Extraterritoriality and Proximate Cause After WesternGeco.

• Author: Holbrook, Timothy R.

INTRODUCTION I. SURVEILLANCE TECHNOLOGY, BOATS, AND THE HIGH SEAS A. Patent Damages and Territoriality B. The Supreme Court's Decision in WesternGeco II. WHAT WE DID LEARN FROM WESTERNGECO A. The Supreme Court Punts on Step One of RJR Nabisco B. The Court Offers Guidance as to Step Two's Focus, Making General Damages Provisions Dependent on How Liability is Defined Elsewhere in the Statute III. UNANSWERED QUESTIONS AND IMPLICATIONS A. Do Power Integrations, Carnegie Mellon, and Other Federal Circuit Decisions Survive WesternGeco? i. WesternGeco uses a different methodology of extraterritoriality analysis from that used by Power Integrations and Carnegie Mellon ii. Notwithstanding the Supreme Court's Decision in WesternGeco, the Federal Circuit's Denial of Damages in Power Integrations and Carnegie Mellon May Be Correct (and the Court's Other Case Law May Be Wrong) B. Should the Federal Circuit Reconsider the Role of Proximate Cause in Policing Damages? i. Commentator's Views on proximate cause in policing damages ii. The Federal Circuit's approach to proximate cause has undermined its usefulness as a limit on patent damages CONCLUSION INTRODUCTION

The Supreme Court's decision to review a case usually generates broad interest, at least within the substantive area of law in the case. Some of these cases, like Employee Retirement Income Security Act (ERISA) cases, may not grab national headlines, but they nevertheless are important. (1)

The same can be said for patent law. Occasional patent cases at the Supreme Court can garner attention in the general population and popular media. (2) Generally, though, the average American may not be concerned with whether, for example, the construction of a term in a patent claim contains factual issues (3) or what the appropriate standard of enhancing patent damages should be. (4) Within the patent field, however, any action by the Court garners the attention of patent attorneys and litigators.

In recent years, the Supreme Court has taken a keen interest in patent law, taking forty-eight cases relating to patent law since 2000. (5) At times, the issue in a given case transcends patent law, such as setting the standard for the grant of a permanent injunction (6) or exploring the scope of jurisdiction under the Declaratory Judgment Act. (7) Indeed, Professor Tejas Narechania suggests that such "field splits" --where the same doctrine is treated inconsistently in different substantive areas--may be what is triggering Supreme Court review in a number of patent cases. (8)

On first look, the Supreme Court's decision to review WesternGeco LLC v. ION Geophysical Corp. may have seemed of little interest to anyone outside of patent law (and perhaps to many inside patent law). (9) The case involved the award of damages for a rather unique infringement provision of U.S. patent law, 35 U.S.C. [section] 271(f), dealing with certain acts of exportation from the United States. Although the United States recommended that the Supreme Court take the case, (10) many considered the issue in WesternGeco to be rather narrow.

In reality, the case involved three intersecting areas of law, as depicted in the below Venn diagrams. The case potentially presented an issue of a field split. Minimally, the case involved a trifecta of issues that go beyond the narrow issue of section 271(f)(2) infringement damages.

The case presented the issue of compensatory damages under section [section] 284 of the Patent Act and was the Supreme Court's first decision to assess the nature of patent infringement damages directly. Section 284 entitles a patent owner to "damages adequate to compensate for the infringement." (11) The Supreme Court, prior to WesternGeco, had never squarely addressed the compensatory nature of this provision; (12) instead the Court only had discussed section 284 in the context of the appropriate standard for awarding pre-judgment interest. (13)

The damages awarded in WesternGeco involved activities outside of the United States. As such, the case also implicated the presumption against extraterritoriality. That presumption operates to limit the reach of U.S. laws to acts within U.S. territories absent a clear signal from Congress. (14) The Supreme Court has taken a renewed interest in the presumption in recent years, culminating in the Court's decision RJR Nabisco, Inc. v. European Community. (15) The Court in RJR Nabisco formally adopted a two-step methodology for assessing whether a statute can reach activity outside of the United States. (16) Step one entails an assessment of whether the presumption against extraterritoriality has been rebutted by "a clear, affirmative indication that [the statute] applies extraterritorially." (17) If not, then step two requires a court to determine 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." (18)

WesternGeco presented an interesting extraterritorial issue: does the presumption against extraterritoriality and the RJR Nabisco framework apply to remedial provisions such as section 284, or is it limited to liability and jurisdiction? In other words, if a court were to conclude that the statute had extraterritorial reach on the liability side, would the issue of extraterritoriality be irrelevant to whether damages are available for foreign activity? Or instead, would a court need to address the presumption at both stages of liability and remedial provisions, like a two-pass filter? WesternGeco at the Federal Circuit (19) was part of a trilogy of decisions, including Power Integrations, Inc. v. Fairchild Semiconductor International, Inc. (20) and Carnegie Mellon University v. Marvell Technology Group, Ltd. (21) all of which rejected global damages awards, although Power Integrations Carnegie Mellon dealt with damages under 35 U.S.C. [section] 271(a). (22) Before WesternGeco, the Supreme Court had not addressed the applicability of the presumption to remedial provisions, making this case important for the Court's extraterritoriality jurisprudence.

Finally, the case also presented an interesting issue of proximate cause with respect to damages. The proximate cause issue in the case was two-fold. First, the damages arose from acts outside of the United States. The case, therefore, presented the intersection of proximate cause and territoriality. In other words, is the presumption against extraterritoriality distinct from proximate cause, or should concerns of extraterritoriality be folded into the proximate cause analysis? Second, the damages at issue in the case were not for sales of the invention itself; instead, they were for lost sales of services to use the patented invention. Such harm is more remote than sales of the invention itself, creating an issue of proximate cause.

WesternGeco, as a result, had the potential to be a sweeping opinion, reaching into a variety of distinct aspects of judicial doctrine. It was not a minor case about a somewhat esoteric patent infringement provision. Ultimately, the Supreme Court's decision in the case was relatively narrow and avoided many of these broader implications. While narrow, however, the decision did answer a few questions and provided some insights into others.

This Article explores the implications of the WesternGeco decision for patent law and beyond. Part I offers a summary of the case, its briefing, and then the Supreme Court's holding. Part II explores the questions that the Court did answer. In particular, it discusses the implications of the Court's skipping step one of the RJR Nabisco framework. That Part also discusses what the Supreme Court clarified with its step two analysis. Importantly, the Court made clear that the extraterritorial reach of a general remedy provision depends upon the corresponding liability provision. Part III turns to the questions left open by the Court and how courts in future cases may address those gaps. Specifically, Part III interrogates whether the Federal Circuit's Power Integrations and Carnegie Mellon decisions survive WesternGeco. I contend that they do. Section III then discusses the important role that proximate cause may play in future patent cases, particularly those involving global theories of damages. The Article then concludes. 23

1. SURVEILLANCE TECHNOLOGY, BOATS, AND THE HIGH SEAS

   1. Patent Damages and Territoriality

      The technology in WesternGeco involved "marine seismic streamer technology ... deployed behind ships [that] use acoustic signals and sensors to create three-dimensional maps of the subsurface of the ocean floor in order to facilitate natural resource exploration and management." (23) WesternGeco sued ION Geophysical Corporation ("ION") in the Southern District of Texas, alleging that ION infringed four of its U.S. patents on this technology. (24) In 2007, ION began selling a competing system by manufacturing the components of the patented article in the United States, then shipping them to companies abroad for use on the high seas, outside of any single country's jurisdiction. (25) Once assembled ION's version of the competing system provided services that were indistinguishable from those provided by WesternGeco's patented article.

      At trial, the jury concluded that ION had infringed four WesternGeco patents. (26) WesternGeco provided evidence that it had lost ten survey contracts due to ION's infringement. A jury found that ION had infringed under section 271(f)(2) and awarded WesternGeco $93.4 million in lost profits for lost foreign sales under 35 U.S.C. [section] 284, as well as a reasonable royalty of $12.5 million for the lost patented article.

      The district court denied ION's motion for judgement as a matter of law on a variety of grounds. The court rejected ION's argument that it lacked the requisite intent required for infringement under section 271(f)(2) because the...