United States: First Application Of Supreme Court's Halo Willfulness Framework

In its first post-Halo decision on willful infringement, the US Court of Appeals for the Federal Circuit unanimously affirmed the district court's award of enhanced damages in WBIP LLC v. Kohler Co., Case Nos. 15-1038; -1044 (Fed. Cir., July 19, 2016) (Moore, J). The panel concurrently vacated and remanded the district court's denial of a permanent injunction. 

The patents-in-suit cover marine engine exhaust systems that are designed to reduce carbon monoxide emissions. WBIP owns the patents following assignment from its parent entity, Westerbeke. Westerbeke and defendant Kohler are competitors that both manufacture and sell marine generators for houseboats. Prior to the claimed inventions, there was a known problem with carbon monoxide poisonings on houseboats. The asserted patents disclose technology that reduces the amount of carbon monoxide released in the exhaust by using a particular catalyst and electronic fuel injection. After applying for the patents, Westerbeke brought to market a product that incorporated the claimed technology as a low-carbon-monoxide generator. Westerbeke demonstrated the product to two Kohler employees at a trade show. About a year later, Kohler launched its own competitive low-carbon-monoxide generators. 

Some years later, WBIP sued Kohler for patent infringement. In the ensuing jury trial, Kohler defended that the asserted claims were invalid for obviousness and for lack of written description. The jury found in WBIP's favor, including determinations that the infringement was willful and that Kohler had not proven invalidity. After the verdict, the district court granted remittitur, reducing the damages award from $9.6 million to $3.7 million. The district court denied Kohler's motions for judgment as a matter of law (JMOL) that the infringement was not willful, and that the asserted claims would have been obvious and lack written description. The district court also enhanced damages by 50 percent under 35 USC § 285 (using the Federal Circuit's previous two-part Seagate test) and denied WBIP's request for a permanent injunction. Kohler appealed the liability issues, and WBIP cross-appealed the denial of an injunction.

On appeal, the Federal Circuit affirmed the denial of JMOL on the invalidity questions, emphasizing the evidence that supported the jury's verdict. On the obviousness question, the panel examined the legal conclusion de novo, focusing on the secondary considerations of non-obviousness. Here, not only did the objective evidence of non-obviousness overcome Kohler's prima facie showing of obviousness, but WBIP sufficiently established a nexus between the objective evidence and the merits of the claimed invention.

Kohler's willfulness challenge was premised on a legal theory that pre-dated the Supreme Court of the United States' guidance in Halo Electronics v. Pulse Electronics and Stryker v. Zimmer ( IP Update, Vol. 19, No. 6). Kohler had argued that its invalidity defenses were objectively reasonable. The Federal Circuit rejected this position as untenable under Halo. Prior to Halo, accused infringers could escape liability for willful infringement based on proof of an objectively reasonable litigation defense. Post-Halo, litigation positions cannot insulate an accused infringer from earlier culpable conduct. The Federal Circuit reiterated that "timing does matter" and that the appropriate assessment for culpability is whether Kohler had knowledge of its litigation at the time of the challenged conduct. 

Kohler further argued that the jury's verdict of willful infringement should be overturned because the record did not contain substantial evidence that Kohler knew about the patents at the time of the infringing activities. The Federal Circuit disagreed, pointing out that Kohler did not contest that it had pre-suit knowledge of the patents and that the jury had "record evidence upon which it could have inferred knowledge of the patents at issue, and thus its finding is supported by substantial evidence." The analysis reaffirmed that there is a right to a jury trial on the willfulness question. 

After affirming that the district court did not abuse its discretion in enhancing damages by 50 percent, the Federal Circuit found that the district court did abuse its discretion in denying WBIP a permanent injunction. Indeed, the district court had tied its analysis to only the public interest factor, but had not addressed the factors of likelihood of success, irreparable harm or the balance of hardships. The district court had reasoned that the public interest factor weighed against an injunction because WBIP was a much smaller manufacturer than Kohler and the consuming public would benefit from two manufacturers of a potentially life-saving product. Comparing the inventions in this case to potentially life-saving inventions in the pharmaceutical context, the Federal Circuit disagreed with this reasoning, explaining that in nearly every situation involving a life-saving product, the public would benefit from having more manufacturers. The Court noted that limiting the injunction analysis to only the public interest would create a categorical rule that is inconsistent with the Supreme Court's guidance in eBay v. MercExchange and does not account for the public's interest in upholding patent rights. The judgment denying the permanent injunction was remanded for a more thorough analysis of the eBay factors.

Practice Note: This case demonstrates that a finding of willful infringement can have severe consequences. The Federal Circuit's analysis suggests than an effective tool to rebut a claim of willful infringement is to timely seek the advice of counsel. When such advice is sought, counsel should render an opinion as to the strength of future defenses such as non-infringement, invalidity and enforceability as soon as there is knowledge of a problematic patent.  

First Application of Supreme Court's Halo Willfulness Framework

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