Authored by Virginia L. Carron and Roger D. Taylor
American patent litigation has an interesting issue which often arises and which is somewhat unusual. The issue is decided after considering the good faith, or intent, of an accused party, and deals with facts which often are unclear and subject to significant dispute. The issue is Willful Infringement. Willful Infringement raises questions about the conduct of the accused infringer in designing and offering for sale the accused product. Because this issue revolves around the good faith and intent of a party, it is often emotionally charged and has the potential to prevent the parties from reaching a satisfactory settlement of their dispute. This paper will describe recent court decisions of interest on willful infringement, and will offer some guidance to practitioners on how to avoid similar problems.
A person who has notice of a United States patent must exercise due care to not infringe that patent. If due care is not exercised, any infringement found may be determined to be willful infringement. Willful infringement exposes the infringer to enhanced damages, up to three times actual damages, and liability for the attorney's fees of the prevailing patent owner. Thus, willful infringement is often a powerful issue for the patent owner, and an issue accused infringers must be concerned to avoid.
Infringement becomes willful when, after considering all the facts, clear and convincing evidence proves that the infringer acted in disregard of the patent. This is often expressed as whether the infringer had a reasonable basis for believing it had a right to engage in the activity found to be infringing. To prove willful infringement, the patent owner must show that the infringer had knowledge of the patent, and had no reasonable basis for believing that the patent was invalid or unenforceable, or that its product or process did not infringe the patent. Courts do not look to reward marginal defenses, but rather look to evidence of good faith. For example, the test was described in SRI Int'l v. Advanced Tech. Labs, 127 F.3d 1462,1465, 44 USPQ2d 1422,1424 (Fed. Cir. 1997), as follows:
The law of willful infringement does not search for minimally tolerable behavior, but requires prudent, and ethical, legal and commercial actions. Thus precedent displays the consistent theme of whether a prudent person would have had sound reason to believe that the patent was not infringed or was invalid or unenforceable, and would be so held if litigated. (citations omitted).
Three recently decided cases are particularly instructive as to how this issue is dealt with by the courts.
In AptarGroup, Inc. v. Summit Packaging Sys., Inc., No. 97-1475, 97-1484, 1998 WL 791707 (Fed. Cir. Oct. 30, 1998), the Federal Circuit affirmed a finding by the district court for the Northern District of Illinois that Summit Packaging Systems, Inc. ("Summit") willfully infringed AptarGroup, Inc.'s ("Aptar") U.S. Patent No. 4,792,067 ("the '067 patent"), generally directed to mounting cups used in the manufacture of aerosol cans. Id. at *1.
First, Summit argued that the district court erred because it relied on the fact that Summit adopted the trademark "TaperLock," which was intended to be confusingly similar to Aptar's "TaperSeal" mark. Summit pointed out that it had adopted its "TaperLock" mark before it began to sell the infringing product, and even before the infringed patent had issued. Id. The Federal Circuit dismissed this argument reasoning that the timing of adoption of the marks was not wholly dispositive of relevance, and that "[t]he mere fact that Summit adopted the ''TaperLock'' mark would tend to show knowledge about the competitor's product line and an intention to compete for the same customers with similar products." Id. Thus, knowledge of a competitor's product line, and an apparent intention to compete for the same customers was relevant willful infringement.
Summit also contended that the district court incorrectly concluded that Summit had concealed the development of the "Diamond Digital" cup, Summit's infringing product, from its customers and the public. Id. The Federal Circuit found nothing in the record publicly mentioning the redesign of the Diamond Digital cups. Id. Apparently, the evidence of concealed development activity was found relevant to a lack of good faith in the redesign being free of infringement.
Next, Summit asserted that the district court incorrectly concluded that Summit had studied Aptar's design and the '067 patent at the time of the design of the Diamond Digital Cup. Id. The Federal Circuit dismissed this argument, relying on Summit's own brief which indicated that Summit studied both the '067 patent and Aptar's design prior to designing the Diamond Digital mounting cup. Id. Moreover, the Federal Circuit, quoting the district court, stated that "[t]here was no credible evidence that Summit arrived at the Diamond Digital design by independent factors. The evidence supports a clear inference of copying." Id.
Fourth, Summit contended that the district court incorrectly relied on the testimony that "Mr. Coerver (a vice-president of Summit) testified that he informed Mr. Gilroy [president of Summit] of Summit's Diamond Digital design effort, and of the possibility that the design would infringe the '067 patent." Id. The Federal Circuit found this argument unpersuasive. According to the Court, "the evidence clearly showed that both men were aware of the patent and that, according to Coerver, 'what [they] were making' did not infringe the patent. The fact that Summit had previously obtained an infringement opinion for its Digital mounting cups but failed to obtain an opinion for its Diamond Digital cups suggests that it knew of potential infringement risks." Id. Here, the knowledge of the patent, and the lack of action to obtain a well-reasoned opinion regarding infringement, even though knowing infringement was possible, was an important fact.
Fifth, Summit asserted that the district court improperly inferred that Mr. Gilroy "routinely sought advice" from counsel regarding infringement issues. Id. The Federal Circuit found this argument mischaracterized the district court's position. The district court merely noted that when notified by Aptar in 1989 of the '067 patent, Summit obtained an infringement opinion for its Digital mounting cup that it was then making, but that when it modified its design thereafter, Summit inexplicably failed to obtain an updated infringement opinion. Id. at *8. The Court found it proper for the district court to rely on the fact that Summit was sophisticated enough to obtain an opinion for the predecessor Digital cup yet inexplicably failed to do so for the "improved" cup. Id.
Finally, Summit contended that the district court erred by drawing an "adverse inference" based on the nondisclosure of a prior infringement opinion concerning the Digital mounting cup. Id. at *7. The Federal Circuit held that "[a]ny error in the district court's characterization of the previous opinion [was] harmless because Summit still failed to provide any good faith basis for believing that the Diamond Digital mounting cups did not infringe the patent." Id. at *8. The Federal Circuit has previously stated that reliance on legal advice is a factor to be considered in judging willfulness. Thus, the Court upheld the willfulness finding.
The Federal Circuit affirmed the damages awarded by the district court, which had been doubled due to the finding of willful infringement. The Federal Circuit affirmed the denial of attorney fees to Aptar on the basis of misconduct during the discovery phase of the trial. The Federal Circuit stated that even though willful infringement provides a basis for an award of attorney fees, misconduct during litigation by the patent owner may provide a basis for the court to refuse to award attorney fees.
In Yamanouchi Pharmaceutical Co. v. Danbury Pharmaceutical, Inc., 21 F. Supp. 2d 366 (S.D.N.Y. 1998), the district court for the Southern District of New York found that Yamanouchi Pharmaceutical Co. ("Yamanouchi") and Merck & Co.''s ("Merck") U.S. Patent No. 4,283,408 ("the '408 patent") for famotidine, an anti-ulcer compound, was willful infringed by Schein Pharmaceutical, Inc. ("Schein") and its subsidiaries Danbury Pharmaceutical, Inc. and Marsam Pharmaceutical, Inc. The court also awarded attorney fees to the patent owners.
Schein produces and markets generic drugs developed upon the expiration or defeat of existing patents held by other producers. 21 F. Supp. 2d at 369. Schein had contracted with an outside attorney to identify up to six potential challenges to existing drug patents and to provide written invalidity opinions to Schein. Schein would then select the drugs to produce, and the outside attorney would receive 50% of the "Marginal Gross Profit" of any of the drugs' sales if the challenge to the patent was successful.
Schein received an opinion of invalidity from the outside attorney, though slightly hedged, as to the '408 patent and made an Abbreviated New Drug Application (ANDA) filing pursuant to 21 U.S.C. § 355(j). Yamanouchi and Merck properly responded to the ANDA application by filing suit. Id.
The district court found the '408 patent valid, and found that the validity challenge mounted by Schein was not well founded. Id. at 375. The next issue was whether Schein's ANDA filing constituted a willful infringement in that it was not made upon a reasonable basis, and if so, would this amount to an "exceptional" case making an award of attorney's fees to Yamanouchi and Merck appropriate. Id. at 375.
The district court found clear and convincing evidence that Schein's ANDA filing was without adequate foundation and speculative at best. The filing was premised on a significant factual error by the outside attorney who authored the invalidity opinion, and that error was chargeable to Schein. Id. at 376. Further, the weakness of a supporting affidavit by an expert witness of Schein left Schein, objectively, "with no reasonable basis for believing it had the right [by clear and convincing evidence to assert obviousness.]" Id. (citation omitted). Moreover, the legal opinion Schein relied upon was provided by an attorney with a stake in the outcome. Id. at 377. The district court concluded that "[w]hen viewed as a whole, these facts tarnish[ed] beyond recognition Schein''s claim that at the time of its ANDA filing, it had a good faith reasonable basis for its certification that the famotidine patent was invalid." Id. at 377-78. (footnote omitted). Hence, the district court found Schein's infringement to be willful. Id. at 378.
Having found Schein's infringement to be willful, the district court then awarded attorneys' fees to Yamanouchi and Merck. Id.
In Johns Hopkins Univ. v. CellPro, 978 F. Supp. 184 (D. Del. 1997), the district court for the District of Delaware held that: (1) a competitor's willful infringement warranted judgment for more than patentees' actual damages; (2) opinions of counsel received by competitor did not establish that it developed infringing product in good faith; (3) competitor's bad faith use of infringement litigation to frustrate patentees supported award of increased damages; and (4) commercial motivation for infringement warranted increase in damage award.
The Johns Hopkins University owned U.S. Patent No. 4,965,204 ("the '204 patent") which claims all monoclonal antibodies that specifically bind to the antigen identified as "CD34." 978 F. Supp. 184,186. Johns Hopkins filed a complaint alleging that defendant CellPro was willfully infringing certain claims of the '204 patent. CellPro counter-claimed against Johns Hopkins, alleging antitrust violations and asked for a declaratory judgment that the '204 patent and three other patents owned by Johns Hopkins, U.S. Patent Nos. 4,714, 680 ("the '680 patent"), 5,035,994, and 5,130,144, were invalid, unenforceable, and not infringed. All four patents were a result of work of a Dr. Civin.
A group of investors formed CellPro in 1989. Thomas P. Kiley, a venture capitalist with a background in intellectual property, served as a member of the board and the company's legal advisor. At the trial, Kiley testified that he had some familiarity with the technology at issue and the patent laws. He also testified he has substantial experience in reviewing and evaluating formal opinions from counsel on the issues of patent validity. Id. at 187.
Kiley testified in connection with his work as legal counsel to CellPro's Board of Directors, he obtained and reviewed a copy of the Patent and Trademark Office's file on the prosecution history of the '680 patent and had concluded the patent was invalid. At Kiley's suggestion, CellPro hired his former law firm, Lyon & Lyon, to provide an opinion with regard to the '680 patent. Coe Bloomberg, a Lyon & Lyon partner, reported to CellPro's Board of Directors that he had reviewed the file wrapper of the '680 patent and had concluded the patent was invalid for obviousness based on the prior publication of two abstracts describing Civin's work. Kiley testified that the Board did not ask Lyon & Lyon to include an infringement analysis in its opinion. Id.
Later, Bloomberg wrote Christopher Porter, president of CellPro, confirming his prior oral opinion of invalidity. Bloomberg's letter did not mention the burden of proof an alleged infringer must meet to establish the invalidity or unenforceability of a patent. Nor did it include an infringement analysis. Bloomberg delivered a second opinion letter reporting his firm's conclusion that the ''204 patent was also invalid and unenforceable. Kiley testified that the Board relied on the opinions. Id. at 188.
At the same time it received its opinion, CellPro planned a product launch. In the prospectus prepared in connection with the public offering, the company reported: "Based on the advice of Lyon & Lyon, special patent counsel to the company, CellPro believes the ... patents are invalid and unenforceable." CellPro set aside $3 million as a reserve for litigation. Apparently the Board and management had concluded they could look to the Lyon & Lyon opinions as a basis for avoiding any trebling of the Johns Hopkins'' actual damages. Id. at 189.
At the trial, Johns Hopkins offered evidence to show that once in litigation, CellPro did not base its defense on the theories set out in the Lyon & Lyon opinions. CellPro asserted and then dropped anticipation as an affirmative defense. It argued obviousness, but failed to offer any expert testimony in support of the defense. CellPro did not even put the prior art publications in evidence, much less offer evidence to show how they would render the claims of the patents obvious. Johns Hopkins argued Kiley knew these opinions were not based on an adequate foundation, that Lyon & Lyon had not given CellPro truly independent opinions, and that the jury should conclude that CellPro did not rely on the opinions in good faith. Id. The jury returned a verdict in favor of Johns Hopkins that CellPro had willfully infringed the '204 and '680 patents. Id. at 191-92.
The district court then addressed whether an enhancement of damages to three times that awarded by the jury was warranted. The court began with the determination by the jury that CellPro's infringement was willful. Id. at 192. Next, the court asked whether CellPro should be punished for its willful infringement with a judgment for more than Johns Hopkins' actual damages. Id. The court said that there was ample evidence to support the jury''s finding of willful infringement. CellPro was aware of the Civin patents, knew it infringed those patents, but nevertheless appropriated the claimed inventions. CellPro presented a disingenuous defense of alleged good-faith reliance on the advice of counsel; Kiley's testimony was insincere and lacked credibility; and the Lyon & Lyon opinions were obviously deficient. Id. at 193.
The court then asked to what extent should CellPro be punished for its willful infringement. Id. Johns Hopkins moved for a trebling of the jury's damage award and the court agreed. The court examined a number of factors to reach this conclusion. First, the court found that CellPro's infringement was neither accidental nor inadvertent and that CellPro knowingly appropriated the patented technology for its own use. Id. at 193-94. Second, the court found that CellPro's deliberate infringement was not based on a good-faith belief the patents were invalid. Id. at 194. CellPro unreasonably delayed in seeking opinions of counsel, the opinions it did receive were not competent, and the evidence at trial and in the record showed CellPro could not and did not rely on them in good faith. Id. Third, CellPro used this litigation to frustrate Johns Hopkins and as an opportunity to throw up baseless arguments and defenses to avoid liability. Id. at 195. Fourth, CellPro, while a relatively small company, had sufficient resources to pay the $4.6 million enhanced damages. Id. at 195-96. Fifth, this was not a close case of willful infringement. Id. at 196. Sixth, the court determined that the other applicable factors, duration of the infringement, remedial action by the infringer, and evidence the infringer sought to conceal its misconduct, were not particularly relevant for this case Id. at 196. Finally, the court determined that CellPro's motivation for infringement was greed. Id. Hence, the court granted Johns Hopkins' motion for enhancement of damages and entered an order trebling the damages awarded by the jury for CellPro's deliberate and bad-faith infringement.
In willful infringement allegations, the good faith basis for actions taken is called into review. To avoid costly and embarrassing problems with this issue, if a company has knowledge of a patent which may be relevant to a planned product, the company should investigate the patent and its product to be sure it has a good faith belief that its offering of the product will not result in an infringement of that patent. An independent opinion of counsel should be obtained, the opinion should be complete and well reasoned, and the advice contained in the opinion should be followed.
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