The U.S. Supreme Court ruled Friday that a Schlumberger Ltd. unit can recover profits it lost outside the U.S. due to a rival’s infringement of its oil exploration patents, saying the Federal Circuit was wrong to hold that such damages cannot be awarded based on overseas conduct.
In a 7-2 decision, the high court held that since Ion Geophysical Corp. infringed patents owned by Schlumberger’s WesternGeco LLC by shipping components of its product outside the U.S., WesternGeco is entitled to damages that include profits it lost abroad due to those actions.
The high court said its holding was based on the patent statute at issue in the case, which makes it an act of infringement to ship components from the U.S. to be combined abroad. The focus of damages under the Patent Act in a case involving that statute is on the act of exporting, Justice Clarence Thomas wrote for the majority, so it is permissible for WesternGeco to recover its foreign lost profits under domestic patent law.
"The conduct in this case that is relevant to that focus clearly occurred in the United States, as it was Ion's domestic act of supplying the components that infringed WesternGeco's patents," he wrote. "Thus, the lost-profits damages that were awarded to WesternGeco were a domestic application" of the damages statute.
Damages are adequate to compensate for infringement when they place patent owners in as good a position as they would have been in if the patent had not been infringed, Justice Thomas wrote. And that recovery can include foreign lost profits in cases under the patent statute barring shipment of components overseas, he concluded.
Justice Neil Gorsuch dissented, joined by Justice Stephen Breyer, writing that "permitting damages of this sort would effectively allow U. S. patent owners to use American courts to extend their monopolies to foreign markets."
"That, in turn, would invite other countries to use their own patent laws and courts to assert control over our economy," he continued. "Nothing in the terms of the Patent Act supports that result and much militates against it."
Patents only provide a lawful monopoly over the use of inventions in the U.S., Justice Gorsuch wrote. While the statute at issue in this case makes it an act of infringement to ship components from the U.S. to be combined abroad, "none of this changes the bedrock rule that foreign uses of an invention (even an invention made in this country) do not infringe a U. S. patent," he said.
If a U.S. company developed a product that infringed a foreign patent abroad, courts in other countries following WesternGeco's theory could award damages for sales of the product in the U.S., "even though the foreign patent lacks any legal force here," he wrote.
"It is doubtful Congress would accept that kind of foreign control over our markets," he said.
A Southern District of Texas jury found in 2012 that Ion infringed four patents on devices used to search for oil and gas under the ocean and awarded WesternGeco $93.5 million in lost profits and $12.5 million in royalties.
However, a 2015 Federal Circuit decision discarded the lost profits award, finding that the presumption that U.S. patent law does not extend outside the country means WesternGeco cannot recover profits it would have earned overseas absent Ion's infringement.
The Supreme Court heard arguments in April, and some justices were critical of the Federal Circuit's reasoning.
Justice Samuel Alito noted that Congress passed a law that makes it infringement to perform some actions outside the U.S. Given that, he said, "why does [it] make any sense whatsoever" to prohibit patent owners from receiving a remedy tied to that infringement.
The case will now return to the Federal Circuit for further proceedings. The appeals court recently upheld a Patent Trial and Appeal Board ruling that three of the four patents Ion was found to infringe are invalid, which could reduce the damages available to WesternGeco.
"WesternGeco is pleased by today’s United States Supreme Court decision that allows WesternGeco to recover the full panoply of U.S. patent damages it suffered due to Ion Geophysical’s willful infringement," the company said in a statement. "This decision is important because it allows WesternGeco to be compensated fully for monetary damages caused by those who choose to infringe its patents."
Brian Hanson, Ion's president and CEO, said in a statement Monday that the company is disappointed in the decision and believes the type of lost profits WesternGeco is seeking "should be categorically unavailable." However, he said the case is not over.
"We feel strongly about our legal position, and we are prepared to continue fighting this matter through 2019 and beyond," he said.
The company plans to seek a new damages trial based on the Federal Circuit's holding that several of WesternGeco's patent claims are invalid, he said. In addition, the company plans to argue on remand that WesternGeco is not entitled to lost profits because the two companies are not direct competitors, a position the Federal Circuit did not rule on because it threw out the damages award on other grounds.
“We preserved this argument, which the Supreme Court's opinion does not address, and now it will be decided by the Federal Circuit," Hanson said.
The patents-in-suit are U.S. Patent Numbers 6,691,038; 7,080,607; 7,162,967; and 7,293,520.
Schlumberger is represented by Paul D. Clement, Gregg F. LoCascio, John C. O'Quinn, William H. Burgess, Timothy K. Gilman and Leslie M. Schmidt of Kirkland & Ellis LLP.
Ion is represented by Kannon Shanmugam, David Berl, Amy Mason Saharia, Masha Hansford, William Marks and J. Matthew Rice of Williams & Connolly LLP, Danielle J. Healey, Brian G. Strand and Bailey K. Benedict of Fish & Richardson PC and Justin M. Barnes of Troutman Sanders LLP.
The case is WesternGeco LLC v. Ion Geophysical Corp., case number 16-1011, in the U.S. Supreme Court.