Damages for Extraterritorial Losses: Does WesternGeco Overrule Power Integrations?

As readers will recall, a few months back the Supreme Court in WesternGeco v. ION held that

Under the Patent Act, a company can be liable for patent infringement if it ships components of a patented invention overseas to be assembled there. See 35 U.S.C. § 271(f)(2). A patent owner who proves infringement under this provision is entitled to recover damages. § 284.The question in this case is whether these statutes allow the patent owner to recover for lost foreign profits. We hold that they do.

In my blog post on the decision, I wrote:

So, suppose we have a replay of Power Integrations or Carnegie-Mellon.  The infringing conduct at issue is a manufacture, use, or sale that occurs in the United States, in violation of § 271(a), but which triggers a chain of events resulting in (1) the U.S. patent owner losing a sale to the defendant in another country, or (2) the defendant obtaining higher profits on the sales it makes in another country.  Is the U.S. patent owner entitled to its lost profit in case (1), or a higher reasonable royalty in case (2), as long as the causal chain is not too remote--that is, as long as the sales the defendant made abroad were proximately caused by the infringement?  As I've noted previously, I've come around to the view that the answer is yes, and I'm inclined to read Justice Thomas's statements as quoted above as supporting that result.  He says that the "focus" of § 284 is "the infringement," and that § 284 is intended to provide "full compensation" for such infringement; and  § 271(a) defines infringement as the unauthorized domestic manufacture, sale, or use of the patented invention.  In other words, "the conduct relevant to" § 284's "focus" is domestic conduct, and as long as that is so § 284 provides for full compensation for the harm flowing from that domestic conduct (subject, surely, to normal proximate cause limitations, even if the Court stubbornly refuses to address that topic).  So there's no need to fret about whether whether the presumption against extraterritoriality applies, I guess.

On October 4, Judge Leonard Stark (D. Del.) reached the same conclusion.  (Hat tip:  Michael Risch.)  In ruling on what he construes as a motion for relief from judgment pursuant to Fed. R. Civ. P. 60(b)(6), Judge Stark writes in Power Integrations, Inc. v. Fairchild Semiconductor Int'l, Inc.:

In the Court's view, the Supreme Court's WesternGeco II decision implicitly overruled the Federal Circuit's Power Integrations opinion. . . . The Supreme Court's analysis of  the patent damages statute, § 284, has equal applicability to the direct infringement allegations pending here, as governed by§ 271(a), as it did to the supplying a component infringement claims at issue in WesternGeco II, which were governed by§ 271(f)(2). Fairchild has identified no persuasive reason to conclude that the interpretation of § 284 should differ here from what was available in WesternGeco II just because the type of infringing conduct alleged is different. Instead, as Power puts it, "Section 271(a) 'vindicates domestic interests' no less than Section 271(f)." (D.I. 977 at 2) (quoting WesternGeco II, 138 S. Ct. at 2138). Moreover, the Federal Circuit's WesternGeco I decision was based almost entirely on the Federal Circuit's Power Integrations decision. It logically follows that when the Supreme Court expressly overruled WesternGeco I it also implicitly overruled Power Integrations.

Judge Stark also certified the issue for interlocutory appeal.

Taking a decidedly different view is Professor Tim Holbrook, who in a paper he just posted to ssrn titled Extraterritoriality and Proximate Cause after WesternGeco, writes in the abstract:

The Supreme Court’s decision WesternGeco LLC v. ION Geophysical Corp. appeared to be a narrow case about a rather obscure patent law provision. In reality, however, it had the potential to reach into a number of trans-substantive areas, including the nature of compensatory damages, proximate cause, and extraterritoriality. Instead of painting with a broad brush, the Supreme Court opted to take a modest, narrow approach to the issue of whether lost profits for foreign activity were available to a patent holder for infringement under 35 U.S.C. § 271(f)(2). In addressing this issue, the Court utilized its two-step framework for assessing the extraterritorial reach of U.S. law adopted in RJR Nabisco Inc. v. European Community. The Court skipped step one, but its analysis of step two confirmed that the territorial limits of damages is tied to the corresponding liability provision. Ultimately the Court allowed the damages for the relevant foreign activity.

This decision clarified a few things about the extraterritorial application of US law. By skipping step one, the Court made it clear that the presumption against extraterritoriality is distinct from the focus analysis of step two. The Court passed on the opportunity to further elaborate on step one and to answer definitely whether the presumption applies to remedial provisions. The Court also elaborated on step two and embraced a methodology that tied extraterritorial reach of a general remedy provision to the corresponding liability provision.

The Court’s decision also leaves a number of questions open. Specifically, it remains unclear whether the Federal Circuit’s Power Integrations and Carnegie Mellon decisions survive WesternGeco. I contend that they do, in disagreement with other professors. The Court also failed to explore the important role that proximate cause may play in future patent cases, particularly those involving global theories of damages, and issue that I take up here. The Federal Circuit could – and should – embrace a narrower conception of proximate cause to limit these types of global theories of patent damages.

Law360 also has an article on the Power Integrations order, available (by subscription) here.

In other news, IPKat reports that the England and Wales Court of Appeal will publish its opinion in Unwired Planet v. Huawei on Tuesday, October 23.  I guess that will give me something to read on my flight home after the FTC hearing that morning . . . .