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The Law of Unintended Consequences: Is Willful Infringement Back in Force in the US?

Tangible IP, LLC
Is Willful Infringement Back in Force?
 
When I was at Microsoft, there was a companywide policy to never look at third party patents, because we did not want to be “tainted” by having actual or putative knowledge of some potential infringement of someone else’s IP. Many other large companies had the same approach. Why is that? Because Section 284 of the US Patent Act (as interpreted historically) has some unique language making a “willful” infringer subject to “treble damages” (i.e. 3 times the actual amount) by a judge or a jury, to punish what is considered under the law to be an objectionable conduct. In other words, if you know you are infringing someone’s patent and you continue to do so, you should be punished more harshly.

In the past couple of years, the patent reform in the US and some subsequent court decisions had made proving willful infringement a lot tougher that it has been before, thus essentially relegating the actual threat of this punitive recourse to a side bar. In Seagate, the Federal Circuit created a two-prong test for proving willful infringement. First, the patent owner must prove by clear and convincing evidence that the alleged infringer acted despite “an objectively high likelihood that its actions constituted infringement of a valid patent.” Second, the patent owner must then show that this objectively high risk was “either known or so obvious that it should have been known” to the alleged infringer. The first prong of this test is objective and typically turns on whether the infringer’s defenses were or were not reasonable. The second prong is subjective and involves the accused infringer’s state of mind.  In 2012, the America Invents Act (a major reform of the Patent Act) codified the Seagate decision and further stipulated that failure to secure a legal opinion of non infringement could not be used against the defendant.

A subsequent en banc decision in 2012 in re Bard made this adjudication a matter of law (not of facts) and thus subject to a de novo appeal (i.e. the appeal court is not bound by the trial judge decision). This was a major shift as the court was taking this matter out of the hands of the jury, often the grantor of such punishing verdicts. The decision to grant treble damages reverted to the trial judge, usually a less emotional adjudicator, and was itself fully reviewable by the appeal courts. As a result, there had been very few cases where treble damages awards were granted, thus removing an important economic incentive on infringers to self police and switch to non-infringing activities.
 
This could very well change and willful infringement could make it back from the endangered species list, based on a recent decision of the Federal Circuit, which turns on its head the Supreme Court decision in Octane (which we commented on a few months ago) that lowered the bar for shifting fees to the losing Plaintiff in patent infringement lawsuits.
 
This new decision by the Court of Appeals for the Federal Circuit (CAFC) in Halo v. Pulse (Fed. Cir. 2014) raises issues of the apprent double for enhanced damages from different parts of the Patent Act: §284 willful infringement and §285 attorneys fees in exceptional cases. After the Supreme Court rulings in Octane v. ICON (US 2014) and Highmark v. Allcare (US 2014) lowered evidentiary and review standards for §284 and §285 cases, it is now more difficult for plaintiffs to get enhanced damages under §284 than for defendants to receive them under §285.
 
According to the Federal court, this created a two tiered system for enhanced damages, with higher standards for plaintiffs' willful infringement damages and lower standards for defendants' attorneys fees. Many see this double standard as being unfair to patent holders.
 
The evidentiary and review standards applied in Halo suggests that the Supreme Court decisions in Octane and Highmark overruled aspects of  iLOR v. Google (Fed. Cir. 2011) and Bard v. W.L. Gore (Fed. Cir. 2012). In iLOR and Bard, the CAFC ruled that the evidentiary and review standards are identical for enhanced damages in §284 and §285 cases, respectively. The iLOR court derived the objective baselessness standard from the Supreme Court decision in Professional Real Estate (PRE) v. Columbia Pictures (US 1993).
 
However, in Octane, the Supreme Court eased the evidentiary standard for §285 cases from clear and convincing evidence to preponderance of the evidence. Contemporaneously, in Highmark, the Court shifted the review standard, the deference afforded the Federal District Courts by the CAFC, in §285 cases from de novo to abuse of discretion. One consequence of Highmark is that §285 cases will become more forum determinative because plaintiffs will choose jurisdictions they perceive as less likely to award attorneys fees; since District Court rulings will be given great deference at the CAFC.
 
While the Halo vs. Pulse decision is essentially a dicta on this aspect and will have to be confirmed by the court en banc, it is hard to argue with the logic. The US Supreme Court may have, once again, fallen victim to the law of unintended consequences when it tried to make it easier to seek legal fees from an unsuccessful plaintiff in its haste to curb patent litigation.
 
 
Louis Carbonneau, Founder & CEO
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