In a split opinion, the Federal Circuit has denied WesternGeco’s en banc petition on the issue of whether a patentee can collect lost profit damages stemming from foreign sales that constitute infringement under 35 U.S.C. § 271(f). The question presented:
When there has been a finding of infringement under 35 U.S.C. § 271(f) for supplying components of a patented system to be combined outside the United States, is a patentee, in effect, categorically barred from recovering proven lost profits that occurred outside the United States, which were the direct and foreseeable result of the infringement under § 271(f)?
In its original panel decision, the Federal Circuit indicated that its tradition of avoiding extraterritorial application of U.S. patent law led it to apply Section 271(f) in a restrictive rather than expansive way.
WesternGeco cannot recover lost profits resulting from its failure to win foreign service contracts, the failure of which allegedly resulted from ION’s supplying infringing products to WesternGeco’s competitors. . . . Section 271(f) does not eliminate the presumption against extraterritoriality. Instead, it creates a limited exception. . . . It is the act of exporting the components from the United States which creates the liability. . . . Just as the United States seller or exporter of a final product cannot be liable for use abroad, so too the United States exporter of the component parts cannot be liable for use of the infringing article abroad.
Of course, the fact that WesternGeco is not entitled under United States patent law to lost profits from the foreign uses of its patented invention does not mean that it is entitled to no compensation. Patentees are still entitled to a reasonable royalty, and WesternGeco received such a royalty here. . . .
As he did in the original panel decision, Judge Wallach also dissented here – joined by Judges Newman and Reyna. In the original opinion, Judge Wallach wrote:
[T]he limited geographic reach of United States patent law does not mean activities occurring outside the United States are categorically disregarded when determining issues of patent infringement. . . . [In 271(f)] Congress imposed liability on those supplying from the United States components of a patented invention “in such manner as to actively induce the combination of such components outside of the United States in a manner that would infringe the patent if such combination occurred within the United States.” . . .
In general, a patentee is entitled to full compensatory damages where infringement is found. . . . . The general principles of full compensation, of course, do not directly address the question of whether foreign activities may be considered when calculating such compensation. The Supreme Court, however, has answered this question in the affirmative, looking to noninfringing foreign sales to calculate lost profits where the patented product is manufactured in the United States. For example, [see] Goulds’ Manufacturing Co. v. Cowing.
There is a strong chance that WesternGeco will petition for a writ of certiorari and this type of international patent law case has some background before the court. See, Microsoft Corp. v. AT&T Corp., 550 U.S. 437 (2007) and Deepsouth Packing Co. v. Laitram Corp., 406 U.S. 518, 531 (1972).
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As a comment, I should mention here that the question petitioned is somewhat disingenuous in that the lost-profits would be available associated with foreign component sales, just not those tied to sale of the would-be-infringing-product. The problem for the patentee is that the real profits are in the final product not the underlying components.