WesternGeco – Impacts Lost Profits Beyond 35 U.S.C. 271(f) Infringement

August 6, 2018

      The Supreme Court found Ion Geophysical Corp. (Ion) responsible for profits WesternGeco LLC. lost as a result of Ion’s supplying to foreign buyers the parts necessary to assemble the patented ocean floor surveying equipment.  WesternGeco’s damages claim included a request for the lost profits of its foreign surveying business caused by Ion’s 35 U.S.C. § 271(f) infringement.  The Federal Circuit has denied these profits because, in its opinion, it would extend U.S. patent protection to foreign activities.  The Supreme Court disagreed not with the concept that U.S. patent laws did not extend to foreign activities but because of the patent damages statute, 35 U.S.C. § 284 which provided:

Upon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement

           The Court recognized that this is a tort damage provision where the tort occurred in the United States:

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.

The Court in footnote 3 confirmed the tort nature of the damage relief:

In reaching this holding, we do not address the extent to which other doctrines, such as proximate cause, could limit or preclude damages in particular cases.

           Proximate cause is on factor in determining whether to grant damages for a tort or not. See Palsgraf v. Long Island Railroad Co., 248 N.Y. 339, 162 N.E. 99 (1928).  The tort focus of the Court’s decision calls into question the validity of the Federal Circuit’s limitation on damages in Rite-Hite Corp. V. Kelley Co., Inc., 56 F.3d 1538, 1550, 1551, en banc, (Fed. Cir.1995).  In Rite-Hite the Federal Circuit denied recovery for the lost sales on dock levelers because the unpatented components did not function together with the patented ones.  The Federal Circuit did not challenge the district court’s findings that Rite-Hite would have made the sales but for Kelley’s infringement.  In doing so the Federal Circuit ignored the Supreme Court’s admonishment in General Motors Corp. v. Devex Corp., 461 U. S. 648, 655 (1983), repeated approvingly in WesternGeco:

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).

           If one applies the Court’s reasoning in WesternGeco, damages for the unpatented dock levelers should have been allowed since the sales were lost as a result of the tort, the infringement.  The loss of these sales were both proximately caused by and reasonably foreseeable from the infringement.  This is consistent with legislative history of § 284 which provides (1946) “the Bill was intended to allow recovery of "any damages the complainant can prove.” H.R.Rep. No.1587, 79th Cong., 2d Sess., 1.

      Similarly, if the infringement occurs in the U.S. and injury is proximately caused by the infringement, then damages should be available for any injury caused by the infringement, the tort,  whether the injury occurred in the U.S. or in a foreign jurisdiction.  It should not matter under which section of § 271 the infringement occurs, the patentee is entitled to full compensation for the damages caused by the infringement wherever the damage occurs.  Thus, if a foreign company induces infringement, § 271(b), of a U.S. patent which causes the patentee injury, the patentee is entitled to compensation from the foreign inducer where the infringing acts of the domestic direct infringer resulted in injury to the patentee anywhere in the world. The only requirement once infringement in the U.S. has been proven is whether the resulting damages were proximately caused by the infringement.

      It is time the Federal Circuit recognized the full breadth of § 284.