SCOTUS: patent case sparks concerns over international relations
US Supreme Court justices voiced their concerns over recovery of damages in multiple countries during oral arguments in a case concerning lost patent profits outside the US.
Yesterday, April 16, the Supreme Court heard arguments in an appeal from WesternGeco, a subsidiary of global oilfield services company Schlumberger, over a dispute involving competitor Ion Geophysical Corporation, which offers geoscience services.
WesternGeco asked the court to consider whether the US Court of Appeals for the Federal Circuit had erred in finding that lost profits arising from prohibited combinations occurring outside the US are unavailable in cases where patent infringement is proven.
If patent law applies extraterritorially, patent owners could recover profits lost outside the US as a result of infringement.
To read more about the background to the case, click here.
A myriad of liabilities
“Some justices seemed concerned with how this decision could subject a single actor to multiple liabilities in a myriad of countries based on a single act of allegedly infringing conduct,” explained Haynes and Boone partner Phillip Philbin.
The arguments before the Supreme Court focused on the interplay of the availability of extraterritorial damages with principles of comity, including the risk of multiple recoveries in multiple countries, he added.
According to the transcript, Justice Breyer said: “I mean, suppose ten countries do this. I try to think about that and I see chaos or confusion. And at that point, I think part of comity is what happens if everybody does it?”
Christopher Loh, partner at Fitzpatrick, Cella, Harper & Scinto, said that while Justice Breyer “repeatedly voiced concerns” over the problems that a ruling in WesternGeco’s favour might have on international comity, he also suggested during Ion’s portion of the argument that the application of proximate cause would be a potential solution to those problems.
Proximate cause is a causal link between the infringing acts and any damage.“Based on the oral arguments, the Supreme Court appears to favour the positions of WesternGeco,” he said, adding that Justice Breyer may have “tipped his hand the furthest” by telling WesternGeco that it had an “excellent case”.
Sandip Patel, partner at Marshall Gerstein & Borun, added that the justices who posed questions seemed concerned with principles of comity but “also understood that the decision the government and the petitioner were advocating would be tethered to tort law principles of causation in fact and proximate cause”.
A more sweeping declaration
On Friday, April 13, the solicitor general was granted leave to participate in the oral arguments as amicus curiae, and Zachary Tripp, assistant to the solicitor general, represented the government.
Philbin noted that the government sought a “sweeping declaration” from the court, asking for an “elimination of the ban” on extraterritorial damages throughout the Patent Act, as contrasted with the more limited circumstances proposed by WesternGeco.
“The Patent Act provides for damages that are adequate to compensate for the infringement, not damages that leave the victim worse off than it would have been if the infringement had never occurred,” said Tripp during the arguments.
Tripp also pointed out other areas of law that allow extraterritorial damages without “any significant foreign relations problems” (tort, contract and copyright).
Patel concluded: “The court will now have to reconcile these competing theories and may not accept the government’s invitation for the broad decision.”
A full recovery
The court needs to balance its concern over comity against the issue of preventing a patent owner from obtaining a full recovery because the infringing acts were geographically distributed, stated Philbin.
He added that multiple justices seemed to suggest that the guidelines of proximate cause and foreseeability could provide “adequate direction to navigate the comity concerns”.
Loh agreed that “several of the justices appeared sympathetic to the argument that reasonable royalties were not sufficient to compensate WesternGeco fully for Ion’s infringement”.
He added that most of the justices also seemed to accept the argument that application of proximate cause would be “sufficient to limit the risk of excessive damages awards and the potential harm to international comity”.
Matthew Rizzolo, partner at Ropes & Gray, stated: “As the parties’ briefing and the court’s questioning made clear, the issues of foreign sales raise a litany of fact-specific issues relating to damages—most notably, issues of causation—which will require resolution even if foreign lost profits may theoretically be available to a patent owner.”
Ion’s argument
Patel explained that Ion argued it should “not be on the hook” under US patent law for what happened overseas, and that WesternGeco should seek to enforce whatever foreign patent laws may be available to redress its ex-US injuries.
Philbin added that Ion’s rejection of extraterritorial damages provoked questions about how 35 USC section 271(f)(1) could be read in a manner consistent with Ion’s position.
Under section 271(f), it is an act of patent infringement to supply “components of a patented invention” from the US with the knowledge or intention that the components are to be combined outside the US in a manner that “would infringe the patent if such combination occurred within the US”.
Kannon Shanmugam, partner at Williams & Connolly, on behalf of Ion, concluded: “And what WesternGeco is really trying to do in this case is precisely what this court ought to be concerned about. It is attempting to convert an American court, here the Eastern District of Texas, into a one-stop shop for worldwide damages.”
Paul Clement, partner at Kirkland & Ellis, represented WesternGeco.
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