Objective Reasonableness Still at Play in Willfulness Cases

WesternGeco v. Ion Geophysical (Fed. Cir. 2016) [WesternGeco]

Following Halo v. Pulse, the Supreme Court vacated and remanded WesternGeco’s case for further consideration.  Now on remand, the Federal Circuit now vacates the district court judgment denying willfulness.

The patent act authorizes district court to award enhanced damages. 35 U.S.C. 284 (“the court may increase the damages up to three times the amount found or assessed”).  In Halo v. Pulse, the Supreme Court held that the statute grants district courts discretion in awarding enhanced damages – although noting that the punitive damages should ordinarily be limited to egregious infringement – “typified by willful infringement.”  In rejecting the Federal Circuit’s Seagate test, the Court held proof of “subjective willfulness” is sufficient to prove egregious infringement.  “The subjective willfulness of a patent infringer, intentional or knowing, may warrant enhanced damages, without regard to whether his infringement was objectively reckless.”  Halo at 1933.  As with other punitive damage regimes – proof sufficient for an award does not necessitate such an award. In patent cases, punitive damages remain within the discretion of the district court even after sufficient evidence establish the egregious behavior.

In WesternGeco, the jury issued a verdict on subjective willfulness — that “ION actually knew, or it was so obvious that ION should have known, that its actions constituted infringement of a valid patent claim.”  However, following that verdict, the district court excused the willfulness under the objective willfulness prong of Seagate – finding that ION’s non-infringement and invalidity defenses were “not unreasonable.”

On remand, the district court will first determine whether the jury verdict was supported by substantial evidence and, if so, whether enhanced damages should be awarded.  The Federal Circuit writes:

The district court, on remand, should consider whether ION’s infringement constituted an “egregious case[] of misconduct beyond typical infringement” meriting enhanced damages under § 284 and, if so, the appropriate extent of the enhancement.

Slip Opinion. On remand, we vacate the district court’s judgment with respect to enhanced damages for willful infringement under 35 U.S.C. § 284 and reinstate our earlier opinion and judgment in all other respects.

Using Objective Evidence Going Forward: An interesting aspect of the WesternGeco decision is its discussion of the ongoing relevance of “the objective reasonableness of the accused infringer’s positions.” In particular, the Federal Circuit held that objective reasonableness is part of the “totality of the circumstances” that to be considered before awarding enhanced damages.  In some ways this holding is in tension with the Halo decision itself. Halo does not mention the “totality of the circumstances” approach and writes harshly against the objective test as merely awarding “attorney[] ingenuity.”  Judge Dyk explains the holding as follows: (1) “Halo relied upon the patent attorney fee case of Octane Fitness for the relevant standard of district court’s discretion; (2) Octane Fitness in turn held looked to the copyright case attorney fee case of Fogerty v. Fantasy; and (3) Fogerty required consideration of a “totality of the circumstances,” which “could” include objective unreasonableness.” Thus, the Federal Circuit writes: “objective reasonableness is one of the relevant factors.”

21 thoughts on “Objective Reasonableness Still at Play in Willfulness Cases

  1. 3

    Seagate looked for objective “recklessness,” which it defined as “an unjustifiably high risk of harm that is either known or so obvious that it should be known.” WesternGeco is using a different term: objective “reasonableness.” Although it does so without much discussion, the opinion implies that “objective reasonableness” concerns the strength of the litigation defenses (“district courts could consider a ‘nonexclusive’ list of ‘factors,’ including … objective unreasonableness (both in the factual and legal components of the case) ….”. One of the established Read factors looks to the “closeness of the case.” Read Corp., 970 F.2d at 827. See e.g., Ajinomoto Co. v. Archer-Daniels-Midland Co., 228 F.3d 1338, 1351-52 (Fed. Cir. 2000) (proper to deny enhanced damages even though infringer knew of patent and did not obtain of counsel where district court found infringer mounted “a substantial, albeit unsuccessful, challenge on the issues of validity and infringement,” and did not find bad faith in the infringer’s dealings with the patentee); Brooktree Corp. v. Advanced Micro Devices, Inc., 977 F.2d 1555, 1581-82 (Fed. Cir. 1992) (“In exercising its discretion the trial court may consider the weight of the evidence of willfulness. The court thus considers the culpability of the infringer with due attention to any circumstances in mitigation, the closeness of the question, and any other factors pertinent to the award, in that case, of exemplary damages.” – affirming denial of enhanced damages despite jury’s finding of willful infringement where “the evidence supporting the jury’s finding was not as strong as it could have been, and is not of the weight and strength that would support the imposition of enhanced damages”); Spectralytics, Inc. v. Cordis Corp., 2011 WL 6003931, *5-*6 (D. Minn. Nov. 30, 2011) (rejecting argument that the closeness of the case should be confined to the closeness of the willful infringement case, and ruling that the court had to consider both the infringement case and the willfulness case) .

    Perhaps, there is not much difference between “objective reasonableness” of “the factual and legal components of the case” and the already established factor of “closeness of the case.”

    1. 3.1

      Halo:

      Section 284 allows district courts to punish the full range of culpable behavior. Yet none of this is to say that enhanced damages must follow a finding of egregious misconduct. As with any exercise of discretion, courts should continue to take into account the particular circumstances of each case in deciding whether to award damages, and in what amount. Section 284 permits district courts to exercise their discretion in a manner free from the inelastic constraints of the Seagate test. Consistent with nearly two centuries of enhanced damages under patent law, however, such punishment should generally be reserved for egregious cases typified by willful misconduct.

      While seemingly Halo left open the consideration of the closest of the case in the award of enhanced damages, I think it would be error for the Federal Circuit to instruct judges that they must consider this factor in every case, even where the conduct of the infringer prior to litigation was egregious. Forcing the district courts to always consider the closeness of the case is not different in kind from mandatory Seagate objective recklessness the Supreme Court found to be inconsistent with the purposes for enhanced damages.

      It seems to me that the closeness of the case should be considered primarily, if not only, when there are doubts about whether a prelitigation assertion of a belief of noninfringement or invalidity was to be credited. Judge Breyer made remarks on exactly on this point in his concurrence:

      One final point: The Court holds that awards of enhanced damages should be reviewed for an abuse of discretion. Ante, at 12-13. I agree. But I also believe that, in applying that standard, the Federal Circuit may take advantage of its own experience and expertise in patent law. Whether, for example, an infringer truly had “no doubts about [the] validity” of a patent may require an assessment of the reasonableness of a defense that may be apparent from the face of that patent. See ante, at 9. And any error on such a question would be an abuse of discretion.

  2. 2

    This looks like an effort by the Federal Circuit to read Octane Fitness and Halo together. They are saying that the considerations for the awarding of attorneys fees should not be all that different than the considerations for awarding enhanced damages.

    The problem with this is that willful infringement specifically looks at the conduct at the time of infringement as opposed to the conduct during litigation, and the award of attorney’s fees specifically includes a look at litigation conduct.

    I would agree that the panel opinion here is definitely wrong and that the objective reasonableness in court should be totally excluded from consideration of enhancing damages while it should be included in consideration of awarding attorney’s fees. I would urge the patent owner here to take the issued en banc.

    1. 2.1

      Dyk, the author of the opinion in MCM Portfolio LLC v. Hewlett-Packard, now says that objective reasonableness in litigation can be the basis of denial of enhanced damages even when willful infringement is proved. He is particularly unsympathetic to patent owners, and coddles the infringer so much so that even a willful infringer can end up only paying the same damages as anybody else.

      Willful infringement here we come. Dyk literally is becoming a leader of the efficient infringement movement.

      1. 2.1.1

        even a willful infringer can end up only paying the same damages as anybody else

        That is quite frankly insane.

    2. 2.2

      Ned,

      I am not a litigator, but I disagree.

      1. If the totality of circumstances is not considered by the district court, how does it decide how much to enhance damages? Without, is every adjudged infringer who knew about a patent now liable for treble damages?

      2. Suppose the defendant wins at trial because the judge agrees with its claim construction, but the CAFC reverses and remands. Is the district court not permitted to take this into account in enhancing damages?

      3. On the flip side, suppose the defendant believes that the patent is anticipated or obvious based on additional prior art it discovered, but decides not to file an IPR, present it only at a jury trial after discovery and loses. Is the judge precluded from taking into account the fact that an IPR was not filed in enhancing damages?

      1. 2.2.1

        Troubled, all those litigation issues can be taken into consideration for the purpose of awarding attorney fees. But willful infringement alone is sufficient for the court to award enhanced damages and the degree of willfulness and wrongful conduct prelitigation is the measure by which the court will determine how much damages should be increased or not. Enhanced damages has nothing and should have nothing to do with the litigation itself.

        The point of enhancing damages is to deter prelitigation conduct that is egregious. To the extent that one mixes in litigation conduct, one tends to undermine this deterrence.

        1. 2.2.1.2

          Ned,

          Given (I assume) that willfulness requires that the defendant knew about the patent, could you give me an example of egregious conduct? If that conduct is lacking, how much should damages be enhanced?

          1. 2.2.1.2.1

            Yes, T. Egregious would include tossing the notice of infringement into the trash can, copying a marked product, reviewing a confidential proposal and then implementing it without a license.

            Efficient infringement ho!

          2. 2.2.1.2.2

            Willfulness does not require knowing of the patent.

            Think of trespass – all that is required is being willful of the act that is trespass.

            1. 2.2.1.2.2.1

              “Willfulness does not require knowing of the patent.”

              Whoa, there. Analogizing trespass to patent infringement seems fine – I can wander across your property line (real estate or patent) without knowing I have done so, and still be guilty.

              But if you have some authority that says I can be shown to have done so willfully while at the same time not even knowing that the property even exists, I’d love to see it.

              1. 2.2.1.2.2.1.1

                It’s a common trespass theme: did you intend to walk where you walked?

                You do not have to know that “walking there” was trespass to satisfy the willingness aspect of the state of being willing to walk where you walked.

                (that is all that I meant)

                1. “You do not have to know that “walking there” was trespass to satisfy the willingness aspect of the state of being willing to walk where you walked.”

                  With all due respect, that means nothing at all, unless you want to posit two classes of walkers, one awake (willful, I guess, in your view) and the other class consisting of somnambulants.

                  In any event, none of the above addresses your assertion that one can be found to have committed willful infringement without even knowing of the patent.

                2. It does mean something – there is a difference between not meaning anything and your inability to grasp the meaning.

                  Think of it this way…

                  Flubber os invented as a material, patented, and sees success in a specific art field.

                  Outside of that art field, five years later Flubber is “re-invented” five years later for an entirely different art field (but with an “obvious” attribute).

                  The second individual does not know of the patent.

                  That individual purposefully sells his Flubber.

                  Does he need to “know” about the patent to have committed infringement? Did he willfully sell the infringing item?

                  The example with trespass is a classic trespass lesson.

                  All I am saying is that the same legal sense of “willful” applies. Did you intend to do the deed? Was the act the act that you intended? With trespass, it matters not at all whether you intended “to trespass.” If you intended to do the deed and walk where you walked, you are legally willful.

                  You could be mistaken as to the ownership of the land, but that mistake does not stop the willfulness aspect.

                3. Look, the word “willfulness” in the patent infringement context has legal meaning.

                  You’re the one who is commonly on here taking others to task for failing to distinguish between what the law actually is and what they think the law should be or what they wish the law should be.

                  You can kick all the dust you want and wave your hands through the cloud until they’re well and fully coated with it, but that doesn’t change the fact that your statement “Willfulness does not require knowing of the patent” is not what the law is today nor what the law has been in the past.

                  If it is what you wish the law should become in the future, fine, but then you should have said so, instead of using “does not”.

                4. Except I was not trying to say what the law should be…

                  I was merely explicating the nature of the word “willfully” and how that legal term IS understood.

                5. Just as in trespass, there is no such thing as “innocent infringement.”

                  It very much seems like the context is especially apt.

  3. 1

    It appears that the CAFC is learning well from the Supremes on how to “interpret” in order to arrive at a particular desired Ends…

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