16 April 2018Patents

WesternGeco v Ion Geophysical: all you need to know

Today, the US Supreme Court will hear oral arguments in WesternGeco v Ion Geophysical, a case concerning lost patent profits occurring outside the US. WIPR outlines the key issues and what’s at stake.

What’s at issue?

The dispute centres on whether patent law applies extraterritorially—if it does apply, then patent owners could recover profits lost outside the US as a result of infringement.

Ron Cahill, chair of law firm Nutter McClennen & Fish’s IP litigation practice group, explained that the key issue is whether US patent damages are available even where the infringing device is made and sold outside the US.

WesternGeco, a subsidiary of global oilfield services company Schlumberger, has asked the Supreme Court to consider whether the US Court of Appeals for the Federal Circuit erred in finding that lost profits arising from prohibited combinations occurring outside the US are unavailable in cases where patent infringement is proven.

The court is expected to answer the question of whether the Federal Circuit erred in holding that lost profits arising from prohibited combinations occurring outside of the US are “categorically unavailable in cases where patent infringement is proven under 35 USC section 271(f)”.

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”.

According to Aaron Fahrenkrog, partner at Robins Kaplan, the case is not just about offshore activity and limits on extraterritoriality.

“Beneath the surface, it is about the fundamental principles underlying how patent owners should be compensated for infringement.”

Background to the case

In January this year, the Supreme Court agreed to review the dispute between WesternGeco and competitor  Ion Geophysical Corporation, which offers geoscience services. WesternGeco had submitted its petition in February 2017.

Ion allegedly developed technology to rival WesternGeco’s seismic survey system and sold the product, which used elements of WesternGeco’s patented technology, to surveying companies outside the US.

Back in 2009, a jury found infringement and validity of all asserted claims, and awarded WesternGeco $93.4 million in lost profits and $12.5 million of royalties.

The Federal Circuit reheard the dispute in September 2016, after it was vacated and remanded from the Supreme Court “for further consideration in light of” Halo Electronics v Pulse Electronics, which changed the landscape for determining damages in cases of wilful patent infringement.

The Federal Circuit ruled that US patent law does not apply outside the country and therefore the profits could not be recouped.

What if the Supreme Court reverses?

The Electronic Frontier Foundation has warned the court of the “wide array of harms” which will occur if extraterritorial damages are awarded in patent infringement cases. It claimed that allowing overseas damages would “radically expand the scope of US patent law and inflate damage awards”.

For Fahrenkrog, this case gives the Supreme Court an opportunity to “course-correct” how damages should be proven in any patent case, for the benefit of all those involved in the patent system.

Now, if the Supreme Court reverses, it’s likely to deliver a message to the Federal Circuit to re-evaluate its approach to scrutinising patent damages, he said.

This should create opportunities for patent owners to realise more value from their inventions while also decreasing uncertainty for accused infringers, according to Fahrenkrog. He added that this may have a longer-term effect of a strengthened US patent system and increased innovation.

Cahill believes that the decision may ultimately enforce what US Congress intended for the statute, which provides for full compensation.

“If the Supreme Court rules that companies are eligible for lost profit damages, that could push companies to both manufacture components and assemble them outside the US, especially in countries with less developed IP regimes,” he added, explaining that Vietnam and Malaysia could see a spike in production as companies seek to avoid infringement claims.

What if the Supreme Court affirms?

In an amicus brief, the American Intellectual Property Law Association argued that excluding damages for overseas activity goes against 35 USC section 284, which specifically provides for “full compensation for any harm proximately caused by the domestic infringing conduct”.

Fahrenkrog believes that an affirmation may continue a trend that has “depressed US patent value by restricting and perpetuating uncertainty about the relief available to patent owners who invest in research and development, invention, and innovation in exchange for the protection of US patents”.

What else?

How other countries will react to the decision is a big question mark for Cahill.

He added that the EU wants to become the go-to destination for patent litigation (and is trying to establish the Unified Patent Court to achieve this goal).

“How will they react if, for example, pharma companies sue in US courts for formulations made outside the US? Will they enact their own laws for European damages? That remains to be seen.”

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More on this story

8 May 2018   The US Court of Appeals for the Federal Circuit said yesterday that “substantial evidence” supports the invalidation of three patents owned by WesternGeco that are currently at the centre of a dispute at the US Supreme Court.
22 June 2018   The US Supreme Court today ruled that patent owners can recover profits lost outside the US as a result of infringement in WesternGeco v Ion Geophysical.
25 June 2018   Patent owners were handed a significant win by the US Supreme Court on Friday, according to one lawyer, but others have described the decision as disappointing and narrow.