In Limited Circumstances, the Supreme Court Permits Businesses to Recover Patent Damages for Sales Made Outside the U.S.

By Lawrence Green. A member of our Patent Practice Group

The Supreme Court recently answered the question whether a patent owner can collect damages caused by an infringer’s sales outside the U.S.  Federal law typically reaches only conduct within the country, but the justices made an exception for a section of the Patent Act that makes it an act of infringement to supply U.S.-made components of an invention to be combined overseas in an infringing device. The Court held that lost profits are available from foreign sales if the patent owner proves such infringement.

The defendant in WesternGeco LLC v. ION Geophysical Corp. made components of its ocean-surveying products in the U.S. and shipped them abroad where they were assembled into an infringing product. All of ION’s profits from the infringing products arose from sales outside the United States.

The Court was careful to state that its holding was based on the patent statute at issue, 35 U.S.C. § 271(f)(2), which labels as infringing the shipping of components from the U.S. to be combined abroad.  This statute was enacted after the 1972 Supreme Court decision in Deep South Packing Co. v. Laitram Corp., in which the defendant was exporting components made in the U.S. for assembly in Brazil of a shrimp deveiner.

The Deep South patentee held so-called combination patents covering certain portions of the fully assembled deveiner, but had no patents covering the components.  The Supreme Court held that merchandise protected by a combination patent is “made”– and thus liable to be found infringing–only when it is fully assembled in the U.S. Because assembly of the deveiner occurred outside the U.S., the defendant was not liable for infringement under the statute as it then stood.  The Court suggested that only Congress, if it so chose, could close this loophole in the patent statute. Congress accepted this invitation and passed what now has become § 271(f)(2) of the Patent Act.

In the WesternGeco decision, the Court stated the established presumption that federal statutes “apply only within the territorial jurisdiction of the United States.”  Under the two-step framework for deciding whether this presumption should be overridden, a court first asks whether the text of the statute provides a “clear indication of an extraterritorial application.”  If it does not, the second step asks whether the case involves a domestic application of the statute.  Courts make this determination by identifying “the statute’s focus” and asking whether the conduct relevant to that focus occurred in the United States territory.  If it did, the case involves a permissible domestic application of the statute.

The Court skipped the first step, concerned that “resolving that question could implicate many other statutes besides the Patent Act.” Under the second step, the Court concluded that the statutory focus of Section 271(f)(2) is domestic. The statute 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 be combined outside of the United States in a manner that would infringe the patent if such combination occurred within the United States.

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