IP Value Insights – Lost Foreign Profits: WesternGeco vs. Ion

The Supreme Court’s recent (June 2018) ruling in WesternGeco vs. Ion is a potential game changer in recovering lost profits on foreign sales of patent products. Baker Tilly’s Mark Pedigo shares the forensic accountant and patent damages expert perspective on the case, what it can mean for evaluation of damages, and why patent lawyers should pay attention.

The case:

UK-based energy equipment company WesternGeco sued Texas-based competitor Ion Geophysical Corporation for patent infringement under the Patent Act. WesternGeco owns the patents for an ocean floor surveying system, which they use to perform surveys for oil and gas companies. They sued Ion Geophysical Corp for selling a competing system, created with parts that were made in the US but shipped abroad to be assembled in a manner that the courts determined infringed WesternGeco’s patents.

In the trial, the jury determined that WesternGeco had lost 10 specific survey contracts due to Ion’s infringement and awarded $93.4 million in lost profits, among other forms of damages. On appeal, however, the Federal Circuit reversed the lost profits award and the decision was appealed to the Supreme Court.

The outcome:

The Supreme Court, in reversing the Federal Circuit’s decision, specifically addressed Section 271(f)(2), which addresses the exporting of components that are specifically adapted for an invention. The Supreme Court held that although the Patent Act generally does not allow patent owners to recover lost profits from foreign sales, such profits are recoverable if:

1. a party supplies US manufactured components of a patented invention to an entity outside the US and the supplier intended those components to be assembled outside the US in a manner that would infringe the patent if it were assembled in the US, and
2. there is evidence that the patent owner would have made those profits if infringement had not occurred (i.e., lost profits damages would place the patent owner in as strong a position as he would have been in had the patent not been infringed).

Implications for patent infringement damages:

WesternGeco vs. Ion has the potential to create a new path for international IP cases, as it opens the door to the possibility of recovering lost profits on foreign sales of patent products. Patent lawyers and the damages experts/forensic accountants they retain must be aware the potential implication for future patent infringement cases as well as their pending cases, and may need to increase the scope of discovery accordingly.

With the availability of lost profits in situations where components manufactured in the US are exported internationally and used in an infringing manner, we may see an increase in the number of patent infringement cases involving foreign lost profits. Because of this, in patent cases involving the export of components, the scope of discovery may need to be increased to include international sales, component sales and purchase records, end-product bills of materials, and other information to determine the extent to which US manufactured components are used in products and services outside the US.

Forensic accounting experts as well as patent infringement damages experts will be watching these developments closely.

For over three decades, Mark Pedigo has focused his practice on the quantification and analysis of economic damages and associated expert testimony in matters related to patent, trade secret, trademark and copyright infringement, breach of contract and other commercial disputes, construction disputes and alter ego and other forensic accounting. He provides regular commentary about the impact and potential ramifications of precedent-setting cases in the IP Value Insights blog.

For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.