The New World of Damages

The New World of Damages

Background
A judge recently expanded patent infringement damages to potentially cover the whole world. The federal circuit Judge’s interpretation of a Supreme Court case has dramatically expanded the potential penalty for patent infringement. Originally, the question of whether patent owners could sue to recover profits lost outside of the U.S. was unclear; however, Justice Thomas authored the Supreme Court’s 7-2 decision, clarifying that issue by holding that patent owners can indeed recover foreign lost profits. Now, that rule is being interpreted and applied to cases in the lower courts where it could make a staggering difference in the amount of money and other damages awarded for infringement.

What Happened
This landmark decision began with WesternGeco, a company who owns a patent for a system used to survey the ocean floor, and ION Geophysical, who sells other seismic processing devices and services. ION began selling a competing system by sending both infringing and non-infringing components abroad and having them assembled into a final product which was asserted completely different from what was described in Western’s patent. When the case was first decided in federal court in 2015, the Court held that WesternGeco was not entitled to lost profits arising from foreign uses of its patent. Western then appealed to the Supreme Court, asserting that they were in fact entitled to foreign lost profits under current patent laws.

What SCOTUS and the Federal Circuit Said
The Supreme Court agreed, holding that “WesternGeco’s award for lost profits was a permissible domestic application of § 284 of the Patent Act … ” and sent the case back to the federal courts. WesternGeco, LLC v. Ion Geophysical Corp., 138 S. Ct. 2129. Essentially, this means parties may recover profits lost due to infringements that happen on foreign soil. However, this holding does not specify all of the instances in which this rule applies—would it apply to other patent suits as well?

On remand, federal circuit Judge Stark applies the Supreme Court’s holding, deciding that it does in fact apply to other types of patent infringement cases. Already this interpretation has made waves in the world of patent damages. In a recent case, Judge Stark decided that the Supreme Court’s rule does have equal applicability to other infringement suits, and has since allowed prevailing plaintiffs to seek worldwide damages for domestic infringement by citing the Supreme Court’s decision.

What Does This Mean?
For plaintiffs, this means that the cache of money potentially available for patent infringement may have increased dramatically. Damages experts will have a new pool to draw on in creating damages models, and will need to adjust discovery to locate these newly relevant sources of revenues. Parties will need to pay greater attention to the flow of their products as well as remember that this ruling may apply to domestic infringements that cause foreign losses—this ruling opens up the world in its entirety in terms of paying damages. The ruling could have a tremendous impact on businesses who have historically avoided patent damages by keeping or moving potential infringements out of the country. This case represents a departure from the status quo, an unusual extraterritorial application of U.S. laws that will have an effect on business conduct outside the country.

®2018 Buche & Associates, P.C. Article by Mike Jones, J.D. candidate 2020 and John Buche, J.D.