United States: Willfulness Finding In EDTX Ruling In TCL V. Ericsson Illustrates The Risk To Accused Infringers Of Failing To Investigate Allegations

In a May 10, 2018 ruling, discussed earlier on this blog, Magistrate Judge Payne affirmed the jury's willfulness finding largely on the ground that TCL did not proffer any evidence that it held a subjective, good faith belief that it did not infringe the patent-in-suit or that the patent was invalid. The fact that TCL filed over a dozen petitions for inter partes review of the asserted patents did not mean, as a matter of law, that TCL held such a subjective, good faith belief. The ruling demonstrates the importance, post-Halo, of alleged infringers performing their own investigation of allegations against them – mere pleadings taking non-infringement or invalidity positions may not suffice to defeat a willfulness allegation.

1. Background

This case is one facet of an ongoing, global patent dispute between Ericsson and TCL. Much of that dispute, including last year's ruling by Judge Selna of the Central District of California on a fair, reasonable, and non-discriminatory (FRAND) rate for Ericsson's portfolio, has focused on Ericsson's patents essential to various telecommunications standards. The patents asserted in the case at hand, however, were not declared essential to a standard, directed instead to user interface and security functionality allegedly present on TCL handsets.

Between July and August 2015, TCL filed seventeen petitions for inter partes review against the patents asserted in the E.D.Tex. action, all of which instituted. Eighteen days before jury selection was scheduled, Magistrate Judge Payne stayed proceedings pending the resolution of the IPRs. One asserted patent emerged from IPR with at least some asserted claims valid, and the case resumed as to that patent (Ericsson's claims involving the other patents will proceed separately, depending on the outcomes of its appeal of certain of the other IPRs).

After a December 2017 trial, the jury found TCL liable for infringement of this patent and awarded Ericsson a lump sum of $75 million. Implicitly, the jury credited Ericsson's damages expert, Robert Mills. The jury further found that TCL's infringement was willful.

2. Willfulness

The May ruling declined to disturb the jury's finding of willfulness, and Magistrate Judge Payne enhanced damages by 25%. Citing Exmark Mfg Co. Inc. v. Briggs & Stratton Power Prod. Grp., LLC, 879 F.3d 1332, 1353 (Fed. Cir. 2018), the May ruling deferred to the jury's determination on willfulness. Magistrate Judge Payne explained the post-Halo and –Exmark paradigm for adjudicating willfulness as follows: "the jury must decide whether the infringement was intentional, and then the court must decide whether the intentional conduct was egregious enough to justify enhanced damages."

The record supported a finding that TCL's infringement was intentional, based on (i) TCL's awareness of the patent and infringement allegations gleaned from the complaint; and (ii) the lack of evidence of a subjective belief by TCL that the patent was invalid or unasserted. To a man, the TCL corporate witnesses testified that they had not read the asserted patent, let alone developed a belief on the related allegations. "The jury was under no obligation to credit TCL's defense as reasonable or infer that the defense was evidence of TCL's good-faith belief, particularly when there was no evidence about that belief."

To decide whether and how to enhance damages, the Magistrate Judge Payne applied the factors articulated in Read Corp. v. Portec, Inc., 970 F.2d 816 (Fed. Cir. 1992), which are instructive but not controlling post-Halo. Key to this finding was, again, TCL's failure to proffer evidence of its actual, subjective beliefs. TCL's petition for IPR of the patent-in-suit instituted, which would ordinarily weigh in favor of finding that the second Read factor – "whether the infringer, when he know of the other's patent, investigated the patent and formed a good faith belief that it was invalid or that it was not infringed" – weighed against enhancement. Here, though, even though TCL filed an IPR petition challenging the patent-in-suit, and even though that petition instituted, there was no evidence of TCL's subjective belief.

Certain other Read factors weighed against a finding of enhancement. For instance, Google, not TCL, developed the infringing functionality, and while "Google's contract with TCL requires TCL to shoulder any resulting liability... the law has traditionally regarded one who receives stolen property as less culpable than the thief." Altogether, the factors weighed in favor of enhancement of the verdict by half of the amount Ericsson requested — 33%, or $25 million.

3. Conclusion

The willfulness finding here was supported by facts likely to arise in the records of many cases. Any complaint that passes Iqbal muster could support an inference of awareness of the infringement allegations, and questions in corporate depositions about the steps and outcomes of a defendant's investigation of the allegations will arise in many cases. Magistrate Judge Payne's May ruling provides a roadmap to alleged infringers to not rely entirely on positions taken in the pleadings to evince a subjective, good faith belief that the allegations lack merit. Indeed, the ruling found that seventeen IPRs TCL filed (all of which instituted and most of which resulted in cancelation of claims) did not compel the conclusion that that TCL held a subjective belief of invalidity. Going forward, targets of infringement allegations should take independent steps, such as reading and understanding the complaint and asserted patents themselves, to make sure that they can credibly state on the record that they held such a belief.

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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Authors
Michael T. Renaud
Robert J.L. Moore
 
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