Friday 22 June 2018

Making Patents Great Again: U.S. Supreme Court Allows Foreign Lost Profits for Infringement Under 271(f)(2)

The U.S. Supreme Court (Justice Thomas) issued the opinion in WesternGenco v. Ion concerning the availability of foreign profits as part of damages under section 284 of the Patent Act.  The U.S. Supreme Court basically holds that section 284 includes lost foreign profits—at least as a remedy to an infringement under 271(f)(2).  Essentially, WesternGenco owns patents directed “to a system that it developed for surveying the ocean floor” and does not license the patents.  ION “manufactured the components for [a] competing system and then shipped them to companies abroad.”  Western Genco sued for patent infringement under 271(f)(1) and (2).  The jury “awarded WesternGenco damages of $12.5 million in royalties and $93.4 million in lost profits.”  ION asserted that the lost profits are unavailable to WesternGenco because “271(f) does not apply extraterritorially.”  The Federal Circuit reversed and “had previously held that 271(a), the general infringement provision, does not allow patent owners to recover for lost foreign sales.”  The U.S. Supreme Court reverses the Federal Circuit.  

In deciding whether section 284 (in conjunction with 271(f)(2)) applies extraterritorially, the Court examined the focus of the statute(s):

“If the conduct relevant to the statute’s focus occurred in the United States, then the case involves a permissible domestic application” of the statute, “even if other conduct occurred abroad.”  RJR Nabisco, 579 U. S., at ___ (slip op., at 9).  But if the relevant conduct occurred in another country, “then the case involves an impermissible extraterritorial application regardless of any other conduct that occurred in U. S. territory.” Ibid.

When determining the focus of a statute, we do not analyze the provision at issue in a vacuum. See Morrison, supra, at 267–269.  If the statutory provision at issue works in tandem with other provisions, it must be assessed in concert with those other provisions. Otherwise, it would be impossible to accurately determine whether the application of the statute in the case is a “domestic application.” RJR Nabisco, 579 U. S., at ___ (slip op., at 9). And determining how the statute has actually been applied is the whole point of the focus test.  See ibid.

Applying these principles here, we conclude that the conduct relevant to the statutory focus in this case is domestic. We begin with §284.  It provides a general damages remedy for the various types of patent infringement identified in the Patent Act. The portion of §284 at issue here states that “the court shall award the claimant damages adequate to compensate for the infringement.” We conclude that “the infringement” is the focus of this statute. As this Court has explained, the “overriding purpose” of §284 is to “affor[d] patent owners complete compensation” for infringements.  General Motors Corp. v. Devex Corp., 461 U. S. 648, 655 (1983).  “The question” posed by the statute is “‘how much ha[s] the Patent Holder . . . suffered by the infringement.’” Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U. S. 476, 507 (1964). Accordingly, the infringement is plainly the focus of §284. But that observation does not fully resolve this case, as the Patent Act identifies several ways that a patent can be infringed. See §271. To determine the focus of §284 in a given case, we must look to the type of infringement that occurred. We thus turn to §271(f)(2), which was the basis for WesternGeco’s infringement claim and the lost-profits damages that it received. 

Section 271(f)(2) focuses on domestic conduct.  It provides that a company “shall be liable as an infringer” if it “supplies” certain components of a patented invention “in or from the United States” with the intent that they “will be combined outside of the United States in a manner that would infringe the patent if such combination occurred within the United States.”  The conduct that §271(f)(2) regulates—i.e., its focus—is the domestic act of “suppl[ying] in or from the United States.” As this Court has acknowledged, §271(f) vindicates domestic interests: It “was a direct response to a gap in our patent law,” Microsoft Corp., 550 U. S., at 457, and “reach[es] components that are manufactured in the United States but assembled overseas,” Life Technologies, 580 U. S., at ___ (slip op., at 11). As the Federal Circuit explained, §271(f)(2) protects against “domestic entities who export components . . . from the United States.”  791 F. 3d, at 1351.

In sum, the focus of §284, in a case involving infringement under §271(f)(2), is on the act of exporting components from the United States. In other words, the domestic infringement is “the objec[t] of the statute’s solicitude” in this context. Morrison, 561 U. S., at 267.  The conduct in this case that is relevant to that focus clearly occurred in the United States, as it was ION’s domestic act of supplying the components that infringed WesternGeco’s patents. Thus, the lost-profits damages that were awarded to WesternGeco were a domestic application of §284. 

Interestingly, the Court notes that it specifically does not address whether other doctrines such as proximate cause may limit damages under its decision.  Justice Gorsuch authored a dissent which was joined by Justice Breyer.  Justice Thomas addresses their dissent by stating:

Two of our colleagues contend that the Patent Act does not permit damages awards for lost foreign profits.  Post, at 1 (GORSUCH, J., joined by BREYER, J., dissenting). Their position wrongly conflates legal injury with the damages arising from that injury. See post, at 2–3.  And it is not the better reading of “the plain text of the Patent Act.” Post, at 9.  Taken together, §271(f)(2) and §284 allow the patent owner to recover for lost foreign profits. Under §284, damages are “adequate” to compensate for infringement when they “plac[e] [the patent owner] in as good a position as he would have been in” if the patent had not been infringed.  General Motors Corp., supra, at 655. Specifically, a patent owner is entitled to recover “‘the difference between [its] pecuniary condition after the infringement, and what [its] condition would have been if the infringement had not occurred.’” Aro Mfg. Co., supra, at 507. This recovery can include lost profits. See Yale Lock Mfg. Co. v. Sargent, 117 U. S. 536, 552–553 (1886). And, as we hold today, it can include lost foreign profits when the patent owner proves infringement under §271(f)(2). 

The opinion is available, here. 

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