Opinion analysis: Justices approve broad damage recovery for patent-infringing exports

This morning’s opinion in WesternGeco v. Ion Geophysical Corp., holding that the Patent Act authorizes a damage award for patent-infringing exports, is far from what you would have expected from the argument. In April when the justices heard from counsel for the parties, the bench engaged in a heated and far-ranging debate that touched on extraterritorial application of the Patent Act as well as basic tort-theory concepts of proximate cause in the like. This morning, though, the justices disposed of the matter with a short and highly formalistic opinion from Justice Clarence Thomas, which barely alludes to those topics. With seven votes for Thomas’ opinion, the concerns of the oral argument and the briefing were relegated almost entirely to a dissent from Justice Neil Gorsuch, joined only by Justice Stephen Breyer.

The case involves Section 271 of the Patent Act, which defines the types of conduct that amount to infringement of a patent. In general, the section applies only to conduct that occurs in the United States. There is an exception, though, in Section 271(f), a provision adopted in response to (and overruling) a notorious Supreme Court case that exonerated a defendant who had manufactured the components of an invention in the United States but had shipped them abroad for assembly into an infringing device. Specifically, Section 271(f) includes within its definition of “infringement” the act of supplying the components of a patented device from the United States. In this case, for example, ION Geophysical manufactured in the United States components that it shipped to companies abroad; when assembled by ION’s customers, those components produced a system for surveying the seafloor that duplicated patented technology held by WesternGeco (perhaps better known by its earlier name Western Geophysical).

The question is what the proper remedy should be for ION’s infringement. The basic premise of the Patent Act (reflected in Section 284) is that the patent-holder should receive full compensation for infringement. Because WesternGeco as a matter of policy did not license its technology, it would have signed service agreements with the parties who bought the components from ION. The lower courts concluded that WesternGeco’s profit from those contracts would have been about $90 million, but they declined to award that amount as damages, reasoning that WesternGeco could not obtain damages for use of the patented device overseas.

Thomas sees it quite differently. He starts by reciting the well-known presumption that federal statutes “apply only within the territorial jurisdiction of the United States,” ornamenting it with his citation of a “medieval maxim” that is new to me: “Statua suo clauduntur territorio, nec ultra territorium disponunt.” (Loosely translated, that means something like “A statute is bound by its own territory and has not effect beyond that domain.”) The parties briefed and debated the question whether that presumption should “apply to statutes, such as § 284, that merely provide a general damages remedy for conduct that Congress has declared unlawful.” Thomas, however, declines to address that question, noting that it “could implicate many other statutes besides the Patent Act.”

Rather, he explains, application of the presumption of extraterritoriality depends on the statute’s “focus,” which he describes as “the object of its solicitude, … the conduct it seeks to regulate, as well as the parties and interests it seeks to protect or vindicate” (quotation cleaned up considerably). Here, Thomas explains, because Section 284 provides “damages adequate to compensate for the infringement,” the focus of this statute is “the infringement.” Because the act that constituted infringement under the relevant portion of Section 271 was the act of supplying components from the United States, Thomas reasons that the “focus” is a wholly domestic act. Thus, he concludes abruptly, “[t]he 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. Because Thomas sees the case as “a domestic application of Section 284,” the presumption against extraterritoriality is irrelevant.

Gorsuch’s dissent emphasizes that in every practical way the court’s opinion has validated an award of damages that compensates the patentholder for extraterritorial conduct and notes the disruption that could occur if foreign countries applied a rule of similar breadth to activity within our borders. Thomas dismisses those concerns out of hand, repeating his point that the focus of the statute is infringement and his view that the “infringement” was the act of supply, not the overseas use, and criticizing Gorsuch for “wrongly conflat[ing] legal injury with the damages arising from that injury.”

The only suggestion of a narrowing possibility in the opinion is a brief footnote at the end suggesting that the court “do[es] not address the extent to which other doctrines, such as proximate cause, could limit or preclude damages in particular cases,” a topic that Justice Elena Kagan discussed at oral argument. In context, though, that does not seem likely to provide much of a limiting effect, given the likelihood that the U.S. Court of Appeals for the Federal Circuit already recognizes proximate cause in its framework for the assessment of damages. What we have, then, is a rare reversal of the Federal Circuit for being unduly niggardly in its assessment of the rights of patentholders.