United States: Lessons From Post-Halo Enhanced Damages Decisions

The U.S. Supreme Court's June 2016 decision in Halo Electronics v. Pulse Electronics confirmed district courts' discretion in enhancing damages for patent infringement under 35 U.S.C. § 284. The court rejected the Federal Circuit's two-part test from In re Seagate Technology LLC, which had previously allowed some arguments raised at trial, but not previously considered by the accused infringer, to negate findings of willful infringement. Noting that "culpability is generally measured against the knowledge of the actor at the time of the alleged conduct," the Supreme Court encouraged district courts to assess enhancement of damages based on the "particular circumstances of each case."1

In the 10 months since the Halo decision, multiple district courts have considered whether to enhance damages in patent cases. Most courts have applied the nine factors from Read Corp. v. Portec Inc. to assess the reasonableness of the accused infringers conduct.2 Despite applying the same factors, different courts have produced a spectrum of outcomes, ranging from dismissal on the pleadings, to small enhancement of damages, the maximum statutory award of treble damages. Exploring these early decisions reveals several considerations for parties assessing a competitor's patent.

Knowledge of a Patent

Knowledge of a patent does not always lead to a finding of willfulness. Justice Stephen Breyer's concurring opinion in Halo stated 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."3 In the past year, several courts have relied on this statement when dismissing claims to willful infringement.4 For example, the District of Delaware dismissed a willful infringement claim because "Plaintiff d[id] little more than provide a formulaic recitation of the pre-Halo elements of a willful infringement claim."5

Other courts have reached different conclusions based on the facts before them. For example, the Southern District of New York denied a motion to dismiss a claim of willful infringement because the complaint alleged "counsel for [the plaintiff] wrote a series of three letters to [the defendant], notifying [the defendant] of [the plaintiff's] intellectual property and alleging infringement of it" and "[the defendant] responded to the first two of these letters but not the third."6

As these examples illustrate, courts have differed in their consideration of motions to dismiss claims of willfulness based on the allegations before them. The question of whether a party that learns of a patent should engage in further analysis depends on the circumstances facing that party, as well as the party's assessment of the risk the patent may pose to its business.

Good Faith Analysis of the Patent

Post-Halo decisions confirm that a timely, competent analysis of a patent can help to demonstrate good faith and to avoid enhanced damages. As explained by the District of Delaware in Greatbatch Ltd. v. AVX Corp., a presuit non-infringement opinion "could be viewed as evidence that[an accused infringer] did not believe it was infringing a valid patent."7 And "ongoing consultation with a patent lawyer," another court explained, "remains a consideration and is 'highly probative evidence of good faith.'"8 In this Delaware case, the accused infringer had consulted the attorney during the design process and further obtained a non-infringement opinion on the final design.9

For example, in the Western District of North Carolina, a defendant had an engineer determine that the accused product did not infringe for lacking two claimed features.10 In the litigation that followed, the court reached the same conclusion as the engineer, but was ultimately overruled on appeal. On remand and considering enhanced damages, the court concluded that enhanced damages were not warranted, in part, because the jury had already awarded nearly three times the patentee's proposed reasonable royalty rate in regular damages alone. The patentee had already been "amply compensated," the court concluded.11

The timing of an invalidity or non-infringement analysis may impact its usefulness as a defense against enhanced damages.12 In Omega Patents v. Calamp Corp., for example, the Middle District of Florida awarded enhanced damages because "there [was] no indication in the record that [the defendant's expert] provided [the defendant] his opinion on invalidity before the accused products went into production."13 "[T]here[was] no record evidence that [the defendant] had knowledge of the invalidity defense derived from the combination of prior art and SAE standards at the time of the challenged conduct."14

The competence and qualifications of the person reviewing the patent have also factored into courts' consideration of enhanced damages. The Eastern District of Pennsylvania doubled damages where the defendant "admit[ted] not having someone with the specific skill in the art of reading patent claims review[] [the] patent."15 Rather than seeking the counsel of an outside patent lawyer, the defendant's belief of non-infringement was "based entirely on the opinion of people without expertise in reading patent claims," which the court found "is not a good faith belief in non-infringement."16 The fact that the defendant was "on notice of possible infringement for almost the entire duration of [an allegedly infringing] project," which "took 18-24 months," also influenced the court.

The Southern District of Florida awarded maximum enhanced damages against a defendant even though it had obtained an invalidity opinion from an in-house patent agent. The agent "acknowledg[ed] that, by law, he is not permitted to give an opinion on patent infringement or validity."17 Moreover, the opinion was inadequate, "consist[ing] of one conclusory sentence on a page of handwritten notes."18 The defendant also "knew about the subject patents before they issued," and the patent agent "made a note in his file to reexamine the patent after its issuance."19

Evidence of Copying or Bad Faith

Post-Halo courts have also awarded enhanced damages in cases where the evidence showed defendant acted in bad faith or willfully copied a patented feature. Focusing on copying, the Eastern District of Texas awarded maximum damages based on an employee's testimony that he sought information on how [the plaintiff] made its camera," "requested source code," and requested "the circuitry for the [camera] interface."20 Another witness testified that the defendant was "tracking [the asserted] patent portfolio," but "did not perform [a timely] analysis of Plaintiff's patents ... and did not monitor Plaintiff's previous litigation involving the patents-in-suit."21

The Northern District of New York doubled damages to $47.7 million in a case where the defendant, after having previously been found to infringe, "deliberately copied" the plaintiff's patents, concealed the infringement with internal changes to the product that were "invisible" from the outside, and continued its infringement for ten years and even after the plaintiff had filed suit. The court did not punish the defendant with maximum enhanced damages, however, because, while the defendant had engaged in egregious behavior, the court found it was "not a polar case" that was at "the most egregious end of the spectrum," and doubling the award served as adequate punitive sanction.22

In RBOC Representatives v. Minemyer, the Northern District of Illinois awarded the plaintiff maximum enhanced damages on "clear and convincing evidence that the ... defendants violated a significant portion of [an] injunction" from an earlier litigation.23 The defendants also acted egregiously in the litigation, "t[elling] inconsistent and conflicting stories about virtually everything that mattered in the case" and "stunning[ly] and inexplicabl[y] [remaining] silen[t] on the matter of supposed changes to [the allegedly infringing device]."24

While dissimilar facts may arise in many cases, these decisions illustrate that future courts will consider all actions taken by the accused infringer. Further, after Halo, an objectionably reasonable trial defense may not be enough to ward off enhanced damages.

Conclusion

The Supreme Court's guidance in Halo shifts the focus of the defendant's mindset at the time of the alleged infringement. As a result, parties may benefit from forming a good-faith belief of non-infringement or invalidity soon after becoming aware of a patent, and to maintain that belief through any changes in design. Seeking the opinion of a qualified patent attorney may help demonstrate good faith, particularly if done in a timely manner. Further, evidence of copying or bad faith will likely factor into the court's decision whether to enhance damages.

Footnotes

1 Halo Electronics, Inc. v. Pulse Electronics, Inc. 136 S.Ct. 1923, 1933 (2016).

2 970 F.2d 816, 827 (Fed. Cir. 1992) (factors include the defendant's copying, good-faith belief in non-infringement or invalidity, behavior in the litigation, and size and financial condition, as well as the closeness of the case and the defendant's behavior in the litigation).

3 Halo, 136 S.Ct. at 1933.

4 Princeton Digital Image Corp. v. Ubisoft Entm't SA, 2016 WL 6594076 (D. Del. Nov. 4, 2016); Varian Med. Sys., Inc. v. Elekta AB, No., 2016 WL 3748772 (D. Del. July 12, 2016).

5 Varian, 2016 WL 3748772, at *8.

6 Bobcar Media, LLC v. Aardvark Event Logistics, Inc., 2017 WL 74729, *3 (S.D.N.Y. Jan. 4, 2017).

7 Greatbatch Ltd. v. AVX Corp., 2016 WL 7217625, *4 (D. Del. Dec. 13, 2016)

8 Loggerhead Tools, LLC v. Sears Holding Corp., No. 12-CV-9033, 2016 WL 6778881, at *2 (N.D. Ill. Nov. 15, 2016)

9 Idsee also Polara Eng'g, Inc. v. Campbell Co., No. SA CV 13-00007-DFM, 2017 WL 754609, *25-*27 (C.D. Cal. Feb. 27, 2017) (awarding 250% damages where the defendant allegedly "ignored warnings about the . . . Patent and implemented a two-wire design without a competent opinion that its design would not infringe or that the . . . Patent was invalid.").

10 Sociedad Espanola De Electromedicina Y Calidad, S.A. v. Blue Ridge X-Ray Co., Inc., 2016 WL 7473422, *8, (W.D.N.C., Dec. 28, 2016).

11 Id.

12 Omega Patents, LLC v. Calamp Corp., 6-13-cv-01950 (FLMD April 5, 2017, Order).

13 Id.

14 Omega Patents, LLC v. Calamp Corp., 6-13-cv-01950 (FLMD April 5, 2017, Order).Id..

15 Id. at *22.

16 Id.

17 Arctic Cat Inc. v. Bombardier Recreational Products, Inc., 2016 WL 4249951, *6 (S.D.Fla., July 27, 2016).

18 Id. at *4.

19 Id.

20 Imperium IP Holdings (Cayman), Ltd. v. Samsung Electronics Co., Ltd., 2016 WL 4480542, *6, (E.D.Tex., Aug. 24, 2016).

21 Id.

22 PPC Broadband, Inc. v. Corning Optical Commc'ns RF, LLC, 193 F. Supp. 3d 133, 148 (N.D.N.Y. 2016).

23 No. 07 C 1763, 2017 WL 543045 (N.D. Ill., Feb. 10, 2017).

24 Id. at *2.

Originally printed in  Law360 on April 24, 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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