Guest Post by Prof. Tim Holbrook: WesternGeco’s Implications for Patent Law and Beyond

Guest post by Timothy Holbrook, Asa Griggs Candler Professor of Law at Emory University School of Law.  Professor Holbrook authored an amicus brief in WesternGeco v. Ion.

When the Supreme Court agreed to review WesternGeco LLC v. ION Geophysical Corp., it was unclear how sweeping the decision would be. The case had clear implications for patent law. It would be the first time the Supreme Court had addressed patent infringement damages under 35 U.S.C. § 284 since its 1984 decision General Motors Corp. v. Devex Corp. The briefing and oral argument suggested the Court had some interest in assessing proximate cause in patent damages, an issue that has not been addressed by the Supreme Court or revisited by the Federal Circuit since its seminal en banc decision in Rite Hite Corp. v. Kelly Company Inc. Finally, beyond patent law, this case had implications for the Court’s jurisprudence on the presumption against extraterritoriality, particularly as to whether the presumption applies to remedial provisions.

Ultimately, the Supreme Court wrote a narrow decision, expressly avoiding many of these broader issues. The opinion, however, does demonstrate a methodology for addressing these issues in the future. It also leaves open the question of the viability of the Federal Circuit’s decisions in two other cases, Power Integrations, Inc. v. Fairchild Semiconductor International, Inc. and Carnegie Mellon University v. Marvell Technology Group, Ltd., although those cases appear to have used flawed methodologies.

WesternGeco involved infringement under 35 U.S.C. § 271(f)(2), a unique provision that defines infringement as the supplying from the United States of a component or components that have no substantial non-infringing uses, so long as the infringer knows that there are no other uses and intends to assemble the complete device overseas. The only issue in this case was one of damages: could the patentee receive lost profits for foregone sales of services using the patented invention on the high seas, outside of the United States.

The Federal Circuit had concluded the damages were not available by using the strict territorial limit on patent infringement damages it had embraced in Power Integrations and Carnegie Mellon. In all three cases, the Federal Circuit rejected damages awards for foreign activities, even though there was a predicate act of infringement.

The Federal Circuit in WesternGeco did not utilize the two-step framework for assessing the extraterritorial application of U.S. laws adopted by the Supreme Court in RJR Nabisco, Inc. European Community. Under RJR, a court at step one should determine whether the presumption against extraterritoriality has been rebutted, which occurs when “the statute gives a clear, affirmative indication that it applies extraterritorially.” If the presumption is not rebutted at step one, a court then goes to step two to assess if the focus of the statute to determine if, under the facts of the case, the statute is regulating domestic conduct, even if there may be some conduct that occurred abroad. Necessarily, an analysis of the focus of the statute is contingent on the particular facts of the case.

In WesternGeco, the Supreme Court utilized this framework, although it skipped step one and jumped straight to step two. The Court concluded that damages arising from foreign activity is permitted in this case. Noting that § 284 depends on the definition of infringement at issue, the Court turned to § 271(f)(2) to perform its focus analysis, concluding that § 271(f)(2)’s focus is exportation of components from the United States. These domestic acts thus resulted in the consequences for which damages are sought, so those damages should be available, contrary to the Federal Circuit’s holding.

What are some of the key implications and open questions after this decision?

The Court technically did not answer the question of whether the presumption against extraterritoriality applies to remedial provisions. The petitioner in this case argued that the presumption against extraterritoriality does not apply to remedial provisions at all. By skipping step one of the RJR analysis, the Court avoided answering this question. The Court was concerned that “resolving that question could implicate many other statutes besides the Patent Act.”

Interestingly, this move confirms that the presumption against extraterritoriality is really only found in step one of the RJR analysis. Step two is a distinct inquiry. Moreover, it is important that the Court did utilize the RJR framework at all, lending support for the view that this methodology is one of general application, even to remedial provisions. Future cases will have to determine the applicability of step one.

The analysis of remedies under step two depends on the nature of the provision defining liability. The Court also made clear that an analysis of the remedy provision of a statute will depend on the liability-creating portion of the statute at issue. Here, the Court turned to § 271(f)(2) to assess the focus of the statute; it did not simply focus on § 284 alone, which of course contains no territorial limits.

The Court thus rejected the approach urged by the petitioner and the Solicitor General that would have ignored the infringement provision at issue. Instead, they urged that only the compensatory nature of damages should be considered.

A proper step two analysis of § 284, therefore, depends on the relevant infringement provision. As acknowledged by Professor Stephen Yelderman of Notre Dame Law School, the Court “vindicated” the methodology I suggested both in an amici brief on behalf intellectual property law professors and in Boundaries, Extraterritoriality, and Patent Damages in the Notre Dame Law Review.

Moreover, the Court declined to overrule Power Integrations and Carnegie Mellon, notwithstanding the petitioner’s and Solicitor General’s arguments that these decisions were also wrong. Instead Court focused exclusively on § 271(f)(2), which means that the continued viability of Power Integrations and Carnegie Mellon remains an open question.

Issues of proximate cause may be coming down the pipeline, and maybe in this case. Some of the amicus briefs at the Court looked at the damages issue from the perspective of proximate cause. Professor Yelderman submitted an amicus brief that drew specific reference at oral argument, focusing extensively on proximate cause as it relates to damages. Similarly, the amici brief I submitted also raised issues of proximate cause, particularly in this case where the lost profits were for foregone services and not for lost sales of the invention.

Surprisingly, given the amount of discussion at oral argument on the subject, the Court relegated proximate cause to a footnote, noting “we do not address the extent to which other doctrines, such as proximate cause, could limit or preclude damages in particular cases.” Aside from punting on the issue, this footnote does implicitly suggest that proximate cause and extraterritoriality concerns are properly viewed as distinct concerns.

Moreover, it is unclear whether the Court is signaling to the Federal Circuit that proximate cause could still be an issue in this case. The Court rejected the bright-line rule against these damages offered by the Federal Circuit, but one could read that footnote to say it is an open issue in this case itself. Of course, given the Federal Circuit’s capacious views of proximate cause, it seems unlikely the Federal Circuit would use the doctrine to limit the damages here.

Do Power Integrations and Carnegie Mellon survive WesternGeco? The Court did not address extraterritorial damages under § 271(a), leaving these cases untouched. But what are the implications of WesternGeco for such worldwide damages theories? Professor Tom Cotter of the University of Minnesota School of Law believes those cases are no longer good law and that such damages would be available.

I disagree, however. I specifically analyzed those two cases using the RJR framework in Boundaries, Extraterritoriality, and Patent Damages. In my view, the focus of § 271(a) is more dramatically circumscribed territorially. Although any analysis of a statute’s focus depends on the particular facts of a given case, § 271(a)’s expressly is limited to infringement within the United States. While some transnational acts could be ensnared in such a focus, such as uses of transnational systems as in NTP Inc. v. Research in Motion, Ltd. or transnational deals to sell inventions in the United States as in Transocean Offshore Deepwater Drilling, Inc. v. Maersk Contractors USA, Inc., damages for wholly domestic acts of infringement would seem to be limited to acts within the United States. Thus, while the reasoning is wrong, the outcomes in Power Integrations and Carnegie Mellon may actually be correct. The focus of the § 271(a) is infringement only within the United States and not focused on exportation, as was the case in WesternGeco. Nevertheless, this issue remains open after WesternGeco, though we now know a court should approach the issue through the RJR framework.

For a short decision, the Court does offer some important insights relevant to its broader efforts in addressing the presumption against extraterritoriality. Nevertheless, the narrowness of the decision leaves to future cases a variety of important issues. The opinion likely will work as a roadmap for future litigants to raise them.