Chapter §20.05 Enhanced Damages and Willful Infringement

• Jurisdiction: United States

§20.05 Enhanced Damages and Willful Infringement

[A] Statutory Basis: 35 U.S.C. §284

In accordance with 35 U.S.C. §284, a district court has the discretion to increase (or "enhance") damages up to three times the amount of the compensatory award.⁶³⁹ "The paramount determination in deciding to grant enhancement and the amount thereof is the egregiousness of the defendant's conduct. . . ."⁶⁴⁰

[B] Enhancement Based on Willfulness

[1] Generally

Section 284 does not use the word "willful,"⁶⁴¹ but enhanced damages are frequently (but not always⁶⁴²) awarded when a defendant's infringement is found to be "willful."⁶⁴³ In its most recent decision on the subject, Halo Elecs., Inc. v. Pulse Elecs., Inc.,⁶⁴⁴ the Supreme Court in 2016 observed that cases over the preceding 180 years had variously described the type of conduct that merits the enhancement of actual damages as "willful, wanton, malicious, bad-baith, deliberate, consciously wrongful, flagrant, or—indeed—characteristic of a pirate."⁶⁴⁵ Although patent attorneys have traditionally referred to this type of infringement as "willful," that customary terminology may broaden in the wake of the 2016 Halo decision.

The Federal Circuit has stated that "[a] finding of willful infringement is a prerequisite to the award of enhanced damages."⁶⁴⁶ Nevertheless, a willfulness finding does not mandate enhancement of compensatory damages. The Circuit in 2016 observed that

[Left in place after the Supreme Court's 2016 Halo decision is] our prior precedent that there is a right to a jury trial on the willfulness question. Our case law is clear that in the absence of the Court overturning our established precedent that precedent remains in effect. See, e.g., Masias v. Sec'y of Health & Human Servs., 634 F.3d 1283, 1288 (Fed. Cir. 2011) (citing Barclay v. United States, 443 F.3d 1368, 1373 (Fed. Cir. 2006)). Of course, this is not to say that a jury verdict of willful infringement ought to result in enhanced damages. Whether the conduct is sufficiently egregious as to warrant enhancement and the amount of the enhancement that is appropriate are committed to the sound discretion of the district court. ⁶⁴⁷

The Federal Circuit's 2007 decision in In re Seagate Tech., LLC,⁶⁴⁸ examined below, required that in order to prove willfulness a patentee had to establish that the infringer acted in an objectively reckless manner.⁶⁴⁹ The Seagate standard significantly raised the bar on willfulness, making it more difficult for a patentee to establish than under the Federal Circuit's previous standard.⁶⁵⁰ Notably, key components of the Seagate framework were swept away by the Supreme Court's 2016 Halo decision.

In practice, it is not clear that Seagate's more rigorous standard significantly lessened the ability of patentees to obtain verdicts of willful infringement and enhanced damages.⁶⁵¹ Whatever the actual impact of Seagate, the legal framework it established in 2007 was largely mooted by the Supreme Court's 2016 decision in Halo Elecs., Inc. v. Pulse Elecs., Inc.,⁶⁵² detailed below.⁶⁵³

The 2016 Supreme Court Halo decision followed the Supreme Court's 2015 grant of certiorari in two willfulness cases, Halo Elecs., Inc. v. Pulse Elecs., Inc.,⁶⁵⁴ and Stryker Corp. v. Zimmer, Inc.,⁶⁵⁵ examined below.⁶⁵⁶ In both, a jury found willful infringement but the Federal Circuit declined to approve awards of enhanced damages. Interestingly, the Federal Circuit appeared to anticipate that the Supreme Court's pending decisions in Halo and Stryker would work a significant change in the law of enhancement; on November 17, 2015, the Circuit issued a rare order holding in abeyance, until the Supreme Court decided Halo and Stryker, a petition for rehearing en banc in Carnegie Mellon Univ. v. Marvell Tech. Grp., Ltd.⁶⁵⁷ A jury in the Carnegie Mellon case had found willful infringement and awarded $1.17 billion in compensatory damages; a district court enhanced the damages to roughly $1.54 billion. But in August 2015, a panel of the Federal Circuit reversed the district court on enhancement "under the governing willfulness standard" because the Circuit concluded that infringer Marvell's invalidity defense was objectively reasonable.⁶⁵⁸ In November 2015, the en banc Federal Circuit ordered:

Carnegie Mellon's petition for rehearing en banc is denied in part and held in abeyance in part. The court will hold in abeyance any decision on the request for rehearing en banc with respect to the first issue raised in Carnegie Mellon's petition, which seeks review of the panel's ruling on the enhancement of damages issue. The court will hold Carnegie Mellon's petition as to that issue pending the Supreme Court's decision in Halo Electronics, Inc. v. Pulse Electronics, Inc., 769 F.3d 1371 (Fed. Cir.2014) cert. granted, No. 14-1513, 2015 WL 3883472 (U.S. Oct. 19, 2015) and Stryker Corp. v. Zimmer, Inc., 782 F.3d 649 (Fed. Cir. 2015) cert. granted, No. 14-1520, 2015 WL 3883499 (U.S. Oct. 19, 2015). Carnegie Mellon's petition for rehearing en banc is otherwise denied. ⁶⁵⁹

Although much of Seagate is no longer good law, this treatise reviews the historical development of the case law as necessary to a thorough understanding of the now-governing Halo framework for willfulness.

[2] Read Factors for Enhancement

An important distinction exists between the threshold inquiry of whether infringement is willful and, if it is, determining whether and how much to enhance compensatory damages. The latter is the subject of a cornerstone 1992 decision by the Federal Circuit, Read Corp. v. Portec, Inc.⁶⁶⁰ There the court enumerated the following factors "for consideration in determining when an infringer 'acted in [such] bad faith as to merit an increase in damages awarded against him,' . . . particularly in deciding on the extent of enhancement"⁶⁶¹:

1. whether the infringer deliberately copied the ideas or design of another;

2. whether the infringer, when he knew of the other's patent protection, 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] behavior as a party to the litigation;

4. [the] infringer's size and financial condition; . . .

5. [the] closeness of the case; . . .

6. [the] duration of the defendant's misconduct; . . .

7. remedial action taken by the defendant; . . .

8. [the] defendant's motivation for harm; [and]

9. whether [the] defendant attempted to conceal its misconduct. ⁶⁶²

The appellate court observed that using these factors is "in line with punitive damage considerations in other tort contexts."⁶⁶³

Post-Seagate, the Read factors analysis continued to control enhancement of damages when willfulness was found.⁶⁶⁴ The Federal Circuit in 2010 explained that "the test for willfulness is distinct and separate from the factors guiding a district court's discretion regarding enhanced damages."⁶⁶⁵ Hence, the Read factors govern whether, and by how much, to enhance compensatory damages, but do not control the determination of willful infringement.

For example, after a jury found that the Microsoft Corp. had willfully infringed, the Federal Circuit in i4i Ltd. P'ship v. Microsoft Corp.⁶⁶⁶ held that the district court had not abused its discretion in weighing the evidence or applying the Read factors to enhance damages under 35 U.S.C. §284 against Microsoft.⁶⁶⁷ Rejecting Microsoft's appeal on enhancement, the Federal Circuit observed that in view of the differences between the willfulness and enhancement factors, the district court had properly considered Microsoft's size and financial condition, as well as whether Microsoft had investigated the scope of the patent:

The district court found that [ Read] factors 2, 4, 6, 7, and 8 supported enhancement. Factors 1 and 9, combined with i4i's delay in bringing suit, were found to weigh against enhancement. For factor 1, which considers whether the infringer deliberately copied the ideas or design of another, the district court found no evidence that Microsoft deliberately copied any of i4i's products. For factor 2, which considers whether the infringer knew of the patent, investigated the patent's scope and formed a good-faith belief of its invalidity or noninfringement, the district court found Microsoft was aware of i4i's patent [U.S. Patent No. 5,787,449 ('449 patent)], never formed a good faith belief of noninfringement, and clearly intended to add a custom XML [computer language] editor in [Microsoft's word processing program] Word with similar capabilities to i4i's patented products. For factor 4, which considers the infringer's size and financial condition, the district court found that the jury's award, while "substantial," was only a small fraction of Microsoft's profits from the sale of Word products. The district court also noted that Microsoft was "undisputedly" the world leader in software for business and personal computing, with revenues of $60.42 billion in 2008 alone. As for factors 6, 7, and 8, the district court found that Microsoft had started using the infringing products more than five years ago (in 2002), failed to conduct an infringement analysis after being notified of the '449 patent again in 2003, and implemented the infringing custom XML editor with the purpose of rendering i4i's products obsolete. Although statutorily authorized to increase the award to $600 million, the district court awarded only $40 million in enhanced damages. See 35 U.S.C. §284. ⁶⁶⁸

Nor did the district court in i4i err by considering Microsoft's litigation misconduct (in addition to the Read factors) when determining that it would enhance damages. In the case at bar, "the misconduct was improper statements by Microsoft's counsel to the jury, in defiance of the court's repeated admonitions."⁶⁶⁹ Because the district court considered Microsoft's litigation misconduct only after finding that the other Read factors favored enhanced damages, the Federal Circuit concluded that the...