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From Intellectual Property Law Daily, January 11, 2019

Geophysical technology dispute remanded; district court must decide if new trial needed on lost profits

By Thomas Long, J.D.

The intervening invalidation of all but one asserted patent claim in a dispute over oil and gas exploration technology did not necessary foreclose an award to patent holder WesternGeco L.L.C. of lost profits resulting from infringement by ION Geophysical Corp., in the wake of a Supreme Court decision holding that lost profits were recoverable under the Patent Act for foreign sales resulting from domestic acts of infringement, the U.S. Court of Appeals for the Federal Circuit has held. However, because the record was unclear as to whether the technology covered by the remaining patent claim was essential, by itself, to carry out the infringing conduct, the Federal Circuit remanded the case to the district court for determination of whether a new trial on damages was needed. The appellate court also determined that the invalidation of claims did not warrant reopening the matter of reasonable royalties, which had been the subject of a final judgment and which had been fully paid by ION (WesternGeco, L.L.C. v. ION Geophysical Corp., January 11, 2019, Dyk, T.).

WesternGeco and ION both domestically manufactured devices used for steering streamers in marine seismic surveys conducted for discovering oil and gas deposits beneath the ocean floor. WesternGeco did not sell its device, instead using it to perform surveys abroad for oil companies. ION did not perform surveys; it instead supplied its device to customers who performed the surveys abroad. WesternGeco sued ION for infringement of several patents. A Texas jury found that ION willfully infringed all the asserted claims under 35 U.S.C. §271(f). The jury awarded $12 million in reasonable royalty damages and $93.4 million in lost profit damages, based on 10 ocean survey contracts WesternGeco lost to foreign competitors that used ION’s infringing system. In July 2015, the Federal Circuit affirmed the royalty award, but it reversed the lost profits award on the ground that the Patent Act does not permit the recovery of lost profits for third parties’ extraterritorial uses of a system patented in the United States.

In June 2018, the Supreme Court reversed the Federal Circuit and held that WesternGeco’s damages arising from the export of infringing components in violation of Section 271(f) of the Patent Act could include recovery for lost foreign profits. The Court stated that the presumption against the extraterritorial application of U.S. law was not offended in this case because the prohibited conduct relevant to the statutory focus was domestic rather than foreign infringement—specifically, ION’s domestic act of supplying the components that infringed WesternGeco’s patents.

The case was back before the Federal Circuit on remand, with the lost profits award as the sole remaining issue. Although the Supreme Court had decided that a lost profits award was a permissible application of Section 284, the Court did not decide other challenges to the award. Additionally, in the interim, four of the asserted patent claims that could support the lost profits award were invalidated by the Patent Trial and Appeal Board as unpatentable. The Federal Circuit affirmed that decision in May 2018, leaving only two asserted claims standing. It was uncontested that only one of the claims could now support the lost profits award. The Federal Circuit addressed two issues on remand: (1) the effect of the intervening invalidation of the four claims on the reasonable royalty award, which had been fully paid, and (2) the effect of the invalidation on the lost profits award and ION’s argument that such an award was not proper because ION and WesternGeco did not compete in the marketplace.

Reasonable royalty award. ION challenged the royalty award based on the subsequent invalidation of asserted patent claims, arguing that because the invalidation would affect the calculation of the royalty, a new trial was required. According to ION, because the issue of lost profits was still in dispute, the judgment as to royalties also could not be deemed final. The court disagreed. The reasonable royalty award constituted a fully satisfied and unappealable final judgment such that the subsequent invalidation of asserted patent claims did not support reopening the matter, the court said. ION and WesternGeco had entered into a compromise agreement resolving all of the issues in the case except the lost profits award, and they stipulated to a final judgment. ION further manifested assent to the finality of the judgment by not appealing it and by completing its payments.

Lost profits. ION argued that, despite the Supreme Court’s decision, the Federal Circuit should either hold that lost profits are not recoverable in this case or remand for a new trial. According to ION, the parties were not direct competitors because ION sold only devices and WesternGeco sold only geophysical surveys. Therefore, ION contended, lost profits in the surveys were not recoverable. The Federal Circuit was not convinced, explaining that case law cited by ION stood for the proposition that "but-for" causation was needed to recover lost profits, but did not impose a requirement of direct competition between the patentee and infringer. According to the court, WesternGeco’s and ION’s devices competed by performing the same types of functions for surveys, and there was ample evidence that their products did compete, in that oil companies considered Western-Geco’s device and ION’s device to be substitutes for their surveying needs. The fact that ION sold devices while WesternGeco sold surveys could be relevant to the computation of lost profits, however. ION had waived any argument in this appeal regarding apportionment of damages by failing to raise it earlier, but if the district court ordered a new trial, ION could present arguments on this issue, the appellate court explained.

ION also argued that the intervening invalidation of most of the asserted patent claims meant that the lost profits award could not be sustained. The jury had not been instructed to award damages based separately on infringement of each of the asserted claims, and the jury had not done so. The award could have been based on a now-invalidated claim and therefore could not be sustained on review, the court said. However, a new trial was not automatically called for if the jury must have found that the technology covered by the one remaining claim at issue was essential for performing the surveys. That is, the profits award could be sustained if there was no dispute that the remaining claim’s technology, independent of the technology covered by the invalidated claims, was required to perform the surveys at issue. The record was unclear and undeveloped as to this issue, and had been inadequately briefed by the parties. In the Federal Circuit’s view, the district court was in a better position to consider the issue in the first instance. Therefore, the case was remanded to the district court for determination of whether a new trial on lost profits was required.

This case is Nos. 2013-1527, 2014-1121, 2014-1526, and 2014-1528.

Attorneys: John C. O'Quinn (Kirkland & Ellis LLP) for WesternGeco L.L.C. David I. Berl (Williams & Connolly LLP) for ION Geophysical Corp.

Companies: WesternGeco L.L.C.; ION Geophysical Corp.

MainStory: TopStory Patent FedCirNews

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