WesternGeco v. Ion Geophysical: Foreign Damages and a French Tourist

by Dennis Crouch

In WesternGeco v. Ion Geophysical, the Supreme Court is focused on the extraterritorial application of U.S. Patent Law.  The particular situation is the scope of damages available for the harm caused by exporting a components of a patented invention in violation of 35 U.S.C. 271(f). The April 16 oral arguments began with Former US Solicitor Paul Clement arguing on behalf of the patentee seeking lost profits associated with would-be infringing uses on the high-seas.  Zachary Tripo argued on behalf of the U.S. Government as Amicus Curiae supporting the patentee.  On the other side was Kannon Shanmugam supporting the Federal Circuit’s decision.

[Read the Oral Argument Transcript]

In my view, the Supreme Court is quite likely to overturn the Federal Circuit’s limitation on lost profit damages and hold instead that Section 284 allows for full compensation for all forms of infringement. The key analogy that may well have won the day is that of the hypothetical French Tourist injured while visiting the US and left unable to work.  Under ordinary U.S. tort law, the tourist would still be able to collect full damages even though the job-loss is in France.  Likewise, according to petitioner and USGov’t, the US patent infringement act (export) should lend itself to full compensatory damages.  That said, I expect for the Supreme Court’s opinion to place additional language on the meaning of proximate cause that may eventually force the Federal Circuit to tighten its doctrine in that area.

The following are a set of somewhat re-arranged excerpts — an attempt to bring some amount of meaning to the ranging discussion.

MR. SHANMUGAM (for the infringer): The presumption against extraterritoriality applies with particular force to the Patent Act. . . . And while the Act of infringement here all of the parties now agree was concededly domestic, our submission is that the damages here were, in fact, foreign. . . . The only thing that you have domestically here — and we all agree that this is true — is the initial act of infringement.

MR. CLEMENT (for the patentee): The plain text of the Patent Act (Section 284) . . . gives the victim of Section 271(f) infringement an entitlement to adequate damages, including lost profits. And the presumption against extraterritoriality raises no obstacle to that commonsense result. . . . I do think it’s important to recognize, though, that what is the infringing conduct is what ION does in the United States [i.e., the export]. What the foreign combiners of the components do on the high seas is not infringement of a U.S. patent at all, which is why I think the presumption against extraterritoriality is really a misfit here. . . . What we’re doing [i.e., asking for] is we are collecting damages for the foreseeable consequences of the domestic act of infringement. . . . I mean, at some level, this case is pretty simple. Because of ION’s domestic act of infringement, my client has $90 million less in its wallet in Houston than it otherwise would have if they had obeyed the law.

MR. SHANMUGAM: To be fair . . . I think that what Petitioner is trying to do in this case is effectively to hold us secondarily liable for what would be or what might not be an act of foreign direct infringement . . . converting a single act of supply from the United States into a springboard for what would effectively be worldwide damages.

JUSTICE GORSUCH: [The claimed profits] arise from a third party’s use over which you have no lawful monopoly. Your patent doesn’t run to the high seas, and so your uses aren’t protected there. So help me out with that portion of the damages alone.

MR. CLEMENT: Sure. The reason that we can collect those damages, even though that conduct is not proscribed by a U.S. patent, is because it is the reasonably foreseeable result of domestic infringement.  (Here, this is simply proximate cause analysis).

JUSTICE BREYER: Imagine you have the converse case. I mean, if we can have a law like this, so can every other country. And now an American firm makes a part in some other country, all right? And that happens more and more. They have laboratories all over the world. They make a part. They bring it back here. It doesn’t violate the patent law of the other — of our country, not at all.

They sue to sell it all over the place.  And suddenly a foreign patent holder, in, say, Switzerland, has — takes this American company and obtains enormous profits on the basis of the sales in the United States, where those sales do not violate American law.

I mean, suppose 10 countries do this. I try to think about that and I see chaos or confusion. And at that point, I think part of comity is, what happens if everybody does it? And then I become uncertain about whether there’s no place for our concern with what happens when we apply American law abroad.

MR. CLEMENT: A couple of points, Justice Breyer. First of all, this has been the rule for basically 100 years. . . . The other thing is . . . I get a couple of pluses because this has also been the rule . . . in the copyright context. And the world hasn’t ended in the copyright context. . . . With all due respect, there would be no chaos. And that is my principal response. And we would have seen chaos in some context if this were really a problem.

MR. TRIPP [Gov’t Lawyer supporting the patentee]: The rule that we’re advocating of full compensation is already the rule that applies basically everywhere else in U.S. law, in tort, in contract, in copyright, that this Court previously assumed applied in patent law as well, and it hasn’t given rise to any significant foreign relations problems in — in any of those areas.

JUSTICE ALITO: But this is what makes this case difficult, because there’s such a gap between the legal injury, which is ephemeral, and the practical injury, which occurs completely abroad.

MR. TRIPP: Yeah, so I think two responses to that. So, first, the patent is a property right, and we often think of the invasion of a property right as — as being something significant, even if it doesn’t have additional tangible harm. But also more fundamentally, it’s quite common to hold a tortfeasor responsible for the harm that it causes when it sets into motion a series of events by which the victim will be — will be hurt, even if they’re not hurt at the time.

JUSTICE KENNEDY: Well, your position is that the Petitioner is not entitled to full compensation for its injury? That’s your position?

MR. SHANMUGAM: Petitioner is not entitled to compensation for foreign damages;

JUSTICE KENNEDY: Which in the full compensation for its injury, your whole position is that this Petitioner is not entitled to full compensation for his injury, yes or no?

MR. SHANMUGAM: Yes, as a consequence of the application of the presumption against extraterritoriality.

JUSTICE GINSBURG: What about proximate cause? Wouldn’t you have to establish at least that the reason that the sales that you lost to the foreign, whatever the people who sweep the high seas, that you would have gotten those contracts if they didn’t?

MR. CLEMENT: Absolutely. We have to satisfy proximate cause. It provides sufficient protection here.

MR. TRIPP: You have the proximate cause overlay on top of it. I think the other place that I think is helpful to look at this is Professor Yelderman’s amicus brief, which does a nice job of walking through the doctrine both of causation in fact and proximate cause in the Federal Circuit when dealing with problems that are analogous to these. These are a robust check.

MR. CLEMENT: I would just like to clarify two details and make a couple of points. One detail, my friend mistakenly referred to this case being brought in the Eastern District of Texas. It was, in fact, brought in the Southern District of Texas, where both of these companies are located. It may be a pedantic point, but the Eastern District of Texas has a certain implication to it that I wanted to clarify. (Laughter.)

13 thoughts on “WesternGeco v. Ion Geophysical: Foreign Damages and a French Tourist

  1. 5

    Under Panduit, a patentee is entitled to lost profit damages if it can establish: (1) demand for the patented product, (2) absence of acceptable non-infringing alternatives, (3) manufacturing and marketing capability to exploit the demand, and (4) the amount of profit it would have made. The Panduit factors are not the only way to prove lost profit, but one can see why the Justices had so many questions about proximate cause. How can a patentee ever prove absence of acceptable non-infringing alternatives to the patented product (a product exported from the US) when even the patented invention, if made (and used) abroad, is non-infringing the US patent?

    1. 5.1

      How do you think Congress would apply the Panduit factors when they changed the law to provide for these “foreign” items?

      1. 5.1.1

        I don’t see in 271(f) language that shows that Congress intended to change the standard to determine lost profits.

        1. 5.1.1.1

          Do you see in 271(f) the language that “foreign” alone cannot deprive lost profits?

          In other words, you want to read the Panduit factors as if 271(f) does not exist.

          It exists.

          Congress wrote it. The Court will not make it a nullity, so you are going to have to give it credit in some fashion.

  2. 4

    Professor or others, do you think that the decision will have any impact on damages for acts of infringement under Section 271(a)

    1. 4.1

      Potentially impact in a few of ways:
      (1) The Court could offer some loose statements regarding lost-profits in general that shift the balance of when lost profits are allowed;
      (2) The Court could offer a discussion of proximate cause that limits the scope of consequential damages in patent cases; or
      (3) The Court could offer a discussion on the international level that shifts the scope of when foreign acts could result in lost profit damages. An example here could involve something like convoyed sales — RETAILER is looking for a global distributor and gives business to DEFENDANT, based upon DEFENDANT’s representation that he has rights to sell worldwide – even though the U.S. sales are infringing COMPETITOR’s patent. COMPETITOR argues that its lost profits should be tied to global sales because it was designed as a package deal.

    1. 3.1

      I definitely liked Mr. Tripp’s comment about a patent being a property right.

      But, if your reference to “TPAB” concerns the pending Oil States case, I don’t get the connection between that and the recent immigration case.

      1. 3.1.1

        Reading the Gorsuch concurrence, struck me as a tour de force on the importance of separation of powers to support his concurrence, and thereby maybe pulling a few Oil States votes his way in the process, since the implications there concern the judicial power and it’s proper department.

        1. 3.1.1.1

          In the age of the administrative agency, who really needs separation of powers?

  3. 2

    Isn’t this the natural result of Congress overturning Deepsouth ? Full damages with the act of export, including lost profits (which is hard enough to prove in the first place!). Some of these SCOTUS questions sound very uninformed. Breyer, as usual, acting as if the patent act is a case of first impression.

    1. 2.1

      Some have refused to understand that Congress acted in response to the Deepsouth case.

  4. 1

    A liability without a remedy makes little legal or political sense, and the analogous situation in Copyright law only further supports the near certainty that lost-profits will be found recoverable. As Prof. Crouch notes, it’s also very unlikely that extraterritorial application will be allowable without careful assessment of actual cause and effect- in other words, serious proof of proximate cause for lost profits. There is no ideological left/right baggage to this matter, so the proximate cause requirement seems fairly balanced and already substantially worked out, and so will probably result in this being a 9-0 decision. Not a lot of drama here.

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