July 13, 2016
Law360
The U.S. Supreme Court’s June 2016 decision in Halo Electronics v. Pulse Electronics, No. 14-1513, made it easier for courts to enhance damages for patent infringement under 35 U.S.C. § 284. In Halo, the Supreme Court rejected the Federal Circuit’s two-part test for enhanced damages, articulated in In re Seagate Technology LLC, 497 F.3d 1360 (2007) (en banc), as overly restrictive. The Supreme Court held that § 284 left enhanced damages to the district court’s discretion, while noting that they have traditionally been reserved for cases of "egregious cases typified by willful misconduct."
Halo will affect the way parties review and analyze patents held by their competitors. Actions taken after learning of a patent will undergo increased scrutiny. Parties should consider the roles that patent counsel, formal written opinions and post-grant validity challenges play in their patent clearance strategy.
Under Seagate’s now-rejected test, a reasonable (although unsuccessful) defense at the infringement trial could negate a finding of willfulness. The Seagate test required showing an objectively high likelihood that the infringer’s actions constituted infringement of a valid patent. Thus, before Halo, a party could potentially avoid treble damages because of arguments developed and argued by its trial attorneys, but not considered at the time infringement began.
In rejecting the Seagate test, the Supreme Court stressed that "culpability is generally measured against the knowledge of the actor at the time of the alleged conduct." According to the court, "[C]ourts should continue to take into account the particular circumstances of each case in deciding whether to award damages, and in what amount." Thus, when deciding whether to enhance damages in future cases, future courts will focus on the actions the accused infringer takes at the time of the accused infringement, not just the positions it takes during litigation. The court will also have to decide whether to prorate enhanced damages in a way that distinguishes the periods before and after an accused infringer develops its defenses.
Halo appears likely to make enhanced damages easier to prove, rejecting the Federal Circuit’s insistence on clear and convincing evidence to substantiate a claim. The Supreme Court also confirmed that enhanced damages determinations should be reviewed for “abuse of discretion” on appeal.
Against the backdrop of the Halo decision, the assistance of patent counsel can prove valuable to those who are launching a new product, are entering a new market or have been made aware of a competitor’s patent.
First, counsel can often help corporate decision-makers assess the relative risk associated with a competitor’s patent rights. By assessing the scope of the patent claims, and how a court is likely to construe them, counsel can assist the business in making an informed decision on how to proceed. The avoidance of potential disputes is one of the most valuable services a patent attorney can provide the client.
Second, seeking the assistance of counsel, while not required to avoid enhanced damages, may go a long way to demonstrating the reasonableness of the accused infringer’s actions. The request for advice, and the attorney’s response, will help the court analyze the "particular circumstances of the case" and the reasonableness of moving forward. Business leaders can rely on the advice offered by the attorney to support their decisions. This may hold true, even if the patent analyzed—contrary to the attorney’s advice—is found infringed and not invalid during litigation.
A patent clearance search, in particular, can assist a business considering a new product or service. This analysis considers patents in the relevant field, determines how closely they relate to the technology under consideration, and considers whether any change in strategy should be made in view of the results. While a full opinion of counsel may not be necessary for each patent the search reveals, knowing what patents others hold that relate to the new concept can help the business decide whether to pursue an opportunity, to modify its product, to seek a license, or to invest elsewhere. By engaging in a patent-clearance analysis, the business can demonstrate that it took steps to avoid potential infringement, thereby reducing the likelihood of enhanced damages.
Evidence of a request for an attorney’s advice, and the advice received, will help an accused infringer explain its actions during future litigation—which may take place years later. If a company relies on the advice, it will benefit from being able to demonstrate that it sought the advice, that it provided its counsel with all relevant information, and that the advice received was competent. Collecting this information and saving it for future use will serve a client well. A formal letter from counsel setting forth the advice given, as well as the bases for the analysis, should help bolster the company’s decision to proceed.
As noted in Halo, as well as in Justice Stephen Breyer’s concurrence, § 298 of the Patent Act provides that the "failure of an infringer to obtain the advice of counsel … may not be used to prove that the accused infringer willfully infringed." Justice Breyer’s concurrence noted that "it may well be expensive to obtain an opinion of counsel." Further, there may be circumstances in which a business owner, scientist, engineer, or technician might determine that a product does not infringe a particular patent without such action being "wanton" or "reckless." In other words, according to Justice Breyer, § 298 illustrates that "Congress has … left it to the potential infringer to decide whether to consult counsel."
Whether to seek assistance of counsel upon learning of a patent is, ultimately, a business decision. The costs and effort required of obtaining an legal advice should be weighed against the risk presented by the patent. The greater potential of enhanced damages under Halo may change the way that businesses approach this calculus.
Since September 2012, parties have been able to challenge the patentability of U.S. patents through post-grant validity challenges before the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board. These proceedings—inter partes review, covered business method review and post-grant review—provide additional options for a business facing a competitor’s patent.
Filing an IPR, CBM or PGR may relatively quickly eliminate some or all of the patent claims. Although recent statistics indicate that changes may be coming, petitioners have been generally successful in post-grant patentability challenges. Cumulative PTAB statistics from inception through May 2016 show that in IPRs, the most common type of post-grant challenge, over 85 percent of proceedings in which a final written decision has issued have resulted in a finding of unpatentability for some or all challenged claims. Roughly 70 percent of IPR challenges are either instituted or settled. Similar institution rates and higher rates of unpatentability on final written decision apply for CBM challenges. While most PTAB petitions filed to date have challenged patents already in litigation, because Halo has made enhanced damages easier to obtain, expect more PTAB petitions for patents not yet asserted in court.
Some parties may draft, but delay filing, a petition for review. The petition should provide a robust analysis of the scope and patentability of the patent claims, allowing it to augment or, in some circumstances, replace an opinion of counsel. The unfiled petition may be used as leverage in licensing or settlement negotiations. Adopting this approach depends largely on a company’s risk tolerance.
Challenging a patent before the PTAB provides certainty not available from an opinion of counsel. The PTAB will decide whether to institute review within six months of receiving the petition, and it will issue a final written decision 12 months later. Thus, the party seeking review will know whether the challenged patent claims are patentable within a relatively short time. Given the uncertainties of how courts will apply Halo, the certainty provided by the PTAB may be welcomed by many businesses.
Originally printed in Law360 (www.law360.com). Reprinted with permission. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.
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