Federal Circuit Vacates Enhanced Damages Award Against Cisco Because No Willfulness Before Knowledge of Patent

The Federal Circuit issued an interesting decision involving willful infringement last week, in particular relating to evidence needed to support a period of time during which the alleged willful activity took place. In SRI International, Inc. v. Cisco Systems, Inc., the appeals court found that SRI had not presented sufficient evidence to support a willfulness finding for activity that took place before Cisco had become aware of the patent-in-suit. The court vacated the district court’s award of enhanced damages (which doubled the $23 million damages verdict). The Federal Circuit remanded for further consideration as to whether substantial evidence supported willfulness after knowledge had been acquired.

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The district court relied on two primary pieces of evidence asserted by SRI in finding Cisco’s infringement to be willful: (1) “key” Cisco employees did not read the patents-in-suit until their depositions; and (2) Cisco designed the products and services in an infringing manner and that Cisco instructed its customers to use the products and services in an infringing manner.

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The fact that “key” Cisco employees did not read the patents-in-suit did not persuade the Federal Circuit that the conduct was willful because the identified individuals were engineers without legal training. The court suggested that its conclusion would have been different if Cisco’s lawyers had behaved in the same way: “[g]iven Cisco’s size and resources, it was unremarkable that the engineers—as opposed to Cisco’s in-house or outside counsel—did not analyze the patents-in-suit themselves.”

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As to the second of SRI’s willfulness arguments, that Cisco designed products in an infringing manner, the appeals court noted that this point simply amounts to proof that the products infringed. That is, there is nothing further to show that Cisco had knowledge of the patents prior to 2012 and otherwise acted egregiously.

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However, it was undisputed that Cisco was aware of the patents-in-suit as of May 2012 (when SRI sent a notice letter to Cisco) and that Cisco could still face enhanced damages based on its behavior after that date upon remand. But two impediments may make this determination on remand rather difficult: (1) as the Federal Circuit noted, JMOL proceedings are not the ideal mechanism to evaluate when, if ever, willful infringement began; and (2) the jury trial took place prior to the Supreme Court’s Halo decision, which critically changed the willfulness standard. As a result, it appears unlikely that the factual record in the case will sufficiently support a finding of willful infringement under current law, without further proceedings.