CAFC Clarifies Willful Infringement Standard, Reinstating Jury Verdict and Enhanced Damages for SRI International

By Eileen McDermott
September 28, 2021

“To eliminate the confusion created by our reference to the language ‘wanton, malicious, and bad-faith’ in Halo, we clarify that it was not our intent to create a heightened requirement for willful infringement.” – CAFC

https://depositphotos.com/11934770/stock-photo-clarity.htmlThe U.S. Court of Appeals for the Federal Circuit (CAFC) today issued a precedential opinion reversing a district court’s denial of SRI International’s motion to reinstate the jury’s willfulness verdict against Cisco Systems, Inc., restoring the district court’s award of enhanced damages, and affirming an award of attorney fees for SRI. The CAFC specifically clarified that its reference to language in the Supreme Court’s ruling in Halo Elecs., Inc. v. Pulse Elecs., Inc., 136 S. Ct. 1923, 1934 (2016) on a first appeal in the case was not meant to create a heightened requirement for willful infringement. Judge Lourie authored the opinion.

District Court and First Appeal

SRI originally sued Cisco in the U.S. District Court for the District of Delaware for infringement of its U.S. Patent Nos. 6,711,615 and 6,484,203. A jury found that Cisco infringed certain claims of the patents and awarded a 3.5% reasonable royalty for a total of $23,660,000 in compensatory damages. The jury also found that Cisco’s infringement was willful. The district court subsequently denied Cisco’s motion for judgment as a matter of law (JMOL) of no willful infringement, awarded SRI attorney fees and costs due to Cisco’s “aggressive” litigation tactics, and also granted enhanced damages in the amount of double the jury’s damages award. Cisco appealed to the Federal Circuit, which vacated the district court’s decision, holding that there was not substantial evidence to support willful infringement prior to the date Cisco had notice of the patents (May 8, 2012). The CAFC thus vacated the denial of JMOL of no willful infringement and remanded the case to the district court “to decide in the first instance whether the jury’s finding of willful infringement after May 8, 2012 (the date Cisco received notice) was supported by substantial evidence.” The enhanced damages award was also vacated because it was “predicated on the finding of willful infringement,” and likewise for the award of attorney fees, as it was partly based on the finding of willful infringement.

Confusion Ensues

On remand, the district court “reasonably” read a more stringent test for willfulness into the CAFC’s statement in its first opinion in this case that “for the time period prior to May 8, 2012, ‘the record is insufficient to establish that Cisco’s conduct rose to the level of wanton, malicious, and bad-faith behavior required for willful infringement.’” Applying that standard, the district court this time found that substantial evidence did not support the jury’s finding of willfulness, and consequently, that it could not reinstate enhanced damages, though it still awarded attorney fees.

On appeal for the second time, the CAFC did not disturb the district court’s finding that there was no willful infringement before the notice date of May, 2012, but reversed the district court’s first instance finding of no willful infringement after that date. The Federal Circuit detailed the evidence presented by SRI to prove that Cisco had no reasonable basis to believe it did not infringe; that its invalidity defenses were unreasonable; and that it induced infringement. While an induced infringement finding does not compel a willfulness finding, “in this case, the jury’s unchallenged findings on induced infringement, when combined with Cisco’s lack of reasonable bases for its infringement and invalidity defenses, provide sufficient support for the jury’s finding of willful infringement for the period after May 8, 2012, when Cisco had notice of the patent,” said the CAFC.

Important Clarification

In addressing its articulation of the willfulness standard, the CAFC explained that the reference it made in its March 2019 (modified July 2019) opinion to “wanton, malicious, and bad-faith behavior” from the Halo decision actually referred to conduct warranting enhanced damages, not willful infringement. “As we said in Eko Brands, ‘[u]nder Halo, the concept of ‘willfulness’ requires a jury to find no more than deliberate or intentional infringement,’” said the court in today’s opinion.

The CAFC likewise restored the enhanced damages award, finding no clearly erroneous factual findings in the district court’s first decision, which “explained that enhanced damages were appropriate ‘given Cisco’s litigation conduct, its status as the world’s largest networking company, its apparent disdain for SRI and its business model, and the fact that Cisco lost on all issues during summary judgment and trial, despite its formidable efforts to the contrary.’” In a footnote, the CAFC also explained that the parties informed the court for the first time in this appeal that the original award of double damages applied only to damages for infringing activity after May 8, 2012 because the jury was only instructed to award damages after that date. Finding that the district court ultimately only denied enhanced damages on remand because it denied the motion to reinstate the jury’s willfulness finding, the CAFC restored the district court’s award of double damages.

Finally, as to Cisco’s cross-appeal challenging the award of attorney fees for a second time, the CAFC denied it because it agreed with the district court’s assessment that this was “an exceptional case”, meaning “one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.” Specifically, the district court had originally found that “[t]here can be no doubt from even a cursory review of the record that Cisco pursued litigation about as aggressively as the court has seen in its judicial experience. While defending a client aggressively is understandable, if not laudable, in the case at bar, Cisco crossed the line in several regards.” For example, Cisco created work that “was needlessly repetitive or irrelevant or frivolous”; maintained 19 invalidity theories until the eve of trial and only presented two at trial; presented “weak non-infringement theories that were contrary to the district court’s claim construction ruling and Cisco’s own internal documents”; and engaged in “exhaustive summary judgment and sanction efforts, over-designation of deposition testimony for trial, and asserting ‘every line of defense post-trial.’”

Since the district court found the case to be exceptional the second time around, even in the absence of a willfulness finding, the CAFC agreed and found no clear abuse of discretion with its analysis.

Image Source: Deposit Photos
Author: herminutomo
Image ID: 11934770 

The Author

Eileen McDermott

Eileen McDermott is the Editor-in-Chief of IPWatchdog.com. Eileen is a veteran IP and legal journalist, and no stranger to the intellectual property world, having held editorial and managerial positions at several publications and industry organizations. She has acted as editorial consultant for the International Trademark Association (INTA), chiefly overseeing the editorial process for the Association’s twice-monthly newsletter, the INTA Bulletin. Eileen has also served as a freelance editor for the World Intellectual Property Organization (WIPO); as senior consulting editor for the Intellectual Property Owners Association (IPO) from 2015 to 2017; as Managing Editor and Editor-in-Chief at INTA from 2013 to 2016; and was Americas Editor for Managing Intellectual Property magazine from 2007 to 2013.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author as of the time of publication and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

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