A review of enhanced damages since Halo: Minimizing potential exposure to enhanced damages

In Halo Elecs., Inc. v. Pulse Elecs., Inc., the U.S. Supreme Court reaffirmed the principle that “[a]wards of enhanced damages … are not to be meted out in a typical infringement case, but are instead designed as a ‘punitive’ or ‘vindictive’ sanction for egregious infringement behavior.” Halo, 136 S.Ct. at 1931. The Court in Halo dispensed with the then-prevailing requirement that in order to enhance damages the court must first find that the adjudged infringer acted in a manner that was objectively reckless. Id. at 1932-33. While objective recklessness may still be considered in determining whether to enhance damages, it is no longer a prerequisite to enhancement of damages. Rather, Halo holds that “§ 284 allows district courts to punish the full range of culpable behavior … tak[ing] into account the particular circumstances of each case and reserve[ing] punishment for egregious cases typified by willful misconduct.” Id. at 1926. The Supreme Court in Halo also lowered the burden of proof for proving egregiousness and entitlement to enhanced damages from clear and convincing evidence to a preponderance of the evidence. Id. at 1934.

Since the Supreme Court’s Halo decision, which the Court issued in June of 2016, there has been renewed focus among courts on the appropriate analysis for determining whether the conduct of an infringer qualifies as egregious/willful. The case law is clear that this is a flexible, totality of the circumstances, analysis within the district court’s discretion. See, e.g., id. at 1933-34; see also WesternGeco L.L.C. v. ION Geophysical Corp., 837 F.3d 1358, 1362 (Fed. Cir. 2016); Finjan, Inc. v. Cisco Sys., Inc., C.A. No. 17-cv-00072-BLF, 2017 WL 2462423, at *4 (N.D. Cal. June 7, 2017); Imperium IP Holdings (Cayman), Ltd. v. Samsung Elecs. Co., C.A. No. 14-cv-371, 2017 WL 1716788, *3 (Apr. 27, 2017); Malibu Boats, LLC v. MasterCraft Boat Co., C.A. 16-cv-82, 2016 WL 8286158, at *3 (E.D. Tenn. Oct. 28, 2016). Accordingly, egregiousness findings are entitled to deference on appeal and reviewed based on an abuse of discretion standard. Halo, 136 S.Ct. at 1934.

Notwithstanding, the broad-based, flexible analytical framework governing whether enhanced damages are warranted, court often rely for guidance in making such determinations on the non-exhaustive list of guideposts set out in Read Corp. v. Portec, Inc., 970 F.2d 816 (Fed. Cir. 1992), abrogated on other grounds by Markman v. Westview Instruments, Inc., 52 F.3d 967 (Fed. Cir. 1995) (en banc).  These include the following factors:

1. whether the infringer deliberately copied the claimed invention;
2. whether infringer had a good faith belief of invalidity or non-infringement;
3. the infringer’s litigation behavior;
4. the infringer’s size and financial condition;
5. closeness of the case;
6. duration of the misconduct;
7. whether the infringer took any remedial action;
8. any motivation for harm on the part of the infringer; and
9. whether the infringer attempted to conceal the misconduct.

Read, 970 F.2d at 827.

While the Read factors are designed to guide the decision as to whether to enhance damages (and, if so, by how much), as noted, the ultimate determination regarding damages is based on whether the infringer is deemed to have acted egregiously, as determined based on all of the facts and circumstances. See, e.g., Halo, 136 S.Ct. at 1933-34; see also WesternGeco L.L.C., 837 F.3d at 1362; Finjan, 2017 WL 2462423, at *4. As noted in Halo, the sorts of conduct that justify enhancing damages is that which can be described as “willful, wanton, malicious, bad-faith, deliberate, consciously wrongful, [or] flagrant….” Halo, 136 S.Ct. at 1932.

Since the Supreme Court’s decision in Halo, there have been approximately 100 cases analyzing whether the adjudged infringer acted egregiously/willfully en route to a determination of whether to enhance a damages award (and, if so, to what degree damages should be enhanced). The issue of egregiousness/willfulness and/or enhanced damages has been the subject of Federal Circuit opinions on seven occasions since Halo. With two exceptions noted herein regarding the availability of enhanced damages for infringement occurring after suit has been filed, these cases do not provide much in the way of additional guidance other than re-tracing the evolution of the law governing egregiousness/willfulness and enhanced damages through Seagate and Halo and re-iterating the standards discussed in Halo. In five of the seven relevant post-Halo cases the Federal Circuit remanded for further consideration in light of the new standards set forth in Halo.

Based on review of that case law, I can provide the following tips for minimizing potential exposure to enhanced damages.

• It is advisable to engage in on-going consultation with a patent attorney regarding freedom to operate while developing your technology. Loggerhead Tools, LLC v. Sears Holding Corp., C.A. No. 12-cv-9033, 2016 WL 6778881, at *2 (N.D. Ill. Nov. 15, 2016).
• Periodically update freedom to operate searches. Greatbatch Ltd. v. AVX Corp., C.A. No. 13-cv-723, 2016 WL 7217625, at *5 (D. Del. Dec. 13, 2016).
• Avoid any semblance of copying others’ patent-protected technology; for example, avoid any references to other commercial products in your research and development documentation and/or make clear how the product(s) under development differs from the patented product(s). Vehicle IP, LLC v. AT&T Mobility LLC, 227 F.Supp.3d 319, 330-31 (D. Del. Dec. 30, 2016).
• If you know of any relevant patent application(s) containing one or more claims held allowable, monitor the application closely so that you know immediately once it has passed to issue; have standardized procedures in place for the regular monitoring of relevant applications; take appropriate steps to mitigate potential harm to the patentee upon issuance of the patent(s); the foregoing is especially important once you already know of a relevant pending patent application because willful blindness will still leave you liable for a finding of willfulness/egregiousness and potential enhancement of damages. Idenix Pharms., LLC v. Gilead Sciences, Inc., C.A. No. 13-cv-987, 2016 WL 7380530, at 1 (D. Del. Dec. 4, 2016); Kahr v. Cole, C.A. No. 13-cv-1005, 2016 WL 8139020, at *2 (E.D. Wisc. July 28, 2016); Blitzsafe Texas, LLC v. Volkwagen Group of Am., Inc., C.A. No. 15-cv-1274, 2016 WL 4778699, *6 (E.D. Tex. Aug. 19, 2016); Malibu Boats, C.A. 2016 WL 8286158, at *3; Wright, 2016 WL 7802996, at *3; Barry v. Medtronic, Inc., 14-cv-104, 2017 WL 1536492, at *6 (E.D. Tex. Apr. 20 2017). Further, it is important to bear in mind that monitoring the patent application(s) creates duty to take appropriate action once the patent(s) issues. Adidas Am., Inc. v. Skechers USA, Inc., C.A. No. 16-cv-1400, 2017 WL 2543811, at *4 (D. Ore. June 12, 2017).
• For patents that you are aware of directed to relevant technologies, periodically check to see whether the patent(s) has been asserted in litigation and, to the extent any relevant patents are being litigated, monitor the litigation closely to watch for any decisions relating to the validity, enforceability or infringement of the patent(s); have standardized procedures in place for the regular monitoring of litigation(s) involving the relevant patent(s); take appropriate steps to mitigate potential harm to the patentee upon learning of any ruling in the litigation that the relevant patent(s) is not invalid (or not unenforceable) and/or is infringed. Imperium IP Holdings (Cayman), 2017 WL 1716788, *3; Wright, 2016 WL 7802996, at *3.
• If and when your client is sued for patent infringement, avoid anything that could be perceived as diminishing your client’s credibility before the court or can otherwise be perceived as litigation misconduct, as any such misconduct may be found to justify an egregiousness s finding; in short, by conducting itself conscientiously in litigation a party can help minimize the risk of enhanced damages. See, e.g., Apple Inc. v. Samsung Elecs. Co., C.A. No. 12-cv-630-LHK, 2017 WL 2720220, at *16 (N.D. Cal. June 23, 2017); Imperium IP Holdings (Cayman), 2017 WL 1716788, *3; Wright v. E-Systems, Inc., C.A. 12-cv-4715, 2016 WL 7802996, at *3 (N.D. Tex. Dec. 20, 2016); Barry, 2017 WL 1536492, at *4.
• Understand that where your client is a practicing entity and the patentee is a competitor, there is a greater chance that a court will find egregiousness; in this regard, understand that your client’s actions and decision-making (including with respect to whether to pursue one or more non-infringing alternatives) will come under greater scrutiny because of the perception of there being a greater motivation to commercially harm a competitor. See, e.g., Apple, 2017 WL 2720220, at *18.
• Where the client first learns of the asserted patent when it is sued for infringement, if the client’s non-infringement position is weak, consider shutting down production of the accused instrumentalities unless the invalidity case is exceedingly strong. PPC Broadband, Inc. v. Corning Optical Communs. RF, LLC, 193 F.Supp.3d 133, 148 (N.D.N.Y. 2016); Polara Eng’g, Inc. v. Campbell Co., 237 F.Supp.3d 956, 978-79 (Feb. 27, 2017).
• The weaker your client’s invalidity positions, the more resources should be devoted toward non-infringement analysis, freedom to operate investigation, and research and development of non-infringing alternatives.
• There should be some reasonable non-infringement defense in addition to any invalidity defenses the client may wish to pursue (i.e., even if the invalidity arguments are strong, the client will be at increased risk of enhanced damages where there is no colorable non-infringement defense). See, e.g., Bobcar Media, LLC v. Aardvark Event Logistics, Inc., C.A. No. 16-cv-885, 2017 WL 74729, at *5-*6 (S.D.N.Y. Jan. 4, 2017); Apple, 2017 WL 2720220, at *16; Dorman Prods., Inc. v. Paccar, Inc., 201 F.Supp.3d 663, 681 (E.D. Pa. Aug. 23, 2016).
• Efforts by the client to investigate whether their product potentially infringes one or more patent claims and potential non-infringing alternative should be commensurate with the resources that the client has available to them; for example, a large company with substantial financial resources at its disposal should have a very thorough investigation conducted as to potential infringement. See, e.g., Apple, 2017 WL 2720220, at *16.
• The risk of exposure to enhanced damages is greater where there was an easily-implementable non-infringing alternative that the infringer decided not to implement. See, e.g., Apple, 2017 WL 2720220, at *18.
• Non-infringement, invalidity, and freedom to operate investigations should account for all potential alternative claim constructions. Adrea, LLC v. Barnes & Noble, Inc., 227 F.Supp.3d 303, 312 (S.D.N.Y. Jan. 3, 2017); Trustees of Boston Univ. v. Everlight Elecs. Co., 212 F.Supp.3d 254, 258 (D. Mass. July 22, 2016).
• Non-infringement, invalidity, and unenforceability analyses/investigation should take place as soon as possible after learning of the patent(s) in order to minimize the duration of any alleged misconduct; and understand that duration of infringement is not viewed in absolute terms so, for example, if your client is engaged in direct, deliberate, copying, this could be sufficient to sustain a finding of egregiousness even when such copying has been taking place for less than a year. See, e.g., Apple, 2017 WL 2720220, at *18; Wright, 2016 WL 7802996, at *3; Barry, 2017 WL 1536492, at *8.
• Be sure that the client produces all prior art that it is aware of to avoid any chance of a finding by the court that the client concealed prior art. Imperium IP Holdings (Cayman), 2017 WL 1716788, *3.
• While knowledge of the infringed patent remains a prerequisite to finding egregiousness/willfulness, where commercially marketed embodiments of the claimed inventions that are required to be marked are in fact properly marked, this aspect of the egregiousness standard will be met and an infringer will not be able to successfully argue that it lacked knowledge of the patent. See, e.g., WBIP, LLC v. Kohler Co., 829 F.3d 1317, 1340 (Fed. Cir. 2016); Dorman Prods., 201 F.Supp.3d at 680.
• An infringer’s calculus as to whether its conduct may be deemed egregious/willful should account for conduct subsequent to initiation of suit as well, regardless of whether the patentee has moved for a preliminary injunction. The Federal Circuit has re-affirmed that moving for a preliminary injunction is not a prerequisite to enhancement of damages for post-filing conduct. Mentor Graphics Corp. v. EVE-USA, Inc., 851 F.3d 1275, 1295-96 (Fed. Cir. 2017).
• Even in instances where the infringer did not learn of the patent until the filing of the infringement action, the infringer should proceed with the understanding that post-filing conduct alone may serve as the basis for a finding of egregiousness/willfulness and, therefore, enhanced damages. Huawei Techs. Co. v. T-Mobile US Inc., C.A. No. 16-cv-52, 2017 WL 1129951, at *4 (E.D. Tex. Feb. 21, 2017); Raytheon Co. v. Cray, Inc., 16-cv-423, 2017 WL 1362700, at *5 (E.D. Tex. Mar. 13, 2017).