United States: Courts To Play Greater Role Moderating Enhanced Damages For Willful Patent Infringement

Bard Peripheral Vascular, Inc. v. W.L. Gore & Associates, Inc. (Fed. Cir. June 14, 2012)

In this medical-device patent-infringement action, an Arizona federal jury found that W.L. Gore willfully infringed Bard's Prosthetic Vascular Graft patent. The District Court then decided to double the jury's $185.6 million damages award. Gore lost its post-trial challenge for judgment as a matter of law (JMOL) and appealed to the United States Court of Appeals for the Federal Circuit. On rehearing, a Federal Circuit panel took the opportunity to give courts a larger role—and juries a smaller role—in deciding whether patent infringers acted willfully. The jury's role in deciding willfulness is now limited to determining whether the infringer subjectively knew or should have known that it was infringing a valid patent. It is now the court's duty to assess whether there was any objectively reasonable argument that the patent was invalid or not infringed. The Federal Circuit's decision in Bard v. W.L. Gore will likely make multiplied patent damages awards harder to obtain.

Background

The Patent Act allows courts to multiply actual patent damages—the estimated profits lost because of an act of patent infringement—by a factor of up to three, as punishment and deterrence for so-called "willful infringement." 35 U.S.C. § 284.

Patent infringement is willful if clear and convincing evidence shows that it was done despite (1) an objectively high risk of infringement (2) that the infringer either knew about or should have known about. In re Seagate Tech., LLC, 497 F.3d 1360, 1371 (Fed. Cir. 2007) (en banc). Until now, willfulness has been considered a "question of fact." That left it mostly up to jurors to decide whether an infringer acted willfully. Courts could issue judgment as a matter of law (i.e., JMOL) contrary to a jury verdict of willful infringement only if the verdict lacked "substantial evidence" under either of the above two willfulness factors. For example, the Federal Circuit upheld the District of Rhode Island's decision of no willfulness despite the jury's contrary verdict in Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292, 1295, 1311 (Fed. Cir. 2011), because "Uniloc failed to show that a reasonable jury could find Microsoft's conduct objectively reckless on the evidence presented."

Detailed description of the case

In Bard v. W.L. Gore, the Federal Circuit decided that whether patent infringement was willful depends on questions of both fact—decided by the jury—and law—decided by the judge. The question of objective legal risk will now be decided by judges alone. Additionally, the Federal Circuit will decide this issue on appeal de novo, without deference to the lower court's decision.

In a past willfulness decision in this case, the Federal Circuit evaluated the willfulness judgment as a pure question of fact. Accordingly, it applied the "abuse of discretion" standard to both prongs of the willfulness inquiry and considered only whether the district court based its judgment on "clearly erroneous findings of fact." Cybor Corp. v. FAS Techs., Inc., 138 F.3d 1448, 1460 (Fed. Cir. 1998) (en banc). "Drawing inferences, especially for 'an intent-implicating question such as willfulness,'" emphasized the court, "'is peculiarly within the province of the fact finder that observed the witnesses.'" (quoting Rolls-Royce Ltd. v. GTE Valeron Corp., 800 F.2d 1101, 1110 (Fed. Cir. 1986)).

After its initial loss on appeal, W.L. Gore petitioned for a panel rehearing and a rehearing en banc, under Federal Circuit Rules 35 and 40. These rules allow rehearing if the appeal concerns a "question of exceptional importance" or a question that the original panel of judges "overlooked or misapprehended." The court denied a full en banc review, but granted a limited-purpose panel rehearing so that the panel that issued the first decision could "revise the portion of its opinion addressing willfulness."

On rehearing, the panel reiterated the Federal Circuit's holding in Seagate that courts must perform a two-part inquiry into willfulness. The threshold inquiry remains whether clear and convincing evidence shows that "the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent." As under Seagate, the evidence must show that the infringer at least had a reasonable defense for its infringement and did not act recklessly. If so, and only if so, the factfinder will evaluate the infringer's subjective intent to determine whether the infringer either knew or should have known that it was unreasonably risking patent infringement.

The panel also recognized that Federal Circuit precedent, including Powell v. Home Depot U.S.A., Inc., 663 F.3d 1221, 1236 (Fed. Cir. 2011), presented a conflicted view of the roles of judge and jury in applying the two-part test. While the court had labeled the inquiry a "question of fact," it had also required that courts make the final determination if the objective risk turned on an underlying question of law—such as claim construction. Willfulness, according to the court, is "more complex" than that.

To resolve this conflict, the panel looked to the Supreme Court's decision in Prof'l Real Estate Investors, Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49, 60 (1993). The Supreme Court in that case outlined a two-part test for "sham" antitrust litigation. That test involves a mix of legal and factual issues—just like the test for willful patent infringement. It also involves a threshold determination of objective reasonableness—namely, that the antitrust lawsuit had an objectively reasonable basis under the law. In this case, the Supreme Court treated the inquiry into the objective reasonableness of the antitrust suit as a matter of law for the judge. Id. at 63. If that threshold is overcome, then the jury decides whether the plaintiff subjectively intended to stage a sham lawsuit.

Following the Supreme Court's lead, the Federal Circuit panel in Bard v. W.L. Gore decided to reallocate the roles of the judge and the jury in deciding whether patent infringement was willful. While a jury can still determine an infringer's subjective intent, the judge decides whether the infringer's failed defense was nonetheless reasonable. The court noted that this decision also aligns the law of willfulness with the law governing enhanced damages and attorney fees, under 35 U.S.C. § 285.

Besides aligning the law of willfulness with similar laws, the court's ruling means that the Federal Circuit will now moderate all appealed willfulness decisions. This, the panel believes, will tend to unify the law of willfulness, since questions of law are addressed de novo—i.e., without deference to district-court decisions—on appeal.

Because the ultimate power of deciding willfulness is now in judges' hands, it will likely be harder for patentees to win punitive patent damages. Some commentators have suggested that jurors who have already decided that a patent was infringed are almost certain to find that the infringement was done willfully, without carefully measuring the merits of the infringer's defenses. Bard v. Gore squarely eliminates this issue.

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