Evaluating Willful Patent Infringement After In re Seagate Technology, LLC

Prof. David C. BerryAuburn Hills CampusOctober 5, 2010

Welcome to Cooley Law School

Auburn Hills Campus

Why Willfulness Matters• Direct patent infringement is a “strict liability”

offense.35 U.S.C. § 271(a).

• 35 U.S.C. § 284 provides for “up to three times” actual damages in certain cases.

• But Patent Act does not specify circumstances warranting enhanced damages.

• Willfulness is one of several factors used to determine whether enhanced damages are warranted. Read v. Portec (Fed. Cir. 1992).

Impact of Willfulness Finding• Potential for enhanced remedies (multiple damages

and attorneys fees)• Enhanced damages permitted only in cases of willful

infringement. Finisar Corp. (Fed. Cir. 2007).

• Potential factor in weighing patentee’s right to equitable relief• eBay, Inc. v. MercExchange , LLC (U.S. 2006).

Willfulness as a Litigation Issue• Willful infringement alleged in 92% of newly-

filed complaints. (Moore, 2004)• Willfulness found in 55% of infringement trials,

including 67% of jury trials. Id.• CAFC affirmed USDC willfulness findings in

94% of appeals. Id.• In pre-Seagate study, willfulness was “never”

decided on summary judgment. Id.• Post-Seagate, accused infringers regularly

move for partial summary judgment on willfulness issue.

Underwater Devices, Inc. v. Morrison-Knudsen Co. (Fed. Cir. 1983)

• Decided in era of widespread disregard of patent rights.• Defendant adopted patented apparatus based on

opinion from non-patent attorney, who advised to proceed based on “bald” and “conclusory” assessment of risk.• Held that upon notice of patent, potential infringer has

“affirmative duty to exercise due care to determine whether or not he is infringing.”

• Affirmative duty includes “duty to seek and obtain competent legal advice from counsel before the initiation of potential infringing activity.”

• Later cases established an adverse inference from failure to produce opinion. Kloster Speedsteel (Fed. Cir. 1986).

In re Seagate Technology, LLC (Fed. Cir. 2007)(en banc)• Defendant sought mandamus concerning discovery

order compelling production of attorney files.• Although no infringement proceeding record, CAFC

takes opportunity to “revisit” willfulness doctrine:• Overrules Underwater Devices standard.• Abandons “affirmative duty of care” to avoid

infringement.• Willfulness finding requires at least “objective

recklessness.”• Substitutes new two-prong test for objective

recklessness.• Emphasizes that “there is no affirmative obligation to

obtain opinion of counsel.”

Seagate Willfulness Analysis

Notice

Prong #1Objective Test

Prong #2“Subjective” Test

Willfulness ?

Prong #1 – Objective Test

“[T]o establish willful infringement, a patentee must show by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent.” Seagate, at 1371.

“The state of mind of the accused infringer is not relevant to this objective inquiry.” Id.

Prong #2 – “Subjective” Test “If this threshold objective standard is satisfied, the patentee must also demonstrate that this objectively-defined risk (determined by the record developed in the infringement proceeding) was either known or so obvious that it should have been known to the accused infringer.” Seagate, at 1371.

Seagate’s Focus on Pre-litigation Conduct

Ordinarily “willfulness will depend on an infringer's prelitigation conduct,” since “a willfulness claim asserted in the original complaint must necessarily be grounded exclusively in the accused infringer's pre-filing conduct.”

“[W]hen an accused infringer's post-filing conduct is reckless, a patentee can move for a preliminary injunction, which generally provides an adequate remedy for combating post-filing willful infringement.”

What is “Objective Recklessness”?• On continuum from simple negligence to

intentional harm, recklessness is between gross negligence and intentional harm.

• Prosser describes “Reckless” conduct as:• Within a “penumbra” of “quasi-intent” and an

“aggravated form of negligence, differing in quality rather than in degree from ordinary lack of care.”

• Reckless conduct “take[s] on the aspect of highly unreasonable conduct, involving an extreme departure from ordinary care.”

What is “Objective Recklessness”?• “Recklessness” takes two forms:

• “Objective Recklessness” – “[C]ivil law generally calls a person reckless who acts or (if the person has a duty to act) fails to act in the face of an unjustifiably high risk of harm that is either known or so obvious that it should be known.” Farmer v. Brennan (U.S. 1994)

• “Subjective Recklessness” -- This variant requires actual knowledge of a substantial risk which the defendant disregards. Ewolski v. City of Brunswick (6th Cir. 2002).

• So Prong #2 is not really “subjective,” it’s the objective test.

Things We Know About Applying Seagate

• Patentee must prove Prong #1 and Prong #2 by clear and convincing evidence.

• Willfulness is issue of fact for jury.• Willfulness must be determined based on “the

totality of the circumstances.”• Translating willfulness into enhanced damages

award is a discretionary function of the court.• No willfulness if infringement not “highly

likely,” even if defendant acted with actual intent to infringe patent.

• Standard applies retroactively.

Unresolved Issues About Applying Seagate

In objective assessment of defendant’s conduct, who provides the benchmark?

Generic “reasonable person of ordinary prudence”? Reasonable person in the infringer’s industry? Person having ordinary skill in the art? (i.e., § 112) PHOSITA? (i.e., § 103(a)).

What facts should be used to determine whether conduct was objectively reckless?

Only facts established in liability proceeding record? Only publicly-known facts (i.e., “intrinsic” facts)? Only facts known by the infringer? Only facts known at time of infringing acts?

Potential Factors Affecting Willfulness

Intent Copying Design-around Product modification Reexamination/reissue of

patent Prior litigation Disputed claim construction Indemnification Strength of

invalidity/noninfringement defenses

Estoppel Reliance on D.O.E. Good faith Timely preliminary

injunction motion Motion for summary

judgment on liability issues Conducting investigation Attempts to obtain license Adherence to industry

standards Perceived effectiveness of

response

Potential Factors Affecting Willfulness

Similarity of products Extent of licensing by

patentee Laches/delay in asserting

claim Question of liability decided

by jury “Questionable business

practices” by infringer Defendant established

escrow (in license dispute) Infringer continued activity

after actual notice of accusation

Infringer took steps to avoid infringement

Patentee loses motion for preliminary injunction

Expert testimony Opinion (or lack of one) Quality of opinion Litigation misconduct Suit based on ANDA filing Patentee’s commercial

success

How Do Factors Drive The Analysis?

i4i L.P. v. Microsoft Corp. (Fed. Cir. 2010) Jury ruled that Microsoft willfully infringed. On appeal, CAFC cited evidence supporting jury

finding that Microsoft proceeded despite objectively high likelihood of infringement (Prong #1): Microsoft designed accused product to perform same

process as i4i’s product. Microsoft took no remedial action (e.g., designing-around

or ceasing infringing activity). Microsoft did not make “good faith” effort to avoid

infringement (internal emails cited goal of making i4i’s product “obsolete”).

CAFC then held, “This same evidence supports the jury’s finding on the subjective prong of Seagate.”

Fact: Accused product resulted from Defendant’s attempt to design-around patent.

Fact: Patentee’s infringement case at trial is based solely on Doctrine of Equivalents theory.

Fact: At time of accused acts, USPTO had ordered reexamination of patent based on “substantial question of patentability.”

Proposed Post-Seagate Willfulness Model

Notice

Reckless Conduct Cannot Occur Before Infringer Has Actual Notice Of Patent Infringement not willful where accused infringer

had no notice (actual or constructive) of some patents and “minimal” awareness of others. LG Display Co. (D. Del. 2010).

No willful infringement where infringer merely “should have known” about patents. Concordance Corp. (D. Del. 2009). Also suggests that citation of patent in infringer’s own

pending application not necessarily sufficient notice. But see SEB, S.A (Fed. Cir. 2009)(considering

active inducement claim, defendant charged with knowledge of patent when it “deliberately ignored” risk of infringement).

Proposed Post-Seagate Willfulness Model

Notice

Risk

The “Risk” TestBased on information apparent at the time of the infringing act, would a person having ordinary skill in the art recognize that the act was highly likely to infringe a valid and enforceable patent?

The “Risk” TestWhat evidence is probative of Risk?

• Patent (claims and written description)• Prosecution history• Accused product/process• Prior litigation (including claim construction)• Pertinent art known to the infringer• Other circumstances known to infringer that tend

to support, or refute, basis for invalidity, unenforceability, or noninfringement

• Opinion of counsel (to extent that it provides factual basis for liability defense)

The “Risk” Test – Infringer’s IntentBased on objective considerations, not subjective intent of infringer.• “State of mind is not relevant to this objective

inquiry.” Seagate, at 1371.• Evidence of copying and attempted design-around

is not relevant to Prong #1. Depuy Spine (Fed. Cir. 2009).

The “Risk” Test – Infringer’s IntentBut some courts have considered infringer’s knowledge:• i4i v. Microsoft (Fed. Cir. 2010): Holding that

copying patentee’s product relevant to Prongs #1 and #2.

• Brilliant Instrument (N.D. Cal. 2010): Infringer’s knowledge of invention may provide “context” for determining whether it acted despite high likelihood of infringement.

• Power Integrations, Inc. (D. Del. 2010) Evidence of copying was so strong, and steps to avoid infringement so weak, “hard to understand” how an objectively high risk of infringement could not exist.

The “Risk” Test – Substantial DefensesSeems to be the Dominant Factor under Prong #1: “Under [Seagate’s] objective standard, both

legitimate defenses to infringement claims and credible invalidity arguments demonstrate the lack of an objectively high likelihood that a party took actions constituting infringement of a valid patent.” Black & Decker, Inc. (Fed. Cir. 2008)(nonprec.)

Court have recognized: Invalidity defenses (e.g., based on prior art) Noninfringement defenses Disputed construction of claim terms

Ultimate success on defense not dispositive.

The “Risk” Test – Substantial DefensesUnresolved Issues:• Key seems to be whether or not the infringer

“reasonably believed there were any substantial defenses.” i4i v. Microsoft (Fed. Cir. 2010).

• Effect of summary judgment practice?• If D does not move or cross-move for summary

judgment on noninfringement or invalidity, does that mean that it did not believe in the defenses?

“Tension” Between Emphasis On Pre- and Post-Litigation Conduct On one hand, Seagate states that ordinarily

“willfulness will depend on” pre-litigation conduct.

But, if maintaining “substantial defense” disproves willfulness, that generally must encompass post-litigation conduct.

So should defenses identified during litigation count as much as defenses identified at time of accused acts?

The “Risk” Test – Substantial Defenses Some courts assess whether infringer has

mounted a substantial defense regardless whether the defense arose pre- or post-litigation. See, e.g., Spine Solutions v. Medtronic (Fed. Cir.

2010)(obviousness defense raised a “substantial question[,]” and Medtronic “not objectively reckless in relying on this defense.”)

The “Risk” Test – Substantial Defenses

Other Courts weigh defenses identified pre-litigation more heavily.

Focus on pre-litigation conduct in first instance, but “also take into account whether infringer maintained plausible or credible liability defenses.” LG Display, Inc. (D. Del. 2010).

Deemphasize defenses identified pre-litigation:“However, the Court understands the post-suit reasonableness of a parties' defenses to be only one factor among the totality of the circumstances . . . [A] contrary approach to willful infringement would negate the ability of a patentee to prove willful infringement in any hard fought and hotly contested patent litigation.” Power Integrations, Inc. (D. Del. 2010).

Krippelz v. Ford Motor Co. (N.D. Il. 2009) Suit for infringement of “puddle light” patent. Parties agreed to bench determination of willfulness. Court divided F’s conduct into 4 periods:

From prior to filing of action to date of reexam request From F’s initial disclosure of invalidity contentions to BPAI

ruling on reexam From BPAI ruling to F’s supp. invalidity disclosures From F’s suppl invalidity disclosures to trial.

Court considered F’s conduct during each period, including whether its invalidity and noninfringement defenses were “objectively unreasonable” based on the circumstances in each time period.

The “Risk” Test – Effect of Reexamination

Does grant of reexamination request preclude willfulness?

• Lucent Techs., Inc. v. Gateway, Inc.,  (S.D.Cal. 2007)(apparently yes).

• St. Clair Intellectual Property Consultants, Inc. (D. Del. 2009)(reexam just another factor)

The “Risk” Test – Effect of Reexamination[USPTO] considers the standard for reexamination met when "there is a substantial likelihood that a reasonable examiner would consider the prior art patent or printed publication important in deciding whether or not the claim is patentable.” ... Thus, “a substantial new question of patentability” as to a patent claim could be present even if the examiner would not necessarily reject the claim as either anticipated by, or obvious in view of, the prior art patents or printed publications.

Proctor & Gamble Co. (Fed.Cir.2008) (quoting MPEP § 2642).

Role of Preliminary Injunction Seagate: “[W]hen an accused infringer's post-

filing conduct is reckless, a patentee can move for a preliminary injunction, which generally provides an adequate remedy for combating post-filing willful infringement.”• “A patentee who does not attempt to stop an

accused infringer's activities in this manner should not be allowed to accrue enhanced damages based solely on the infringer's post-filing conduct.”

• “[I]f a patentee attempts to secure injunctive relief but fails, it is likely the infringement did not rise to the level of recklessness.”

Role of Preliminary Injunction USDC responses:

Applied to bar willfulness claims. Ball Aerosol & Spec. Container, Inc. (N.D. Il. 2008)

Limited to situations where patentee seeks willfulness solely on post-suit conduct. Astrazeneca (S.D.N.Y. 2010).

Not applied retroactively. Id. Rejected:

“[T]he proposition that failure to seek a preliminary injunction constitutes a forfeit of a claim for willful infringement is neither an absolute nor a general rule applicable to all patent cases.” Krippelz (N.D. Il. 2009)

Proposed Post-Seagate Willfulness Model

Notice

Risk

Culpability

The “Culpability” TestDid Infringer’s proceed with either actual knowledge that infringement was highly likely to result from the accused acts, or under circumstances that would cause a reasonable person to recognize the high likelihood of infringement?

Contrasting “Risk” and “Culpability” Tests

RISK = Probability That Defendant Infringes

CULPABILITY = Reasonableness of Process Defendant Used In Deciding To Act Despite

Risk

The “Culpability” TestWhat evidence is probative of Culpability?

Reliance on competent opinion (quantifying risk as less than “high likelihood”)

Response that conforms to commercial standards Obtaining opinion Redesigning product/process Withdrawing product from market Requesting reexamination Seeking license

Actual good faith Other circumstances that reasonably suggest (or

refute) that risk is not high or has been successfully mitigated.

Culpability Test – Role of Opinion

Appears to be Dominant Factor in Prong #2 Seagate ruled that an opinion of counsel is not

required, and is not “dispositive” on willfulness, but “it is crucial to the analysis.”

Culpability Test – Role of Opinion Is defendant’s failure to obtain an opinion

evidence of culpability? “There is no affirmative obligation to obtain

opinion of counsel.” Seagate, at 1370-71. USDC split on whether failure to obtain opinion is

part of totality of circumstances Presidio Components (S.D. Cal. 2010)(no adverse

inference, but still a factor) Spectralytics, Inc. (D.Minn. 2009)(granting motion in

limine excluding evidence); Anascape. Ltd. (E.D.Tex. 2008)(“the failure to obtain opinion of counsel is not a factor supporting willful infringement”).

Culpability Test – Commercial Standards Although expressly leaving “it to future cases

to further develop the application” of new standard, Seagate endorses some role for commercial standards. Newman (concurring): “The standards of behavior

by which a possible infringer evaluates adverse patents should be the standards of fair commerce, including reasonableness of the actions taken in the particular circumstances.”

Majority: “We would expect, as suggested by Judge Newman, that the standards of commerce would be among the factors a court might consider.”

Culpability Test – Commercial Standards At least one court has cited commercial

standards in willfulness analysis Goss Intern. America (N.D. Ill. 2010)(defendant’s

“fair and reasonable commercial behavior,” including conducting investigation and obtaining opinion, applies to Prong #1).

See Tyco Healthcare Group, LP (E.D. Tex. 2009)(denying motion to strike expert report opining, in part, on whether defendant’s patent clearance policy was “inconsistent with a commercially reasonable standard of care”).

Culpability Test – Commercial Standards

To date, evidence concerning commercial standards has been anecdotal.Cooley/ABA IP Section project seeks to survey in-house counsel regarding patent infringement risk practices:

•Assessing risk•Obtaining opinions•Responding to risk.

Contact Information

David C. BerryProfessor of Law and DirectorGraduate Program in Intellectual Property LawThomas M. Cooley Law School2630 Featherstone Rd.Auburn Hills, MI 49326

(248) 751-7500 x 7750

berryd@cooley.edu

Thomas M. Cooley Law SchoolGraduate Program in Intellectual Property Law

• LL.M. in Intellectual Property Law• Courses on Auburn Hills, Michigan Campus• Courses available via DE in Lansing and Grand

Rapids• Many courses available On-Line• www.cooley.edu/llm