EFF urges US Supreme Court not to extend patent damages abroad
A brief filed this week has warned the US Supreme Court of the “wide array of harms” which will occur if extraterritorial damages are awarded in patent infringement cases.
The Electronic Frontier Foundation (EFF) filed the amicus curiae brief in support of Ion Geophysical Corporation at the court on Monday, April 2.
In January the Supreme Court agreed to review WesternGeco v ION Geophysical, following the writ of certiorari filed by WesternGeco in February 2017 and the Supreme Court’s request for the government’s view in May 2017.
WesternGeco had accused Ion of infringing four of its US patents. Ion allegedly developed technology to rival WesternGeco’s seismic survey system using elements of the patented technology and sold it to surveying companies outside the US. The competitors both offer geophysical and geosciences services.
In 2013 a jury at the US District Court for the Southern District of Texas, Houston Division, found that Ion had infringed the patents. WesternGeco was awarded $93.4 million in lost profits and $12.5 million in royalties.
However, in 2014 the US Court of Appeals for the Federal Circuit ruled that US patent law does not apply extraterritorially and therefore those profits could not be recovered.
In the writ of certiorari WesternGeco asked the Supreme Court to consider whether the Federal Circuit erred in the finding that lost profits arising from prohibited combinations occurring outside the US are unavailable in cases where patent infringement is proven.
The amicus brief filed by the EFF, in collaboration with the R Street Institute, Professor Bernard Chao, and Professor Brian Love, urged the Supreme Court not to let WesternGeco recover lost profits for the use of Ion’s infringing invention overseas.
Considering global supply chains, the EFF said that allowing overseas damages would “radically expand the scope of US patent law and inflate damage awards”.
The EFF claimed that by allowing worldwide damages for patent infringement, the sovereignty of other nations would be undermined by applying US laws to other territories; policy makers in the US would be “extremely disconcerted” if the circumstances were reversed.
The EFF added that such an expansion of damages would also harm US innovation: it would disadvantage US companies in comparison to international companies, as they would be uniquely vulnerable to claims for worldwide royalties.
“Discouraging research and development in the US is exactly the opposite of what the patent system is supposed to do,” the EFF said. In addition, a spokesperson for the EFF said the anticipated disadvantage to companies basing their research and development in the US was a primary motivating factor of EFF's decision to file the brief.
The brief referred to section 271(a) of the Patent Act, which says a direct infringer is one who makes, uses, or sells a patented invention “within” the US, arguing that the section limits the statute to prevent a “wide array of harms and distortions” which would be caused by allowing worldwide damages.
“A company that wishes to protect its innovations in overseas markets should apply for patents in those markets,” the brief argued.
Speaking to WIPR, Chao said the potential change in US patent law could "disturb" international patent law. He explained that currently, each territory determines the rules for issuing and enforcing patents, but if the Supreme Court sides with WesternGeco it will be "discarding that system and saying the US decides" for every country. The consequences would be "unfortunate".
Chao said another consequence of disturbing the patent system is that companies will be encouraged to offshore important economic activity. For example, if an entity could be liable for damages based on extraterritorial activity due to some domestic infringement (for example US-based research and development), it would make sense for companies to move their innovation abroad to avoid the risk.
Love agreed that it would be "problematic" for the court to side with WesternGeco. He said that "patentees who wish to recover damages tied to foreign conduct should seek patent protection in foreign countries", and if the court allows otherwise it would "effectively convert US patents into worldwide patent rights".
He added that the case is "unusual" as it concerns the "high seas" rather than another nation but, regardless, "the court should be mindful that its ruling in this case could have serious ramifications for all technology companies that operate internationally".
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