Judge Awards Enhancement of Damages to $268M on Cochlear Patent

On Sunday, November 4th, U.S. District Judge Fernando M. Olguin of the Central District of California signed an order regarding pending motions in a patent infringement case between Australian medical device firm Cochlear Corporation and the medical non-profit organization Alfred E. Mann Research Foundation for Scientific Research. Among the motions decided by Judge Olguin included a motion for enhanced damages granted by the judge which doubled the damages award to the research foundation up to a reported $268 million.

In the lawsuit, the Alfred E. Mann Foundation asserted two patents which it alleged Cochlear had infringed upon through its sale of cochlear implant technology: U.S. Patent No. 5938691, titled Multichannel Implantable Cochlear Stimulator; and U.S. Patent No. 5609616, titled Physician’s Testing System and Method for Testing Implantable Cochlear Stimulator. The jury in the case found that claims of both patents were infringed by Cochlear and that Cochlear engaged in willful infringement.

Although the jury found that the asserted patents weren’t invalid for either anticipation or obviousness, the court determined that all asserted claims other than claim 10 of the ‘616 patent were invalid for indefiniteness. On appeal to the Federal Circuit, the appellate court affirmed the indefiniteness finding on the ‘691 patent but reversed the finding as to indefiniteness on claim 1 of the ‘616 patent.

Although the ‘691 patent was found to be invalid, the Alfred E. Mann Foundation argued that it was entitled to the entire damages award of $131.2 million because the verdict was fully supported by the ‘616 patent alone. The court ended up agreeing with the plaintiff that Cochlear had forfeited the right to a new damages trial based on the fact that verdict forms proposed by Cochlear asked the jury to determine the proper royalty rate or total damages to award based on infringement of the ‘616 patent or the ‘691 patent. Further, charts included in Cochlear’s proposed verdict forms only sought to apportion damages by infringing product, not by patent or claim.

In assessing the jury’s finding of willful infringement, the court noted that Cochlear appeared to concede that it was aware of the covered technology, including a back telemetry system incorporated into the cochlear implant to minimize power consumption, at least as far back as 1998. Further, the record contained substantial evidence from which a jury could conclude that Cochlear intentionally copied the technology covered in the ‘616 patent, including internal memos indicating Cochlear’s concerns over threats to its market leadership and evidence that the cochlear implants sold by Cochlear used an infringing design over Cochlear’s assertion that the implants were designed with a non-infringing alternative.

After sustaining the jury’s finding of willful infringement, the court analyzed whether enhanced damages should be awarded. The court found that multiple Read factors supported awarding enhanced damages, including evidence that Cochlear deliberately copied the technology covered by the ‘616 patent, that it didn’t investigate the scope of the ‘616 patent to form a good-faith belief that it didn’t infringe and that it previously committed misconduct during the course of litigation. In all, the court found that seven Read factors weighed in favor of enhanced damages, two of which weighed strongly in favor of enhanced damages, and only one Read factor weighed against enhanced damages. Although the court is able to increase the damages award up to three times, the court found that doubling the damages was sufficiently punitive for Cochlear’s egregious conduct.

“While the jury’s $130 million verdict is significant and may sound large in the abstract, it may not be enough without enhancement to deter infringing conduct given the context of this case,” Judge Olguin wrote. Evidence presented at trial shows that the infringing products sold by Cochlear generated $1.8 billion in revenues. Cochlear had publicly stated in a 2016 annual report that the jury’s verdict won’t disrupt Cochlear’s business or U.S. customers.

Image Source: Deposit Photos.

Steve Brachmann Steve Brachmann is a graduate of the University at Buffalo School of Law, having earned his Juris Doctor in May 2022 and served as the President of the Intellectual Property [...see more]

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8 comments so far.

Mike
November 22, 2018 03:41 am
“No Bill of Attainder or ex post facto Law shall be passed.”
– U.S. Constitution, Article 1 – The Legislative Branch, Section 9 – Limits on Congress

This is a direct reading of the text. “No … ex post facto law shall be passed.” If retroactive application of IPRs on patents having preAIA priority dates is not constitutional here, I don’t know what is.

In the Intellectual Property and Communications Omnibus Reform Act of 1999, the effective date of Inter Partes Reexamination Procedures was PROSPECTIVE in nature. Accordingly, this was not an ex-post-factor law. However, retroactive application of inter partes REVIEW (IPR) of the American Invents Act (AIA) of 2011 falls under the definition of an ex-post-facto law, and is contrary to social compact inherent in the patent bargain.

So, what is the basis of the No Ex-Post-Facto Law Clause in Article 1? “[T]he convention added this constitutional bulwark in favor of personal security and private rights,” and this addition was “very proper”. For that gem, look no further than the text of Federalist Paper No 44, explaining the rationale.

“Bills of attainder, ex-post-facto laws, and laws impairing the obligation of contracts, are contrary to the first principles of the social compact, and to every principle of sound legislation. The two former are expressly prohibited by the declarations prefixed to some of the State constitutions, and all of them are prohibited by the spirit and scope of these fundamental charters. Our own experience has taught us, nevertheless, that additional fences against these dangers ought not to be omitted. Very properly, therefore, have the convention added this constitutional bulwark in favor of personal security and private rights; and I am much deceived if they have not, in so doing, as faithfully consulted the genuine sentiments as the undoubted interests of their constituents. The sober people of America are weary of the fluctuating policy which has directed the public councils. They have seen with regret and indignation that sudden changes and legislative interferences, in cases affecting personal rights, become jobs in the hands of enterprising and influential speculators, and snares to the more industrious and less informed part of the community. They have seen, too, that one legislative interference is but the first link of a long chain of repetitions, every subsequent interference being naturally produced by the effects of the preceding. They very rightly infer, therefore, that some thorough reform is wanting, which will banish speculations on public measures, inspire a general prudence and industry, and give a regular course to the business of society.”
– Federalist Paper No 44.

We should ask ourselves, did retroactive application of IPRs provide a sudden change or legislative interference that affected a preAIA patent holder’s personal or private rights? Was the social compact changed for the preAIA patent holder by the AIA? Did the preAIA patent holder agree to this social compact when she disclosed her invention to the government and entered into the patent bargain? Did this retroactive application interupt a “regular course to the business of society”? Did the “public franchise” granted by a preAIA patent become a speculation on public measures by the passing of the AIA? Was there even a slight hint of “hands of enterprising and influential speculators” at play in the passing of any provision of the AIA?

As the evidence shows, retroactive application of IPRs on patents having preAIA priority dates is unconstitutional. Period. It’s in the original text.

Now let’s go to the oral argument in Oil States v. Greene Energy, where Mr. Malcolm Stewart, on behalf of the Federal Respondent, presents false information in front of the Supreme Court, and also tries to dodge the question as to whether or not the procedures have changed.

================

JUSTICE GORSUCH: Mr. Stewart, could you address the Chief Justice’s question, which I’m also stuck on, the bitter and the sweet, to the — to what extent could the executive condition patents on, say, you have no takings rights later or you — you take it subject to whatever conditions in terms of its withdrawal that we wish to impose.

MR. STEWART: Well, I think if at the —

JUSTICE GORSUCH: Including - including maybe — and, arguably, I understand — the condition that we will stack the deck with judges whom we like - administrative judges we like?

MR. STEWART: Well, I think if at the time of patent issuance the statute provided that the patent could be taken away for any otherwise appropriate governmental reason, that would be a constitutional scheme. Congress had no obligation to create –

JUSTICE GORSUCH: So the answer to Justice Breyer’s question then, if there are all these reliance interests and $40 million or billion dollars spent, that would just be you’re out of luck --

MR. STEWART: Well --

JUSTICE GORSUCH: — take the bitter with the sweet?

MR. STEWART: — let me address directly the Chief Justice’s question.

JUSTICE GORSUCH: Can you answer that — answer that question?

MR. STEWART: It has always been part of the scheme that the patent could be reexamined and not — not by an administrative agency but at least by a court at any time while the patent remained in force, to determine whether the patentee was qualified for a patent in the first place. So --

(NOTE: Mr. Stewart falsely claimed that reexamination has always been part of the “scheme”. When he later made this claim again a second time, Justice Sotomayor corrected him and said that this “scheme” only existed as of 1981.)

JUSTICE GORSUCH: So is the answer yes?

MR. STEWART: The answer is that the patentee never had any expectation that, having been granted a patent, its validity --

JUSTICE GORSUCH: So I take it the answer is yes?

MR. STEWART: The answer is yes because the rule from the start was you get the
patent, but it is not immune from --

CHIEF JUSTICE ROBERTS: Well, how can — how does that work since this patent was issued before there was inter partes review, before the America Invents Act?

MR. STEWART: There was ex parte reexamination. There was the possibility of judicial proceedings in which patent validity could be called into question. Take --

CHIEF JUSTICE ROBERTS: Well, but there was — I mean, inter partes review changed those things. It is something different.

MR. STEWART: It changed --

CHIEF JUSTICE ROBERTS: Including particularly with respect to the procedures.

MR. STEWART: Well, to go directly to your question about public employees, because I think it is a good analogy, the Court has said that if a public employee has tenure protection, a guarantee that he or she can be fired only for cause, then the employee has a property right in this job --

CHIEF JUSTICE ROBERTS: Well, sure. That’s just defining what the sweet is. But I — it sounds to me like your position is if the government says you’re hired for this job and if we terminate you, you know, we’ll flip a coin and decide whether or not you get to stay or not.

MR. STEWART: No, first, the procedures still have to be fair. …

================

Note how Stewart dodges the question regarding retroactive application, and instead provides an analogy and saying that, for Due Process, the procedures have to be fair. Nevertheless, he later contradicts himself when he admits that IPRs present “a less favorable standard of review for the patentee than would be applied in district court infringement litigation, where the defendant would have to prove invalidity by clear and convincing evidence.” So by his own admission, the procedures are now less favorable. He then tries to justify it by saying “But our view is that’s a feature and not a bug of the system.” And then he tries to pin it on Congress by later saying “it’s important to point out — it’s an obvious fact, but it’s still important to — to note that the PTO is very supportive of IPR, but it’s not something the agency came up with on its own. This is an act of Congress.”

However, the glaring fact is, retroactive application of IPRs is an ex-post-facto law, which means it is unconstitutional in the first instance.
Mike
November 20, 2018 04:34 pm
I’ll also add that in addition to disagreement with SCOTUS…

If the USPTO disagrees with CONGRESS, then the USPTO should carry on and execute their duty in conflict. Then and only then will Congress see the error and begin to fix it.

This goes for the USPTO instituting IPRs on ANY preAIA patent.

When the Inter Partes Reexamination Procedure was introduced in the Inventor’s Protection Act of 1999, it was PROSPECTIVE in nature — it only applied to patent applications filed AFTER the effective date of the statute. See “Effective Date” in the text of the 106th Congress: https://www.congress.gov/congressional-report/106th-congress/house-report/464: “this subtitle and the amendments made by this subtitle SHALL TAKE EFFECT on the date of enactment of this Act and shall apply to any patent that issues from an original application filed in the United States ON OR AFTER that date.”

In contrast, when Congress provided for INTER PARTES REVIEW in the AIA, it was also retroactive in nature, not only applying to new patents, but also to patents then in force. Was no one in Congress paying attention to the text of the AIA with respect to retroactive application? Or where they bought out?

This is a complete and total disregard for Due Process and the patent bargain between the government and inventors. Had I known, prior to the AIA, that NEW examinations rules would become law and retroactively apply to my disclosed inventions, I would have never disclosed them to the government in the first instance.

So to this, I say:

In adherence to their duty to support and defend the Constitution, Director Iancu and the USPTO should deny instituting an IPR on any patent having a preAIA priority date; doing otherwise violates at least the Constitution’s Due Process Clause.

The USPTO should carry on and execute their duty to the Constitution in conflict. Then and only then will Congress see the error and begin to fix it.
Anon
November 20, 2018 03:07 pm
Mike,

Not only are you correct in what you say, the element not being emphasized is that the “doubling” (or up to tripling) is for an expressly different purpose of penalizing the party doing the infringing.

Penal concepts are meant to punish.

That is, the punishment is typically in an amount not only in excess of any profit, but is to be at a level of non-profit that serves as a deterrent and warning to others to NOT do as the entity being punished has done.

As you note, anything less than FULL profit is not punishment at all.

Further, I would posit that punishment need not be tied to value of the infringement at all, and SHOULD take into consideration what would punish the entity doing the transgression.

In other words, a little “Mom and Pop” type of outfit maybe punished at some designation of 5% over profit, while a large mega-corp would not bat an eye at that number. For such a larger mega-corp then, punishment (to make it hurt, like it is supposed to hurt), might well be 300% over profit.

And let’s also NOT forget that the bigger the deterrent (the bigger the stick used to smack the purposeful infringer), the MORE such infringers will WANT to pay attention to patents — and THAT will drive an original purpose of having the patent system (that is, using the advertising notion of promotion in the word “promote” in that there would be a market driver for others wanting to be aware of and abreast of patents).
Pro Say
November 20, 2018 12:46 pm
Mike @ #3:

How. Right. You. Are.
Mike
November 20, 2018 11:21 am
But should the government allow anyone to keep ANY profits received when the profits come by way of selling something found to infringe upon another’s patent, particularly when
A) the face of the patent issued by the USPTO says “[T]his United States patent grants to the person(s) having title to this patent the RIGHT TO EXCLUDE OTHERS from making, using, offering for sale, or selling the invention throughout the United States of America, and if the invention is a process …”, and
B) the Constitution says Congress shall have the power “To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the EXCLUSIVE RIGHT to their respective Writings and Discoveries.” (emphases added)?

Has there been a disconnect between Congress, the Judiciary, and the intent of the Constitution here? At least the USPTO gets the wording right on the face of the patent.

And speaking of the Constitution, and the oath each USPTO member took when entering the office — vowing to the duty to support and defend the Constitution, when the USPTO examines and grants a patent, yet then decides to institute an IPR on said patent, what is the USPTO’s official position on how this comports with the Due Process, Takings, and Appointments Clauses? It is their duty to support and defend THE CONSTITUTION, NOT to support and defend a poorly-ruled SCOTUS decision or poorly-expressed congressional statutes.

For example, when the patent was a preAIA patent an the patent holder did not enter into any patent bargain with these new AIA examinational rules, how does institution of an IPR comport with Due Process?

And with respect to Takings, if the USPTO grants a patent after I met all of the financial and proof requirements and have paid necessary filing and maintenance fees, and attorney’s fees, and then I encounter numerous amd multiple expenses to then defend that grant at that same office and the USPTO ultimately takes it away, where is the just compensation for revoking the reliance grant when the patent was issued by the Office?

And the Appointments Clause? Is there no hearing before Congress on these appointed ALJs? It has been shown that there exist conflicts of interest in these assignments. How can an ALJ appointment be made without political influence and no balance of powers check and it remain constitutional?

All three of these examples with the AIA bleed constitutional problems. Congress and the USPTO are not subjects of the SCOTUS crown; they have a duty to support and defend THE CONSTITUTION, not to support and defend SCOTUS.

If the USPTO disagrees with SCOTUS, then they should carry on and execute their duty in conflict. Then and only then will Congress see the error and begin to fix it.

Congress, SCOTUS, and the USPTO, your actions are screwing up American innovation.

Congress: Fix it!!!
See https://youtu.be/yo3uxqwTxk0
Benny
November 20, 2018 05:17 am
Josh,
You are confusing the terms “revenue” and “profit”. The profit from $1.8B in revenue could typically be anything from $0 to $900M.
Bemused
November 20, 2018 12:25 am
Josh Malone@1: I think you’re being too optimistic that they will not have to pay for at least two more years. Given the size of this damages award, it is almost 100% certain that the CAFC will vacate the damages award (or find some other way to screw up the final judgement).

The patent holder has many years ahead before they see (if ever) a single dollar for infringement damages.
Josh Malone
November 19, 2018 02:00 pm
The case was filed 11 YEARS AGO! And Cochlear will not have to pay for at least 2 more years while they appeal. The penalty? Only 15% of their revenues for the infringing products. I don’t see how this does anything to discourage infringement.

Cochlear gambled that there is a 1% of going to trial and a 0.1% chance of losing a final judgment. They still have a realistic chance of winning a reversal or remand in two years.

So if they ultimately lose the gamble and find themselves in the 0.1% of infringers hit with a final judgment – what will it cost them? Only 15% of the revenues from their illegal actions.

No matter how egregious is the behavior of an infringer, there is no downside. The business model of infringement is rock solid. 99.9% of the time they will incur zero liability. And in the rare instance they lose they get to keep most of their ill-gotten profits.

Utterly and completely broken patent system. Inventors have no hope.