Lost Contracts to Perform Work on the High Seas Do Not Justify Lost Profits Damages

Author: Kara A. Specht
Editor: Jeff T. Watson

In WesternGeco L.L.C. v. ION Geophysical Corp., Nos. 13-1527, 14-1121, 14-1526, 14-1528 (Fed. Cir. July 2, 2015), the Federal Circuit affirmed the district court’s award of a reasonable royalty based on infringement under 35 U.S.C. § 271(f), but reversed its award of lost profits resulting from conduct occurring abroad.

The district court awarded WesternGeco L.L.C. over $93 million in lost profits based on ten service contracts for seismic surveys, performed on the high seas, which WesternGeco alleged it would have been awarded but for ION Geophysical Corp.’s sales of the infringing product to its customers who won the contracts. ION appealed the lost profits award, arguing that the contracts were to perform work on the high seas, outside the jurisdictional reach of the U.S. patent law.

The Court held that WesternGeco could not recover lost profits resulting from its failure to win foreign service contracts.  Relying on Power Integrations, Inc. v. Fairchild Semiconductor, Int’l, the Court held that U.S. patent laws do not “provide compensation for a defendant’s foreign exploitation of a patented invention, which is not infringement at all.”  The Court explained: “Just as the United States seller or exporter of a final product cannot be liable for use abroad, so too the United States exporter of the component parts cannot be liable for use of the infringing article abroad.” The Court found that a reasonable royalty was the proper remedy for foreign uses of the patented invention.

In a dissent, Judge Wallach wrote that he would have held that the patent statute requires consideration of lost foreign sales when determining damages for infringement under 35 U.S.C. § 271(f).

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