WesternGeco v. ION: Extraterritoriality and Patents Ishan Bhabha May 31, 2018

Presumption Against Extraterritoriality “The general and almost universal rule is that the character of an act as lawful or unlawful must be determined wholly by the law of the country where the act is done.” - American Banana Co. v United States, 213 U.S. 347, 356 (1909) (Holmes, J.)

Presumption Against Extraterritoriality “Absent clearly expressed congressional intent to the contrary, federal laws will be construed to have only domestic application.” - RJR Nabisco, Inc. v. European Community, 136 S. Ct. 2090, 2100 (2016)

Presumption Against Extraterritoriality “The presumption that United States law governs domestically but does not rule the world applies with particular force in patent law.” - Microsoft Corp. v. AT&T Corp., 550 U.S. 437, 454-455 (2007)

Presumption Against Extraterritoriality Does the statute “give[] a clear, affirmative indication that it applies extraterritorially”? If not, does the case “involve[] a domestic application of the statute”? - RJR Nabisco, 136 S. Ct. at 2101

The Facts

Liability (35 U.S.C. §271(f)(1) and (2)) (1) 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. (2) 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.

Damages (35 U.S.C. § 284) Upon finding for the claimant the court shall award the claimant 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…

Trial and Appeal Jury found ION had infringed six patents under 271(f)(2). Awarded $12.5 million in royalties and $93.4 million in lost profits. Federal Circuit affirmed liability but vacated the lost profits in their entirety, finding the contracts were performed on the high seas and that awarding lost profits would violate the presumption against extraterritoriality.

Disagreement #1: Statutory Text Under RJR the first step is to determine whether statute gives an “affirmative indication” that it applies extraterritorially. WesternGeco: Yes, it specifically targets the supply of components “from” the U.S. to overseas for the purpose of infringing combination. General damages provision applies once infringement is proven. ION: No, have to look at each provision separately, and while the liability provision refers to shipments overseas, the damages provision does not include foreign harms.

Disagreement #2: Domestic or Foreign Under RJR the second step is to determine whether the case involves a domestic application of the statute WesternGeco/US: Yes, the infringing act took place in the U.S. because that is where the products were produced and shipped from. That is what the statute targets. ION: No, while the production in the U.S. was a but-for cause of the harm, the proximate cause (actually resulting in the injury) was the act of foreign customers combining the DigiFIN with other components in order to do the surveys.

Disagreement #3: International Comity WesternGeco: An inability to consider foreign harms could be dire. If the French Ambassador is hit by a driver in a Philadelphia, he or she will not be able to recover for all of their future earnings overseas. More broadly foreign entities in the U.S. will be undercompensated and no foreign government filed an amicus brief warning of harms the other way. ION: Foreign manufacturers that develop products in the U.S. could suffer huge damages awards from U.S. juries if it turns out a component results in infringement, even in their home country and even if the home country’s IP law would not recognize the claim. Better solution is bring a foreign IP claim.

Result? Argued before the Supreme Court on April 16, 2018 Justices appeared divided Rejected automatic damages argument, but likewise did not appear to accept that an infringer could get off completely free despite intentionally selling products abroad knowing they would result in infringement. Kagan and Breyer charted a middle course: import notions of proximate cause to limit damages in situations where the infringing use was only tangentially related to the domestic conduct.