Your boss, the General Counsel, received a letter this morning from an aggressive patent assertion entity. It is one of many such letters the company received this year. The letter accuses your company’s flagship product of patent infringement. You are tasked with addressing this risk and taking steps to avoid a finding of willful patent infringement. Before the US Supreme Court decision this summer in Halo v. Pulse Electronics, you had a standard process for addressing these types of patent assertions; a process that you’ve followed for almost a decade under the Federal Circuit Court of Appeals’ Seagate decision. Now, after the Supreme Court’s decision in Halo, does your standard procedure need to change, and what steps should you take to reduce the risk of a finding of willful infringement? Should you get an opinion of counsel? Or is it impractical to do so, given the number of letters the company receives and the cost of getting such opinions? In this situation, you have several options, which we will review below. But first, a discussion of Halo‘s impact so far and what conduct courts have considered egregious enough to support an award of enhanced damages.
The In re Seagate Standard
Prior to Halo, the Federal Circuit’s two-part test to determine willful patent infringement (from In re Seagate Tech., LLC, 497 F.3d 1360 (Fed. Cir. 2007)) required that a patentee prove the following by clear and convincing evidence:
- Objective recklessness, i.e., that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent
- Subjective knowledge, i.e., that the risk of infringement was either known to the accused infringer or so obvious that it should have been known.
If a jury returned a verdict of willful infringement, the ultimate decision whether to enhance damages, and by how much, was within the discretion of the court. The court could increase the damages award by up to three times. 35 U.S.C. § 284.
The Supreme Court’s Halo Decision
In Halo, the Supreme Court made two significant changes to the Federal Circuit’s framework for willful infringement. First, the high court removed the “objective” prong from In re Seagate. The court reasoned that this test would absolve “wanton and malicious pirate[s]” from punishment by allowing defendants to insulate themselves with reasonable, but ultimately unsuccessful, defenses. Halo Electronics, Inc. v. Pulse Electronics, Inc., 136 S. Ct, 1923, 1926 (2016). In practice, the removal of this step precludes defendants’ ability to file a motion for summary judgment under this prong. Second, the court reduced the standard of proof from clear and convincing evidence to a preponderance of the evidence. Id. at *1927.
Under Halo, courts still retain the discretion to enhance damages after a finding of willfulness, and the decision even includes a description of the type of conduct that would warrant enhanced damages, to wit:
“The sort of conduct warranting enhanced damages has been variously described in our cases as willful, wanton, malicious, bad-faith, deliberate, consciously wrongful, flagrant, or—indeed—characteristic of a pirate.” Id. at *1932.
In focusing on this standard, the court cautioned against awarding enhanced damages in garden variety cases. Id. at *1935. As Justice Stephen Breyer explained in a concurring opinion, a district court should not award enhanced damages when “the evidence shows that the infringer knew about the patent and nothing more.” Id. at *1936.
Impact of the Halo Decision
After Halo, courts appear to be breathing new life into claims for willful patent infringement and enhanced damages claims. For example, in Transdata, Inc. v. Denton Municipal Electric, which was decided before Halo, a district court granted defendants’ summary judgment motion, finding no willful infringement based on plaintiff’s failure to prove the objective prong of the Seagate test. Transdata, Inc. v. Denton Mun. Elec., No. 10-cv-00557 RWS ,2016 U.S. Dist. LEXIS 110208, at *4 (E.D. Tex. June 29, 2016). After Halo, a district court in the Eastern District of Texas vacated its previous grant of summary judgment, finding that it was inconsistent with the current state of the law.
Similarly, in WesternGeco v. ION, a jury found willful infringement under the pre-Halo standard, and the district court judge granted the defendant’s JMOL of no willful infringement. WesternGeco L.L.C. v. ION Geophysical Corp., Nos. 2013-1527, 2014-1121, 2014-1526, 2014-1528, 2016 U.S. App. LEXIS 17215, at *1-2 (Fed. Cir. 2016). After Halo, the Federal Circuit vacated the district court decision and remanded the case for consideration of both willful infringement and enhanced damages.
In Innovention Toys v. MGA Entertainment, the Federal Circuit before the Halo decision reversed a willfulness finding by a jury after determining that defendant’s obviousness argument was not objectively unreasonable (i.e., the plaintiff failed to prove the objective prong of the old Seagate standard). Innovention Toys, LLC v. MGA Entm’t, Inc., No. 2014-1731, 2016 U.S. App. LEXIS 14371, at *2-3 (Fed. Cir. 2016). After Halo, the Federal Circuit vacated its ruling and remanded the case to the district court to consider enhanced damages. Id. at *4.
Halo’s impact therefore suggests that the bar to prove willful infringement is lower than it was under the Seagate standard.
Not all courts, however, have been crediting jury findings of willfulness or awarding enhanced damages after a jury verdict on willfulness. For example, in Radware v. F5 Networks, Inc., a jury found willful infringement under the old Seagate standard requiring proof by clear and convincing evidence. Radware, Ltd. v. F5 Networks, Inc., No. 13-cv-02024 RMW, 2016 U.S. Dist. LEXIS 112504, at *6 (N.D. Cal. Aug. 22, 2016). Evidence supporting willfulness was sparse. The defendant’s inside counsel knew of the patent only because it had received a 100-page notice of allowance in which the patent at issue was cited once by number. Id. at *11. The Radware court found that this was not enough to show willfulness and granted defendant’s JMOL for nonwillfulness.
Avoiding Egregious Conduct
Since Halo’s new standard took effect a few months ago, juries found willful infringement in three out of four cases where they returned a verdict of infringement. See Polara Engineering v. Campbell, Case No. SA-cv- 13-0007 (C.D. Cal. June 30, 2016) (finding willful infringement and $412,000 in damages); CH2O, Inc. v. Meras Engineering, Inc. et al., Case No. CV-13-8418 (C.D. Cal. Sept. 6, 2016) (finding willful infringement and $12.5 million in damages); Cellular Communications Equipment, L.L.C., v. Apple, Inc., Case No. 14-cv-251 (E.D. Tex. Sept. 14, 2016) (finding willful infringement and $22 million in damages). But see Finjan, Inc. v. Sophos, Inc., Case No. 14-cv-01197 WHO (N.D. Cal. Sept. 21, 2016) (finding literal infringement but not willful infringement and $15 million in damages). However, as discussed below, there are steps a defendant can take to protect itself against a finding of willful infringement.
- Consult a patent attorney to obtain an opinion. Consulting a patent attorney in a timely fashion can help establish a good faith defense to willful infringement. In Tools v. Sears Holdings Corp., the defendant had consulted with a patent attorney several times during the design process and obtained a non-infringement opinion before the lawsuit began. Tools v. Sears Holdings Corp., No. 12-cv-9033, 2016 U.S. Dist. LEXIS 127627, at *9-10 (N.D. Ill. Sept. 20, 2016). The district court, finding this fact “highly probative of good faith,” granted summary judgment of no willfulness. Id. In considering whether to obtain an opinion, in-house counsel will seek to strike the appropriate balance, taking into account various factors, including assessing whether a patent assertion presents a strong willful infringement risk, and weighing the cost of obtaining an opinion, depending on how many patent assertions are received and the strength of such assertions.
In obtaining a legal opinion, it is important that it be 1) thorough and 2) written by an attorney. In Arctic Cat. v. Bombardier Recreational Products, defendant’s employee, a patent agent, reviewed some (but not all) of the claims in the patent at issue and provided a handwritten, conclusory invalidity analysis. Arctic Cat Inc. v. Bombardier Rec. Prods., No. 14-cv-62369, 2016 U.S. Dist. LEXIS 107724, at *19-20 (S.D. Fla. July 27, 2016). The district court found that trial testimony supported an argument that the defendant failed to investigate the scope of the patents and form a good faith belief that the patents were invalid. Id. at *19.
It is also important that the patent attorney rendering the opinion conduct an analysis to establish a good faith belief in non-infringement or invalidity. In Dominion Resources v. Alstom Grid, the court rejected the defendant’s good faith argument on the basis that its non-infringement opinion was “based entirely on the opinion of people without expertise in reading patent claims.” Dominion Res. v. Alstom Grid, No. 15-224, 2016 U.S. Dist. LEXIS 136728, at*63-64 (E.D. Pa. October 3, 2016).
- Reasonable investigation conducted by your in-house staff. Conducting a reasonable investigation is important for a variety of reasons, including assessing the risk of infringement. Having an experienced engineer who is skilled in the art and understands how to read patent claims, perhaps assisted by a patent agent or attorney on your staff, is another approach to consider and may help establish a good faith defense to willful infringement. This route will likely raise attorney-client privilege and waiver issues, and has to be well thought out in advance.
Strategy During Litigation
After a suit has commenced, a number of actions can be taken to reduce the chances of a willful infringement finding and enhanced damages.
- Staying on top of discovery. In Imperium Holdings v. Samsung Electronics Co., the plaintiff made a specific request for emails and other documents relating to one of defendant’s witnesses. Imperium IP Holdings, Ltd. v. Samsung Elecs. Co., No. 14-cv-371, 2016 U.S. Dist. LEXIS 113307, at *21-22 (E.D. Tex. Aug. 24, 2016). The defendant never searched for or produced the requested documents until the fourth day of trial. Even then, defendant only produced a limited set of files from the witness’ laptop. The court found that this, along with other poor behavior by the defendant, was sufficient to warrant the full enhancement of damages of three times the jury verdict.
- Maintaining non-infringement and invalidity positions. When analyzing willful infringement, courts have commented that maintaining invalidity and non-infringement defenses is evidence against plaintiff’s contention that a defendant acted in bad faith. Dorman Prods. v. PACCAR, Inc., No. 13-6383, 2016 U.S. Dist. LEXIS 111985, at *24 (E.D. Pa August 22, 2016).
- Relying on an obviousness defense based on prior art cited by the examiner. As part of maintaining a viable invalidity position, a defendant attempted to establish that it preserved a good faith belief that the asserted patents were invalid based on art cited on the face of the patents. Arctic Cat Inc. v. Bombardier Rec. Prods., No. 14-cv-62369, 2016 U.S. Dist. LEXIS 107724, at *19-20 (S.D. Fla. July 27, 2016). The court rejected this argument and enhanced damages after the jury found willful infringement.
- Relying on an argument that the patents are standard essential. In Core Wireless Licensing v. LG Electronics, plaintiff brought suit alleging infringement of 13 standard essential mobile communications patents. Core Wireless Licensing S.a.r.l. v. LG Elecs., Inc., Nos. 14-cv-911, 14-cv-912, 2016 U.S. Dist. LEXIS 119470, at*7 (E.D. Tex. Sept. 22, 2016). Defendants argued that enhanced damages are inappropriate for cases involving standard essential patents because the patent owner committed to licensing the patents under FRAND terms. Id. at *11-12. In rejecting this argument, the court held that a jury could find that defendants acted willfully and that the court retained discretion to enhance damages after such a finding. Id. at *13.
- Moving in limine to prevent patentee from informing the jury that the company failed to obtain or present an opinion of counsel at trial. If the company did not obtain an opinion, you may consider filing a motion in limine to prevent plaintiff from offering such evidence at trial as proof of willful infringement. Section 298 of the AIA may provide assistance with this: “The failure of an infringer to obtain the advice of counsel with respect to any allegedly infringed patent, or the failure of the infringer to present such advice to the court or jury, may not be used to prove that the accused infringer willfully infringed the patent or that the infringer intended to induce infringement of the patent.” See, e.g., Knorr-Bremse Systeme Fuer Nutzfahrzeuge GmbH v. Dana Corp., 383 F.3d 1337, 1341 (Fed. Cir. 2004). (And, note there is an unresolved issue about whether Section 298 of the AIA applies only to patents issued after Sept 2012 or in any patent case filed on or after January 14, 2013, the date that this AIA provision was enacted. Compare Suprema, Inc. v. ITC, 626 Fed. Appx. 273, 282 n.2 (Fed. Cir. 2015) with 112 P.L. 274 §1(n).)
- Drafting jury instructions with updated willful infringement language. In many cases where a jury finds infringement , it also finds willful infringement. A search of post-Halo jury trial cases shows only one case in four in which a jury found infringement but not willful infringement. Finjan v. Sophos, No. 14-CV-01197 WHO (N.D. Cal. Sept. 21, 2016). Although the facts of each case are unique, the jury instructions in Finjan v. Sophos included stronger willfulness language than in the cases that resulted in a finding of willfulness. The chart below illustrates several examples:
In the examples above, Finjan v. Sophos is the only post-Halo case so far in which a jury found infringement but not willful infringement. It is also worth noting that the jury instruction in Finjan v. Sophos had significantly stronger language that closely tracked the Supreme Court’s language in the Halo decision. In drafting jury instructions, defendants should argue for firm, descriptive language per Finjan, rather than boilerplate language chosen by courts in other cases described above.
Although the post-Halo decisions indicate that the bar has been set lower for proving willful infringement, there are, as outlined above, steps that an alleged infringer can take, both before and during litigation, to minimize the risk of a willfulness finding and enhanced damages.