Posts Tagged: "Halo Electronics v. Pulse Electronics"

The 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.

On June 13, 2016, the Supreme Court decided Halo Elecs., Inc. v. Pulse Elecs., Inc., addressing standards for recovery of enhanced damages for patent infringement pursuant to Section 284 of the Patent Act, under which a “court may increase the damages up to three times the amount found or assessed.” In Halo, the Supreme Court rejected damages-related requirements imposed by In re Seagate Tech., LLC, a 2007 decision from the U.S. Court of Appeals for the Federal Circuit. With patentee litigants freed from what the Supreme Court called Seagate’s “inelastic constraints” in favor of a totality-of-circumstances approach, a consensus developed that Halo would facilitate recovery of enhanced damages. Statistics suggest alignment with that view.

A company must be strategic in any business decision it makes in order to ensure that it takes the necessary measures to avoid liability for its actions. With respect to patent infringement, and specifically willful patent infringement, the different approaches to determining which measures to take and when to take such measures have been repeatedly challenged in light of a number of court decisions in recent years. To set the scene, the Federal Circuit held in Underwater Devices Inc. v. Morrison-Knudsen Co., 717 F.2d 1380 (1983) that a potential infringer has an affirmative duty to exercise due care to determine whether or not he or she is infringing. This placed the burden on the potential infringer to seek competent counsel and obtain either a non-infringement opinion or invalidity opinion prior to undertaking the possible infringing activities. This would prevent a finding of willful infringement and treble damages.

The Supreme Court will hear WesternGeco LLC v. ION Geophysical Corp., which asks whether the Federal Circuit erred in holding that lost profits arising from prohibited combinations occurring outside of the United States are categorically unavailable in cases where patent infringement is proven under 35 U.S.C. § 271(f)… Because lost profits damages were awarded for lost contracts for services to be performed on the high seas, outside of the jurisdiction of U.S. patent law, the Federal Circuit reversed that $93.4 million award… In December 2017, the office of Solicitor General Noel Francisco filed a brief for the United States as amicus curiae. The Solicitor General argued that WesternGeco’s entitlement to damages should be informed by the traditional common-law rule that a victim of a tort should be returned to the position that victim would have occupied if not for the defendant’s legal wrong.

Idenix Pharmaceuticals LLC v. Gilead Pharmaceuticals, Inc., C.A. No. 14-846-LPS (Delaware Dist. Court, Sept 22, 2017) (“Idenix v. Gilead”), is a good example of the exercise of such discretion by a district court.  Rich in facts, the case is suitable for the application of the flexible contextual standards the Supreme Court showed preference for in Halo.  Also, the case involves balancing the public good of promoting innovation by deterring willful infringement against the public good of facilitating imitation and refinement through imitation.  It is apparent from the Court’s reasoning that it was being very mindful that without the particular “refinement through imitation,” involved in the case, a life-saving cure for hepatitis C would not have been discovered.  Enhanced damages were not awarded.

In one of the first district court cases to apply Halo, the Eastern District of Pennsylvania was confronted with a defendant who obtained a noninfringement opinion sometime around the final day of a 12 to 18 month project. See: Dominion Res. Inc. v. Alstom Grid Inc., No. CV 15-224, 2016 WL 5674713 (E.D. Pa. Oct. 3, 2016) (holding that the defendant’s state of mind on the final day of 12-18 month project was far too late to be defense to willfulness) (appeal pending). The court ruled that opinion letters obtained so long after infringement began, even if still during the period of infringement, did not absolve the defendant of willful infringement under a subjective recklessness standard. Shortly thereafter, the District of Delaware was confronted with a case in which the defendant obtained a noninfringement and invalidity opinion well before litigation, and the defendant even modified designs of the products at issue to conform to recommendations contained therein…

Since the Supreme Court’s decision in Halo, there have been approximately 100 cases analyzing whether the adjudged infringer acted egregiously/willfully en route to a determination of whether to enhance a damages award (and, if so, to what degree damages should be enhanced). The issue of egregiousness/willfulness and/or enhanced damages has been the subject of Federal Circuit opinions on seven occasions since Halo. With two exceptions noted herein regarding the availability of enhanced damages for infringement occurring after suit has been filed, these cases do not provide much in the way of additional guidance other than re-tracing the evolution of the law governing egregiousness/willfulness and enhanced damages through Seagate and Halo and re-iterating the standards discussed in Halo. In five of the seven relevant post-Halo cases the Federal Circuit remanded for further consideration in light of the new standards set forth in Halo.

The Court first addressed whether the district court’s decision awarding Halo pre- and post-judgment interest and ordering the parties to either file a stipulation on the amount of interest or file briefs explaining their positions constituted a “final decision” appealable under § 1295(a)(1). The Court noted that the district court had not resolved the parties’ dispute on the calculation of pre- and post-judgment interest before Pulse appealed. As a result and based on Supreme Court precedent, the Court found that the district court’s pre- and post-judgment interest decision was not “final” because the court had not “determine[d], or specif[ied] the means for determining the amount” of interest.

To come up with the list below I’ve reviewed all of our patent articles, and have come up with these top 10 patent stories for 2016. They appear in chronological order as they happened throughout the year. Just missing the top 10 cut were the Supreme Court denying cert. in Sequenom and the USPTO being sued for Director Lee declaring a federal holiday. As interesting as those stories may have been, there was far more consequential patent news in 2016. Also missing the cut, but particularly interesting were the rather egregious and insulting response filed in an Office Action in September, and the embarrassing concurring decision by Judge Mayer in Intellectual Ventures. While the latter two were truly train wreck moments, they were fleeting. Judge Mayer has completely marginalized himself on the Federal Circuit with no one embracing his extreme and inaccurate reading of Alice, and that type of albeit cringe-worthy and unprofessional response to an Office Action happens very rarely.

For accused infringers relying on invalidity defenses that were presented in an inter partes review (“IPR”) to fight willful infringement allegations in district court, the shift in IPR success rates can spell trouble. Evidence of an IPR in which all asserted claims were not petitioned or some of the challenged claims were not invalidated in a final written decision can undermine willful infringement defenses. And now that Halo v. Pulse has chipped away at the high-bar of the Seagate objective prong in favor of a fact-intensive evaluation, willfulness is more likely to be a centerpiece of jury trials. See Halo Elecs., Inc. v. Pulse Elecs., Inc., No. 14-1513, 2016 WL 3221515 (U.S. June 13, 2016); In re Seagate Tech. LLC, 479 F.3d 1360 (Fed. Cir. 2007) (en banc). As a result, evidence regarding the strength of and reliance on IPR-presented defenses is more likely to come into the record at trial. Petitioner-defendants need to prepare early for the possibility that evidence of perceived IPR failures will be presented to jury to avoid being left with no admissible evidence disproving willful infringement. A well-prepared defendant can even turn the tables on the patent owner by using the perceived failures to its own advantage in front of the jury.

Stryker Corporation was awarded $70 million in lost profits after a jury found that Stryker’s patents were valid and willfully infringed by Zimmer. The district court affirmed the jury’s verdict, awarded Stryker treble damages for willful infringement, and awarded Stryker attorney’s fees. Stryker’s patents concerned portable, battery-powered, and handheld pulsed lavage devices used in orthopedic procedures to deliver pressurized irrigation for medical therapies, including cleaning wounds.

The Federal Circuit again addressed whether Pulse’s domestic sales activities were either a sale or an offer for sale in the U.S. While the patent statute does not define “sale,” the Court has previously held that it carries its ordinary meaning, including the transfer of title or property. Further, a “sale” must be understood in view of the strong policy against extraterritorial liability for patent infringement. Here, no sale occurred in the U.S., because the final formation of a contract and all elements of performing the contract occurred outside the U.S.

In rejecting the objective prong of Seagate, the Court rejected the notion that a defendant may escape the specter of enhanced damages by asserting a defense that the defendant was unaware of at the time the infringement occurred. For example, the Court pointed out that under the Seagate test, “[t]he existence of . . . a defense insulates the infringer from enhanced damages, even if he did not act on the basis of the defense or was even aware of it.” Halo at 10. But, as the Court stated, “culpability is generally measured against the knowledge of the actor at the time of the challenged conduct.” Id. Moreover, in response to an argument by Pulse based on the Court’s earlier Safeco decision, the Court held that “[n]othing in Safeco suggests that we should look to facts that the defendant neither knew nor had reason to know at the time he acted.” Id. at 11.

In last week’s Halo Elecs. v. Pulse Elecs. decision, the Supreme Court unanimously rejected the Federal Circuit’s Seagate standard for awarding enhanced damages in patent cases under Section 284, finding the Federal Circuit’s two-part test “impermissibly encumbers the statutory grant of discretion to district courts.” Slip Op. at 9. The Supreme Court’s decision, which vacated and remanded, means that the award of treble damage may very well be reinstated in that case, and reversals of enhanced patent damages rulings – both awards and denial – may become less common.