Category: Uncategorized

As we reported here, record-keepers for large 401(k) plans have thus far been successful in defending ERISA fiduciary-breach litigation over investment advice powered by Financial Engines.  These lawsuits generally claim that fees collected by record-keepers for investment advice were unreasonably high because the fees exceeded the amount actually paid to Financial Engines.  Plaintiffs in Chendes v. Xerox HR Solutions, LLC were given a second chance to plead their claims, this time alleging that the defendant record-keeper was a fiduciary because it “used its influence” as the plan’s record-keeper to force the plan sponsor to engage Financial Engines—primarily by refusing to use any other investment adviser—and therefore exercised de facto control over the plan’s retention of Financial Engines.  The court rejected the argument that constraining the plan’s service provider choices amounted to de facto control since the plan had other alternatives to choose from (such as not using an investment adviser or changing record-keepers) and dismissed the claim without leave to amend, ending the case at the district court.  The case is Chendes v. Xerox HR Solutions, LLC., Case No. 2:16-cv-1398, ECF No. 63 (E.D. Mich., June 25, 2018).

The Texas Supreme Court unanimously ruled on June 22, 2018, that a state law on solid waste disposal pre-empts local ordinances banning single-use bags. The ruling strikes down the City of Laredo’s Plastic Bag Ordinance that bans single-use plastic and paper bags. (An amendment to the Ordinance included single-use paper bags in the definition of “checkout bag.”)

The Laredo Merchants Association initially sued the city in March 2015 claiming that the Laredo plastic bag ban was illegal because it is pre-empted by Texas Health & Safety Code Section 361.0961, which bans local ordinances that: 1) prohibit or restrict the sale or use of a “package” or “container”; 2) have “solid waste management purposes”; and 3) are not otherwise authorized by state law. The 341st Judicial District Court in Webb County sided with the city; however, on August, 16, 2016, the Court of Appeals ruled 2-1 to overturn the lower Court’s ruling.

In City of Laredo v. Laredo Merchants Association (case number 16-0748), the City maintained that its ordinance to reduce litter from single-use bags was designed to beautify the city and reduce clogs in storm drains, not to manage solid waste. In the July 22, 2018 ruling, Judge Nathan Hecht wrote, “The Ordinance’s stated purposes are to reduce litter and eliminate trash—in sum, to manage solid waste, which the Act preempts. The Ordinance cannot fairly be read any other way.”

The Texas Supreme Court accepted this case, in part, because several Texas municipalities have enacted ordinances banning single-use bags. Responding to the Court’s decision, Texas Attorney General Ken Paxton issued a release in which he stated:

“I commend the Texas Supreme Court for upholding the principle that no one is exempted from the rule of law…Municipalities violate the law when they unlawfully pass the burden of solid waste management to citizens and retailers through illegal bag bans. I hope that Laredo, Austin, and any other jurisdictions that have enacted illegal bag bans will take note and voluntarily bring their ordinances into compliance with state law…”

On June 22, 2018, the U.S. Department of the Treasury (“Treasury”) issued Notice 2018-59 (the “Notice”), which deals with the “begin construction” test that is applicable to solar projects. More specifically, the newly issued guidance clarifies the eligibility requirements applicable to the Investment Tax Credit (“ITC”) claimed in connection with solar projects, closely following the “begin construction” guidance Treasury has previously issued for wind developers in order to determine eligibility for the production tax credit (“PTC”).

The Notice provides solar developers with long-awaited guidance on what constitutes the “begin construction” test in order for a solar project to qualify for the ITC equal to 30 percent. Similar to PTC guidance, the Notice provides two methods for determining when construction begins on solar projects: (1) the Physical Work Test and (2) the Five Percent Safe Harbor Test. Under the Physical Work Test, solar developers must show that physical work of a significant nature has begun. Under the Five Percent Safe Harbor Test, solar developers must show that at least 5 percent of the total cost of energy property has been paid or incurred. The Physical Work Test requires that a solar developer maintains a continuous program of construction, and the Five Percent Safe Harbor Test requires that the solar developer maintains continuous efforts toward completion of the solar project (collectively, the “Continuity Requirement”).

A welcome safe harbor for satisfying the Continuity Requirement is provided by the Notice. If the solar project is placed in service by the end of the calendar year that is no more than four calendar years after the calendar year in which construction begins, the Continuity Requirement will be deemed to have been met. If this safe harbor is not met, a solar developer can still satisfy the Continuity Requirement (via the Physical Work Test or the Fiver Percent Safe Harbor Test) through facts and circumstances.

Similar to PTC guidance, the Physical Work Test described in the Notice provides that whether physical work of a significant nature has begun depends on the relevant facts and circumstances and may include work performed by the taxpayer, work performed for the taxpayer by another person under a binding written contract, and work that occurs both on-site and off-site. As provided in the Notice, examples of on-site work that would qualify include:

• Solar – installation of racks or other structures to affix photovoltaic panels, collectors, or solar cells to a site;

• Geothermal – physical activities that are undertaken at a project site after a valid discovery such as the installation of piping, turbines, generators, flash tanks, or heat exchangers; and

• Small wind energy – installation of the foundation, tower, wiring, or grounding systems.

For off-site work, physical work of a significant nature includes the manufacture of components, mounting equipment support structures such as racks and rails, inverters, transformers, and other power conditioning equipment. Similar to PTC guidance, physical work of a significant nature does not include the manufacturing of components that are in existing inventory or normally held in the inventory of a vendor.

The Notice also provides guidance on the types of activities that will not be taken into account for purposes of the “begin construction” test. For instance, physical work of a significant nature is limited to property that is considered integral to the production of electricity and does not include:

• Property used for transmission;

• Roads used to access the site or that are primarily used for employee or visitor vehicles;

• Buildings that are not functionally an item of equipment or do not house energy equipment and are expected to be removed when the energy property they house is removed; and

• Fencing.

In addition, preliminary activities such as planning or designing, securing financing, obtaining permits and licenses, or clearing a site, do not count for purposes of the “begin construction” test.

If a solar project that starts construction in 2018 or 2019 meets (A) either the Physical Work Test or the Five Percent Safe Harbor Test (as summarized above), and (B) the Continuity Requirement (as summarized above), and (C) the project is placed in service by December 31, 2023, then the project will qualify for the full ITC of 30 percent. The amount of the ITC that can be claimed decreases to 26 percent for projects that otherwise qualify and start construction in 2020 and 22 percent for projects that otherwise qualify and start construction in 2021.

Finally, similar to PTC guidance, the Notice clarifies that the taxpayer may transfer property after construction begins without jeopardizing eligibility for the ITC. Specifically, a solar developer can contribute a Physical Work or Five Percent Safe Harbor Test project to a tax equity partnership, a tax equity investor can acquire a membership interest in that partnership, and the partnership can claim the ITC based on the developer’s prior ITC qualification when the project is placed in service. In addition, a purchaser of a partially developed solar project may tack on the developer’s costs or work for purposes of the Physical Work or Five Percent Safe Harbor Test.

Despite this good news, unanswered questions remain. Namely, Treasury has yet to issue specific guidance regarding whether solar-plus-storage projects are eligible for the ITC. Although a series of published Private Letter Rulings have strongly suggested that storage projects that are part of a solar facility are eligible for the ITC, Treasury has yet to release any definitive guidance on this topic. It remains to be seen whether Treasury might include such guidance in any future revisions of the ITC Treasury Regulations or whether Congress might address the issue through legislation.

The Department of Defense (DoD) has once again emphasized its willingness to engage with commercial companies and other non-traditional contractors to try to expedite and simplify its procurement of innovative technologies. In particular, the Defense Information Systems Agency (DISA) indicated that it plans to enter directly into Other Transaction Authority (OTA) agreements, and DoD issued a class deviation for a commercial solutions opening (CSO) pilot program.

These developments, in connection with the continued promotion of OTA agreements by DoD’s Defense Innovation Unit Experimental organization (DIUx), provide commercial companies with additional incentives to enter into creative collaborations with the U.S. Government.

DISA OTAs

On June 29, DISA issued a News Release on its website to highlight the agency’s commitment to using its recently granted Other Transaction Authority to drive innovation and solutions to the warfighter. DISA recognized that the traditional procurement rules encompassed by the Federal Acquisition Regulation (FAR) and Defense Federal Acquisition Regulation Supplement (DFARS) can discourage potential partners and thus slow or prevent access to goods and services that would benefit our nation’s defense. As a potential solution for concerns associated with traditional procurement contracts, DISA explained that OTA agreements can provide more flexibility, which in turn permits the agency to “approach acquisitions in a commercial-like manner with some restrictions.”

As noted in an earlier post, there are many benefits for contractors that proceed with an OTA agreement in lieu of a traditional procurement contract. In addition to generally providing the benefit of a more rapid acquisition process, a significant advantage of an OTA agreement is that the FAR, DFARS, and many of their accompanying compliance obligations do not apply. For example, although DoD may want to include cost requirements in an OTA agreement, neither the cost principles in FAR Part 31 nor the Truth in Negotiations Act are applicable by law. DoD also retains flexibility to negotiate intellectual property rights that may deviate from default rights established under the Bayh-Dole Act, Part 27 of the FAR, and Part 227 of the DFARS.

The lack of set rules, however, may prove challenging for established contractors that have structured internal business systems based on FAR-based contract requirements and may not know where to begin in negotiating an OTA agreement. At the same time, entities that are not familiar with the FAR may have difficulty negotiating with DoD contracting officers who may try to impose the same forms and clauses that would otherwise apply under traditional procurement contracts. Small entities in particular may not have the resources to fully assess the consequences of agreeing, for example, that all costs incurred under an OTA agreement comply with FAR Part 31. Accordingly, both private and government negotiators need to understand that an OTA agreement is meant to be “commercial like” and can and should be drafted to meet the parties’ needs with or without reference to traditional contracting frameworks.

Although DISA has to date relied on other agencies to support its OTA agreements, it plans to enter into OTA agreements directly in the future using a CSO process that is similar to a process initially developed by DIUx. Only time will tell whether DISA will be able to retain sufficient flexibility in negotiations to maximize the benefits of OTA agreements while also addressing their challenges.

CSO Pilot Program

On June 26, three days before the DISA News Release, DoD issued a class deviation for a pilot program that allows contracting officers to use a simplified CSO process for standard procurement contracts to acquire “innovative commercial items, technologies or services.” The deviation permits DOD components to award traditional procurement contracts through a peer-reviewed process that will be deemed competitive without head-to-head competition between proposals. The pilot program implements Section 879 of the National Defense Authorization Act for Fiscal Year 2017, which represents another congressional push for DoD to use non-traditional processes to pursue cutting-edge technologies.

Much like the CSO process initially applied by DIUx and adopted by DISA for OTA agreements, the pilot program allows DoD contracting officers to select proposals received in response to a general solicitation that is similar to a broad agency announcement without being limited to basic or applied research projects. Instead, eligible projects only need to be “innovative,” covering completely new technologies, processes, or methods—including research and development—in addition to new applications of technologies, processes, or methods that are already in existence.

Specific limitations and requirements that traditionally apply to prototype projects and circumstances involving limited competition will not apply to the pilot program’s CSO process. However, awards valued at more than $100 million will be subject to prior approval and congressional reporting requirements. In addition, unlike OTA agreements, awards will need to be issued under the pilot program on a fixed-price basis.

Contracting officers will be required to post a notice of availability of a pilot program CSO at least annually and, in limited situations, may advertise a CSO in scientific, technical, or engineering periodicals. Proposals submitted in response to a CSO will not be evaluated against each other because they will not be submitted in response to a common performance work statement or statement of work. Thus, like awards resulting from the CSO process used by DIUx and DISA, as well as broad agency announcements generally, there can be more than one awardee working on similar projects.

Following DISA’s approach, contracting officers implementing the pilot program may ultimately reference CSO evaluation procedures that have already been established and tested by DIUx. Importantly, the pilot program’s concept of “innovative” development is based on criteria initially established by DIUx, and contracts awarded under the pilot program likely will support many of the same goals as OTA agreements.

The authority to enter into a contract under the pilot program is scheduled to expire on September 30, 2022, although existing pilot contracts in effect at that time will be permitted to continue performance until completed.

Two recent developments reinforce my expectation that the Supreme Court will need to clarify the scope of its 2005 Granholm v. Heald decision within the next few years.

Granholm struck down state restrictions on the interstate sale and shipment of wine by wineries, where the state permitted in-state wineries to engage in such direct-to-consumer sales activities but withheld that privilege from out-of-state wineries. According to that decision, such facially-discriminatory laws are virtually per se unconstitutional under the so-called “dormant” Commerce Clause, and are not saved by the additional power that states have over alcohol sales under the 21st Amendment. The Granholm court also referred to the three-tier system as “unquestionably legitimate.”

In the years since Granholm, lower federal courts have wrestled with the question of whether or not the Commerce Clause’s non-discrimination principle is limited to state laws imposing different rules on in-state versus out-of-state producers and products. Decisions by several Circuit Courts of Appeal, including the US Court of Appeals for the Second Circuit (Arnold’s Wines, 2009) and the Eighth Circuit (Southern Wine, 2013), have concluded that only those state laws discriminating against out-of-state producers or products face the high level of scrutiny mandated by Granholm. Others, including the Fifth Circuit (Cooper II, 2016) and the Sixth Circuit (Byrd, 2018), have concluded that state laws regulating the wholesale- and retail-tiers remain subject to vigorous Commerce Clause scrutiny. Notably, however, the Fifth and Sixth Circuit opinions also suggest that the outcome of a challenge to a state law regulating the wholesale- or retail-tier may depend on the type of law challenged, and both involved residency requirements for licensees, not laws directly regulating the sale and shipment of alcohol.

Developments in the past month add incremental pressure on the federal judiciary to provide clarity on these issues.

First, on June 14, 2018 Orion Wine Imports filed a complaint alleging that the California laws prohibiting out-of-state wine importers and wholesalers from selling directly to California retailers violate the dormant Commerce Clause, as in-state importers and wholesalers can (of course) make such sales. (As in most Commerce Clause cases, the complaint also includes a count arising under the Privileges and Immunities Clause, but such claims almost invariably rise or fall with the outcome of the Commerce Clause claim.) Among the counsel for Orion Wine Imports are Robert Epstein and James Tanford, two Indiana-based attorneys who have been at the forefront of direct wine shipping litigation for almost two decades. Notably, California falls within the Ninth Circuit, and that court has yet to issue an opinion taking a position on the application of Granholm to laws regulating the wholesale- or retail-tiers.

Second, on June 15 the US District Court for the Eastern District of Missouri handed down an opinion in Sarasota Wine Market v. Parson, E.D. Mo. No. 4:17CV2792 HEA. The opinion grants the state defendants’ motion to dismiss a case brought by a Florida wine retailer and a Missouri resident seeking to purchase wine from out-of-state retailers. Because Missouri sits within the Eighth Circuit, it was not surprising at all that the district court found the plaintiffs’ claims under the Commerce Clause and Privileges and Immunities Clause foreclosed by the Eighth Circuit’s 2013 decision in Southern Wine and Spirits v. Division of Alc. & Tobacco Control. Much more surprising was the district court’s conclusion that the plaintiffs lacked standing to sue. An appeal seems likely.

With another post-Granholm case filed and another case decided and likely headed to an appeal, these developments add incrementally to the pressure for the US Supreme Court to hear a case involving the application of the dormant Commerce Clause to a state alcohol beverage law regulating the wholesale- or retail-tier. Which particular case and particular issue eventually becomes the subject of Supreme Court review is anyone’s guess. But the stakes are high for both sides: A limitation of the non-discrimination principles arising from the Commerce Clause to state alcohol laws regulating only producers or products would remove an important tool that various plaintiffs have used to challenge the alcohol market’s status quo in the past decade. Conversely, the broad application of non-discrimination principles to state alcohol laws regulating wholesale and retail sales would forcefully push the United States towards a single national alcohol beverage market.

It remains possible that the Supreme Court does not address these questions for decades. But the existing circuit split and escalating litigation activity illustrated by last month’s developments all point to a Granholm sequel at the Supreme Court—what I call the “Son of Granholm”—sooner rather than later.

Despite dealing in one of the most valuable asset classes in the world, the real estate industry largely relies on outdated real estate interest recording systems requiring paper-based filings with local government offices. The administrative burdens, inaccuracies and security issues raised by such systems are well known. Increasingly, both government actors and private parties have recognized the potential for key attributes of blockchain technology to modernize real property conveyance and improve processes for recording deeds and other related instruments:

• Greater efficiency due to digitization. The deed recording processes currently employed by many U.S. localities impose burdensome administrative costs. Typically, a physical deed must be delivered to a government employee at the local recording office, where it is subsequently scanned onto the county’s centralized database. Data points from the deed are then manually input onto a public index, which is relied upon to determine ownership of each piece of property recorded thereon. Any subsequent transfers of, or claims to, real property must be manually reconciled with this public index. Blockchains, on the other hand, are entirely electronic data structures. As such, their implementation could greatly reduce, if not eliminate, the constant need for scanning documents, printing labels and organizing physical files in local recording offices – enabling local governments to reallocate human resources to areas where they can be employed more productively.
• Accurate record of ownership that updates in real time. The manual indexing process described above is not just costly and time-consuming. It is also prone to human error, where inputting mistakes may cause future difficulties in accurately tracing chain of title. Since blockchains have the potential to consolidate conveyance and recording of real property rights into a transaction, they can greatly increase the likelihood that the public record accurately represents each conveyance, and do so in real time.
• Tamper-proof and disaster-resistant decentralized ledger. Finally, centralized databases, where recorded deeds are currently stored, are vulnerable to malicious attacks by third parties (or government insiders) seeking to steal, erase, forge or alter existing records. By design, blockchains may ensure that any such endeavor to corrupt the information contained “on-chain” is prohibitively costly. Further, localities typically do not have the resources available to implement a robust back-up system for their property records. Therefore, in the case of a natural disaster destroying physical files or a malicious cyberattack wiping a database, the entirety of the record could be permanently lost. A blockchain, meanwhile, may store recorded data on nodes spanning both geographies and populations, alleviating concerns of lost records, while concurrently reinforcing the integrity and security of the data with each additional node.

By facilitating the efficient allocation of government resources and accuracy and security in recordkeeping, blockchain may provide a desirable alternative or supplement to existing systems for tracking real property ownership. Widespread adoption, however, will first require addressing important legal and regulatory questions, including:

• Who will be able to submit data to the deed recording blockchain, and how will the accuracy of information be ensured at the point of entry onto the blockchain? Will transaction verification responsibilities and/or access to the ledger be limited to government officials, akin to current deed recording systems? Or will more open, permissionless systems be employed?
• How will coordination issues among the various parties involved in the process of real estate transactions be addressed?
• To what extent will state real estate recording acts need to be amended to specifically contemplate recordation on a blockchain system as valid for purposes of state law?
• In the event of disputes regarding a blockchain-based property ownership record, what unique limitations, if any, might a court face in exercising its authority? For instance, might it be necessary to provide injunctive relief in the form of a court-ordered hard fork, and if so, would such a measure even be possible to effectuate?
• Will data on blockchains satisfy legal evidentiary burdens (e.g., statute of frauds)?
• If localities opt to record real estate ownership both in the traditional manner and on a blockchain (or in some combination) and there are inconsistencies between the resulting records, which will govern in a court of law?

Ultimately, blockchain has the potential to improve upon problems that hamper deed recording systems in the United States today. However, until further legal clarity is achieved, wholesale adoption of blockchain-based real estate solutions may face resistance, despite their promise.

Nicholas Bette contributed to this article.

What’s Happening?

On June 28, 2018, Governor Jerry Brown signed a new privacy law that will allow California residents to exercise more control over the personal information companies collect on them and impose new penalties for noncompliance. The law is a first of its kind in the United States and is similar in some ways to Europe’s new General Data Protection Regulation (GDPR). The law will go into effect January 1, 2020, allowing companies time to prepare and adjust their business practices.

Known as the California Consumer Privacy Act of 2018 (AB 375), the law is a legislative response to a successful ballot initiative campaigned by the interest group “Californians for Consumer Privacy.” Once approved for the November ballot, lawmakers moved quickly to craft legislation that offers a more measured approach to consumer privacy than the ballot initiative. As drafted however, the law hews relatively close to the ballot initiative, prompting Californians for Consumer Privacy to withdraw their proposal. Lawmakers anticipate this law will be amended in the run-up to 2020 to further harmonize business interests and consumer protections.

What Does the Law Do?

The law gives consumers additional control over their personal information and new rights they may exercise with companies collecting their personal information. For example, the law provides for all of the following:

• Required Disclosures. The law will require new disclosures regarding consumer personal information. For example, a business may be required to disclose the purposes for which it collects or sells personal information, the categories of personal information that it collects, the sources from which that information is collected, and the categories of third parties with which the information is shared.

• Consumer Rights. The law grants consumers new rights similar to the GDPR’s data subject rights. Consumers will be able to request, for example, deletion of personal information from a business upon the business’ receipt of a verified request.

• Limited “Opt-Out” Discrimination. The law will prevent a business from charging a consumer who “opts-out” of disclosing personal information a different price, or providing a different quality of service, unless the difference is reasonably related to value provided by the consumer’s data.

• Enforcement Mechanisms. The law gives new enforcement powers to the Attorney General for noncompliance and a private right of action to individuals in connection with certain unauthorized access and exfiltration, theft, or disclosure of a consumer’s non-encrypted or non-redacted personal information, making it easier for individuals to sue companies after a data breach.

• Penalties. The law provides that any person, business, or service provider that intentionally violates the law may be liable for a civil penalty of up $7,500 per violation. The law will also allow recovery of damages in a private right of action for an amount not to exceed $750 per incident or actual damages, whichever is greater.

• Restricted Sale of Personal Data. The law will curb the sale and resale of personal data by third parties who receive personal data from a business, unless the disclosing business has given consumers explicit notice and the opportunity to “opt-out.”

• Age Restrictions. The law will prevent the sale of personal information of a consumer under the age of 16, unless affirmatively authorized through an “opt-in.” For individuals under the age of 13, parental consent will also be required.

• A Definition of “Personal Information.” The law defines “personal information” with reference to a broad list of characteristics and behaviors, personal and commercial, as well as inferences drawn from this information. The concept is much broader than the traditional United States understanding of personally identifiable information, bringing it closer to the GDPR definition of “personal data.”

What Should I Do?

If your business collects consumer personal information, whether for marketing purposes or in the course of providing your products or services, now is the time to reevaluate your privacy practices. While January 1, 2020 is more than a year away, achieving compliance early can save your business from costly enforcement actions. Privacy laws are rapidly changing across the globe. To be sure your business is in compliance with the law, whether now in effect or coming soon, it is critical to work with experienced counsel to evaluate your risk exposure.

You could almost hear the cheers of plaintiffs’ class action lawyers in California last night, as California’s governor signed the most sweeping privacy law this country has seen to date.  Notably, the law gives consumers the right to statutory damages in the event of a breach if the company holding the consumer’s information failed to implement reasonable security measures.  Those statutory damages are not less than $100 and not more than $750 “per consumer per incident or actual damages, whichever is greater.”

It is clear that the General Data Protection Regulation from Europe inspired many of this law’s other provisions, such as required transparency in how entities collect and share data and the right of individuals to have their personal information deleted.

The new law does not take effect until January 2020, giving organizations time to digest the requirements and providing legislators with the opportunity to refine the hastily drafted language. Corporations and legislators threw the bill together at the last minute to avoid a ballot measure that would have contained even more onerous fines, requirements and protections.

Section 271(f)(2) reads:
“Whoever without authority supplies…in or from the [US] any  component of a patented invention that is especially made…for use in the invention and not a staple article of commerce….where stccg component is uncombined in whole or in part, knowing that such component is so made of adapted and intending that such component will be combined outside of the [US] in a manner that would infringe the patent if such combination occurred within the [US], shall be liable as an infringer.”

Patent owners who prove infringement under s. 271 are entitled to relief under s. 284. Section 284 reads:

“Upon finding for the claimant, the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer….”

In WesternGeco LLC v. Ion Geophysical Corp., No. 16-1011 (June 22, 2018), the Supreme Court decided that patent owner WesternGeco (“WG”) was entitled to profits lost outside of the US due to Ion’s infringement under 271(f)(2). Ion had sent components of WG’s patented “system,” that allowed improved mapping of the ocean floor, abroad where they were assembled into the system by a third party that competed for business with WG–presumably by undercutting WG’s price.

The counterargument, embraced by a dissent by Goresuch and Breyer, was that allowing recovery of lost profits overseas amounted to a de facto impermissible extraterritorial extension of the monopoly created by a US patent. The majority argued that they were simply crafting an appropriate remedy for Ion’s infringing acts, that took place in the US.

The problem that the minority had with this approach is that the recovered damages were based on the profits that WG would have realized if it had no competition abroad, not the profits attained by the companies that could lawfully compete with WG once they assembled WG’s system.

The majority had to deal with the presumption that federal statutes apply only within the territorial jurisdiction of the US.

They concluded that the conduct relevant to the “focus” of s. 271 occurred in the US. Therefore, the case “involves a permissible domestic application” of the statute, even if other conduct occurred abroad.”

In other words, the Court unsurprisingly found that the infringement is the focus of the damages statute and that s. 271(2)(f) focuses on domestic conduct: “Thus, the lost profit damages that were awarded to WG were a domestic application of s. 282.”

Note that 271(2)(f) does not require that any activities occur abroad in order for liability to attach. Of course, if Ion sent the components abroad with knowledge and intent, but the third-party recipients never assembled the components and used the system to compete, Ion would still be guilty of infringement but there could only be token damages. The dissent would limit the damage award whether or not the components were assembled into the patented system.

The unasked question is not whether or not there was infringement, but were the damages “fair”? As the dissents complain, “WG seeks lost profits for uses of its invention beyond our borders. … In measuring its damages, WG assumes it could have charged monopoly rents abroad premised on a US patent that has no force there. Permitting damages of this sort would effectively allow US patent holders to use American courts to extend their monopolies to foreign markets.”

Me thinks that the dissent doth complain too much! Ion is being held liable for infringement due to specific acts it carried out in the US. If WG could charge monopoly prices abroad, it was not just because it could keep Ion from sending disassembled systems abroad. There was either no effective competition – because WG’s system was better than that used by competitors – or WG may own foreign patents rights in the countries where the third parties were assembling the systems, but WG decided that it was more cost-effective to sue in the US.

Of course, WG would be forced to sue abroad if a third party was sourcing the components abroad and assembling them abroad, but that discussion is beyond the scope of this note. I just note, as does the dissent, that a US patent does not protect its owner from competition beyond its borders but, as I have briefly discussed above, this case is not subject to such an easy analysis.