U.s. Supreme Court Allows Lost Profits on Worldwide Sales for Patent Infringement Under 35 Usc Section 271(f)

• Publication year: 2018
• Author: Jaideep Venkatesan

U.S. Supreme Court Allows Lost Profits on Worldwide Sales for Patent Infringement Under 35 USC Section 271(F)

Jaideep Venkatesan

Bergeson, LLP

In a rare victory for patent owners, the Supreme Court expanded the reach of damages in WesternGeco v. ION Geophysical Corp.,¹ finding that plaintiffs can recover lost profits based on the worldwide sales of companies liable for infringement under 35 U.S.C. § 271(f) of U.S. patent law. Section 271(f) was enacted decades ago to make companies liable for exporting components of a patented invention that are combined overseas into an infringing product. The Federal Circuit rejected the patentee's claim that it should recover its lost profits based on the overseas sales the defendant had made of its infringing product, finding that the judicial presumption against extraterritoriality applied absent clear congressional intent to allow damages based on foreign conduct. In reversing the Federal Circuit, the Court avoided the broader question of the extraterritorial reach of damages provisions within statutes that have extraterritorial effect, instead finding that the infringer's conduct was essentially domestic and thus lost profits recoverable. Though limited to a less commonly used provision of U.S. patent law, the Court's ruling increased damages exposure for companies who operate in global supply chains and seek to shield foreign use of their products from U.S. patents.

U.S. PATENT LAW'S LIMITED GLOBAL REACH

The majority of patent litigation is under 35 U.S.C. § 271(a), a strict liability provision that prohibits direct infringement by one who makes, uses, sells, offers to sell or imports into the United States products that infringe another's patent. By its terms, section 271(a) applies only to infringement that occurs within the U.S. Until 1984, companies that made, used, or sold product overseas were immune from U.S. patent law.² Patentees with claims of infringement based on conduct occurring within another country's jurisdiction had recourse only under that country's patent laws.

That changed when Congress enacted 28 U.S.C. §§ 271(f) as part of the Patent Law Amendments Act of 1984. Section 271(f) establishes liability for a party that supplies components of a patented invention out of the U.S., that when combined infringe the patent. Unlike section 271(a), section 271(f) requires knowledge of the patent and intent to infringe. Section 271(f)(1) prohibits the supply of components outside of the United States such that the combination of those components would infringe the patent if the components were combined in the United States. Section 271(f)(2) establishes liability for one who supplies from the United States any component of a patented invention that is especially made or adapted for use in a patented invention that is not a staple article or commodity suitable for substantial noninfringing use, intending that the component would be combined outside the United States in a manner that would infringe the patent if such combination occurred in the United States.

Congress enacted section 271(f) in reaction to the Supreme Court's decision Deepsouth Packing Co. v. Laitram Corp.,³ which rejected a patentee's claim against a company that supplied components of a product that it knew infringed the plaintiff's patent to foreign buyers, who assembled the components and sold them abroad. The Court held that absent congressional intent courts could not stop the export of components of an infringing product to be combined and sold abroad.⁴ Congress responded by creating such liability by enacting section 271(f). Section 271(f) did not make worldwide patent infringement coterminous with direct infringement in the U.S., a strict liability tort. Rather, section 271(f) was self-consciously modeled on 35 U.S.C. § 271(b) (inducement of infringement) and 35 U.S.C. § 271(c) (contributory infringement), which require a defendant to know of and intend the infringement. Section 271(f) thus expanded liability for patent infringement to include some overseas conduct. The Court has construed section 271(f) narrowly, however, limiting its reach as commerce has become increasingly global. For example, in the software context, the Court refused to find liable a company that exports a master software application that is copied and sold overseas, finding that the export of the master does not constitute exporting of a component of a product that is combined overseas in a manner that infringes section...