred in holding that lost profits arising from prohibited combinations occurring outside of the United States are categorically unavailable in cases where patent infringement is proven under 35 U.S.C.§ 271(f)."[1]
  • The outcome: On a vote of 7 - 2, the Supreme Court reversed the ruling of the Federal Circuit.[2]


    • You can review the lower court's opinion here.[3]

    Background

    Legal question

    This was a case about the circumstances under which a party can recover lost profits based on patent infringement. Under Section 284 of the Patent Act, a party whose patent has been infringed is entitled to recover "damages adequate to compensate for the infringement.” The Supreme Court has interpreted that clause to mean that damages in a patent infringement case should be sufficient to put the patent owner in "as good a position as he would have been in absent that domestic infringement." Those damages include lost profits. Lost profits are the profits the patent owner lost as a result of the patent infringement.[4]

    One limitation on patent rights is the presumption against extraterritorial application of U.S. law. The presumption against extraterritorial application means that unless Congress has specifically indicated that a law is designed to apply outside the borders of the United States, the presumption is that the law applies only inside the United States. Applied to the Patent Act, the presumption means that holders of U.S. patents cannot enforce their patent rights outside of the United States.

    The issue in this case was whether and to what extent the presumption against extraterritorial application of the Patent Act prohibits patent owners from recovering damages for foreign lost profits that resulted from domestic patent infringement.[3]

    Case background

    In 2009, Westerngeco LLC. sued Ion Geophysical Corp. for patent infringement. Ion had made the components in the United States for a system on which Westerngeo held patents but then exported those components to be assembled outside the United States. A jury found in Westerngeco's favor based on Ion's U.S. activity and awarded Westerngeco $12.5 million in royalties and $93.4 million in lost profits.[4]

    Following the verdict, Ion asked the court to vacate the lost profits award. Ion argued that "it would give improper extraterritorial effect to U.S. law to award, as damages for the infringement, profits that petitioner had lost as a result of respondent’s customers 'making' or 'using' the survey system abroad."[4][5] The court denied Ion's motion, ruling that the award fully compensated Westerngeco for Ion's domestic patent infringement. Ion appealed to the United States Court of Appeals for the Federal Circuit.[4]

    In a 2015 decision, the Federal Circuit affirmed the jury's verdict but reversed the lost profits award. The Federal Circuit concluded that "because the contracts that petitioner had lost were for performing seismic surveys...outside the jurisdictional reach of U.S. patent law, awarding lost profits for these contracts would contravene the presumption against the extraterritorial application of U.S. law." The Federal Circuit ruled that Westerngeco "could not recover its lost profits on those contracts based on respondent’s domestic infringement, because those losses resulted from conduct occurring abroad." Judge Evan Wallach dissented. Wallach wrote, "Barring the district court from considering foreign lost profits even when those lost profits bear a sufficient relationship to domestic infringement improperly cabins [the court’s] discretion, encourages market inefficiency, and threatens to deprive plaintiffs of deserved compensation.”[4][6]

    Westerngeco appealed the Federal Circuit's decision to the United States Supreme Court. In 2016, the Supreme Court vacated the lower court's decision and remanded the case for reconsideration in light of Supreme Court's 2016 decision in Halo Elecs., Inc. v. Pulse Elecs., Inc. The Halo case dealt with a legal test, called the Seagate test, that the Federal Circuit used to determine enhanced damages. That remanded case was the case at issue in this appeal.

    Panel opinion

    On remand, a majority of the United States Court of Appeals for the Federal Circuit vacated a portion of its 2015 decision, but it did not reconsider its earlier ruling as to lost profits. The court reaffirmed its decision that "WesternGeco was not entitled to lost profits resulting from foreign uses of its patented invention."[3]

    Judge Evan Wallach again dissented. Wallach renewed his arguments from his earlier dissent. Wallach wrote:

    “ The majority misunderstands the import of its prior holding, stating that my original dissent-in-part was from the panel’s holding that WesternGeco was not entitled to lost profits resulting from foreign uses of its patented invention. It is of course uncontroversial that patentees are not entitled to lost profits resulting from foreign uses of a patented invention. Patentees are entitled, however, to lost profits resulting from infringement under the laws of the United States, which is what the jury found below...[L]eft unanswered is the question of where we must draw the line as to when patented products or services made, used, or sold abroad (or some combination of these) may be considered in calculating damages flowing from infringement under Title 35 of the United States Code. The issue is not one of infringement, where foreign use generally does not count, but one of damages, where it may...[3][7][8] ”

    In response to Judge Wallach's dissent, the majority argued that "the issue of lost profits is not properly before us," concluding that on remand it should only address the effects of the Supreme Court's Halo decision[3]

    Westerngeco again appealed to the United States Supreme Court.

    Petitioner's challenge

    The petitioner challenged the holding of the United States Court of Appeals for the Federal Circuit. It argued that the Federal Circuit erred in concluding that Westerngeco could not recover its lost profits.[3]

    Certiorari granted

    On February 17, 2017, the petitioner initiated proceedings in the Supreme Court of the United States in filing a petition for a writ of certiorari to the United States Court of Appeals for the Federal Circuit. The U.S. Supreme Court granted the petitioner's request for certiorari on January 12, 2018. Argument in the case was held on April 16, 2018.[1]

    Question presented

    Question presented:

    "Under 35 U.S.C. § 271(f), it is an act of patent infringement to supply 'components of a patented invention,' 'from the United States," knowing or intending that the components be combined 'outside of the United States,' in a manner that 'would infringe the patent if such combination occurred within the United States.'
    Under 35 U.S.C. § 284, patent owners who prevail in litigation are entitled to 'damages adequate to compensate for the infringement.'
    In this case, despite affirming that Respondent was liable for infringement under§ 271 (f), the majority of a divided panel of the court of appeals held that Petitioner was not entitled to lost profits caused by the proscribed combination. The court of appeals reasoned that even when Congress has overridden the presumption against extraterritorial application of the law in creating liability, the presumption must be applied a second time to restrict damages.
    The question presented is: Whether the court of appeals erred in holding that lost profits arising from prohibited combinations occurring outside of the United States are categorically unavailable in cases where patent infringement is proven under 35 U.S.C.§ 271(f)."[1]

    Audio

    • Audio of oral argument:[9]



    Transcript

    • Transcript of oral argument:[10]

    Outcome

    Decision

    On a vote of 7 - 2, the Supreme Court reversed the ruling of the Federal Circuit.[2]

    Majority opinion

    Justice Clarence Thomas authored the opinion for the majority, joined by Chief Justice John Roberts and Justices Anthony Kennedy, Ruth Bader Ginsburg, Samuel Alito, Sonia Sotomayor, and Elena Kagan. Thomas ruled that the Patent Act did allow recovery of lost foreign profits. Acknowledging the presumption of extraterritoriality, Thomas wrote that the presumption did not apply in this case. He concluded that the focus of the statute was domestic conduct; therefore, there was no issue of extraterritoriality.[2]

    “ Section 271(f)(2) focuses on domestic conduct. It provides that a company 'shall be liable as an infringer' if it

    “supplies” certain components of a patented invention 'in or from the United States' with the intent that they 'will be combined outside of the United States in a manner that would infringe the patent if such combination occurred within the United States.' The conduct that §271(f)(2) regulates—i.e., its focus—is the domestic act of 'suppl[ying] in or from the United States.' . . . In sum, the focus of §284, in a case involving infringement under §271(f)(2), is on the act of exporting components from the United States. In other words, the domestic infringement is 'the objec[t] of the statute’s solicitude' in this context. The conduct in this case that is relevant to that focus clearly occurred in the United States, as it was ION’s domestic act of supplying the components that infringed WesternGeco’s patents. Thus, the lost-profits damages that were awarded to WesternGeco were a domestic application of §284.[2][11][8]

    		”


    Thomas concluded, "We hold that WesternGeco’s damages award for lost profits was a permissible domestic application of §284.[2]

    Dissent by Justice Gorsuch

    Justice Neil Gorsuch dissented from the court's ruling, joined by Justice Stephen Breyer. Gorsuch agreed with the majority that the lost profits award was not prohibited under the presumption against extraterritoriality. But Gorsuch argued, "The Act’s terms prohibit the lost profits sought in this case, whatever the general presumption against extraterritoriality applicable to all statutes might allow." Gorsuch argued that the court's ruling effectively permitted awards for patent violations outside the country.[2]

    “ A U. S. patent provides a lawful monopoly over the manufacture, use, and sale of an invention within this country only. Meanwhile, WesternGeco seeks lost profits for uses of its invention beyond our borders. Specifically, the company complains that it lost lucrative foreign surveying contracts because ION’s customers used its invention overseas to steal that business. In measuring its damages, WesternGeco assumes it could have charged monopoly rents abroad premised on a U. S. patent that has no legal force there. Permitting damages of this sort would effectively allow U. S. patent owners to use American courts to extend their monopolies to foreign markets. That, in turn, would invite other countries to use their own patent laws and courts to assert control over our economy. Nothing in the terms of the Patent Act supports that result and much militates against it.[2][8] ”


    Gorsuch concluded that the court's ruling "allows U. S. patent owners to extend their patent monopolies far beyond anything Congress has authorized and shields them from foreign competition U. S. patents were never meant to reach.[2]

    Text of the opinion

    See also

    Footnotes

    1. ↑ 1.0 1.1 1.2 Supreme Court of the United States, " Westerngeco LLC. v. Ion Geophysical Corp." Question Presented, January 12, 2018
    2. ↑ 2.0 2.1 2.2 2.3 2.4 2.5 2.6 2.7 United States Supreme Court, "Westerngeco LLC. v. Ion Geophysical Corp. Opinion," June 22, 2018
    3. ↑ 3.0 3.1 3.2 3.3 3.4 3.5 United States Court of Appeals for the Federal Circuit, " Westerngeco LLC. v. Ion Geophysical Corp." Opinion, September 21, 2016
    4. ↑ 4.0 4.1 4.2 4.3 4.4 United States Supreme Court, Westerngeco LLC. v. Ion Geophysical Corp. Brief for the United States as Amicus Curiae, December 6, 2017
    5. ↑ Internal quotations omitted.
    6. ↑ Internal citations and quotations omitted.
    7. ↑ Internal quotations omitted.
    8. ↑ 8.0 8.1 8.2 Note: This text is quoted verbatim from the original source. Any inconsistencies are attributable to the original source.
    9. ↑ Supreme Court of the United States, Westerngeco LLC. v. Ion Geophysical Corp., argued April 16, 2018
    10. ↑ Supreme Court of the United States, Westerngeco LLC. v. Ion Geophysical Corp., argued April 16, 2018
    11. ↑ Internal citations omitted.
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