by Dennis Crouch
The Supreme Court has granted writ of certiorari in the international-patent-damages case WesternGeco LLC (Schlumberger) v. ION Geophysical Corp., Docket No. 16-1011.
In December I outlined the case:
The lawsuit is related to WesternGeco’s patents on marine seismic surveys. Adjudged infringer ION manufactures components of the system in the US, for assembly and use “on the high seas.” A jury found liability under 271(f) – exporting components of a patented invention for assembly abroad. The jury also awarded the patentee $12.5 million in reasonable royalties in addition to $93.4 million in lost profits based upon specific competitive contracts lost. On appeal though, the Federal Circuit ruled that lost profits were inappropriate here because they were based upon the assembly-abroad and activities outside of the U.S. jurisdiction.
The case raises the following question:
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).
As rephrased by the respondent, the question is stated:
Whether this Court should overrule Microsoft v. AT&T and eliminate the presumption against extraterritoriality so that infringers are subject to damages under § 284 based on non-infringing foreign use by third parties.
And finally, as stated by the U.S. Government, the question is as follows:
The Patent Act of 1952, 35 U.S.C. 1 et seq., provides that, when a patent owner prevails in an infringement action, “the court shall award the claimant damages adequate to compensate for the infringement.” 35 U.S.C. 284. Such damages may include lost profits that the patent owner would have earned but for the infringement. Yale Lock Mfg. Co. v. Sargent, 117 U.S. 536, 552-553 (1886).
The question presented is as follows:
Whether a patentee that has proved a domestic act of patent infringement may recover lost profits that it would have earned outside of the United States if the infringement had not occurred.
It is interesting they take a case like this of little importance to most (there were no amici in support); and they do not take a case that will resolve whether the right to obtain a patent might be assigned legally by a present assignment of a future invention without more, and that the issue is one of Federal Law.
There are cases where an employee has filed a patent application on an invention made entirely on his own time, etc., but which arguably relates to the the prospective business of the employer, where the employee’s invention has been deemed assigned without further ado. If the matter were treated as one of equity, the employer would have to demonstrate fairness before a court will order the employee to assign. There are also state statutory bars.
I think a fair result in these circumstances would be an injunction barring further export/assembly by the infringer (obviously), some fee shifting to the patentee, and disgorgement of the difference in expense between what the infringer spent on the export/assembly (i.e., the infringing acts) versus what it would have cost to buy the foreign made product (i.e., the “savings” earned by the infringer as a result of the infringer’s acts).
Lost profits doesn’t make sense under the circumstances here.
MM, the injunction part makes sense. But why measure damages to the patent owner by determining benefit to the infringer? Benefit to the infringer might be part of a reasonable royalty calculation, but if the patent owner lost billions in sales to the infringer because of the infringement, why can he not recover that? Damages are not limited by the reasonable royalty calculus. It is the other way around. RR provides a floor, not a ceiling.
Why should we deny lost profits for sales outside the US when there are only two sellers in the world?
Benefit to the infringer might be part of a reasonable royalty calculation, but if the patent owner lost billions in sales to the infringer because of the infringement, why can he not recover that?
Because in this instance it’s not clear (to me, anyway) that any sales of the infringing item were “lost.” There were identical non-infringing alternatives to be had … no?
“it’s not clear (to me, anyway) that any sales of the infringing item were “lost.” There were identical non-infringing alternatives to be had … no?”
Not in the presented fact pattern.
Still a relevant question though: is it feasible for a patentee to show it lost a sale abroad because of an infringement under 271(f), and how does it show the lost? That seems to be the analysis that Judge Wallach recommended to perform in its dissent, instead of applying a rule against the availability of damages for infringement under 271(f). If the Supreme Court holds against the unavailability of damages, this analysis will come up.
Thanks PiKa.
No doubt how to do the calculation will be important AFTER it is determined that it IS proper to DO the calculation.
There still is though the perception – not in the fact pattern – that there are “identical non-infringing alternatives to be had.” Why would such a presumption arise?
This perception of the likely existence of identical non-infringing alternatives comes from the absence of protection of the patentee against making, using, and selling the patented invention entirely abroad. The making and using of the invention is enabled by the US patent. For example, someone can read the US patent and make a copy of the invention, let say in Mexico, and use the copy in international waters without infringing the US patent.
This perception of the likely existence of identical non-infringing alternatives is much easier to dismiss when domestic sales are involved, because the patentee has exclusivity of the domestic use of the invention.
I suppose that the CAFC majority had this contrast in mind when holding that a patentee cannot recover lost profit damages for infringement under 271(f).
“comes from the absence of protection of the patentee against making, using, and selling the patented invention entirely abroad”
I do not see that as a predicate.
There is too much emphasis on the “entirely” aspect AND the very reason why 271(f) was passed.
I would also point out here that one of the requirement elements in the present fact pattern necessarily includes making and shipping from the US a component. Turning to some “entirely outside the US” then takes that situation out of the equation.
Further, I do not think the view that “much easier to dismiss when domestic sales are involved,” is germane either. All that phrase does is establish a fact pattern that is necessarily already present in the application of 271(f).
Lastly, the CAFC majority and their “cannot recover” view is at fault (or at least is the topic of being at fault), and you cannot use THAT as an example of “being proper,” as that is merely a circular argument.
Do you have another progenitor for the presumption?
How can a patentee prove the unavailability of non-infringing substitute in an infringement case under 271(f)? Any making and selling, entirely outside of the US, of the invention is a non-infringing substitute to an infringement under 271(f). And anyone reading the US patent learns how to make the invention.
Where did you get this “non-infringing substitute language?
For example, see Micro Chem., Inc. v. Lextroom, Inc., citing Panduit Corp. v.Stahlin Bros. Fiber Works.
The unavailability of non-infringing substitute is one of the “Panduit” factors in the “Panduit” analysis, which is generally (but not necessarily) used to prove that some profits would have been made but for the infringement.
Thank you !
Hot off the physics presses lads:
Negative mass created irl!
link to phys.org
Negative mass =/= Negative effective mass.
“can Congress impose extraterritoriality infringement in contradiction of other countries determinations?”
No.
Your scenario does not include infringement in contradiction of other countries determinations. The item under issue remains infringement of the US determination.
“It seems like 271f is an effort to force other countries to accept our patent grant determinations”
No.
Same answer.
The item under issue remains infringement of the US determination.
There is no making, using or selling of the full features of the claim within the US. That’s why the patentee is resorting to 271f. 271f on its face requires acts which are in a foreign forum, and the forum may have taken actions which expressly reject the policy.
The situation is directly analogous to US states applying choice-of-law. A first state may attempt to regulate an act, but if the gravity of the action occurs in a second state, the second state’s law applies. Obviously this *generally* does not apply between sovereigns the way it applies between states, but in this case there are treaties which raise the same issue.
I mean why stop at 271f, why even require the components to be made in the US? Why should we let people who are subject to US jurisdiction but know or intend to violate a US patent make the parts elsewhere and combine them elsewhere? If extraterritoriality is so valid why not just make it apply to base infringement to fully protect a patentee?
“which are in a foreign forum, and the forum may have taken actions which expressly reject the policy.”
You are not using the word “forum” appropriately.
There is not foreign judicial forum in your hypo.
I seriously doubt that if China allowed a claim on AB and the US denied the claim on AB, we’d be okay with a chinese law that said that making AB in the US creates liability just because the party is subject to Chinese jurisdiction. You’d see a lot of US companies being unable to practice their patented inventions in that case, because all it takes is one other office to decide the invention was made by someone else.
You are not applying 271f appropriately.
Since I don’t deal with infringement and am not studied on it, can someone answer this –
If we’re party to treaties that require us to give effect to the patent rights in other countries, can Congress impose extraterritoriality infringement in contradiction of other countries determinations?
I know it doesn’t apply on these facts, but lets say Claim 1 describes a widget comprising elements A and B. The US allows Claim 1, but Germany denies Claim 1. A company makes elements A and B in the US (legal), ships them to Germany (legal) and combines them (just as their law allows). Doesn’t that person violate 271f on its face, but isn’t Congress restricted from its ability to legislate the issue by treaty?
It seems like 271f is an effort to force other countries to accept our patent grant determinations despite treaties supposedly giving them the right to decide for themselves.
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