Friday, October 30, 2015

Federal Circuit Denies Rehearing En Banc on Question of Lost Profits from Extraterritorial Sales

In July, I blogged about the Federal Circuit's opinion in WesternGeco L.L.C. v. ION Geophysical Corp., holding that a finding of liability under Patent Act § 271(f)(2) did not entitle WesternGeco to recover lost profits on certain extraterritorial contracts WesternGeco believed it would have earned, but for the violation.  Today the court denied WesternGeco's petition for rehearing en banc, over the dissent of Judge Wallach (who dissented from the original panel opinion), joined by Judges Newman and Reyna.  The dissent is brief:
For the reasons articulated in my dissent from the panel opinion, I dissent from the denial of the petition for rehearing en banc. See WesternGeco L.L.C. v. ION Geophysical Corp., 791 F.3d 1340, 1354–64 (Fed. Cir. 2015) (Wallach, J., dissenting-in-part). 
In addition, an amicus brief submitted in support of the petition for rehearing en banc raised the issue of whether extension of the presumption against extraterritoriality to damages, in the manner done by the panel in this case, is at odds with the longstanding and analogous “predicate act” doctrine in the copyright context. The predicate act doctrine holds that a copyright owner “is entitled to recover damages flowing from the exploitation abroad of . . . domestic acts of infringement.” L.A. News Serv. v. Reuters Television Int’l, Ltd., 149 F.3d 987, 991–92 (9th Cir. 1998) (tracing the predicate act doctrine to Judge Learned Hand’s opinion in Sheldon v. Metro-Goldwyn Pictures Corp., 106 F.2d 45 (2d Cir. 1939), aff’d, 309 U.S. 390 (1940)); see also Tire Eng’g & Distrib., LLC v. Shandong Linglong Rubber Co., 682 F.3d 292, 306 (4th Cir. 2012) (“We adopt the predicate-act doctrine, which posits that a plaintiff may collect damages from foreign violations of the Copyright Act so long as the foreign conduct stems from a domestic infringement.”); Update Art, Inc. v. Modiin Publ’g, Ltd., 843 F.2d 67, 73 (2d Cir. 1988) (“It is well established that copyright laws generally do not have extraterritorial application. There is an exception—when the type of infringement permits further reproduction abroad—such as the unauthorized manufacture of copyrighted material in the United States.”).
In this case, WesternGeco’s damages flowed from the exploitation abroad of domestic acts of patent infringement under § 271(f). The court’s denial of rehearing en banc unfortunately prevents consideration of the predicate act doctrine, which is of particular import given “the historic kinship between patent law and copyright law.” Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 439 (1984). For this reason, and for other reasons already explained, I respectfully dissent.
Back in July, I wrote that although "I need to give the matter some more thought, I'm inclined to think the majority view is correct. WesternGeco may have lost sales, and thus profits, to foreign customers as a result of ION's alleged conduct in violation of § 271(f), but to allow recovery would seem to undermine the presumption against extraterritoriality.  The causal chain has to stop somewhere."  I'm still inclined to think that is right, though I will have to take a look at the copyright precedents Judge Wallach cites and give the matter some additional thought.  For discussion of the court's treatment of the somewhat analogous issue that arises when the patent owner argues that it is entitled to royalties for foreign sales that would not have occurred, but for an act of domestic infringement, see my post on the court's August decision in Carnegie-Mellon v. Marvell.


  1. My intuition is that if an inventor has patented worldwide, it should be able to recover all losses caused by infringement, no matter where than infringement occurs. So it seems to me there is a distinction between cases in which the foreign activity would have been infringing if the invention had been patented in the foreign jurisdiction, and cases in which there was no infringing act in the foreign jurisdiction. In the former case, I don’t see a particular problem with cutting off domestic recovery – the issue is primarily one of rationalizing the litigation. Any limitations on recovery stem from the inventor’s failure to patent in the foreign jurisdiction, rather than from gaps in the law. In the latter case, there is a gap in the law, and if an infringing act has been carried out domestically, I don’t really see why recovery should be limited on territoriality principles.

  2. In theory your rule would eliminate the risk of double recovery, which makes sense. But recovery would depend on the content of other countries' laws, which imposes an additional adjudication cost and increases uncertainty. I'm still not sure what the right answer is here.

  3. Ideally all countries would have the same rule, which would optimally allocate litigation, and there would be no need to know foreign law. But in the absence of actual progress in that direction, I agree that conditioning recovery in US law on whether recovery is available under foreign law is impractical.