WesternGeco LLC v. Ion Geophysical Corp. (Supreme Court Decision – June 22, 2018)

Our previous post concerning this matter only touched upon the extraterritorial application of patent damages because we expected that issue would be dealt with more fully in the future.  That future is now our present!

The Supreme Court ruled that WesternGeco could receive lost profits based upon extraterritorial infringement of a U.S. patent.

WesternGeco represents itself to be a company which, “collaborates with you at every stage of the E&P life cycle to accelerate your discoveries in basins spanning the globe. From derisking prospects to optimizing reservoir monitoring, we have the expertise, digital capabilities, and seismic data to help you get to first oil faster and maximize your recoveries.”  In plain English, the company makes big equipment used to find and recover oil and offers services towards those ends.  Ion Geophysical appears to do the same thing.

The Supreme Court summarized the dispute between the two competitors as follows:

The Supreme Court pointed to a two-factor test. The first factor is “whether the presumption against extraterritoriality has been rebutted.” In this matter, however, the Court sidestepped the first factor, observing, “While ‘it will usually be preferable’ to begin with step one, courts have the discretion to begin at step two ‘in appropriate cases.'”

The second factor is “the [284] statute’s focus,” concerning which the majority concludes:

What fascinates A2C about this case is the dissenting opinion written by Justice Gorsuch and joined by Justice Breyer.  In that dissent, Justice Gorsuch argues that the ruling on lost profits may prove to have reverberations throughout the global patent system and may result in other countries attempting to assert foreign patents in the United States.  Justice Gorsuch writes, “Permitting damages of this sort would effectively allow U.S. patent owners to use American courts to extend their monopolies to foreign markets.  That, in turn, would invite other countries to use their own patent laws and courts to assert control over our economy.”

Justice Gorsuch’s primary basis for dissent is the notion that U.S patent infringement outside of the United States does not exist.  Products assembled abroad and put to use in a manner in line with claims of a United States patent does not constitute infringement because, by definition, infringement cannot occur outside of the United States:

Citing General Motors Corp. v. Devex Corp., Justice Gorsuch argues that the majority opinion on this matter would put “the patent owner in a better position than it was before by allowing it to demand monopoly rents outside the United States as well as within.” Justice Thomas rebutted this view for the majority by stating that the dissent, “wrongly conflates legal injury with the damages arising from that injury.”  Citing to General Motors again, he wrote:

 

Dowagiac Manufacturing v. Minnesota Moline Plow Co. (Supreme Court Decided January 1915)

Approximately 103 years ago (almost to the day), the Supreme court issued an opinion which we believe remains relevant.  The opinion will likely be cited frequently this year in light of the Supreme Court’s future Westerngeco opinion (which we will hopefully read in June 2018), as well as in light of recent opinions regarding patent damages and apportionment.

This case has it all.  Consider the following quotations by topic:

On foreign sales:  Some of the drills, about 261, sold by the defendants, were sold in Canada, no part of the transaction occurring within the United States, and as to them there could be no recovery of either profits or damages. The right conferred by a patent under our law is confined to the United States and its territories (Rev. Stat. § 4884, Comp. Stat. 1913, § 9428), and infringement of this right cannot be predicated of acts wholly done in a foreign country.

Georgia Pacific Factor #1: So, had the plaintiff pursued a course of granting licenses to others to deal in articles embodying the invention, the established royalty could have been proved as indicative of the value of what was taken, and therefore as affording a basis for measuring the damages.

Georgia Pacific Factor #13: We think the evidence, although showing that the invention was meritorious and materially contributed to the value of the infringing drills as marketable machines, made it clear that their value was not entirely attributable to the invention, but was due in a substantial degree to the unpatented parts or features.

Apportionment: But as the drills were sold in completed and operative form, the profits resulting from the several parts were necessarily commingled. It was essential, therefore, that they be separated or apportioned between what was covered by the patent and what was not covered by it; for, as was said in Westinghouse Electric & Mfg. Co. v. Wagner Electric & Mfg. Co. supra (p. 615): ‘In such case, if plaintiff’s patent only created a part of the profits, he is only entitled to recover that part of the net gains.’

Georgia-Pacific Factor #15 or Profits for reasonable royalty damages: Of course, the result to be accomplished is a rational separation of the net profits so that neither party may have what rightfully belongs to the other, and it is important that the accounting be so conducted as to secure this result, if it be reasonably possible. As was said in Tilghman v. Proctor, 125 U. S. 136, 145, 31 L. ed. 664, 667, 8 Sup. Ct. Rep. 894: ‘It is inconsistent with the ordinary principles and practice of courts of chancery, either, on the one hand, to permit the wrongdoer to profit by his own wrong, or, on the other hand, to make no allowance for the cost and expense of conducting his business, or to undertake to punish him by obliging him to pay more than a fair compensation to the person wronged.’

Early Panduit or Lost profits proof: While the number of drills sold by the defendants was shown, there was no proof that the plaintiff thereby lost the sale of a like number of drills or of any definite or even approximate number. During the period of infringement several other manufacturers were selling drills in large numbers in the same localities in direct competition with the plaintiff’s drill, and under the evidence it could not be said that, if the sales in question had not been made, the defendants’ customers would have bought from the plaintiff rather than from the other manufacturers. Besides, it did not satisfactorily appear that the plaintiff possessed the means and facilities requisite for supplying the demands of its own customers and of those who purchased the infringing drills. There was therefore no adequate basis for an assessment of damages upon the ground of lost sales.

It is fun to see that a case over 100 years old may be so relevant.