Past the Tipping Point: Reforming the Role of Willfulness in the Federal Circuit's Doctrine of Enhanced Damages for Patent Infringement

• Publication year: 2007

Scott Bloebaum⁰

The Federal Circuit's recent decision in In re Seagate Technology, L.L.C. modified the standard for determining whether a patent has been infringed willfully, but left intact the existing doctrine that requires willfulness to justify enhanced damages under 35 U.S.C. § 284. This Comment presents several arguments as to why the current enhanced damages doctrine should be modified. The U.S. Supreme Court's recent decision in eBay Inc. v. MercExchange, L.L.C. on the availability of injunctive relief under 35 U.S.C. § 283 provides strong support to these arguments. Finally, the author proposes a flexible enhanced damages doctrine and compares it with a legislative solution currently being considered by Congress.

I. Introduction

The Federal Circuit's recent opinion in In re Seagate Technology, L.L.C.¹ significantly modified the standard for determining whether infringement of a patent was willful.² The significance of this determination is that the Federal Circuit, in its main line of cases, has interpreted willfulness as a necessary rather than a sufficient condition for awarding enhanced damages under 35 U.S.C. § 284.³ This enhanced damages doctrine has been controversial and inconsistently applied since its origin, with a main source of the controversy being conflicting views as to the purpose of enhanced damages.⁴ As Judge Arthur Gajarsa noted in his concurring opinion in Seagate, the doctrine has no basis in the text or legislative history of the various Patent Acts,⁵ nor is it justified by other equitable remedies available under title 35⁶ or by enhanced damages available under other titles of federal statutes. The Supreme Court's recent decision in eBay Inc. v. MercExchange, L.L.C.⁷ on the availability of permanent injunctions under 35 U.S.C. § 283 strongly counsels courts to avoid unsupported statutory interpretations creating per se rules that conflict with general principles of equity.⁸

Thus, ample support exists for changing the relation between willfulness and enhanced damages. This Comment proposes a flexible judicial approach that incorporates, but is not limited by, willfulness. The House of Representatives has proposed a more structured, rule-based approach in the Patent Reform Act of 2007,⁹ which this Comment briefly examines. Part II of this Comment presents the historical background of § 284 and the willfulness and enhanced damages doctrines up to and including Seagate. Part III presents arguments as to why the enhanced damages doctrine should be changed. Finally, in Part IV, the two proposed approaches are discussed and briefly compared.

II. Background

The guiding principle of U.S. patent law is that a patentee shall disclose its invention to the public in exchange for a right to prohibit others from making, using, or selling (collectively "practicing") the claimed invention during the twenty-year term of the patent.¹⁰ A patentee is entitled to certain remedies when others practice the claimed invention during the patent term. The patentee may recover the actual monetary damages incurred as a result of the infringement.¹¹ The patentee also may be entitled to one or more equitable remedies, including an injunction prohibiting the infringer from practicing the claimed invention, attorney's fees for actions brought to enforce the patentee's rights, and enhancement of the actual damages award.¹²

A. History of Enhanced Damages under Title 35

Although several patent statutes were enacted by Congress from 1790 to 1792, the Patent Act of 1793 was the first to include a provision for enhanced damages.¹³ Specifically, the Act required that the infringer shall pay damages of "a sum, that shall be at least equal to three times the price, for which the patentee has usually sold or licensed to other persons."¹⁴ One historian has theorized that this provision was the result of lobbying by Joseph Barnes, a well-known attorney.¹⁵ Barnes believed that most jury members, due to their ignorance of patent policy goals, would be disrespectful of patent rights and inclined to minimize damages awards to discourage patentees from bringing suits against alleged infringers.¹⁶ If Barnes' writings did influence this legislation, then the initial purpose of enhanced damages was at least partially compensatory.

one difficulty arose when the courts narrowly interpreted the language of the Patent Act of 1793 to require that defendants make and use a patented invention in order to be held liable for infringement.¹⁷ This interpretation generally made it more difficult for patentees to recover damages.¹⁸ The Patent Act of 1800 addressed this difficulty by imposing liability for anyone who "shall make, devise, use or sell" the patented invention,¹⁹ thereby making damages more readily available to patentees. At the same time, however, this legislation capped the enhancement of damages available to patentees to "a sum equal to three times the actual damage sustained."²⁰

Nevertheless, the early U.S. patent system continued to be plagued by a variety of complaints, including the prevalence of fraud upon the Patent office, the ease at which patents were granted, and the frequency of litigation involving overlapping patent rights.²¹ All of these complaints were addressed by the Patent Act of 1836.²² The force behind this legislation was Senator John Ruggles, a former Maine Supreme Court justice and aspiring patentee with a strong interest in mechanics and engineering.²³ The Act repealed earlier patent laws, established the patent examination system that remains in effect today, and replaced the mandatory treble damages provisions of the Patent Acts of 1793 and 1800.²⁴ The revised damages provision in the Patent Act of 1836 stated that "it shall be within the power of the court to render judgment for any sum above the amount found by such verdict . . . not exceeding three times the amount thereof, according to the circumstances of the case."²⁵

Thus, in a span of forty-three years, Congress converted treble damages from a statutory minimum to a statutory maximum. Two factors may have influenced this change. First, early U.S. courts admittedly were more liberal in upholding patent rights than their English counterparts, especially in regards to upholding patent validity.²⁶ Congress recognized the problem that this judicial tendency posed, especially in conjunction with the low quality of patents that issued from a process based on registration rather than examination.²⁷ Second, there was political tension in the 1836 Congress between the general principle that monopolies were strongly disfavored and the specific principle that innovation should be rewarded by the monopoly conferred by a patent.²⁸ These two factors motivated Congress to provide "a check upon the granting of patents," issuing them only for truly novel and useful inventions, thereby "put[ting] an end to litigation before it begins."²⁹ While the Patent Act of 1836's provision for an examination-based system addressed the "front-end" issue of patent quality,³⁰ Congress may have reasonably intended the limitation of damages to provide a complementary counterbalance to the "back-end" issue of liberal judicial interpretation of patent rights.

Although Congress removed the requirement for courts to enhance awards of actual damages when infringement was found,³¹ it provided no guidance for the new judicial discretion that it conferred.³² Likewise, no clear rationale for the new damages provision is evident from the legislative history. While one of Senator Ruggles' main goals for the new patent laws as a whole was to prevent "piracy or fraud" of "American ingenuity and intellect,"³³ other members of Congress viewed rewarding invention as the primary purpose of the patent laws.³⁴

Even after the enactment of the Patent Act of 1836, a patentee was faced with a choice of trying to recover either actual damages as a remedy at law or, as incident to a claim for injunctive relief, the infringer's profits as a remedy in equity.³⁵ In response to this perceived shortcoming, Congress enacted the Patent Act of 1870 which expanded available equitable remedies to include the patentee's actual damages.³⁶ Courts were often reluctant, however, to allow recovery of both lost profits and actual damages, preferring to limit the award of actual damages to cases in which financial injury to the patentee was greater than the profits made by the infringer.³⁷ This rule was motivated at least in part by the need to adequately compensate the patentee, even to the extent of enhancing the actual damages.³⁸

Two Patent Acts from the mid-twentieth century have shaped the award of enhanced damages to a lesser extent. The Patent Act of 1946³⁹ was the first to require the "reasonable royalty" standard to be used to measure damages,⁴⁰ which affects the ultimate amount resulting from any enhancement. The Patent Act of 1952⁴¹ made non-substantive changes to the enhanced damages provision from the Patent Act of 1836⁴² to create the current § 284:

Upon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court. . . . [T]he court may increase the damages up to three times the amount found or assessed.⁴³ Consistent with prior legislation regarding enhanced damages, the legislative history of the 1952 Act offers no additional information about the purposes of the enhanced damages provisions of § 284.⁴⁴

In summary, the current § 284 represents the evolutionary product of numerous Patent Acts enacted over a period of more than 200 years. None of the Patent Acts enacted during this period, however, articulate any specific criteria for awarding enhanced damages.⁴⁵ Furthermore, their legislative histories provide no significant guidance on criteria or purposes for such awards.

B. Emergence of the...