WesternGeco LLC v. ION Geophysical Corp. — Lost Foreign Profits Recoverable for Domestic Component Supply Infringement

Background

WesternGeco holds patents on technology for conducting seismic surveys of the ocean floor, used in oil and gas exploration. ION Geophysical manufactured components of a competing system in the United States and shipped them to companies abroad, where they were assembled and used to perform surveys that directly competed with WesternGeco’s survey services. WesternGeco sued under 35 U.S.C. § 271(f)(2), which prohibits exporting components especially designed for use in a patented invention.

A jury awarded WesternGeco $93.4 million in lost profits, reflecting survey contracts it lost to competitors using ION’s systems abroad. The Federal Circuit vacated this award, holding that § 284’s damages provision does not allow recovery for lost foreign profits because U.S. patent law does not apply extraterritorially.

The Court’s Holding

Justice Thomas, writing for a 7-2 majority, reversed the Federal Circuit. The Court applied a two-step extraterritoriality framework: first, identify the focus of the statute; second, determine whether the relevant conduct occurred domestically. The focus of § 284 is the infringement. The relevant infringement here — supplying components from the U.S. under § 271(f) — was a domestic act. Because the domestic infringement was established, § 284 permits the full measure of damages caused by that infringement, including lost foreign profits.

The Court emphasized that the extraterritoriality principle limits the geographic reach of the law defining wrongful conduct — it does not limit the measure of damages for conduct already determined to be domestic infringement.

Key Takeaways

• A domestic act of infringement under § 271(f) can give rise to damages including lost foreign profits caused by that infringement.
• The extraterritoriality principle governs what conduct is infringing, not the measure of damages once domestic infringement is established.
• Companies that export components for assembly abroad face potentially large damage awards if those exports compete with the patent holder’s foreign business.
• This ruling significantly increases the financial stakes of § 271(f) infringement for U.S. manufacturers with global competition dynamics.

Why It Matters

Before this decision, a common strategy was to manufacture components in the U.S. and ship them for assembly abroad, reasoning that U.S. patent law’s extraterritorial limitations would cap damages at U.S.-based losses only. WesternGeco dismantled this assumption: if you commit infringement in the U.S. by exporting components, you are on the hook for all lost profits that flow from that infringement — including profits lost in foreign markets.

For industries like oil and gas services, aerospace, and advanced manufacturing where products made in the U.S. are deployed globally, the ruling is a significant deterrent against using domestic component supply as a vector for international patent infringement.