Treble Damages for Willful Patent Infringement Become Elusive

Accused patent infringers continue to breath easier as an ever more challenging path to treble damages persists. Recent decisions from the Court of Appeals for the Federal Circuit placed the objective prong of the In re Seagate test toward establishing willful infringement squarely with a judge. The impact on appeal has taken effect.

Under 35 U.S.C. § 271(a), direct patent infringement is a “strict liability” offense. In certain cases, 35 U.S.C. § 284 may provide “up to three times” actual damages. A determination that the accused infringer willfully infringed is used to determine whether enhanced damages are warranted. Finisar Corp. v. DirecTV Group, Inc.  523 F.3d 1323, 1339 (Fed. Cir. 2008).

Historically, willful infringement was a question of fact reserved for a fact finder to decide under a negligence type standard of reasonableness. Underwater Devices, Inc. v. Morrison-Knudsen Co., 717 F.2d 1380 (Fed. Cir. 1983). If a potential infringer was on actual notice of another’s patent rights, the Federal Circuit imposed an affirmative duty of due care to obtain competent opinion from counsel before the potential infringer makes, uses, offers to sell, or sells the subject of the patented invention. Id. at 1390. A jury determined whether the alleged infringer’s defenses to patent infringement were “reasonable” and whereby the accused infringer’s failure to produce opinion resulted in an adverse inference. See Fromson v. Western Litho Plate & Supply Co., 853 F.2d 1568, 1572-1573 (Fed. Cir. 1988); see also Kloster Speedsteel AB v. Crucible, Inc., 793 F.2d 1565, 1579-80 (Fed. Cir. 1986).

In In re Seagate Tech, 497 F.3d 1360, 1371 (Fed. Cir. 2007), the Court expressly abandoned both the affirmative duty of care and the obligation to obtain an opinion of counsel to mitigate the risk of willful infringement. In its place, the Federal Circuit has imposed a recklessness-type standard comprising objective and a subjective prongs. “To establish willful infringement, a patentee must prove by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent” and “that this objectively defined risk was either known or so obvious that it should have been known to the accused infringer.” Id. However, in Seagate, willfulness remained an issue of fact for a jury. Two recent Federal Circuit cases have further altered the willfulness dynamic.

First, in Powell v. Home Depot, U.S.A. Inc., 663 F.3d 1221, 1236 (Fed. Cir. 2011), the Court considered whether the jury is the sole decider of whether an accused infringer reasonably relied upon a defense to patent infringement. Under circumstances where resolution of that inquiry turned on a legal question (e.g. a Markman ruling), a judge decides the issue as a matter of law. Then, in Bard Peripheral Vascular v. W.L. Gore & Assocs., 682 F.3d 1003 (Fed. Cir. 2012) (en banc), the panel held “that even though predicated on underlying mixed questions of law and fact, willfulness is best decided by the judge as a question of law subject to de novo review” because a judge is in the “best position for making the determination of reasonableness.” Id. at 1007.

On rehearing, in these cases, the Federal Circuit took the opportunity to expand the Court’s role and minimize the jury’s role deciding whether a patent infringer acted willfully. In deciding willfulness, the role of the fact finder is now limited to determining whether the infringer subjectively knew or should have known that it was infringing a valid patent.

Because the ultimate power of deciding willfulness is now in judges’ hands, it will likely be harder for patentees to win treble damages in patent cases. Accused infringers need not fear that a few bad facts may result in a finding of willfulness and an increase of a damages award.

Additionally, these rulings mean that the Federal Circuit will now moderate all appealed willfulness decisions de novo, without deference to District Court decisions. Importantly, it will be easier for defendants to succeed on Rule 50 motions when not faced with a “no reasonable jury” standard. Recently, in Harris Corp. v. Fed. Express Corp., 2012-1094, 2013 U.S. App. LEXIS 1142, 31-33 (Fed. Cir. Jan. 17, 2013), FedEx appealed the District Court’s denial of JMOL on the issue of willfulness. Throughout litigation, FedEx raised and argued substantial questions regarding infringement and validity. On appeal, the Federal Circuit vacated JMOL as to willfulness, citing its holding in Bard and the review of the Seagate “objective prong” evidence de novo. Because “[t]he ultimate legal question of whether a reasonable person would have considered there to be a high likelihood of infringement of a valid patent should always be decided as a matter of law by the judge.” Id. at 1008.

If not successful at trial, on the appeal, the issue of willfulness will be reviewed de novo, rather than for substantial evidence or clearly erroneous.

Pleadings of willful infringement likely will be limited to situations where the infringement was truly “willful.” The practical implication to in-house counsel is that the perceived risk of a charge of willful infringement and the associated financial risk declines. Defendants wanting to avoid treble damages should proceed carefully, considering any action that may affect its credibility with the judge; present its strongest non-infringement position; present a reasonable claim construction argument; present and preserve all reasonable defenses to liability.

Ultimately, considering the evolution of case law in this area, a reasonably prudent corporate counsel should consult outside counsel to strategize and ascertain the best approach when proceeding into and through a patent infringement action where a charge of willful infringement has been or could be plead.