2016 was a busy year for patent remedies. The U.S. Supreme Court decided two cases, one on willfulness and the other on design patent damages. The Federal Circuit made law on willfulness, enhancement, attorney fees, antitrust damages, preissuance patent damages, and laches. This article will review these 2016 patent remedies cases. The graph below shows how many times each decision has been cited by another court. It’s updated as to December 31, 2016.
1. The Supreme Court loosens willfulness, and the Federal Circuit elaborates on enhancement.
Under Section 284 of the Patent Act, upon finding infringement, the district “court may increase the damages up to three times the amount found or assessed.” Pursuant to this section, a court may enhance damages after finding the defendant’s infringement willful.
In Halo v. Pulse, the Supreme Court loosened the willfulness standard, abrogating the unduly rigid Seagate test. To show willfulness under Halo, the patentee must only show subjective willfulness — that the risk of infringement was either known or so obvious that it should have been known to the accused infringer. The patentee no longer needs to show that the defendant was objectively reckless. More importantly, a reasonable invalidity or noninfringement defense raised during the proceedings will not insulate an otherwise culpable defendant. Willfulness is measured at the time of the alleged conduct, not at a later proceeding. The burden on the patentee is preponderance of the evidence. And on appeal, the district court’s enhancement decision is reviewed for abuse of discretion.
In WBIP v. Kohler, the Federal Circuit further explained the subjective inquiry. “Knowledge of the patent alleged to be willfully infringed continues to be a prerequisite.” The jury should consider, among other factors, “what [defendant] knew or had reason to know at the time of the infringement.” Halo v. Pulse (on remand from the Supreme Court). This factual component is reviewed on appeal for substantial evidence. WBIP.
After the jury finds subjective willfulness, “[t]he district court has the discretion to decide whether the case is sufficiently egregious to warrant enhancing damages and to decide the amount of enhancement that is warranted (up to the statutory limit of treble damages).” WBIP (parenthesis in original); see also Innovention Toys v. MGa (nonprecedential).Stated differently, the district court considers “whether [defendant’s] infringement constituted an egregious case of misconduct beyond typical infringement meriting enhanced damages under § 284.” Alfred E. Mann Found. for Sci. Research v. Cochlear. This inquiry is “based on the circumstances of the case.” Stryker v. Zimmer (on remand from the Supreme Court). And objective reasonableness is a relevant factor in this discretionary inquiry. WesternGeco v. ION Geophysical.
A willfulness finding does not automatically support an enhancement. Rather, the district court must make a case-by-case determination. Stryker. Similarly, a finding of willfulness doesn’t necessarily make a case exceptional as to merit attorney fees. Rather, district courts determine whether a case is exceptional “in the case-by-case exercise of their discretion, considering the totality of the circumstances.” Id.
2. Design patent total profits may be awarded for a component of the end product.
Under Section 289 of the Patent Act, a design patent infringer is “liable to the owner to the extent of his total profit,” that is, all the profit made from the manufacture or sale “of the article of manufacture to which the design or colorable imitation has been applied.”
In Samsung v. Apple, the Supreme Court held that total profits for design patent infringement may in some instances extend to a component of the end product. Ascertaining damages under § 289 has two steps. First, the court identifies the article of manufacture to which the infringed design has been applied. Second, it calculates the infringer’s total profit made on that article of manufacture. The “only question” addressed by the Court was “whether, in the case of a multicomponent product, the relevant article of manufacture must always be the end product sold to the consumer or whether it can also be a component of that product.” Id. Relying on the dictionary definitions of “article” and “manufacture,” and analogizing to similar language in patent sections 171(a) and 101, the court held that the relevant article of manufacture may be a component of the end product. Notably, the Supreme Court did not resolve whether, for Apple’s design patents, the relevant article of manufacture is the smartphone, or a particular smartphone component. Instead, the court remanded the case to the Federal Circuit to “address any remaining issues.” Id.
3. The Federal Circuit elaborates on the abuse of discretion standard for reviewing attorney fees determinations.
Under Section 285 of the Patent Act, “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.” In Octane Fitness v. Icon Health (decided in 2014), the Supreme Court held that an exceptional case “is simply one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.”
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The Federal Circuit decided four cases on attorney fees this year. In Site Update v. CBS (nonprecedential), the Federal Circuit emphasized that the district court’s attorney fees determination will be reviewed on appeal for abuse of discretion. Essentially, the appeals court will look to whether the district court’s § 285 decision is supported by evidence and sound reasoning. In Site Update, the “district court provided eight reasons for denying fees,” which was sufficient. Whereas in Large Audience Display v. Tennman (nonprecedential), the Federal Circuit vacated a finding of exceptionality because the trial court gave certain questionable factors “undue weight” in the analysis.
The Mankes v. Vivid Seats panel affirmed the district court’s finding of nonexceptionality under § 285. It was not exceptional for a litigant to press good-faith arguments that the law of direct infringement would change (during the Akamai saga). Despite that the litigant’s position eventually lost, the law of direct infringement was in flux at the time of the argument.
The Lumen View v. Findthebest.com panel affirmed the district court’s finding of exceptionality because plaintiff’s infringement allegations were ill-supported, and because defendant’s attorneys repeatedly informed plaintiff that the suit was baseless. The Federal Circuit then vacated the district court’s attorney-fees enhancement. The district court erred by diverging from the lodestar method, which provides a presumptively reasonable attorney fees calculation. Id. Under the lodestar method, the court calculates attorney fees by multiplying the number of hours reasonably expended on the litigation times a reasonable hourly rate, one reflecting the prevailing market rate based on the attorneys’ skill, experience and reputation. Id.; see also Large Audience Display. When the prevailing party’s lawyers are not from the forum state, the forum state’s rates “should be used to calculate the lodestar figure unless there is some special expertise [the prevailing] counsel had that warrants a different rate, or a showing is made that there is a prevailing national rate applicable in patent cases.” Large Audience Display.
4. Attorney fees incurred in defending against a fraudulently obtained patent may be trebled under antitrust law.
Under Section 4 of the Clayton Act, “any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws … shall recover threefold the damages by him sustained.”
In Transweb v. 3M, the Federal Circuit held that defending against a fraudulently obtained patent could constitute antitrust injury, and thus could form the basis for trebled damages under Section 4. In bringing a suit based on a fraudulently obtained patent, the patentee hopes to reduce competition and gain a monopoly based on the patent. In response to the anti-competitive suit, the defendant has to either cease competition or defend the suit. The defendant’s attorney fees flow directly from the unlawful suit, and the fees are the foreseeable consequence of the antitrust-violative lawsuit. The antitrust plaintiff may receive trebled damages despite that the patentee (the antitrust defendant) failed in the patent suit. Id.
5. For preissuance damages, the defendant must have actual knowledge of the claims of the eventual patent.
Under Section 154(d), a patent holder may recover “a reasonable royalty” for infringement that took place before a patent issued if the infringer had “actual notice of the published patent application.”
In Rosebud v. Adobe, the Federal Circuit interpreted “actual notice” for preissuance damages. The court held that the defendant had no actual notice of the published patent despite that the defendant knew of the grandparent patent, and that the two patents shared a specification. Constructive notice cannot satisfy this actual notice requirement. Rather, the patentee must show that the defendant had knowledge of the claims of the patent-in-suit. Section 154(d) does not require the patent applicant to affirmatively give notice of the published application to the infringer. Id.
6. The laches presumption is not rebutted by a foreign suit on a different issue.
Under Federal Circuit law, a rebuttable presumption of laches attaches whenever more than six years passes from the time a purportedly omitted inventor knew or should have known of the issuance of the relevant patent. Advanced Cardiovascular v. Scimed Life; Serdarevic v. Advanced Med. Optics.
In Lismont v. Alexander Binzel, the Federal Circuit held that a foreign lawsuit doesn’t rebut the presumption of laches unless the claims in the foreign suit are identical to those in the subsequent American suit. In the case, the presumption wasn’t rebutted despite that the omitted inventor initiated suit in foreign court during the six-year window. These foreign suits did not concern inventorship, so they did not give the defendant adequate notice that the omitted inventor intended to pursue his patent rights in the United States. Id.
Conclusion
The current trend at the Supreme Court is to make patent standards less rigid and more flexible. Halo and Samsung follow this trend. At the Federal Circuit level, the judges in 2016 were busy elaborating on the newly loosened standards for willfulness and for attorney fees. Given the trend in the Supreme Court, it will be interesting to see how SCA Hygiene v. First Quality Baby Products turns out. The case concerns whether, and to what extent, laches may bar a claim for patent infringement brought within the statutory limitations period. Petitioners argue that the plain meaning of section 286 mandates a six-year limitations period, and thus that courts cannot apply laches to shorten that period. Respondents argue that laches has been recognized by Congress and the courts as a defense to damages for over 60 years. Oral argument was on Nov. 1, 2016. Interestingly, the Supreme Court in 2014 decided 6-3 that laches could not bar damage claims under the Copyright Act. Petrella v. MGM. A flexible ruling by the court in SCA Hygiene would maintain laches as a defense, but it is anyone’s guess how the case turns out.