Following remand from the Supreme Court of the United States, the US Court of Appeals for the Federal Circuit addressed the impact of an intervening invalidation of four of six patent claims in issue by the Patent Trial and Appeal Board (PTAB) on the measure of a fully paid reasonable royalty and on the award of lost profits. WesternGeco LLC v. ION Geophysical Corp., Case Nos. 13-1527, 14-1211, -1526, -1528 (Fed. Cir. Jan. 11, 2019) (Dyk, J).

This litigation originated when WesternGeco sued ION Geophysical for infringement of six claims spanning three patents directed toward marine seismic surveys for discovering oil and gas deposits beneath the ocean floor. At the original trial, ION was found to infringe the claims under 35 USC § 271(f)(1) and (2), and the court awarded WesternGeco $12.5 million in reasonable royalties and $93.4 million in lost profits. The Federal Circuit initially reversed the lost profits award based on unauthorized extraterritorial application of the patent laws. After the Supreme Court heard the case (IP Update, Vol. 21, No.1), it instructed the Federal Circuit to reevaluate its decision in light of Halo Electronics. The Federal Circuit again reversed the lost profits award, but remanded to the district court on the issue of enhanced damages, for which the district court eventually awarded $5 million.

At this point, the parties stipulated to the reasonable royalty amount (which ION paid) and agreed not to appeal the enhanced damages award, but did nothing to stipulate on the issue of lost profits. WesternGeco again petitioned the Supreme Court on the issue of lost profits, and the Supreme Court again granted certiorari on the lost profits issue.

In June 2018, the Supreme Court determined that the $93 million in lost profits awarded to WesternGeco for infringement under § 271(f)(2) was a permissible domestic application of § 284. The Supreme Court referenced the Federal Circuit’s prohibition of lost profits for non-US activities and again remanded the case to the Federal Circuit. Meanwhile, parallel proceedings before the PTAB resulted in a finding that four of the six asserted patent claims were invalid, and that only one of the two surviving claims could support WesternGeco’s lost profits claim.

In the present appeal, based on the PTAB’s invalidation of four of the six asserted claims, ION challenged both the fully paid and satisfied reasonable royalty award and the lost profits award.

ION argued that the calculation of the reasonable royalty should be affected by the PTAB’s invalidation of four of the asserted claims, and sought a new damages trial. ION cited Fresenius USA, Inc. v. Baxter Int’l. as authority for the proposition that a judgment cannot be final for purposes of intervening patent invalidations if any part of the litigation remains pending, i.e., the lost profits issue in this case. The Federal Circuit disagreed, noting that Fresenius does not allow reopening of a satisfied and unappealable final judgment. The Court went on to note that the compromise agreement resolving all issues outside of the lost profits appeal made it impossible for ION to reopen the agreed and fully paid unappealable final judgment on the reasonable royalty.

With respect to the lost profits award, ION argued two main points. First, it argued that the district court erred as a matter of law in rejecting the theory that WesternGeco was not entitled to lost profits because ION was not a direct competitor of WesternGeco—an argument the Federal Circuit quickly dismissed. The Federal Circuit noted that both companies performed similar functions in terms of ocean floor surveys and that sufficient evidence existed in the record to support the jury’s finding on direct competition.

Second, ION argued that lost profits cannot be sustained in light of the PTAB’s invalidation of all but one of the claims that supported the initial lost profits award. The Federal Circuit noted that the jury found all of the asserted claims infringed and made a single lost profits award, but the jury instructions and verdict form did not instruct the jury to award damages based separately on infringement of each of the asserted claims. The Court noted that WesternGeco did not cite to any specific testimony that infringement of the only surviving claim supporting the lost profits award was necessary to perform the 10 surveys that WesternGeco had contended it lost to ION. The Court concluded that in order to sustain the lost profits award, the record must establish that there was no dispute that the technology covered by the sole remaining claim, independent of the technology covered by the invalidated claims, was required to perform the 10 surveys at issue.

Explaining that the district court was better positioned to decide this factual inquiry, the Federal Circuit remanded the case to determine whether a new trial on lost profits was required, stating that “[t]he district court may deny a new trial on lost profits if, but only if, it concludes that WesternGeco established at trial with undisputed evidence that [the surviving claim] covers technology necessary to perform the surveys upon which the lost profits award is based.”

Practice Note:  On February 19, 2019, the Supreme Court of the US declined cert on a petition by WesternGeco to rule on the propriety of the AIA challenges that led to the PTAB invalidation of the above noted asserted claims. In its cert petition, WesternGeco complained about the “incoherent” Federal Circuit precedent for interpreting the § 315 1 year time-bar blocking challenges by a “petitioner, real party in interest, or privy of the petitioner” that has been sued for infringing the patent. Supreme Court Case No. 18-861.

Paul St. Marie, Jr., an intellectual property law clerk in the Washington, DC office, also contributed to this article.