Amici Back Cisco’s Bid for SCOTUS Review of Enhanced Damages Standard

Comcast and the High Tech Inventors Alliance (HTIA) filed amicus briefs last week backing a Supreme Court petition brought by Cisco Systems, Inc. last month. The petition asks the Court to consider whether: 1) enhanced damages may be awarded absent a finding of egregious infringement behavior; and 2) whether the U.S. Court of Appeals for the Federal Circuit (CAFC) may award enhanced damages without first allowing the district court to exercise its discretion to decide that issue.

Cisco filed the petition for a writ of certiorari on March 16, following a November 2021 decision of the Federal Circuit that reversed a district court’s denial of SRI International’s motion to reinstate a jury’s willfulness verdict against Cisco. That ruling restored the district court’s award of enhanced damages and affirmed 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.

Recap

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.

On remand, the district court “reasonably” read a more stringent test for willfulness into the CAFC’s statement in its first opinion in the 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 found the second time around 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 8, 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.

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.

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.’”

Supreme Court Bid

In its March petition to the Supreme Court, Cisco said the CAFC’s second decision is “the result of a series of errors by the Federal Circuit, which ultimately imposed enhanced damages in the absence of any finding of egregious infringement behavior and without any deference to the district judge currently assigned to this case.”

If the decision stands, it will “expand the availability of enhanced damages to cases of ordinary infringement, while eroding the district court’s discretion to address enhancement in the first instance,” the petition added. Furthermore, the issues concerning Cisco’s litigation conduct have already been addressed by the award of SRI’s full attorneys’ fees for the entire litigation and generally can be addressed by the fee-shifting provisions of 35 U.S.C. § 285.

Amici Arguments

In its amicus brief, Comcast argues that “lingering confusion about Halo’s standard has led to a dramatic increase in willful infringement findings, bringing enhanced damages awards up as well. As enhanced damages become increasingly routine, they are also becoming increasingly detached from their purpose: punishing and deterring egregious infringement.”

The HTIA points in its brief to an additional error, claiming that the district court’s enhanced damages award was based on an obsolete test:

There is another, much more fundamental error in this case: The additional $23 million awarded as enhanced damages is not based on Halo Electronics’ “wanton and malicious” standard. The district court instead rested its enhanced-damages award on factors adopted by the Federal Circuit thirty years ago in Read Corp. v. Portec, Inc., 970 F.2d 816 (Fed. Cir. 1992)—factors that this Court has never embraced and that do not reflect the Halo Electronics test.

The Read factors were adopted based on a standard articulated in Underwater Devices Inc. v. Morrison-Knudsen Co., 717 F.2d 1380 (Fed. Cir. 1983), which was rejected in In re Seagate Tech., LLC, 497 F.3d 1360, 1371 (Fed. Cir. 2007) (en banc), where the court found that it set a standard “more akin to negligence” than willfulness.

Ultimately, says the HTIA petition, the Supreme Court’s intervention is “urgently needed” because district courts’ continued application of the Read factors to determine enhanced damages is harming innovation and allowing courts to award enhanced damages for “ordinary infringement.” The brief continues:

Without a course correction, courts across the country will continue to award enhanced damages without adequate or appropriate justification, potenially subjecting innovative companies to hundreds of millions, if not billions, of dollars in unjustified awards. These added costs, in turn, either will be passed along to consumers or will result in fewer technological innovations in the market, a result contrary to the goals of our patent laws.”