Pirates Among Us? How Have Courts Treated Willful Infringers in the Year Following Halo v. Pulse?

As the Supreme Court’s Halo decision^[1] recently celebrated its first anniversary, we take a look to see whether the lower courts have effectively rooted out the “wanton and malicious pirates” about whom the unanimous High Court was so gravely concerned. Have we found and singled out our swash-buckling ne’er-do-wells for public shaming, or have we discovered that the label, if defined by the reduced willfulness standard set out in Halo, might suggest that even some of the best-intentioned among us might be keeping parrots in their desk drawers and their closets well-stocked with puffy shirts? And importantly, what can we do to trade those bandannas for halos in the eyes of the court?

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‍Recap

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‍In Halo v. Pulse,^[2] the Supreme Court made it easier for a patentee to obtain enhanced damages from a willful infringer under 35 U.S.C. § 284. The Court rejected a part of the previous requirement, under Seagate,^[3] in which the patentee had to show that the infringer acted “objectively recklessly.” It also lowered the burden of proof from “clear and convincing” to “preponderance of the evidence.” In practice, the old standard allowed even willful infringers to escape liability for enhanced damages if they could come up with a reasonable non-infringement position even as late as during litigation. The Court felt that this standard was too rigorous. It ratcheted back the necessary showing to, essentially, “egregiousness,” which is centered on the subjective knowledge, intent, and behavior of the infringer.

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To that end, courts will consider the nine so-called Read factors^[4] in considering whether to award enhanced damages. In terms of guiding behavior outside the context of a specific dispute or litigation, three of these factors are most salient here:

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• Read Factor #1: Whether the infringer deliberately copied the patentee's ideas or design.
• Read Factor #2: Whether the infringer, upon knowing of the patent, investigated the scope of the patent and formed a good faith belief that it was invalid or that it was not infringed.
• Read Factor #7: Remedial action taken by the infringer.

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Enhanced Damages After Halo

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‍If one pattern clearly emerges, it is that courts disfavor infringers who “know” about a patent but do not conduct an analysis of the scope of its claims (Read factor #2). Mere knowledge of a patent is generally not sufficient in itself to find willfulness, but knowledge in combination with copying and malicious intent, with no investigation, has proven extremely dangerous.

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In Dominion v. Alstom, a Pennsylvania district court found that seven of the nine Read factors weighed in favor of enhanced damages against the defendant.^[5] The court doubled the reasonable royalty findings to $972,000. The court found evidence of copying over a long period of time and took particular issue with the fact that “Alstom's belief it did not infringe . . . is based entirely on the opinion of people without expertise in reading patent claims. On balance, it is not a good faith belief in non-infringement.”^[6] The court noted that Halo played a role here and may have ultimately led to Alstom’s downfall. During the course of infringement, Alstom was operating in a Seagate world where an infringer can avoid enhanced damages if they can “muster a reasonable (even though unsuccessful) defense at the infringement trial.” But the Halo ruling did away with that post hoc safe harbor and essentially requires a good faith belief of non-infringement during the actual period of infringement.

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In Imperium IP Holdings v. Samsung, an Eastern District of Texas court tripled jury verdict damages to nearly $21 million due to willfulness, the maximum enhancement allowed. The crux of the decision was that, “despite knowing of Plaintiff's patents since at least April 2011, Defendants never undertook any serious investigation to form a good-faith belief as to non-infringement or invalidity.”^[7] In deciding Samsung’s JMOL motion, the court reiterated that “evidence offered at trial established that Defendants had pre-suit knowledge of the patents-in-suit and took no steps to avoid infringement after becoming aware of the patents.”^[8]‍

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SRI International v. Cisco Systems also involved large damages numbers.^[9] There, the Delaware trial court doubled the jury’s damages verdict to award more than $46 million to the plaintiff. Again, the court was swayed by a finding that the defendant did not perform a sufficient analysis of known patents, noting that evidence showed “that key Cisco employees did not read the patents-in-suit until their depositions.” The fact that Cisco knew about the asserted patents but did not investigate the technical aspects relating to infringement led to more than $23 million in additional damages.

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‍How have defendants avoided enhanced damages?

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‍Here is where the contrast becomes sharp. Even in cases where the Read factors might suggest some troublesome behavior, like knowing and intentional copying, defendants were spared enhanced damages because they made a reasonable investigation at the time of infringement.

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In Greatbatch Ltd. v. AVX Corp.,^[10] a Delaware district court found no willfulness in relation to three patents infringed by AVX. Even though AVX knew about all three patents at the time of the culpable activity, the court held that the conduct was not egregious or wanton because AVX performed a reasonable investigation at the time. The court distinguished a Federal Circuit case in which enhanced damages were awarded by noting that “here, by contrast, AVX sought and obtained invalidity and non-infringement opinions of counsel before litigation and developed designs and processes to avoid infringement” (court’s emphasis).^[11] AVX relied upon opinions of counsel with respect to two of the three asserted patents, and "made significant efforts to avoid infringement of the [third] patent” (i.e., design around) according to the court.

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In another remarkable case, Sociedad Espanola de Electromedicina y Calidad v. Blue Ridge X-Ray Co.,^[12] the jury explicitly found that the defendants “knowingly and intentionally copied Sedecal’s transformer,” and the court upheld a finding of willful infringement.^[13] However, the trial court has discretion to award enhanced damages even when infringement conduct is egregious and willful. Using this discretion, the court appreciated that the defendants “conducted a reasonable investigation of Sedecal's patent claims and made a good faith determination that the patent was not infringed by their activities and that the patent was likely invalid,” and did not enhance damages. In other words, the defendants here blatantly copied the plaintiff’s product but escaped increased willfulness liability because they made the pre-suit effort to formulate reasonable (though ultimately incorrect) non-infringement positions. In this case, the pre-litigation investigation was conducted by a head engineer.

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Similarly, in Koninklijke Philips v. Zoll Medical,^[14] a plaintiff’s request for enhanced willfulness damages was rejected on summary judgment because the defendant had evaluated the asserted patents before the lawsuit and established a reasonable non-infringement position. After a portion of the case was appealed, the court quoted the Federal Circuit’s binding finding “that [although] Zoll's claim construction argument against the jury's direct infringement verdict . . . was incorrect, [its] argument was based on a reasonable interpretation of the claims in light of the specification and the prosecution history. . . . [T]his belief in non-infringement was reasonable . . . .”

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‍Conclusion‍

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An important practical result here is that Halo has effectively shifted the point in time at which an accused infringer should establish reasonable non-infringement or invalidity positions. We can no longer rely upon arguments that were first conjured up after being sued. By and large, future patent defendants stand a good chance of avoiding enhanced damages if they have a process in place to competently evaluate asserted patents at an early stage. They should have systems to collect relevant information such as analysis, documents, technical information, and relevant discussions in order to bolster a good faith belief of non-infringement or invalidity. That, or else they may find themselves walking the plank.‍

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This article is made available for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand that there is no attorney client relationship between you and the author or ClearstoneIP. The blog site should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

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‍[1]Halo Elecs., Inc. v. Pulse Elecs., Inc., 136 S.Ct. 1923 (2016).

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[2]Id.

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[3]In re Seagate Technology, LLC, 497 F.3d 1360 (2007).

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[4] The Read factors include: (1) whether the infringer deliberately copied the patentee's ideas or design; (2) whether the infringer, upon knowing of the patent, investigated the scope of the patent and formed a good faith belief that it was invalid or that it was not infringed; (3) the infringer's litigation behavior; (4) the infringer's size and financial condition; (5) the closeness of the case; (6) the duration of the infringer's misconduct; (7) remedial action taken by the infringer; (8) the infringer's motivation for harm; and (9) whether the infringer attempted to conceal its misconduct. See Read Corp. v. Portec, Inc., 970 F.2d 816, 826-27 (Fed. Cir. 1992).

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[5]Dominion Res. Inc. v. Alstom Grid, Inc., Civil Action No. 15-224 (E.D. Pa. Oct. 3, 2016).

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[6]Id. at *52-70.

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[7]Imperium IP Holdings (Cayman), Ltd. v. Samsung Elecs. Co., Civil Action No. 4:14-CV-00371, at *12 (E.D. Tex. Aug. 24, 2016).

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[8]Id. at *33.

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[9]Sri Int’l, Inc. v. Cisco Sys., Inc., Civil Action No. 13-1534-SLR (D. Del. May. 25, 2017).

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[10]Greatbatch Ltd. v. AVX Corp., Civil Action No. 13-723-LPS (D. Del. Dec. 13, 2016).

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[11]Id. at *5 (distinguishing WBIP, LLC v. Kohler Co., 829 F.3d 1317, 1340-41 (Fed. Cir. 2016) (“as the Supreme Court explained in Halo, timing does matter. Kohler cannot insulate itself from liability for enhanced damages by creating an (ultimately unsuccessful) invalidity defense for trial after engaging in the culpable conduct of copying, or ‘plundering,’ WBIP's patented technology prior to litigation.”)).

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[12]Sociedad Espanola de Electromedicina y Calidad, S.A. v. Blue Ridge X-Ray Co, No. 1:10-cv-00159-MR, at *19-23 (W.D.N.C. Dec. 28, 2016).

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[13]Id.

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[14]Koninklijke Philips N.V. v. Zoll Med. Corp., Civil Action No. 10-11041-NMG (D. Mass. Jun. 26, 2017).

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