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The Halo Effect – Making Angels Out of Infringers?

James C. GuminaSpring 2017 (snippets)

Historically, patent owners have pled willful infringement in an effort to support the collection of enhanced damages from an infringer. Typically, if there was willful infringement the damages were enhanced and often tripled.[1] Over the years the courts have made it increasingly more difficult to prove willful infringement, culminating with the Federal Circuit’s ruling in In re Seagate.[2] Seagate set up a two part test that made it very difficult to establish willful infringement and likewise made it very difficult to obtain enhanced damages.[3]

In June 2016, the Supreme Court ruled in Halo Elecs., Inc. v. Pulse Elecs. Inc. that the Federal Circuit’s Seagate analysis for willfulness was too restrictive.[4] The Court restructured the willfulness analysis to eliminate the objective recklessness analysis, and lowered the burden of proof from a clear and convincing standard to a preponderance of the evidence standard.[5] The Court also, in addressing enhanced damages, held that an award of enhanced damages is in the discretion of the district court to be awarded in egregious cases.[6] On the surface, this seemed to have been a significant victory for patent owners. A lower the burden to prove willful infringement seemed as if it should be a significant deterrent to patent infringement, i.e., easier to establish enhanced damages. But has it really worked out that way? Have the district courts been finding willful infringement more often post-Halo? And perhaps more importantly, have district courts been awarding enhanced damages more frequently post-Halo?

While the case law in the area is still developing, two trends are emerging: (1) a finding of willful infringement is no guarantee of an award of enhanced damages, and (2) the determination of enhanced damages is a separate and a distinct inquiry from the issue of willfulness. District courts have not found willful infringement around every corner, even with the lower standard. Those same courts, in their discretion, have not automatically concluded that willful infringement, unto itself, is egregious enough behavior to warrant enhanced damages. Moreover, district courts that have exercised their discretion to award enhanced damages have not found that treble damages is the default, often awarding a lessor quantum of enhanced damages.[7]

The Halo decision makes it clear that the evaluation of willful infringement and whether to award enhanced damages under 35 U.S.C. § 284 are related but separate evaluations. The Halo Court said that enhanced damages are appropriate in egregious cases.[8] The test for enhanced damages appears to be simply whether the infringer acted in a sufficiently egregious manner so as to cause the court in its discretion to enhance damages.[9] The Halo Court characterized this behavior in a manner consistent with that of a “pirate” so as to distinguish the case from a “typical patent infringement case”.[10]  While willful infringement is definitely evidence that can support an award of enhanced damages, it does not seem to be either required or necessarily sufficient to prove egregiousness.[11] 35 U.S.C. § 284 provides the statutory basis for enhanced damages, and never mentions willful infringement. Instead, the statute simply states that a court “may increase damages up to three times the amount found or assesses”.[12] The Halo Court gives “willful misconduct” as an example of a situation where enhanced damages may be appropriate.[13] It never, however, sets willful infringement as a requirement.

The Federal Circuit has provided some insight into its view of the scope of Halo. In the cases where it has addressed willfulness and enhanced damages post-Halo, the Federal Circuit has made several salient if not always consistent points. The Federal Circuit has stated that “egregious, cases [are] ‘typified by willful misconduct.’”[14] The Federal Circuit further has held that after Halo, the subjective willfulness of an infringer can support an award of enhanced damages,[15] and that “district courts should exercise their discretion, ‘taking into account the particular circumstances of each case,’ and consider all relevant factors in determining whether to award enhanced damages.”[16]

The Federal Circuit has also made clear that “timing does matter.”[17] Specifically, the timing of a infringer’s actions or knowledge can impact whether the case is considered egregious so as to warrant enhanced damages. The Federal Circuit held that when it comes to determining whether an accused infringer reasonably relied upon good faith defenses, the infringer “cannot insulate itself from liability for enhanced damages by creating an (ultimately unsuccessful) invalidity defense after engaging in the culpable conduct of copying or ‘plundering,’ patentee’s patented technology prior to litigation. Proof of an objectively reasonable litigation-inspired defense is no longer a defense to willful infringement.”[18]

Unsurprisingly, the district courts have also tended to address the issue of enhanced damages in the context of willful infringement. One court, however, specifically stated that an award of enhanced damages under 35 U.S.C. § 284 does not require a finding of willful infringement.[19] That being the case, that court as well as many others are finding it difficult to find behavior egregious enough to award enhanced damages even in the light of a jury finding of willful infringement.[20] As set out in Halo, the courts have focused on whether the infringer’s behavior was sufficiently egregious as to distinguish it from an ordinary infringement case.

In an effort to investigate whether the infringer’s action are sufficiently egregious, the courts have continued to look at the so called Read factors. In Read v. Portec, the Federal Circuit set out a list of factors the courts might consider when determining whether to enhance damages: (1) whether the infringer deliberately copied the ideas or design of another; (2) whether the infringer when he became aware of patent protection investigated the scope of the patent protection and formed a good faith belief that it was invalid or that it was not infringed; (3) the infringer’s behavior as a party to the litigation; (4) the infringer’s size and financial condition; (5) closeness of the case; (6) duration of the infringer’s misconduct; (7) remedial action taken by the infringer; (8) infringer’s motivation for harm; and (9) whether the infringer attempted to conceal its misconduct.[21] Since Halo did not alter the substantive law of willfulness or enhanced damages, referring to these Read factors continues to make sense, and may very well may be the crux of the matter.

Understanding that most of the district courts that have spoken on the issue have been working with a record developed under Seagate, and only in hindsight have applied Halo to the cases, it is difficult to determine the parameters the courts are applying for egregiousness sufficient to distinguish a case from a “typical” patent infringement case. Several cases have affirmed a jury’s previous finding of willfulness under the new Halo standard, but gone on to find that, while willful, the infringer’s behavior did not rise to the level of “egregious” behavior required by Halo so as to warrant enhanced damages.[22]  In most cases there have been mitigating facts such as ceasing infringing activity upon receiving notice of the patent,[23] evidence of effort to design around the patent,[24] intervening rights as a result of a reexamination,[25] and significant pre-issuance sales activity by the infringer.[26]

On the flip side, district courts have exercised their discretion to award enhanced damages in circumstances where the infringer acted in a manner inconsistent with fair dealing in the market place. In most cases, it took more than a finding of willful infringement – it took a fact pattern that demonstrated that the infringer took advantage of the patentee, not only with respect to the patented invention but also with respect to how they acted in the market place. While in each case the courts looked at the totality of the circumstances, often there has been a particular fact that caught the courts’ attention that seems to spark the award of enhanced damages. These facts included: (1) the infringer abandoning development of its own system in favor of an infringing system shortly after the infringer’s engineer tested the patentee’s prototype,[27] (2) the infringer abruptly breaking off licensing negotiations with the patentee stating a lawsuit was preferable and that they would wait until another company licensed the portfolio at which time they would be a “follower,”[28] and (3) the infringer arguing that their design around was invisible in the accused product but concealed that they later altered the design so as to infringe.[29]

What seems evident from Halo, and the cases that have applied it, is that simply proving willful infringement (even when shown by clear and convincing evidence) is not always going to be sufficient to ensure an award of enhanced damages. To support an award of enhanced damages, patentees will now have to establish that the infringer was more than an aggressive competitor that may have played a little too close to another’s patent rights. It now seems a patentee has to show that the infringer acted inconsistently with the acts of a good faith competitor. Indeed, patentees have to convince two audiences of these facts. First, patentee must reach the threshold of establishing for the fact finder (jury or judge) that the infringer acted in an egregious manner. Whether through the Read factors or other evidence a patentee must demonstrate that the infringer acted in a manner most would consider beyond inappropriate. Second, once this threshold has been reached the patentee must convince the judge that the infringer’s actions were so abhorrent that discretion should be exercised to enhance damages. It is the burden of the patentee to distinguish the case from a “typical” patent case.  Because of the fluid nature of this standard the nature and quantum of proof necessary to obtain enhance damages may vary not only with the circumstances of the case but with the experience of the audience.



[1] See Jurgens v. CBK Ltd, 80 F.3d 1566, 1572 (Fed. Cir. 2012) (if there is a finding of willfulness the trial court must provide basis for not enhancing damages).

[2] In re Seagate Tech., LLC, 497 F.3d 1360 (Fed. Cir. 2007).

[3] Id.

[4] 136 S. Ct. 1923 (2016).

[5] Id. at 1934.

[6] Id.

[7] Compare Core Wireless Licensing, S.a.r.l. v. LG Elecs., Inc., 2:14-cv-912-JRG (E.D. Tex. Nov. 1, 2016) (minimal enhancement); PPC Broadband, Inc. v. Corning Optical Commc’ns. RF, LLC, 5:11-cv-761 (N.D. N.Y. Nov. 3, 2016) (damages doubled not tripled); Nobelbiz, Inc. v. Global Connect, LLC, 6:12-cv-244 at p. 51 (E.D. Tex. Oct. 27, 2016) (minimal enhancement); Polara Eng’g., Inc. v. Campbell Co., SA-cv- 13-00007-DFM (C.D. Cal. Feb. 27, 2017) (enhancement of 2.5 time damages); Dominion Resources, Inc. v. Alstrom Grid, Inc., Civil Action No. 15-224 (E.D. Pa. Oct. 3, 2016) (damages doubled) with Innovention Toys, LLC, v. MGA Entm’t., et al, Civil action No. 07-6510, p. 8 (E.D. L.A. March 8, 2017) (awarding treble damages in light of egregious infringement behavior); Imperium Holdings (Cayman), Inc. v. Samsung Elecs., 4:14-cv-371 (E.D. Tex. August 24 2016) (damages trebled).

[8] Halo, 136 S. Ct. at 1934.

[9] Id.

[10] Id. at 1932 (“typicaly infringement case” held out a situation where enhanced damages should not be rewarded).

[11] Id. at 1933 (“none of this is to say that enhanced damages must follow a fidning of egregious misconduct”). See also, Finjan, Inc. v. Blue Coat Sys., Inc., Case No. 13-cv-03999-BLF, at p. 25 (N.D. Cal. July 18, 2016).

[12] 35 U.S.C. § 284.

[13] Halo, 136 S.Ct. at 1934.

[14] Westerngeco, LLC v. Ion Geophysical Corp., 837 F.3d 1358, 1362 (Fed. Cir. 2016).

[15] Id.

[16] Id. at 1363.

[17] WBIP, LLC v. Kohler Co., 829 F.3d 1317, 1340 (Fed. Cir. 2016).

[18] Id. at 1341.

[19] See Finjan, Inc. v. Blue Coat Systems, Inc., Case No. 13-cv-03999-BLF, at p. 25 (N.D. Cal. July 18, 2016)

[20] Id. at p. 28. See also, Loops LLC v. Phoenix Trading, Inc., C08-1064RSM (W.D. Wash. Nov. 9, 2016); Trustees of Boston University v. Everlight Elecs. Co., 12011935-PBS (D. Mass July 22, 2016); Presidio Components, Inc. v. Am. Technical Ceramics Corp., 14-cv-02061 (S.D. Cal. Aug 17, 2016); Radware LTD, v. F5 Networks, Inc., 5:13-cv-02024, (N.D. Cal. Aug. 22, 2016); Chrimar Sys., Inc. v. Adtran, Inc., 6:15-cv-618, (E.D. Tex. June 30, 2016).

[21] 970 F.2d 816, 827 (Fed. Cir. 1992).

[22] See, e.g., Loops LLC v. Phoenix Trading, Inc., C08-1064RSM (W.D. Wash. Nov. 9, 2016); Trustees of Boston University v. Everlight Elecs. Co., 12011935-PBS (D. Mass July 22, 2016); Presidio Components, Inc. v. Am. Technical Ceramics Corp., 14-cv-02061 (S.D. Cal. Aug 17, 2016); Radware LTD, v. F5 Networks, Inc., 5:13-cv-02024, (N.D. Cal. Aug. 22, 2016); Chrimar Sys., Inc. v. Adtran, Inc., 6:15-cv-618, (E.D. Tex. June 30, 2016).

[23] Loops LLC v. Phoenix Trading, Inc., C08-1064RSM (W.D. Wash. Nov. 9, 2016).

[24] Trustees of Boston University v. Everlight Elecs. Co., 12011935-PBS (D. Mass July 22, 2016).

[25] Presidio Components, Inc. v. Am. Technical Ceramics Corp., 14-cv-02061 (S.D. Cal. Aug 17, 2016).

[26] Radware LTD, v. F5 Networks, Inc., 5:13-cv-02024, (N.D. Cal. Aug. 22, 2016).

[27] Artic Cat Inc. v. Bombardier Recreational Products, Inc., 14-cv-62369 (S.D. Fla. July 27 2016).

[28] Core Wireless Licensing, S.a.r.l. v. LG Elecs., Inc. 2:14-cv-912-JRG (E.D. Tex. Nov. 1, 2016).

[29] PPC Broadband, Inc. v. Corning Optical Commc’ns. RF, LLC, 5:11-cv-761 (N.D. N.Y. Nov. 3, 2016).

 

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