United States: It's Not Just What You Know, But When You Know – For Willful Infringement

Last Updated: July 1 2015
Article by   Orrick

Motion to Dismiss Willful Infringement Claims granted, Monolithic Power Systems, Inc. v. Silergy Corporation, No. 14-cv-01745-VC (J. Chhabria)

This case centers around three patents which, according to Monolithic Power Systems (MPS), are willfully infringed by the company's former employee (Dr. Chen) and his new employer (Silergy). Judge Chhabria's June 18 Order explores not only the reasonableness of MPS's factual allegations concerning knowledge of the asserted patents, it also touches (but does not resolve) persisting legal questions on what acts constitute willful infringement.

Regarding the question of how much "pre-suit knowledge" must be pled to satisfy Rule 12, Judge Chhabria held that MPS's pleadings were sufficient as to the asserted '048 patent, but not the remaining '758 and '899 patents. The court found it plausible that the defendants were aware of the '048 patent and granted leave to amend the complaint to address pre-filing willfulness based on allegations that (1) Dr. Chen was involved with the application that led to the '048 patent and (2) Dr. Chen and Silergy evaluated MPS's patent portfolio during pre-suit negotiations. On the other hand, the court found that neither Dr. Chen nor Silergy plausibly had pre-suit knowledge of the '758 or '899 patent, which issued years after Dr. Chen's employment with MPS ended and only after the parties' pre-suit negotiations concluded.

Perhaps most notably with respect to the issue of willfulness, the Court rejected Silergy's argument that its lack of pre-suit knowledge of the '758 and '899 patents, coupled with MPS's failure to seek a preliminary injunction at the immediate outset of the case, precludes a willful infringement claim as to post-filing conduct (i.e., after Silergy was placed on notice of all three patents through the lawsuit). For this argument, Silergy sought to rely on the following statements by the Federal Circuit in In re Seagate:

It is certainly true that patent infringement is an ongoing offense that can continue after litigation has commenced. However, when a complaint is filed, a patentee must have a good faith basis for alleging willful infringement. So a willfulness claim asserted in the original complaint must necessarily be grounded exclusively in the accused infringer's pre-filing conduct. By contrast, when an accused infringer's post-filing conduct is reckless, a patentee can move for a preliminary injunction, which generally provides an adequate remedy for combating post-filing willful infringement. A patentee who does not attempt to stop an accused infringer's activities in this manner should not be allowed to accrue enhanced damages based solely on the infringer's post-filing conduct.

494 F.3d 1360, 1374 (Fed. Cir. 2007) (internal citations omitted).

Judge Chhabria noted that "some courts seem to have interpreted this passage as reflecting the adoption by the Federal Circuit of a rule that a plaintiff may not state a claim for willful infringement based on post-filing conduct if the plaintiff has not moved for a preliminary injunction to bar the defendant from continuing to infringe." See, e.g., McRO, Inc. v. Namco Bandai Games Am., Inc., 23 F. Supp. 3d 1113, 1123 (C.D. Cal. 2013) ("Seagate makes clear that an allegation of willfulness based on the accused infringer's post-suit knowledge of the patent can only be sustained if the plaintiff seeks a preliminary injunction."). Still, the court dismissed the Seagate passage as dicta, and took exception to any bright-line rule requiring a plaintiff to file for a preliminary injunction:

Whether a defendant is willfully infringing during a lawsuit depends on whether the defendant continues to engage in the accused conduct despite knowing of a high likelihood that it is infringing. The answer to that question could be "yes" even if a plaintiff, for whatever reason, decides not to move for a preliminary injunction. And therefore it seems wrong to say that a plaintiff cannot, at the pleading stage in an amended complaint, "state a claim" for willful infringement during the post-filing period if it has not sought a preliminary injunction.

Instead, Judge Chhabria noted, citing Seagate, 497 F.3d at 1374, that whether the plaintiff sought a preliminary injunction becomes relevant only later, when the court exercises its discretion whether to award damages for willful infringement found by the jury: "in exercising its discretion on that issue, a court may well conclude that the patentee 'should not be allowed to accrue enhanced damages based solely on the infringer's post-filing conduct' when the patentee did 'not attempt to stop an accused infringer's activities during the litigation.'" In the meantime, judging the adequacy of a plaintiff's claim for willfulness based on the pleadings "requir[es] district courts to adjudicate infringement claims prematurely, before discovery has been completed and potentially before the parties have complied with the local patent rules, for the sole purpose of deciding whether a plaintiff should be allowed to pursue a post-filing willfulness claim."

Ironically, like the In re Seagate passage on which Silergy relied, Judge Chhabria's analysis may also be considered dicta given that the court ultimately dismissed all of MPS's willfulness claims: "With respect to the '048 patent, MPS has adequately alleged that Silergy had pre-suit knowledge of the patent, but it has not sufficiently alleged that Silergy acted despite an objectively high risk that it was infringing or that Silergy knew of this objectively high risk. With respect to the '758 and '899 patents, MPS has not adequately alleged Silergy's pre-suit knowledge of the patents, nor has it adequately alleged that Silergy acted willfully in the post-suit time period."

Regardless, Judge Chhabria's Order makes clear that alleging willful infringement based solely on speculative pre-suit allegations or post-filing acts remains a dicey proposition.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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