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general / Intellectual Property

Willful Infringement and enhanced damages, post-Halo

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Courts and patent practitioners alike have long wrestled with the question of what conduct constitutes willful infringement or justifies enhanced damages. The patent damages statute, 35 U.S.C. Section 284, does not articulate a standard for when enhanced damages are appropriate, and neither it nor the statutes that preceded it ever has. 35 U.S.C. Section 284 (2018) ("the court may increase the damages up to three times the amount found or assessed"). While the Patent Act of 1793 required treble damages on a successful patent suit, Congress backed away from that policy in 1836 and made enhanced damages discretionary. See Halo Elecs., Inc. v. Pulse Elecs., Inc., 136 S. Ct. 1923, 1928 (2016) (citing Patent Act of 1793, Section 5, 1 Stat. 322; Patent Act of 1836, Section 14, 5 Stat. 123). Though courts have tried to make it easier for accused infringers to predict their liability exposure by articulating specific standards, it seems that we always end up right back where we started: Whether to allow or deny enhanced damages is within courts' discretion based on the circumstances of each case.

Halo Electronics

Two years ago, the U.S. Supreme Court made waves in Halo by shifting the legal landscape for willful patent infringement. In Halo, the court rejected the U.S. Court of Appeals for the Federal Circuit's Seagate test for willfulness, finding that the test was "unduly rigid" and "exclud[ed] from discretionary punishment many of the most culpable offenders, such as the 'wanton and malicious pirate' who intentionally infringes another's patent -- with no doubts about its validity or any notion of a defense -- for no purpose other than to steal the patentee's business." See In re Seagate Technology, LLC, 497 F. 3d 1360 (2007) (en banc). According to the court, "[t]he principal problem with Seagate's two-part test is that it requires a finding of objective recklessness in every case before district courts may award enhanced damages. ... In the context of such deliberate wrongdoing, however, it is not clear why an independent showing of objective recklessness -- by clear and convincing evidence, no less -- should be a prerequisite to enhanced damages." Electing to "eschew any rigid formula" for awarding enhanced damages under the Patent Act, the court held that objective recklessness is no longer a prerequisite to either willfulness or enhanced damages. Accordingly, under Halo, evidence of highly culpable conduct alone can support either a jury finding of willfulness or a court exercising its discretion to award enhanced damages.

The Court's Role Post-Halo

The result of the Supreme Court's rejection of the objective prong of Seagate has been less certainty. This is apparent from the fact that the success rate of summary judgment motions of no willful infringement has plummeted, from 71 percent in 2014 (before Octane Fitness v. ICON Health & Fitness, 2018 DJDAR 5346 (U.S. 2014)), to 29 percent in 2017. And with more willfulness claims going to the jury, and no requirement of objective recklessness, the success rate for plaintiffs claiming willful infringement appears to be increasing. A 2018 study by PricewaterhouseCoopers comparing the treatment of willfulness and enhanced damages pre- and post-Halo found that incidence of willfulness have increased from 36 to 54 percent after Halo. At the same time that willfulness findings have gone up post-Halo, however, awards of enhanced damages have gone down, from an average of 2.5x to 2.1x.

The elimination of the objective prong of the Seagate test has placed a greater emphasis on the question of enhanced damages. Pre-Halo, the objective prong of the Seagate test often served as a gating issue that prevented willfulness claims from getting to the jury. As a result, there were fewer instances of the courts considering enhanced damages. Post-Halo, however, "the district court no longer determines as a threshold matter whether the accused infringer's defenses are objectively reasonable. Rather, the entire willfulness determination is to be decided by the jury." Exmark Mfg. Co. v. Briggs & Stratton Power Prods., 879 F.3d 1332, 1353 (Fed. Cir. 2018). Thus, more claims go to the jury and the courts' focus has shifted to the question of enhanced damages. The one consistent bar to willfulness claims making it to the jury seems to be that knowledge of a patent and infringing conduct, without more, has generally been found to be insufficient to support a claim for willful infringement. See Halo, 136 S. Ct. at 1936 (Breyer, J., concurring) (knowledge of the patent "and nothing more" does not permit enhanced damages); see also CG Tech. Dev., LLC, v. Zynga, Inc., No. 2:16-cv-00859-RCJ-VCF (D. Nev. Feb. 17, 2017) (dismissing willfulness claim where "[p]laintiffs have simply made the conclusory allegations that Defendant was aware of the '818 Patent and that the continued offer, use, and promotion of its infringing social casino products ... constitutes willful and egregious infringement behavior."); Greatbatch Ltd., v. AVX Corp., 13-cv-00723 (D. Del. Dec. 13, 2016) ("a party's pre-suit knowledge of a patent is not sufficient, by itself, to find "willful misconduct" of the type that may warrant an award of enhanced damages."); Cont'l Circuits LLC v. Intel Corp., No. CV16-2026 PHX DGC, (D. Ariz. Feb. 21, 2017); Jenkins v. LogicMark, LLC, No. 3:16-CV-751-HEH (E.D. Va. Jan. 25, 2017); Varian Med. Sys., Inc., v. Elekta AB, No. 15-871-LPS (D. Del. July 12, 2016). If there is evidence of something "more," however, courts have shown a tendency to let the jury decide. Cf. Greatbatch Ltd., v. AVX Corp., 13-cv-00723 (D. Del. Dec. 13, 2016) (declining to reverse summary judgment of no willfulness pots-Halo where plaintiff did not "point to evidence from which a reasonable jury could find any infringement of these patents by AVX was 'egregious,' 'deliberate,' atypical, or otherwise characteristic of the type of infringement that could support a finding of willful infringement."). Exactly what "more" is required to succeed on a claim for willful infringement remains undefined. Nevertheless, the result of the elimination of the objection threshold seems to be a higher rate of willfulness verdicts and a greater scrutiny of whether alleged conduct justifies enhanced damages. Thus, rather than policing willfulness claims through evaluation of the objective prong, courts are more often policing the claims through their post-verdict evaluation of enhanced damages.

More Focus on Enhancement of Damages

An example of the changing dynamics with respect to willful infringement post-Halo can be seen in Sprint Communications Co. v. Time Warner Cable, Inc., 2:11-cv-02686 (D. Kans. 2017). In that case, the defendant moved for summary judgment of no willful infringement but subsequently withdrew the motion following the Supreme Court's decision in Halo. The jury later found that the asserted patents had been willfully infringed and the plaintiff sought enhanced damages pursuant to 35 U.S.C. Section 284. The court noted the change in law effected by Halo, stating that "even though satisfaction of the first Seagate prong is no longer a prerequisite for an award of enhanced damages, the objective reasonableness of the accused infringer's defenses is still a relevant factor for the district court to consider in exercising its discretion concerning an award of enhanced damages." Nevertheless, the court concluded that "[a]lthough the Court considers that finding that Time Warner Cable, in essence, knowingly or recklessly infringed Sprint's patents, it is not obligated to award enhanced damages based on that finding, and it declines to do so in this case." After analyzing the Read factors, the court concluded that "this case is not egregious, but is closer to the typical infringement case." See Read Corp. v. Portec, Inc., 970 F.2d 816 (Fed. Cir. 1992), abrogated in part on other grounds by Markman v. Westview Instruments, Inc., 517 U.S. 370, 116 S.Ct. 1384, 134 L.Ed.2d 577 (1996).

The Sprint Communications court also noted that "[s]ince Halo, district courts have routinely declined to award enhanced damages (usually upon consideration of the Read factors) despite jury findings of willful infringement." The Read factors have been used by many courts post-Halo to assess whether an award of enhanced damages is appropriate. (The Read factors are: (1) whether the infringer deliberately copied the ideas or design of another; (2) whether the infringer, when he knew of the other's patent protection, investigated the scope of the patent and formed a good-faith belief that it was invalid or that it was not infringed; (3) the infringer's behavior as a party to the litigation; (4) Defendant's size and financial condition; (5) closeness of the case; (6) duration of the defendant's misconduct; (7) remedial action by the defendant; (8) defendant's motivation for harm; and (9) whether the defendant attempted to conceal its misconduct.) At least one court has noted, however, that "[w]hile the Read factors remain helpful to this Court's analysis, the touchstone for awarding enhanced damages after Halo is egregiousness." Trustees of Boston U. v. Everlight Elecs. Co., Ltd., 212 F. Supp.3d 254, 257 (D. Mass. 2016).

The interplay between willfulness and enhanced damages was likewise noted in Judge Ron Clark's decision in Barry v. Medtronic, Inc., 250 F. Supp. 33 107, 111 (E.D. Tex 2017) (citing Halo). In that case, the court upheld the jury's finding of willfulness, but noted that "a finding of willfulness does not require that a district court enhance damages." (Internal citations removed.) The court explained that it "'must take "into account the particular circumstances of each case' and assiduously consider whether 'the egregiousness of the defendant's conduct based on all the facts and circumstances' warrants enhancement. Enhanced damages are not to be meted out in typical 'garden-variety' patent suits, and instead, should be reserved for truly 'egregious cases.' Just as the decision of whether to enhance damages under Section 284 is committed to the sound discretion of the court, the amount of the enhancement -- not to exceed treble damages -- is also discretionary." (Internal citations removed.)

Ultimately, the court in Barry enhanced damages by 20 percent based on evidence of deliberate or at least reckless copying, the lack of defendant's investigation of the scope of the asserted patent, the relative size of the parties and the failure of the alleged infringer to take remedial action upon learning of its potential infringement.

Another example of the greater focus on the question of enhancement of damages can be found in Presidio Components v. American Technical Ceramics, 875 F.3d 1369, 1382 (Fed. Cir. 2017). In that case, the jury found that defendant American Technical Ceramics had willfully infringed Presidio's asserted patent, but the court declined to award enhanced damages. After the litigation had already commenced, Presidio sought and obtained an ex parte reexamination certificate for the asserted patent in light of new prior art. The asserted claims, amended during the reexamination, read on American Technical Ceramics' accused capacitors. At the point in the case that the reexamination certificate issued, American Technical Ceramics had already been selling the capacitors for six years, had developed defenses based on the court's claim construction, and had caused Presidio to narrow its claims' scope during reexamination. In light of those facts, the district court concluded that enhanced damages were unwarranted because the case was a "garden-variety hard-fought patent case, rather than an egregious case of misconduct." On review, the Federal Circuit held that it was not an abuse of discretion for the district court to decline to award enhanced damages despite the jury's willfulness finding and despite that the court did not explicitly address each of the Read factors. Rather, Presidio held that the district court did all that was required by Halo: reviewing the particular circumstances of each case and making a determination. See also Brigham & Women's Hosp., Inc. v. Perrigo Co., 251 F. Supp. 3d 285, 292-93 (D. Mass. 2017); Trustees of Boston Univ., 212 F. Supp.3d at 257 ("[T]he touchstone for awarding enhanced damages after Halo is egregiousness.").

Finally, in Polara Engineering Inc. v. Campbell Co., 894 F.3d 1339 (Fed. Cir. 2018), the Federal Circuit upheld a finding of willfulness but vacated the district court's award of enhanced damages. The court first noted that "[a]lthough 'the district court is not required to discuss the Read factors,' it 'is obligated to explain the basis for the [enhanced damages] award, particularly where the maximum amount is imposed.' In exercising its discretion, the district court must 'take into account the particular circumstances of each case,' and 'consider all relevant factors in determining whether to award enhanced damages.' After Halo and under Read, the 'closeness of the case' remains a relevant consideration for determining the appropriateness of enhancement."

In evaluating the closeness of the case, the district court in Polara had "merely observed that 'obviousness was a close call' and that the 'other invalidity theories were weaker.'" The Federal Circuit found this "explanation is insufficient for us to determine why the court viewed this factor as 'neutral.'" Thus, the court vacated the award of enhanced damages and remanded with an instruction that the district court "provide a more complete explanation, including a discussion of the public use defense, in exercising its discretion."

Takeaways

After Halo, claims for willful infringement appear to be getting to the jury with greater frequency. However, in essence, willfulness only matters to the extent it threatens an award of enhanced damages. Both before and after Halo, courts have had and continue to have the discretion to award enhanced damages for particularly egregious conduct. Yet "discretion is not whim," and enhanced damages are "not to be meted out in a typical infringement case." Rather, "such damages are generally reserved for egregious cases of culpable behavior."

Practitioners litigating a willfulness claim should pay greater attention to the question of enhanced damages and consider how the Read factors apply to their particular case. Although courts are not required to use those factors in deciding whether to enhance, they have been used with significant frequency. Developing evidence during the case, and at trial, bearing on those factors may ultimately be key to proving, or defeating, entitlement to enhanced damages if there is a finding of willfulness.

#373

Ben Armistead


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