by Dennis Crouch

In NantKwest v. Matal, the Federal Circuit will sit en banc to decide whether the cost-shifting provision found in 35 U.S.C. § 145 permits the USPTO to recover its attorney fees. I explained the setup in a prior post:

After being finally rejected by both the examiner and the PTAB, a patent applicant can then take its case to court. The Statute provides two options – either (1) a direct appeal to the Federal Circuit or (2) filing a civil action in district court to pursue a trial on the merits under 35 U.S.C. § 145.

An oddity of Section 145 civil action is the last line which states: “All the expenses of the proceedings shall be paid by the applicant.” In 2010, the en banc Federal Circuit ruled that the statute means what it says – expenses are to be paid by the applicant “regardless of the outcome.” Hyatt v. Kappos, 625 F.3d 1320 (Fed. Cir. 2010) (en banc). In NantKwest, the split panel ruled that the “expenses” include attorney fees.

In a sua sponte order, the Federal Circuit then ordered en banc review of the fee shifting rule – particularly whether the statutory “expenses” include attorney fees (especially in-house salaried attorney fees). Briefs have now been filed in the case and oral arguments are set for March 8, 2018 in the Federal Circuit’s Washington D.C. Courthouse at 717 Madison Place.

[Briefs Filed (Big PDF): 16-1794_Documents]

The US Government (USPTO) brief makes the basic argument that Congress intended for patent applicants to bear the expense of the optional district court proceedings, and attorney fees are a major component of that expense. The Gov’t further explains that the Federal Circuit majority approach has also been approved by the 4^th Circuit with regard to the parallel Lanham Act provision. Shammas v. Focarino, 784 F.3d 219 (4th Cir. 2015). Although not express, the Gov’t approach suggests that “all expenses” need not even be limited to reasonable expenses.

In response, Nantkwest relies heavily on history – noting that prior to this case, “neither the PTO, nor Congress, nor the courts have ever interpreted § 145 to authorize any attorneys’ fees.” That history along with the presumption against fee shifting and the limited language of the statute should collectively prevent a fee award here.

• Amicus from Federal Circuit Bar Association: The FCBA argues in support of NantKwest that expenses as used in the statute should not include attorney fees. Their prime example is that §145 does not say “attorney fees” while a parallel provision for infringement litigation, §285 does expressly say “attorney fees.” The longstanding practice of the USPTO has been to not ask for attorney fees – that approach should add considerable weight to whether the PTO’s interpretation is correct.
• Amicus from AIPLA: “No reading of ‘all expenses of the proceedings’ can mean reimbursement of staff salaries.”
• Amicus from IPO: “Attorneys’ fees are not expenses ‘of the proceeding'” as required by the statute.
• Amicus from INTA: The American rule creates a strong presumption against attorney fee awards.

One of the basic debates here is how the general presumption against awarding attorney fees in US Courts should be applied.  The Government Lawyers makes the odd technical argument that the “American Rule” is a presumption is against awarding attorney fees to the prevailing party. Here, they argue, the presumption is not implicated since the statute awards fees win-or-lose.  That particular argument is wrong on many levels, but it does have the majority on its side as well as the 4th Circuit panel.

= = = = =

Patenting is a Pay for Service Process: In thinking through the case, one starting point is a recognition that the patent is a pay-for-service process.  Applicants pay for filing, for PTO searches, for PTO Examination, for Appeals, for Issuance, etc. Although it makes sense to spend some taxpayer money on encouraging scientific research and innovation, the pay-for-service model is much easier politically.  In that setup, it also seems reasonable that there would be a fee for filing and pursuing a civil action. With most fees today, the PTO is setting fees to reflect some average cost of providing service (with some additional policy preferences embedded into pricing).  However, the difficulty for the PTO here is that the mechanism for collecting fees under Section 145 looks just like fee shifting – which the courts historically disfavor.

EVE-USA was founded by former employees of Mentor — the named inventors on Mentor’s emulation software patents.  Initially Mentor licensed the patents to EVE for its use, but that license was terminated when Synopsys later acquired EVE.  Mentor then sued Synopsys and won a $36 million jury verdict for infringement of its U.S. Patent No. 6,240,376.  Following the Federal Circuit’s decision largely supporting the verdict, EVE/Synopsis have petitioned the Supreme Court for writ of certiorari asking two questions relating respectively to Assignor Estoppel and Apportionment of Damages.

Assignor Estoppel: Although the patent act expressly indicates that invalidity is a defense to patent infringement, the doctrine of assignor estoppel operates to prohibit a defendant from asserting invalidity in certain situations.  Here, the accused infringer asks:

1. The question is whether, and under what circumstances, assignors and their privies are free to contest a patent’s validity.

In addition to tying its arguments to the text of the statute, the petitioner also links its case with the Supreme Court’s decision in Lear, Inc. v. Adkins, 395 U.S. 653 (1969) which abolished the analogous doctrine of “licensee estoppel.”  In some ways, this case sits in parallel with other recent equitable cases such as SCA Hygiene (2017) (eliminating laches as a bar to legal damages).

Apportionment of Damages in Lost Profits Cases: The second issue raised in the petition involves apportionment of damages in cases where the patent covers only a feature or portion of a machine being sold and where the patentee claims lost-profits.  The defendant here argues that the Federal Circuit improperly “permits patentees to recover lost profits damages for an entire multi-component product, without apportioning the value between patented and unpatented features, simply by showing that the patentee would have made the sale “but for” the infringement.”  Thus, the question presented is:

2. Did the Federal Circuit err in holding that proof of but-for causation, without more, satisfies the requirement that damages be apportioned between patented and unpatented features?

Although certiorari has not been granted, the case is moving in that direction.  Four briefs amici were recently filed supporting petitioner and the Supreme Court has requested a response from the patentee Mentor.

• Federal Circuit Decision
• Federal Circuit En Banc Denial
• Petition for Writ of Certiorari
• Law Professor Brief (Bernard Chao): “An unbroken line of Supreme Court precedent holds that apportionment analysis is required in all damages calculations.”
• Eric Bensen Brief: “The patentee has the burden of identifying the portion of its lost profit that would have been attributable to the value of its patented invention as opposed to the value of the article’s unpatented components. It is only that portion that a patentee seeking a lost profits award may recover as damages under the Patent Act. Were it otherwise, a patentee could use a patent on a small feature to restrict the sale of goods that would otherwise trade freely in the marketplace.”
• Law Professor Brief (Stanford Clinic): Assignor estoppel should be limited to cases such as bad faith negotiations and only rarely applied to those in privy with the assignor.  This brief substantially follows Mark Lemley’s article on the topic.
• HP, EBay, Oracle, et. al: The Federal Circuit’s “all or nothing” approach in the lost profit scenario “creates the risk of large damages awards far out of proportion to the value created by the patented features. This risk,
  in turn, gives undue leverage to patentees and imposes potentially prohibitive costs on doing business—even in products and services that largely reflect the accused infringer’s own innovation.”

For its part, the Federal Circuit would likely argue that the briefs mischaracterize its decision that respects the apportionment requirement but that sees the entire market value rule (EMVR) as a longstanding element of apportionment doctrine applied in the limited circumstances where “the entire value of the whole machine . . . is properly and legally attributable to the patented feature.” Quoting Garretson v. Clark, 111 U.S. 120 (1884).

The following message comes from Wilbur Ross, Secretary of Commerce.  The main point is that USPTO will remain in operation even if there is a government ‘shutdown.’:

As many of you are aware, annual funding for the government expires on January 19th. The Administration does not believe it is necessary for a lapse in funding to occur and looks forward to working with the Congress to finalize appropriations for this year.

However, prudent management requires that we be prepared for all contingencies, including the possibility that a lapse could occur. A lapse would mean that a number of government activities would cease due to a lack of appropriated funding and that a number of employees would be temporarily furloughed. To prepare for this possibility, we are working to update our contingency plans for executing an orderly shutdown of activities that would be affected by a lapse in appropriations.

Should such a lapse occur, the USPTO would still have access to prior year fee collections, which enables the agency to continue normal operations for a few weeks. USPTO employees should report to work as normal until and unless you receive notice otherwise. We are working with your Office of General Counsel and Chief Financial Officer to update our contingency plans should the USPTO need to execute an orderly shutdown of activities after that point.

Thank you for your hard work, dedication, and patience through this process, and for all that you do for the Department of Commerce and the American people.

Sincerely,
Wilbur L. Ross
Secretary of Commerce

As required by the Trump White House, the USPTO has continued its process of removing regulations that are “potentially outdated, unnecessary, ineffective, costly, or unduly burdensome to both government and private sector operations.”  Executive Order 13777.  In this newest proposal (NPRM), the office proposes eliminating the following:

1. 37 CFR 1.79, which prohibits reservation clauses.  “i.e., it prohibits a pending patent application from containing a reservation for a future patent application of subject matter disclosed but not claimed in the pending application.” Although reservation clauses would not be prohibited, the PTO position is that “inclusion of a reservation clause provides no legal benefit.” However, I expect that it will take a bit of time to understand how this change would interact case-law on dedication and narrowing amendments.
2. 37 CFR 1.127 is duplicative.  The regulation allows a petition in circumstances where a petition is already permitted under  § 1.181. Particularly, Section 1.127 allows for petition when a primary examiner refuses to “admit an amendment.”  Under Section 1.181, petition is allowed from “any action or requirement of any examiner … not subject to appeal.”
3. 37 CFR 1.351 is unnecessary. The regulation requires amendments to the code of Federal Regulations relating to the Patent Office (37 CFR …) be published in the Official Gazette and the Federal Register.  The APA already requires publication in the Federal Register and, although it won’t be required, the Office intends to continue publication in the Official Gazette.
4. 37 CFR 42.102(b) and 42.202(b) allow the USPTO Director to limit the number of IPRs and PGRs instituted.  However, they the rules had a four-year timeline following the AIA that has now closed.

Send comments on this proposed rulemaking to AD25.comments@uspto.gov by February 20, 2018. Comments concerning ideas to improve, revise, and streamline other USPTO regulations, not discussed in this proposed rulemaking, should be submitted to: RegulatoryReformGroup@uspto.gov.

From today’s Patent Trial and Appeal Board decision:

“We are aware of no controlling authority that requires the Office to provide factual evidence to support a finding that a claim is directed to an abstract idea.”

Ex parte Johnson, Appeal 2016-004623 (January 18, 2018).

The ex parte appeal involves IBM-owned patent application No. 13/191,583 with a pending claim 1 that itself is quite an essay at 900 words. (NYT letters to the editor should be <175 words). The PTAB affirmed the examiner’s rejection of the claims as effectively claiming the abstract idea of “managing customer discounts following the receiving of a cancellation request by a customer.”

= = = = =  (more…)

In Brunetti, the Federal Circuit extended Matal v. Tam, 137 S. Ct. 1744 (2017) to further reject the Lanham Act’s restriction on registration of immoral or scandalous marks — finding the limitation to be an unconstitutional restriction of free speech. (In Tam, the Supreme Court found the restriction on registering disparaging marks to be unconstitutional.)

In this case, the USPTO is being represented by attorneys from the Department of Justice rather than the its own internal solicitors. The DOJ is considering requesting en banc rehearing and has now requested and received an extension to file its petition until February 12, 2018.

Following TAM, the Federal Circuit’s decision here almost has to be correct.  The one major caveat in my mind is the dicta statement that the PTO cannot even limit the registration of obscene marks.

We are all FUCT

R+L Carriers, Inc. v. Intermec Technologies Corp. (Supreme Court 2018)

In its newly filed petition, R+L asks the Supreme Court to add further depth to the abstract-idea analysis.  Namely, the the patentee asks whether Step 1 of Alice can be performed “without analyzing the requirements of the individual claim steps?” The petition also raises the important question of whether the eligibility analysis allows for any factual inquiry.

R+L’s patent No. 6,401,078 claims a self-identified business method “for transferring shipping documentation data:”

When using the business method claimed … drivers scan each customer’s shipping documents when they pick up the customer’s freight, and wirelessly transmit those documents from the truck to the terminal. Load planners then use the information from those documents, such as the freight’s destination, weight, contents and specific handling instructions, to prepare loading manifests for the freight’s further transport to its next destination.

The district court dismissed the infringement lawsuit against Intermic on summary judgment – holding that the ‘078 Patent is directed to an unpatentable abstract idea. On appeal, the Federal Circuit affirmed without opinion (R.36).

The petition’s main thrust follows:

The District Court’s decision in this case is emblematic of the results produced by the inconsistent and unpredictable application of § 101 precedent. Although the District Court concluded that the ‘078 Patent is directed to an abstract idea, it could not come up with a consistent characterization of what that abstract idea was. It variously described what it considered to be the abstract idea to which the representative claim was directed as (1) “creating an advance loading manifest”; (2) “the process of receiving transportation documentation and producing advance loading manifests therefrom”; (3) “getting shipping information to the load planners faster”; and (4) “it is even possible [that it is] … creating a loading manifest.”

The District Court’s confusion is the product of the contradictory direction by the Federal Circuit on how to determine what the claim is “directed to.” One panel said that courts should look to “capture … the ‘basic thrust’ of the Asserted Claims.” Synopsys Inc. (quoting BASCOM). Yet another panel stated that “courts ‘must be careful to avoid oversimplifying the claims’ by looking at them generally and failing to account for the specific requirements of the claims.” McRO.

Here, the District Court took the high-level approach of attempting to capture the basic thrust of the claims that the Synopsys panel endorsed. In doing so, it arrived at a characterization of the patent that could not be anything but an abstract idea. On the other hand, had the District Court viewed the claims as an ordered combination in accordance with the McRO directive, it would have seen that the patent is directed to a method that employs communication technology to transmit information about an incoming package so that outbound load planning for that package can be accomplished before the package arrives at the terminal. . . .  Since the ‘078 Patent does not merely recite a result, but rather a method with specific structure for achieving the method’s goal in a particular manner, it would have survived the eligibility challenge had the District Court followed the direction of the McRO panel rather than that of the Synopsys panel.

An incorrect characterization of what the claims are directed to has other consequences under Step 1 of the Alice test. Here, the District Court found that “preparing a loading manifest” is a conventional business practice because loading manifests existed before the application date of the ‘078 Patent. If that were an accurate characterization of the representative claim, then R+L would agree with the District Court’s conclusion. But if the District Court had taken into account the specific requirements of the claim and had avoided oversimplifying it, it would have had to find (at least on the summary judgment record before it) that the ‘078 Patent was not directed to “a fundamental economic practice long prevalent in our system of commerce[.]” While loading manifests themselves certainly existed before the ‘078 Patent, the undisputed evidence in the summary judgment record established that the particular method claimed in the patent did not.

R+L Petition.

by Dennis Crouch

Helsinn Healthcare v. Teva Pharmaceuticals (Fed. Cir. 2018).

Without open dissent, the Federal Circuit has denied Helsinn’s petition for en banc rehearing on the definition of “on sale” under the AIA-amended prior art statute 35 U.S.C. 102.

An invention that is “on sale” prior to the associated patent application’s critical filing date is not patentable. 35 U.S.C. 102.  Although the AIA used the same “on sale” wordage as pre-AIA 102(b), many (including the USPTO and US Government) believe that it should interpreted differently based upon the statutory change.  The particular question up for dispute is whether private and non-public offers-to-sell still serve as a bar to patentability post-AIA — or instead do sales activities only count as prior art if made available to the public. In Helsinn, the Federal Circuit did not fully answer this question since some information regarding Helsinn’s pre-filing sale had been made public.  Rather, Helsinn made the limited holding that “after the AIA, if the existence of the sale is public, the details of the invention need not be publicly disclosed in the terms of the sale.”

Helsinn petitioned for en banc rehearing and that petition has now been denied — setting up a likely petition for certiorari to the U.S. Supreme Court.

Apart from the direct Supreme Court challenge to Helsinn noted above, open questions remain as to (1) does a fully-secret sales offer count to bar a patent under section 102? (Imagine here an offer subject to a binding confidentiality agreement and that would be considered a trade secret); (2) Even if it serves as a bar to patentability under 102, to what extent does a secret sale count as “prior art” for obviousness purposes (rather than simply being a “bar” under 102)?

Judge O’Malley, who was also a member of the original Helsinn panel penned a solo concurring opinion explaining her view that the AIA “did not change longstanding precedent governing the on-sale bar.” The concurring opinion also attempts to highlight some mischaracterizations of the original Helsinn panel decision.

1. The original panel stated that “after the AIA, if the existence of the sale is public, the details of the invention need not be publicly disclosed in the terms of the sale.”  Judge O’Malley argues that this sentence does not mean that public announcement of a sale triggers the on-sale bar.  Rather the determination of whether an action is a sale (or offer) is based upon a multi-factor analysis that may be influenced by the public nature.
2. O’Malley also explained her view that supply-side arrangements can still avoid the on-sale bar if structured properly.
3. Finally, O’Malley argued that the Helsinn panel is consistent with the en banc MedCo decision.

HelsinnEnBancDenial.

Helsinn En Banc Status

Helsinn: Post-AIA Public Sales are Prior Art Even Without Disclosing the Invention

In addition to considering Prof. Holbrook’s work, folks digging deeper into the WesternGeco issues will also want to consider Prof. Kumar’s updated article titled Patent Damages Without Borders.  She explains:

In WesternGeco, the Federal Circuit held that patent holders who show infringement under § 271(f) of the Patent Act cannot recover foreign lost profits. . . . This interpretation severely limits the ability of district courts to make patent infringement victims whole. . . . By creating this bright-line rule, the Federal Circuit has unduly restricted the ability of patent holders to recover damages, including in cases where there is no other applicable law. This Article proposes that the Federal Circuit adopt a flexible test that balances prescriptive comity concerns with the United State’s interest in making victims of domestic patent infringement whole.

Guest post by Prof. Timothy Holbrook of Emory Law.  Professor Holbrook has written extensively on extraterritoriality and patents.  In the interest of full disclosure, he anticipates that this post will likely form the basis of an amicus brief.

Patent law remains hot at the Supreme Court.  The Court on January 14, 2018, agreed to review WesternGeco LLC v. ION Geophysical Corp.  WesternGeco joins two other patent cases at the Supreme Court (so far) for its October 2017 term.

WesternGeco is interesting because it is the third time in the since the October 2006 term that the Court has reviewed a fairly esoteric patent law provision, 35 U.S.C. § 271(f).  The Court addressed this provision in Microsoft Corp. v. AT & T Corp. and, just last term, in Life Technologies Corporation v. Promega Corporation. Section 271(f) creates a form of patent infringement that is extraterritorial in nature.  This provision makes a party liable for patent infringement when it exports all or a substantial portion of the components of the patented invention, or a component with no substantial non-infringing uses, where the party intends to assemble the invention outside of the United States.  Through the territorial nexus of supplying the components in the United States, the provision allows a patent owner to regulate foreign markets.

Given the extraterritorial nature of this provision, these cases fall into the line of cases at the Supreme Court addressing the extraterritorial reach of U.S. law generally, most recently in RJR Nabisco, Inc. v. European Community. The question in WesternGeco is different from all of these earlier patent and non-patent cases, however.  The issue is not liability but instead damages.  The question presented is “Whether the U.S. Court of Appeals for the Federal Circuit erred in holding that lost profits arising from prohibited combinations occurring outside of the United States are categorically unavailable in cases in which patent infringement is proven under 35 U.S.C. § 271(f)?”

WesternGeco is the third in a trilogy of cases from the Federal Circuit that grafted a strict territorial limit onto patent damages doctrine.  In two earlier cases, Power Integrations, Inc. v. Fairchild Semiconductor International, Inc. and Carnegie Mellon University v. Marvell Technology Group, Ltd., the Federal Circuit denied lost profits and a reasonable royalty, respectively, for foreseeable, overseas damages that arose from an act of domestic infringement.  Power Integreations and Carnegie Mellon both involved damages for infringement under 35 U.S.C. § 271(a), which requires the acts of infringement to take place within the United States.  The result of these casesis that the Federal Circuit created a regime of strict territoriality for patent infringement damages.

WesternGeco, therefore, reflects a direct challenge to this territorial regime.  In fact, the Solicitor General’s brief that recommended the Supreme Court take the case focused on all three of these cases, and not merely WesternGeco.  Indeed, there is a bit of dispute over how to correctly frame the questions presented, as highlighted earlier on this blog.  As such, the issue in WesternGeco bears some deconstruction to see what is truly at issue here.

The issue in WesternGeco presents two distinct, if related, issues: (1) does the presumption against extraterritoriality apply to damages and other remedial provisions generally and (2) what is the relationship between the proximate cause aspect of damages and extraterritoriality? Each of these issues bear further exploration.

Does the presumption against extraterritoriality apply to damages and other remedial provisions?  A threshold issue the Court should address is whether the presumption against extraterritoriality should apply to remedial provisions in a statute at all.  The Supreme Court has articulated a two-step process for assessing the extraterritorial reach of U.S. laws.  In RJR Nabisco, Inc. v. European Community, the Supreme Court formalized a two-step methodology for assessing the extraterritoriality reach of a statute.  At step one, a court asks “whether the presumption against extraterritoriality has been rebutted—that is, whether the statute gives a clear, affirmative indication that it applies extraterritorially.”  If the presumption has not been rebutted, a court continues to step two, where it determines the focus of the statute.  “If the conduct relevant to the statute’s focus occurred in the United States, then the case involves a permissible domestic application even if other conduct occurred abroad….”

The focus on conduct suggests that the concern is with liability, not remedies.   One could argue that the presumption should simply be inapplicable to damages.  If one follows RJR Nabisco’s two step analysis with respect to liability, then by definition there is no concern with extraterritoriality as it comes to remedies and damages.  As the petition for certiorari argued, requiring two-passes through the RJR Nabisco framework – one for liability and one for damages – should be unnecessary.  The Solicitor General’s brief implicitly makes this argument when it argues that background principles of proximate cause should govern the damages inquiry and not the presumption, although the Solicitor General also views the RJR Nabisco framework with being consistent with permitting the award of damages for the lost profits in this case.

The Supreme Court has never addressed whether the presumption applies to remedial provisions.  In order to address the question presented, it needs to explicitly consider whether the presumption applies to damages provisions separately from the related liability provisions in a given statute.  As Sapna Kumar recognized in a forthcoming piece, Patent Damages Without Borders, the Court in RJR Nabisco did apply the presumption twice to the same statute for the same acts in the case, suggesting that the presumption may apply to both substantive and remedial provisions of a statute separately. Consequently, WesternGeco takes on far greater significance, beyond patent law.

As I’ve argued in Boundaries, Extraterritoriality, and Patent Damages in the Notre Dame Law Review, I think the presumption should apply both to liability and to damages provisions.  The reason can be seen in the patent statute itself.  Section 284, the damages provision of the Patent Act, is silent as to any territorial limits.  Instead it refers only to “damages adequate to compensate for the infringement,” which means the provision is inextricably tethered to § 271’s definitions of infringement.  For § 271(a), there is a strict territorial requirement that the acts take place within the United States.  Such language shows the presumption has not been rebutted at step one of RJR Nabisco.  It also suggests the focus of the statute are acts within the United States, meaning that damages should be tied to those acts.  In contrast, § 271(f) satisfies RJR Nabisco’s first step because it is extraterritorial in nature.  Thus, in my view, lost profits should generally be available for infringement under that provision.  If a court declined to apply the presumption to damages, this differentiated outcome could be missed.

For example, in Carnegie Mellon, the infringing use of the patented method undisputedly was within the United States. If the presumption were applied only as to liability, then the issue of extraterritoriality in the case would would never present itself. The court would find liability then shift directly to remedies without pausing to consider extraterritoriality of the damages. If we take seriously the concern of the extraterritoriall reach of U.S. law, we should recognize that an award of damages can have similar effects as a finding of liability based on extraterritorial activity. Ultimately, the patent holder is attempting to regulate activity outside of the United States.

What is the relationship between proximate cause and territoriality?  Even if one disagrees with me and considers the presumption to be inapplicable to damages, it still is an open question as to the relationship between proximate cause and territoriality.

The Federal Circuit treated the two concepts as distinct.  In other words, even though the damages in the trilogy of cases were seemingly all foreseeable, the court nevertheless rejected extraterritorial damages.  The court viewed territoriality as an exogenous limit on damages.

But that need not be the case: perhaps foreseeability and territoriality are both part of the complex analysis involved in proximate cause.  Foreseeability, of course, is not necessarily the sine qua non of proximate cause.  The Federal Circuit articulated the foreseeability principle in its seminal en banc decision, Rite Hite Corp. v. Kelley Co., which held that patentees could recover the profits for lost sales of devices not covered by the patent.  But the court recognized that proximate cause is flexible policy lever: “the question of legal compensability is one ‘to be determined on the facts of each case upon mixed considerations of logic, common sense, justice, policy and precedent.”  Simply because certain damages may be foreseeable in an economic sense does not mandate that they should be recoverable as a matter of proximate cause in all circumstances.

As I suggested in Boundaries, Extraterritoriality, and Patent Damages, the presumption against extraterritoriality in the damages context could be considered part of the proximate cause analysis, even if the presumption does not apply to damages formally.  The impact of awarding damages for activity outside of the United States could properly be considered part of the “mixed considerations” involved in evaluating whether domestic acts of infringement are the proximate cause of damages arising outside of the United States.

Indeed, WesternGeco presents a fairly unique question of damages.  The lost profits sought are not for the lost sales of the patented invention.  Instead, the patentee is seeking profits for lost sales of services that use the patented invention.  Thus, there is an interesting proximate cause even absent any possible territorial limits on damages.

WesternGeco to some may appear to be a relatively unimportant case, with the Supreme Court addressing a seemingly narrow patent provision of little import.  Within patent law, however, WesternGeco portends some important elaborations of U.S. patent law with respect to the territorial limits on damages generally and potentially on proximate cause.  Additionally, the case likely will have significant repercussions for the Court’s development of the presumption against extraterritoriality more broadly because the Court will have to answer the question of whether the presumption applies to remedies.

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.

Lost Profits for Infringement Abroad

Register here.