May/June 2017
IP Litigator
Willful infringement in patent litigation is rooted in punishing culpable and intentional infringers. The beneficiaries of that punishment—the patent owners—can receive up to three times the damages resulting from the act of infringement, making it an attractive claim. Increasing that appeal, the Supreme Court’s decision in Halo v. Pulse lowered the bar for proving willful infringement. No longer do patent owners have to demonstrate that the accused infringer acted objectively reckless. Instead, the focus is solely on the accused infringer’s subjective willfulness. But uncertainty surrounds the very first step in proving willful infringement—setting out an adequate allegation in the complaint. District courts have disagreed about (1) whether the plaintiff must plead facts equating to egregious misconduct to survive a motion to dismiss, and (2) whether the complaint itself can satisfy the requirement of knowledge of the patent.
Prior to Halo, patentees had a much greater challenge succeeding on a willful infringement claim. Under the standard in Seagate, the test for willful infringement had two prongs. First, the patentee had to first satisfy the objective prong of the inquiry by showing that "the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent."1
Once met, the patentee still had to satisfy the second, subjective prong by showing that "this objectively defined risk… was either known or so obvious that it should have been known to the accused infringer."2 Only if the patentee met both prongs could courts consider awarding enhanced damages.3
The Supreme Court in Halo overruled this two-pronged test, calling it "unduly rigid."4 The Court found that the test allowed the accused infringer to avoid a willful infringement finding if the infringer demonstrated any reasonable defense at the infringement trial, even if the accused infringer had no knowledge of that defense before trial.5 By requiring objective recklessness, Seagate "exclude[d] from discretionary punishment many of the most culpable offenders, such as the 'wanton and malicious pirate' who intentionally infringes another’s patent—with no doubts about its validity or any notion of a defense—for no purpose other than to steal the patentee’s business."6
The Halo test gives more discretion to district courts in awarding enhanced damages, and they may do so in "egregious cases of misconduct beyond typical infringement."7 This focuses the inquiry on the culpability of the infringer at the time of infringement. Subjective willfulness alone now can support a finding of willful infringement.8 But, notably, a finding of willful infringement still does not require courts to award enhanced damages.9
While Halo gives guidance on when courts should exercise their discretion in awarding enhanced damages, its effects on the pleading standard for willful infringement and Seagate’s requirement of pre-suit knowledge of the patent have resulted in substantial disagreement among district courts.
Since Halo, district courts have disagreed on what level of misconduct the patentee must allege to successfully plead willful infringement. Courts agree that patentees pleading willful infringement must comply only with the pleading standards of Rule 8, rather than the heightened standards of Rule 9, but courts interpret these pleading standards differently for willful infringement. Rule 8 requires a "short and plain statement of the claim showing that the pleader is entitled to relief."10 This means that the patentee must plead "factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged."11 The patentee fails to meet this standard "when the allegations in a complaint, however true, could not raise a claim of entitlement to relief."12 In applying this test, however, some courts require the patentee to allege facts amounting to egregious misconduct; others find a pleading of knowledge of the patent plus ongoing infringement sufficient; and yet others apply a test somewhere in between.
Different Courts, Different Standards
Courts requiring allegations amounting to egregious misconduct have relied on Justice Breyer’s concurrence in Halo, which states that "the Court’s references to 'willful misconduct' do not mean that a court may award enhanced damages simply because the evidence shows that the infringer knew about the patent and nothing more.13 For example, in Varian Medical Systems, Inc. v. Elekta AB, the patentee’s complaint essentially recited the pre-Halo requirements for willful infringement.14 The court dismissed because the patentee failed to articulate how the accused infringer’s conduct amounted to "an egregious case of infringement."15 Similarly, the court in Jenkins v. LogicMark, LLC required pleading facts supporting an inference "that the alleged conduct is of the egregious nature described in Halo."16
On the other hand, some courts have latched onto Halo’s statement that "intentional or knowing" infringement "may warrant enhanced damages" as permitting a lower bar for pleading willful infringement.17 In Bio-Rad, the court held that "[a]t the pleading stage, it is not necessary to show that the case is egregious."18 Alleging knowledge of the patent plus infringement was enough to satisfy a motion to dismiss.19 Other courts have reached a similar conclusion.20
Further muddying the issue, at least one court has used a standard somewhere in between, declining to set a threshold level of culpable conduct required for a willful infringement claim.21 In Nanosys, the court considered "the totality of the allegations to determine whether a claim of willfulness is plausible."22 The court noted that Halo gave courts discretion to punish the full range of culpable behavior, free from the unduly rigid test of Seagate.23 It also distinguished Justice Breyer’s concurrence by citing his acknowledgement that "'intentional or knowing' infringement may warrant a punitive sanction."24
These different pleading standards may turn on how district courts interpret a claim for willful infringement. The term "willful infringement" can be used to refer to only the jury’s determination of subjective willfulness. For example, in Sociedad Espanola de Electromedicina y Calidad, S.A. v. Blue Ridge X-Ray Co., Inc., the court declined to award enhanced damage despite the jury’s finding of willful infringement.25 But usually, courts refer to a claim for willful infringement as collectively referring to the jury’s willfulness determination and the court’s decision to award enhanced damages.26
Courts that require pleading facts amounting to egregious misconduct are looking beyond the jury determination of willfulness. By vetting the complaint for allegations of egregious misconduct, they are forcing patentees to allege facts sufficient not only for a jury finding of willful infringement, but also an enhanced damages award. Conversely, those courts finding knowledge of the patent plus infringement sufficient are vetting the complaint to a level that would allow a jury finding of willful infringement. Whether those courts exercise their judgment in awarding enhanced damages based on that finding is a separate question. As stated in Halo, enhanced damages "should generally be reserved for egregious cases typified by willful misconduct."27 But, as noted above, a finding of willful infringement does not necessitate enhanced damages.
After Halo, the accused infringer still must have had knowledge of the patent at issue for an award of enhanced damages based on willfulness.28 But district courts have disagreed whether the complaint can provide that knowledge for an allegation of ongoing willfulness. Under Seagate, the complaint could not provide that knowledge.29 Rather, because "a patentee must have a good faith basis for alleging willful infringement… a willfulness claim asserted in the original complaint must necessarily grounded exclusively in the accused infringer’s pre-filing conduct."30 Whether this is still good law after Halo is another matter of disagreement among the courts.
The District of Delaware is of the opinion that Halo eliminated the pre-suit knowledge requirement.31 In DermaFocus, the patentee attempted to establish pre-suit knowledge based on the patent’s inclusion in an IDS during the prosecution of one of the defendant’s patent applications. While the IDS listed only seven prior art references, the court dismissed the pre-complaint willfulness allegations because the complaint did not plausibly allege pre-suit knowledge. But the court permitted the patent owner’s post-complaint allegations of willfulness to continue. Several other courts, including the Southern District of California, the Northern District of California, the Eastern District of Texas, and the District of Massachusetts have reached the same result.32 Thus, the most popular patent venues where a majority of patent cases are filed do not require pre-suit knowledge for a finding of willful infringement.
Other jurisdictions, however, such as the Central District of California, have upheld Seagate’s pre-suit knowledge requirement.33 In these jurisdictions, the patent owner must base its willful infringement allegation exclusively on pre-filing conduct because the pleadings require having a good-faith basis for alleging willful infringement.34 Several other courts also require pleading facts sufficient to create a plausible inference of pre-suit knowledge to support a willful infringement allegation.35
This distinction could mean a substantial difference in the amount of damages received in litigation. If Halo eliminated the pre-suit knowledge requirement, a patentee potentially could receive up to treble damages for the acts of infringement occurring throughout litigation, which could be significant given that the average patent case takes three years to go to trial.36 Moreover, given that the three most popular patent venues—the Eastern District of Texas, the District of Delaware, and the Northern District of California—all adhere to this interpretation, a claim for willful infringement could be present in the vast majority of suits.
Halo has lowered the bar for proving willful infringement. But how much lower the bar is at the pleading stage is yet to be determined. Though awards of enhanced damages generally should be reserved for egregious misconduct, some courts permit claims of willful infringement to move forward even without allegations of egregiousness, relying on their broad discretion to punish the entire spectrum of culpable behavior. Some courts also have stripped away Seagate’s requirement of pre-suit knowledge, making it possible to allege willful infringement in every case of ongoing infringement. In situations where no pre-suit knowledge exists, the merits of the willful infringement claim would depend on how the accused infringer reacts after learning of the patent from the complaint. Based on these differing views, districts with more favorable rules on pleading willful infringement may attract even more patent litigation until the Federal Circuit sorts out these issues.
Endnotes
1 In re Seagate Technology, LLC, 497 F.3d 1360, 1371 (Fed. Cir. 2007).
2 Id.
3 Id.
4 Halo Elecs., Inc. v. Pulse Elecs., Inc., 136 S.Ct. 1923, 1932 (2016).
5 Id. at 1933.
6 Id.
7 Id. at 1935.
8 WesternGeco LLC v. ION Geophysical Corp., 837 F.3d 1358, 1362 (Fed. Cir. 2016).
9 Halo, 136 S.Ct. at 1933.
10 Fed. R. Civ. P. 8(a)(2).
11 Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
12 Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 558 (2007).
13 Halo, 136 S.Ct. at 1936 (Breyer, J., concurring) (emphasis in original).
14 Varian Med. Systems, Inc. v. Elekta AB, 2016 WL 3748772, at *8 (D. Del. July 12, 2016).
15 Id.
16 Jenkins v. LogicMark, LLC, 2017 WL 376154, at *5 (E.D. Va. Jan. 25, 2017).
17 Bio-Rad Labs. Inc. v. ThermoFisher Scientific Inc., 2017 WL 438733, at *1 (D. Del. Feb. 1, 2017).
18 Id.
19 Id. at *2.
20 See, e.g., Raytheon Co. v. Cray, Inc., 2:16-CV-00423-JRG-RSP, at 9 (E.D. Tex. Mar. 12, 2017) (holding that committing acts of infringement with knowledge of the patents was sufficient); Crypto Research, LLC v. Assay Abloy, Inc., 16 Civ. 1718 (AMD) (RER), at 23 E.D.N.Y. Feb. 17, 2017) (same); Panoptis Patent Mgmt., LLC v. Blackberry Corp., 2017 WL 780885, at *5 (E.D. Tex. Feb. 10, 2017)(same); Sunrise Techs., Inc. v. Cimcon Lighting, Inc., 2016 WL 6902395, at *4 (D. Mass. Nov. 23, 2016) (same).
21 Nanosys, Inc. v. QD Vision, Inc., 2016 WL 4943006, at *7 (N.D. Cal. Sept. 16, 2016).
22 Id.
23 Id. at *8.
24 Id. at *8 n.9 (quoting Halo, 136 S.Ct. at 1936 (Breyer, J., concurring)).
25 See Sociedad Espanola de Electromedicina y Calidad, S.A. v. Blue Ridge X-Ray Co., Inc., 2016 WL 7473422 (W.D.N.C. Dec. 28, 2016).
26 See Varian Med. Sys., 2016 WL 3748772, at *8.
27 Halo, 136 S.Ct. at 1934.
28 WBIP, LLC v. Kohler Co., 829 F.3d, 1317, 1341 (Fed. Cir. 2016).
29 Seagate, 497 F.3d at 1374.
30 Id.
31 DermaFocus LLC v. Ultera, Inc. 201 F.Supp.3d 465 (D. Del. 2016).
32 See, e.g., Finjan, Inc. v. ESET, LLC, 3:17-cv-0183-CAV-(BGS), 2017 WL 1063475 (S.D. Cal. Mar. 21 2017) (applying the law of the Northern District of California); Raytheon Co. v. Cray, Inc., 2:16-CV-00423-JRGRSP (E.D. Tex. Mar. 12, 2017); Huawei Techs. Vo. Ltd. v. T-Mobile U.S., Inc., 2:16-CV-00052-JRG-RSP (E.D. Tex. Feb. 20, 2017); Simplivity Corp. v. Springpath, Inc., 4:15-13345-TSH, 2016 WL 5388951 (D. Mass. July 15, 2016).
33 Soteria Encryption, LLC v. Lenovo U.S., Inc., CV 16-7958-GW (JPRx) (C.D. Cal. Feb. 27, 2017).
34 Id. at 6.
35 Continental Circuits LLC v. Intel Corp., CV16-2026 PHX DGC (D. Ariz. Feb. 21, 2017) (dismissing willful infringement claim against one defendant where the complaint did not sufficiently plead the pre-suit knowledge requiring, but denying motion to dismiss as to another defendant); John Keeler & Co., Inc. v. Heron Point Seafood, Inc., 1:14 CV 1652 (E.D. Ohio July 8, 2016) (dismissing willful infringement claim where the complaint could not support a plausible inference that the defendant had pre-suit knowledge of the patent).
36 LegalMetric Nationwide Patent Litigation Report, LegalMetric, June 2016, at 36.
Originally printed in IP Litigator, in May/June 2017. 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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