WesternGeco LLC v. ION Geophysical Corp.
WesternGeco LLC v. ION Geophysical Corp.
Opinion
Under the Patent Act, a company can be liable for patent infringement if it ships components of a patented invention overseas to be assembled there. See
I
The Patent Act gives patent owners a "civil action for infringement." § 281. Section 271 outlines several types of infringement. The general infringement provision, § 271(a), covers most infringements that occur "within the United States." The subsection at issue in this case, § 271(f), "expands the definition of infringement to include supplying from the United States a patented invention's components."
Microsoft Corp. v. AT & T Corp.,
"Whoever without authority supplies or causes to be supplied in or from the United States all or a substantial portion of the components of a patented invention, where such components are uncombined in whole or in part, in such manner as to actively induce the combination of such components outside of the United States in a manner that would infringe the patent if such combination occurred within the United States, shall be liable as an infringer."
*2135 Section 271(f)(2), the provision at issue here, addresses the act of exporting components that are specially adapted for an invention:
"Whoever without authority supplies or causes to be supplied in or from the United States any component of a patented invention that is especially made or especially adapted for use in the invention and not a staple article or commodity of commerce suitable for substantial noninfringing use, where such component is uncombined in whole or in part, knowing that such component is so made or adapted and intending that such component will be combined outside of the United States in a manner that would infringe the patent if such combination occurred within the United States, shall be liable as an infringer."
Patent owners who prove infringement under § 271 are entitled to relief under § 284, which authorizes "damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer."
II
Petitioner WesternGeco LLC owns four patents relating to a system that it developed for surveying the ocean floor. The system uses lateral-steering technology to produce higher quality data than previous survey systems. WesternGeco does not sell its technology or license it to competitors. Instead, it uses the technology itself, performing surveys for oil and gas companies. For several years, WesternGeco was the only surveyor that used such lateral-steering technology.
In late 2007, respondent ION Geophysical Corporation began selling a competing system. It manufactured the components for its competing system in the United States and then shipped them to companies abroad. Those companies combined the components to create a surveying system indistinguishable from WesternGeco's and used the system to compete with WesternGeco.
WesternGeco sued for patent infringement under §§ 271(f)(1) and (f)(2). At trial, WesternGeco proved that it had lost 10 specific survey contracts due to ION's infringement. The jury found ION liable and awarded WesternGeco damages of $12.5 million in royalties and $93.4 million in lost profits. ION filed a post-trial motion to set aside the verdict, arguing that WesternGeco could not recover damages for lost profits because § 271(f) does not apply extraterritorially. The District Court denied the motion.
On appeal, the Court of Appeals for the Federal Circuit reversed the award of lost-profits damages.
WesternGeco LLC v. ION Geophysical Corp
.,
On remand, the panel majority reinstated the portion of its decision regarding the extraterritoriality of § 271(f).
III
Courts presume that federal statutes "apply only within the territorial jurisdiction of the United States."
Foley Bros., Inc. v. Filardo,
This Court has established a two-step framework for deciding questions of extraterritoriality. The first step asks "whether the presumption against extraterritoriality has been rebutted."
RJR Nabisco, Inc. v. European Community,
579 U.S. ----, ----,
We resolve this case at step two. While "it will usually be preferable" to begin with step one, courts have the discretion to begin at step two "in appropriate cases." See
id.,
at ----, n. 5, 136 S.Ct., at 2101, n. 5 (citing
Pearson v. Callahan,
A
Under the second step of our framework, we must identify "the statute's 'focus.' "
RJR Nabisco, supra,
at ----, 136 S.Ct., at 2101. The focus of a statute is "the objec[t] of [its] solicitude," which can include the conduct it "seeks to 'regulate,' " as well as the parties and interests it "seeks to 'protec[t]' " or vindicate.
Morrison,
When determining the focus of a statute, we do not analyze the provision at issue in a vacuum. See
Morrison,
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.,
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. 2
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
*2138
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.,
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,
B
ION's arguments to the contrary are not persuasive. ION contends that the statutory focus here is "self-evidently on the award of damages." Brief for Respondent 22. While § 284 does authorize damages, what a statute authorizes is not necessarily its focus. Rather, the focus is "the objec[t] of the statute's solicitude"-which can turn on the "conduct," "parties," or interests that it regulates or protects.
Morrison,
ION also draws on the conclusion in
RJR Nabisco
that "RICO damages claims" based "entirely on injury suffered abroad" involve an extraterritorial application of
Two of our colleagues contend that the Patent Act does not permit damages awards for lost foreign profits. Post, at 2139 (GORSUCH, J., joined by BREYER, J., dissenting). Their position wrongly conflates legal injury with the damages arising from that injury. See post, at 2139 - 2140. And it is not the better reading of "the plain text of the Patent Act."
*2139
Post,
at 2143. 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,
We hold that WesternGeco's damages award for lost profits was a permissible domestic application of § 284. The judgment of the Federal Circuit is reversed, and the case is remanded for further proceedings consistent with this opinion.
It is so ordered.
Justice GORSUCH, with whom Justice BREYER joins, dissenting.
The Court holds that WesternGeco's lost profits claim does not offend the judicially created presumption against the extraterritorial application of statutes. With that much, I agree. But I cannot subscribe to the Court's further holding that the terms of the Patent Act permit awards of this kind. In my view the Act's terms prohibit the lost profits sought in this case, whatever the general presumption against extraterritoriality applicable to all statutes might allow. So while the Federal Circuit may have relied in part on a mistaken extraterritoriality analysis, I respectfully submit it reached the right result in concluding that the Patent Act forecloses WesternGeco's claim for lost profits.
The reason is straightforward. A U.S. patent provides a lawful monopoly over the manufacture, use, and sale of an invention within this country only. Meanwhile, WesternGeco seeks lost profits for uses of its invention beyond our borders. Specifically, the company complains that it lost lucrative foreign surveying contracts because ION's customers used its invention overseas to steal that business. In measuring its damages, WesternGeco assumes it could have charged monopoly rents abroad premised on a U.S. patent that has no legal force there. 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. Nothing in the terms of the Patent Act supports that result and much militates against it.
Start with the key statutory language. Under the Patent Act, a patent owner enjoys "the right to exclude others from making, using, offering for sale, or selling the invention
throughout the United States
."
These principles work their way into the statutory measure of damages too. A patent owner who proves infringement is entitled to receive "damages adequate to compensate for the infringement ." § 284 (emphasis added). Because an infringement must occur within the United States, that means a plaintiff can recover damages for the making, using, or selling of its invention within the United States, but not for the making, using, or selling of its invention elsewhere.
What's the upshot for our case? The jury was free to award WesternGeco royalties for the infringing products ION produced in this country; indeed, ION has not challenged that award either here or before the Federal Circuit. If ION's infringement had cost WesternGeco sales in this country, it could have recovered for that harm too. At the same time, WesternGeco is not entitled to lost profits caused by the use of its invention outside the United States. That foreign conduct isn't "infringement" and so under § 284's plain terms isn't a proper basis for awarding "compensat[ion]." No doubt WesternGeco thinks it unfair that its invention was used to compete against it overseas. But that's simply not the kind of harm for which our patent laws provide compensation because a U.S. patent does not protect its owner from competition beyond our borders.
This Court's precedents confirm what the statutory text indicates. In
Brown v. Duchesne,
Other precedents offer similar teachings. In
Birdsall v. Coolidge,
This Court's leading case on lost profit damages points the same way. In
Yale Lock Mfg. Co. v. Sargent,
You might wonder whether § 271(f)(2) calls for a special exception to these general principles. WesternGeco certainly thinks it does. It's true, too, that § 271(f)(2) expressly refers to foreign conduct. The statute says that someone who exports a specialized component, "intending that [it] will be combined outside of the United States in a manner that would infringe the patent if such combination occurred within the United States, shall be liable as an infringer." From this language, you might wonder whether § 271(f)(2) seeks to protect patent owners from the foreign conduct that occurred in this case.
It does not. Section 271(f)(2) modifies the circumstances when the law will treat an invention as having been made within the United States. It permits an infringement claim-and the damages that come with it-not only when someone produces the complete invention in this country for export, but also when someone exports key components of the invention for assembly aboard. A person who ships components from the United States intending they be assembled across the border is "liable" to the patent owner for royalties and lost profits the same as if he made the entire invention here. § 271(f)(2). But none of this changes the bedrock rule that foreign uses of an invention (even an invention made in this country) do not infringe a U.S. patent. Nor could it. For after § 271(f)(2)'s adoption, as before, patent *2142 rights exclude others from making, using, and selling an invention only "throughout the United States." § 154(a)(1).
The history of the statute underscores the point. In
Deepsouth Packing Co. v. Laitram Corp.,
Any suggestion that § 271(f)(2) provides protection against foreign uses would also invite anomalous results. It would allow greater recovery when a defendant exports a
component
of an invention in violation of § 271(f)(2) than when a defendant exports the
entire
invention in violation of § 271(a). And it would threaten to " 'conver[t] a single act of supply from the United States into a springboard for liability.' "
Microsoft Corp. v. AT & T Corp.,
Even more dramatic examples are not hard to imagine. Suppose a company develops a prototype microchip in a U.S. lab with the intention of manufacturing and selling the chip in a foreign country as part of a new smartphone. Suppose too that the chip infringes a U.S. patent and that the patent owner sells its own phone with its own chip overseas. Under the terms of the Patent Act, the developer commits an act of infringement by creating the prototype here, but the additional chips it makes and sells outside the United States do not qualify as infringement. Under WesternGeco's approach, however, the patent owner could recover any profits it lost to that foreign competition-or even three times as much, see § 284 -effectively giving the patent owner a monopoly over foreign markets through its U.S. patent.
*2143
That's a very odd role for U.S. patent law to play in foreign markets, as "foreign law alone, not United States law," is supposed to govern the manufacture, use, and sale "of patented inventions in foreign countries."
Microsoft, supra, at 456,
Worse yet, the tables easily could be turned. If our courts award compensation to U.S. patent owners for foreign uses where our patents don't run, what happens when foreign courts return the favor? Suppose our hypothetical microchip developer infringed a foreign patent in the course of developing its new chip abroad, but then mass produced and sold the chip in the United States. A foreign court might reasonably hold the U.S. company liable for infringing the foreign patent in the foreign country. But if it followed WesternGeco's theory, the court might then award monopoly rent damages reflecting a right to control the market for the chip in
this
country-even though the foreign patent lacks any legal force here. It is doubtful Congress would accept that kind of foreign "control over our markets."
Deepsouth, supra, at 531,
Today's decision unfortunately forecloses further consideration of these points. Although its opinion focuses almost entirely on why the presumption against extraterritoriality applicable to all statutes does not forbid the damages sought here, the Court asserts in a few cursory sentences that the Patent Act by its terms allows recovery for foreign uses in cases like this. See
ante,
at 2138 - 2139. In doing so, the Court does not address the textual or doctrinal analysis offered here. It does not explain why "damages adequate to compensate
for the infringement
" should include damages for harm from
noninfringing
uses. § 284 (emphasis added). It does not try to reconcile its holding with the teachings of
Duchesne, Birdsall,
and
Yale Lock
. And it ignores
Microsoft
's admonition that § 271(f)(2) should not be read to create springboards for liability based on foreign conduct. Instead, the Court relies on two cases that do not come close to supporting its broad holding. In
General Motors Corp. v. Devex Corp.,
By failing to heed the plain text of the Patent Act and the lessons of our precedents, the Court ends up assuming that patent damages run (literally) to the ends of the earth. It allows U.S. patent owners *2144 to extend their patent monopolies far beyond anything Congress has authorized and shields them from foreign competition U.S. patents were never meant to reach. Because I cannot agree that the Patent Act requires that result, I respectfully dissent.
The Federal Circuit held that ION was liable for infringement under § 271(f)(2).
WesternGeco,
Because the Federal Circuit did not address § 271(f)(1), see n. 1, supra, we limit our analysis to § 271(f)(2).
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.
* * *
The Solicitor General disputes this reading of
Duchesne
. In his view, the Court indicated that, if a defendant "committed domestic infringement" by making the invention in the United States, the patent owner would have been entitled to recover for any subsequent use of the invention, including " 'the use of this improvement ... on the high seas.' " Brief for United States as
Amicus Curiae
17 (quoting
Duchesne,
WesternGeco claims this Court permitted recovery based on foreign sales of an invention in
Manufacturing Co. v. Cowing,
Reference
- Full Case Name
- WESTERNGECO LLC, Petitioner v. ION Geophysical Corporation.
- Cited By
- 91 cases
- Status
- Published