by Dennis Crouch
Sryker v. Zimmer (Fed. Cir. 2014)
In 2010, Stryker sued its competitor Zimmer for infringing three patents covering pulsed lavage devices used for wound cleaning. U.S. Patent Nos. 6,022,329, 6,179,807, and 7,144,383. A jury sided with the patentee awarded $70 million in lost profits and also found that the infringement willful. Taking that verdict, the district court then awarded treble damages for willfulness, attorney fees based upon the exceptional case, and a permanent injunction against Zimmer. On appeal, the Federal Circuit has affirmed the underlying damage award, but reversed the district court’s judgment that the infringement was willful — finding that the noninfringement and invalidity defenses raised by Zimmer were “not unreasonable.”
Treble Clef
Treble Damages: The Patent Act sets up a two-step process for determining patent infringement damages. First, the court must award “damages adequate to compensate for the infringement” that are at least “a reasonable royalty.” 35 U.S.C. 284. Next, “the court may increase the damages up to three times the amount found or assessed.” Id. To add some mystique to the system, we term this ‘treble damages’ rather than ‘triple damages’ or – as the statute suggests – ‘three times.’
The statute itself offers no further limitations or guidance as to when triple damages are appropriate, only that a court “may increase the damages.”
Seagate vs the Statute: Despite the broad discretion seemingly offered by the statute, the Federal Circuit has held that increased damages are only available when a defendant is guilty of its complex willful infringement schema that requires clear and convincing evidence that (1) an adjudged infringer took its wrongful actions “despite an objectively high likelihood that its actions constituted infringement of a valid patent” and (2) that the objectively-defined risk was subjectively known (or should have been known) to the infringer. In re Seagate Tech., LLC, 497 F.3d 1360 (Fed. Cir. 2007) (en banc).
Ex Post Reasonableness: Because willfuness includes the objective inquiry, it turns out that an infringer who made the intentional decision to infringe, believing fully that the act was infringement, and that was that later judged to be infringing can still avoid being stuck with enhanced damages with a later-concocted (but ultimately incorrect) argument that the patent is invalid or not infringed – so long as that argument is “susceptible to a reasonable conclusion.” Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292 (Fed. Cir. 2011).
Although the jury decided the willfulness question in the Federal Circuit has held that insufficient under the Seagate test. Rather, a judge must determine at least the objective portion of the test (objectively reckless) and that determination is reviewed de novo on appeal. Bard Peripheral Vascular, Inc. v. W.L. Gore & Assocs., Inc., 682 F.3d 1003, 1007 (Fed. Cir. 2012).
Here, reviewing the lower court’s decision de novo, the Federal Circuit found that the defendant had offered a construction that was “not unreasonable” or at least “not without reason.”
It makes no sense to give deference to the district court in awarding attorney fees, but no deference (de novo review) for increased damages.
Everyone should read Garjasa’s concurrence in Seagate. He is right on point. Nothing in the history of the statute suggests that damages were to be reviewed as a matter of law. In fact, it was supposed to be “according to the circumstances of the case,” which suggest that the district court may decide when to increase damages.
The state of mind of the infringer should not be considered in most circumstances. Rather, it should be to fully compensate the patentee.
J, good point here. If the issue of increased damages is statutorily within the discretion of the court, the review by the appeals court must be for abuse.
We might see this up at the Supreme Court.
We might indeed see the Supreme Court take this up, but first we’ll see if the Federal Circuit will reconsider Seagate en banc in light of Octane Fitness and Highmark. Judges O’Malley and Hughes endorsed that idea in their Halo Elecs. concurrence. Halo will be filing its petition on this coming Monday, 12/22.
And let me add that remedies is the way to go to curb patent trolls. If I were speaking in front of a jury defending my client against a patent troll, this is what I would say:
“The law requires you to fully compensate the patent owner for infringement. Historically, the amount of damages for an unworked patent was about a dollar. The other side bought this patent at a bankruptcy auction, hoping to sue companies big and small just to get licenses. They do not invent anything. They do not produce anything other than demand letters. It is up to you to decide what value that patent is to the other side when the other side had no plan to work or license the patent. We ask you award one penny for every item sold.”
I am willing to hear why this is bad idea, or it wouldn’t work?
J, You have to consider that the price someone would pay the bankrupt estate for patent would depend upon the value of the patent. If you strip remedies from a patent so that it becomes less valuable and perhaps even worthless even though it is valid and infringed, the price one would be willing to pay a bankruptcy estate for the patent would be significantly less. Such would in turn reduce the value patents overall, but especially as collateral to financing for startups.
So this argument of yours about somebody denying remedies for someone buying a patent from a bankrupt estate in order to enforce it is really an argument against the patent system itself.
The purchase price of a patent is not necessarily the value of the patent. It is not an attack on the patent system, it is a statement of fact that this was the patent system from 1793 until 1946. Historically, speculators of patents didn’t get any damages. They might get equity.
Anyways, is there a legal reason why I couldn’t make that argument?
J, I hope you are aware i4i v. Microsoft? i4i was awarded increased damages simply because Microsoft made such an argument in front of the jury. It was considered by the court to be not only legally incorrect, but highly prejudicial to the patent owner.
There is no basis in the law for such an argument. Simply buying patents, owning patents, using patents to pursue infringers, or one’s status as an NPE, has nothing to do whatsoever with one’s entitlement to damages or to increased damages for willful infringement. Your argument is almost as if an NPE is not entitled to enforce its patent and anybody is entitled to infringe their patents with impunity.
I would add to Ned’s post and further point out that the US system was specifically built to enable such transactions – the personal property right was meant to be fully an freely alienable.
PatentDocs has a new post with a refurbed link to an article written in part by Jon Dudas that explored this historical fact.
It is a fact that should not be so quickly overlooked.
DanH, what source do you use to say that it was enhanced because of that argument? The jury didn’t believe Microsoft and awarded 200 million, and then the judge added 40 million because the jury found the infringement willful. The extra 40 million was not “simply because Microsoft made such an argument.”
Just because it didn’t work for Microsoft doesn’t mean it can’t work for other companies. For example: link to bloomberg.com. Here, Apple decries the behavior of the patent owner to the jury and wins.
Before reasonable royalties, juries couldn’t award any damages unless the plaintiff proved damages relatively precisely. Reasonable royalties removed that burden on the plaintiff. It says nothing about the jury going in the back and saying, “the patent’s value is only for patent trolling. A penny royalty seems reasonable.” If the judge disagrees, she can make it three pennies.
Anon- setting aside the argument that the founders intended the patent to be fully and freely alienable, the fact is that nominal damages were given for over 150 years even if the infringer was from a willful and wanton pirate. So, your “its what the founders would want” is laughable on this point.
i4i Ltd. Partnership v. Microsoft Corp., 670 F. Supp. 2d 568, 695 (E.D. Tex. 2009):
“Finally, also favoring enhancement is Microsoft’s counsel’s litigation conduct, specifically during trial. Throughout the course of trial Microsoft’s trial counsel persisted in arguing that it was somehow improper for a non-practicing patent owner to sue for money damages.”
…
“These improper arguments were made in spite of the Court’s warnings. Microsoft’s trial counsel began voir dire by asking the following question to the jury panel:
“So an example might be that somebody has a patent that they’re using not to protect a valuable product but someone’s copying, but because they are attacking somebody because they just want to try to get money out of them. So it fits, for example, with the litigation question Mr. Parker asked. So if somebody felt that—let’s take this case for an example. If somebody felt that the patents were being used in a wrong way, not to protect a valuable product but a wrong way, could you find that patent invalid or noninfringed?”
“Despite this admonition, Microsoft’s trial counsel continued to misstate the law and directly appeal to the jurors’ perceived prejudices. During opening statement, he stated that “we’re here because the bankers decided to achieve liquidity” and that “the banker cases are the ones where you don’t have a very successful product, and the bankers decide to try to get their money out another way.” TT 5/11/09 p.m. at 42:6-8; 32:1-16. Again, the Court sought to temper these statements with a specific instruction to the jury. Court’s Charge, Docket No. 323 at 30 (“The law recognizes no distinction among types of patent owners. A patent owner may be a competitor of an accused infringer, but it does not have to be. The characterization of a patent lawsuit as good or bad or as misuse of the patent laws based upon the status of the patent owner is inappropriate and should not play any part in your deliberations.”). Regardless of this instruction, Microsoft’s trial counsel’s improper statements were again reinforced during closing argument. TT 5/20/09 at 90:13-91:5 (“[i4i] had a product that failed. They had a patent that doesn’t work. They’re asking for a bail-out. President Tyler [sic] didn’t give bankers a bail-out. We would ask for you not to give one here either.”).
As these arguments were persistent, legally improper, and in direct violation of the Court’s instructions, they are best considered within the framework of the Read factor analysis. Therefore, Microsoft’s trial misconduct also supports enhancement.”
I’ll admit I missed it, but I think you misrepresented the case. It wasn’t “simply because they made the argument.”
Additionally, Microsoft isn’t making the same argument I am making. Unlike Microsoft, I am not saying that the patent is somehow invalid because it isn’t being used. I am saying that the patent is worthless and the value is indeterminate in the damages part of litigation. Completely different question. If the court prevented me from saying that, then it would be an abuse of discretion.
To stay consistent with my previous posts on induced infringement, it seems to me that arguments relating to noninfringement could be evidence against a finding of willful infringement, but arguments relating to invalidity should not. If the patent is invalid, you should be able to prove it in court. Otherwise, the presumption of validity should trump any such arguments.
APoTU, I thought an analogous issue was going to the Supreme Court — belief that a patent was invalid as negating induced infringement. The I saw this:
No. 13–1044. Cisco Systems, Inc., Petitioner v. Commil USA, LLC.
Petition for writ of certiorari to the United States Court of Appeals
for the Federal Circuit denied. Justice Breyer took no part in the considerationor decision of this petition.
Is there another case taking this issue up?
The two parties must have cross-appealed, because the question you’re interested in is in Supreme Court docket number 13-896, with the parties the other way around.
DC: it turns out that an infringer who made the intentional decision to infringe, believing fully that the act was infringement, and that was that later judged to be infringing can still avoid being stuck with enhanced damages with a later-concocted (but ultimately incorrect) argument that the patent is invalid or not infringed – so long as that argument is “susceptible to a reasonable conclusion.” Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292 (Fed. Cir. 2011).
Nice post.
I’m curious: was it ever admitted in any of these precedent-setting cases (Seagate, Uniloc, Bard), or was there evidence, that “the argument” for non-infringement/invalidity was “concocted” only after the patentee approached the infringer with the patent (that the infringer already knew about)? That would seem to be a highly relevant fact for the damages determination.
It’s completely unrealistic for a company to imagine patent claims that don’t exist and “concoct” non-infringement or invalidity arguments in response to such claims. All such arguments are going to be developed only after the would-be infringer becomes aware of the claims.
If you have a reasonable opinion prepared supporting a non-infringement or invalidity argument, then it doesn’t seem right to triple the damages. That said, it doesn’t seem out of the question to allow judges to evaluate the degree of “reasonableness” and adjust the damages accordingly.
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