Willful Patent Infringement May Be Alleged in Suit Filed on the Same Day the Patent Issues Based on Prior Notice of Allowance

Authored by D. Brian Kacedon, John C. Paul, and Kevin D. Rodkey

Abstract

Entitlement to enhanced damages for willful patent infringement requires the patent owner to show the infringer knew about the patent before the lawsuit was filed. In Malibu Boats, a district court concluded that the patent owner could allege willful infringement in a suit filed on the same day that the asserted patent issued where the complaint alleged that the defendant had knowledge of the Notice of Allowance and Issue Notification of the patent, had been contacted by patent owner's attorneys about the impending issuance of the patent, and was engaged in a separate litigation with the patent owner involving a related patent.

Damages for patent infringement may be enhanced up to three times the amount found or assessed in cases where the infringer has committed "willful infringement." Willful patent infringement requires, among other things, that the infringer had knowledge of the patent before the lawsuit was filed. In Malibu Boats, LLC v. Mastercraft Boat Company, LLC, the district court for the Eastern District of Tennessee considered whether a patent owner could seek enhanced damages where the infringement suit was filed on the same day the patent issued. The court concluded that the patent owner could allege willful infringement because the complaint alleged that the accused infringer had knowledge of the patent's allowance prior to issuance. The court made clear, however, that its decision extended only to the patent owner's ability to seek enhanced damages for willful infringement—the ultimate issue of whether infringement was willful would be decided by a jury and the court could then exercise its discretion to determine whether or not to award enhanced damages.

Background

Malibu accused Mastercraft of infringing a patent directed to a system for modifying a boat's wake, in a complaint filed on the same day that the patent issued. Malibu's complaint included an allegation that Mastercraft willfully infringed the patent because Mastercraft had knowledge of the patent prior to its issuance, including by way of a Notice of Allowance and Issue Notification. A Notice of Allowance informs patent applicants that the application is entitled to a patent under the law. Shortly before a patent actually issues, an Issue Notification informs the applicants of the patent number and issue date assigned to the patent. Malibu also provided actual knowledge of the Notice of Allowance and Issue Notification via a letter from Malibu’s patent prosecution counsel to Mastercraft thirteen days before the patent issued. At the time, Malibu and Mastercraft were also engaged in a separate litigation involving a related patent. Mastercraft filed a motion to dismiss Malibu’s willful infringement allegations, arguing that it could not have pre-suit knowledge of a patent when the patent issued the same day the suit was filed.

The Malibu Boats Decision

The district court examined whether Malibu could legally allege willful infringement in its complaint, assuming all allegations in the complaint to be true. Although the court noted that infringement could not begin until the patent actually issued, it concluded that knowledge of a patent before it issued could form a basis for alleging willful infringement.

At the outset, the district court looked at the standard for proving enhanced damages and focused on how it is evaluated based on the totality of the circumstances. It observed that Mastercraft’s motion to dismiss relied on the Federal Circuit's Seagate decision, which was largely abrogated by the Supreme Court in Halo Electronics. The court noted, however, that even under Halo Electronics, "enhanced damages should generally be 'reserved for egregious cases typified by willful misconduct'" and knowledge of the asserted patent continues to be a prerequisite for willful infringement and is decided by a jury based on the "totality of the circumstances." The court rejected Mastercraft's assertion that willful infringement is categorically excluded when the lawsuit is filed the same day a patent issues, explaining that Mastercraft's assertion was inconsistent with this totality of the circumstances test.

Next, the court examined the facts of this case to determine whether Malibu's complaint included allegations that Mastercraft had knowledge of the patent before it issued and pointed to the USPTO's Notice of Allowance and Issue Notification, Malibu's patent counsel's correspondence with Mastercraft, and Malibu and Mastercraft's ongoing litigation involving a patent related to the '161 patent, which "could conceivably contribute to a finding of willfulness." Taking Malibu's assertions in its complaint as true, the court determined that Malibu had set forth a plausible complaint for willful infringement.

The court distinguished the cases relied on by Mastercraft, noting that in those cases there was no evidence that the defendant received notice of the patent’s impending issuance. The court also distinguished cases where a defendant only had knowledge of a patent application, but not the patent’s issuance, noting that patent applications are often amended during prosecution and do not provide the same knowledge as a Notice of Allowance and Issue Notification. The court also observed that the position taken by Mastercraft—precluding enhanced damages based on conduct and knowledge before a patent issued—would require patent owners to delay infringement suits to develop a willfulness case, even where the alleged infringer had knowledge of the patent’s impending issuance. The court found that this contradicted precedent, which does not require delaying an infringement suit to assert willfulness.

Lastly, the court noted that an award of enhanced damages is within the discretion of the court, so even if the jury returns a finding of willfulness, the court is not required to exercise its discretion to award enhanced damages.

Strategy and Conclusion

Patent owners may file suit on the day a patent issues and allege willful infringement if they notify infringers of the Notice of Allowance or Issue Notification beforehand. But ultimately, the court has discretion to determine whether and how much to enhance damages.

Further information

The Malibu Boats opinion can be found here.