Print PDF

Articles

A Radical Change in Willful Infringement Litigation

Law360
January 3, 2013

Masurovsky, Laura P.

Article

Authored by Laura P. Masurovsky and Jacob A. Schroeder

Accused patent-infringers have long feared willful infringement allegations. As a fact question, judges were often hesitant to take the issue away from a jury. A jury's decision on willful patent infringement can easily be among the most important to a defendant's exposure. With a single check on a verdict form, a jury can find willful infringement, empowering the judge to increase a patent damage award by up to three times. Previously, such outcomes were difficult, if not impossible, to overturn on appeal—the jury's finding being reviewed for substantial evidence1 and the district court's decision to increase damages being reviewed for abuse of discretion.

Recently, the Federal Circuit has answered the call for further limiting the instances in which an accused infringer must face the spectre of treble damages. These recent developments have essentially turned what was, historically, a question of fact for the jury into a question of law for the judge. This piece will summarize these important developments and offer practical tips on how to defend against a charge of willful infringement.

Underwater Devices: The Jury Decides Willful Infringement Under a Negligence-Type Standard

Most patent litigators are familiar with the Federal Circuit's Underwater Devices2 decision. This decision issued out of a newly created Federal Circuit "at a time when widespread disregard of patent rights was undermining the national innovation incentive."3 In this decision, the court imposed an affirmative duty of due care to avoid patent infringement once a potential infringer was on actual notice of another's patent rights. In order to discharge this duty, and thus avoid a finding of willful infringement, a potential infringer must have sought and obtained competent legal advice from counsel before the initiation of any possible infringing activity.4 This decision created the surge of freedom-to-operate letters and served as the basis for the opinion practices of many patent lawyers.

At that time, the young Federal Circuit held that determining willfulness was a question of fact for the fact finder.5 Under this approach, the fact finder determined whether an accused infringer's defenses to patent infringement were "reasonable." As a fact question, such a finding was reviewed on appeal under the substantial evidence standard of review.6

Seagate: Imposition of a Two-Pronged Test Under a Recklessness-Type Standard

The court's decision in Underwater Devices survived for almost 25 years until the en banc court decided In re Seagate, which expressly overturned Underwater Devices. In Seagate, the court criticized Underwater Devices as creating a system in which the practical considerations had become "too onerous" and unworkable. These criticisms were especially apt as it concerned attorney-client privilege and work product protections available for accused infringers seeking to rely on an advice-of-counsel defense.

The Federal Circuit looked to the well-established meaning of "willfulness" in the civil context, as defined by its sister circuits and the U.S. Supreme Court.7 After this analysis, the Federal Circuit reached the conclusion that the willfulness inquiry should be akin to a standard of recklessness, as opposed to one of negligence.8 Because Underwater Devices imposed a duty of due care under a negligence standard, the Federal Circuit overruled that decision for its "fail[ure] to comport with the general understanding of willfulness in the civil context."9

In its place, the Federal Circuit instituted a two-pronged test. The first prong required a patentee to show, by clear and convincing evidence, "that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent." If this objective threshold was satisfied, the patentee must then prove "subjective recklessness", i.e., that the objectively defined risk was either known or should have been known to the accused infringer.

Where the objective prong was not satisfied, the jury was not to consider the subjective prong of this analysis. The Federal Circuit left unresolved many issues for further development. By shifting from a negligence standard to a recklessness standard, Seagate made it more difficult for a patentee to succeed on a willful infringement claim. Exactly how this would shake out, however, was at that time unclear and was left to future cases to decide.

Powell/Bard: Judge Decides Threshold Determination of Objective Recklessness as a Matter of Law

Two recent cases from the Federal Circuit have illuminated the Seagate opinion and provide valuable insight into how the Federal Circuit views willful infringement. In Powell v. Home Depot,10 the court considered the objective prong of Seagate's two-pronged test. Specifically, the court was asked whether satisfaction of the objective prong was a fact question for the fact-finder, usually a jury, or a legal question for the court.11

The Federal Circuit's answer, in Powell, was "it depends." Under the Seagate standard, the pertinent inquiry for the objective prong is whether an accused infringer reasonably relied upon a defense to patent infringement. Thus, the court held, where resolution of that inquiry turned solely on a fact question (such as noninfringement), this should be decided by the jury. On the other hand, where the resolution of that inquiry turned on a legal question (such as claim construction or inequitable conduct), the judge would decide the issue as a matter of law. The court even contemplated the situation where the objective recklessness inquiry may require analysis by both the judge and the jury.

Most recently, in Bard Peripheral Vascular v. W.L. Gore & Assocs.,12 the en banc Federal Circuit further modified the panel decision in Powell. In Bard, the Federal Circuit held "that the objective determination of recklessness, even though predicated on underlying mixed questions of law and fact, is best decided by the judge as a question of law subject to de novo review.13 In reaching this decision, the court's holding was informed by its belief that "that the court is in the best position for making the determination of reasonableness." The Federal Circuit did not modify the subjective recklessness prong of the willfulness analysis.

Bard is important for two reasons: (1) the district court judge is now the final arbiter of willfulness and whether reliance upon a defense was reasonable, and (2) by making this a legal question, the district court's decision is subject to de novo review at the Federal Circuit.14

Practical Implications

The court's decision in Bard will effect a radical change in the way willful infringement is litigated and gives rise to a number of practical implications. Most of these practical implications stem from the fact that the judge, rather than the jury, is the arbiter of the threshold objective prong of willful infringement.

First and foremost, because the objective prong is now a legal question, it should be easier for defendants to have willful infringement thrown out of a case at the summary judgment stage. Further, because the district court judge decides the threshold objective prong, Bard underscores the need both to maintain credibility with the judge and to present all reasonable defenses to liability. This also underscores the importance of a presenting a reasonable claim construction argument.

Indeed, a reasonable claim construction position that gives the defendant a strong noninfringement position may enable the defendant to succeed on summary judgment of no willful infringement. However, because an issue of law is reviewed on appeal de novo, even if a defense appears to be a long-shot, trial counsel should still preserve any such defenses to the extent they could impact the reasonability determination on appeal.15

Additionally, no longer must an accused infringer fear that a jury, otherwise mesmerized and persuaded by the patentee's counsel on the question of infringement, that as a result checks the box for willful infringement, has the final say. The judge can now more easily undo that result at the post-trial stage. Thus, those accused infringers with a few "bad facts" need not fear that these facts that may prod a jury towards a finding of willfulness will mean an increase of the damages award.

To the extent a district court is hesitant to resolve the issue on summary judgment and lets it go to the jury on the subjective prong, defendants are still in a better place post-Bard. First, because the objective "threshold" test is a legal matter for the judge, it will be easier for defendants to succeed on Rule 50 motions when not faced with the, otherwise daunting, "no reasonable jury" standard. Second, if still unsuccessful, infringers will certainly be happier taking their odds on the appeal of an issue reviewed de novo, rather than one reviewed for the substantial evidence or clearly erroneous standards of review.

The holding in Bard was expressly predicated upon the Federal Circuit's belief that the court, as opposed to the jury, is in the best position for making the determination of reasonableness as required under the objective prong of willful infringement. Thus, practitioners can expect to see greater involvement and fine-tuning of this standard by both the district courts and by the Federal Circuit (exercising its new de novo review over the objective prong). Recognizing that willful infringement had been too often asserted, it is not hard to imagine that the doctrine of willful infringement will be further limited to situations where infringement was truly "willful."

An open question remains as to whether a patentee must still demonstrate willful infringement by "clear and convincing" evidence. This had long been the standard by which a patentee needed to prove willfulness. As recognized by Judge Mayer, however, in a recent dissent, "[t]he clear and convincing evidence standard applies to questions of fact, not to questions of law."16 Because the objective prong is now solely a legal question, whether this prong must be satisfied by "clear and convincing" evidence is open to debate.

Conclusion

In conclusion, willful infringement allegations are less likely to succeed and should be easier to eliminate on summary judgment or post-trial. It remains critical to both maintain credibility before a district court judge when presenting defenses, but also preserve all such defenses, even those with little likelihood of success, for possible appeal. Practitioners should be mindful that the Federal Circuit may find reliance upon one such defense to be "objectively reasonable." The interesting implications of the greater involvement of the district court judge going forward will be on how the subjective and objective standards for willful infringement coincide and whether the objective prong must still be satisfied by "clear and convincing" evidence.

Endnotes 
1 Or, in the case of a bench trial, under the clearly erroneous standard of review. See Fed. R. Civ. Proc. 52.

2 Underwater Devices Inc. v. Morrison-Knudsen Co., 717 F.2d 1380 (Fed. Cir. 1983).

3 In re Seagate Tech., 497 F.3d 1360, 1369 (Fed. Cir. 2007).

4 Id. at 1390.

5 Id. at 1390.

6 See supra note 1.

7 Seagate, 497 F.3d at 1370.

8 Id. at 1371.

9 Id.

10 Powell v. Home Depot U.S.A. Inc., 663 F.3d 1221 (Fed. Cir. 2011).

11 Id. at 1236. ("Thus, the parties disagree as to whether the jury is the sole decider of the objective prong of the willful infringement inquiry and the type of evidence that may be presented to the jury regarding willful infringement.")

12 682 F.3d 1003 (Fed. Cir. 2012) (en banc).

13 Id. at 1007.

14 This holding has interesting and, as of yet, unclear consequences for the standard for awarding enhanced damages and attorneys' fees against a nonprevailing plaintiff under 35 U.S.C. § 285. The Federal Circuit, in iLOR LLC v. Google Inc., 631 F.3d 1372 (Fed. Cir. 2011), had previously held that the willfulness standard was identical to the standard under § 285. Since Bard, the Federal Circuit has applied the holding of Bard to the standard under § 285. See Highmark Inc. v. Allcare Health Mgmt. Sys., 687 F.3d 1300 (Fed. Cir. 2012). Based on the strong dissent in that case by Judge Mayer and close vote on the petition for rehearing en banc, these issues will likely develop further over the coming months. See Highmark Inc. v. Allcare Health Mgmt. Sys., No. 2011-1219 (Fed. Cir. Dec. 6, 2012) (order denying petition for panel rehearing and rehearing en banc).

15 Cf. iLOR LLC v. Google Inc., 631 F.3d 1372, 1380 (Fed. Cir. 2011) (refusing to hold that a patentee's conduct was "objectively reckless," under a standard "identical" to the objective prong of the willful infringement analysis, for reliance on a claim construction that, although incorrect, was not otherwise objectively unreasonable). 

16 Highmark, 687 F.3d at 1321 (Mayer, J., dissenting).

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.