Friday, September 23, 2016

CAFC in WesternGeco: After Halo, the objective reasonableness of the accused infringer’s positions can still be relevant for the district court to consider when exercising its discretion.

The CAFC on the Supreme Court in Halo:

But, the Court held, “[t]he principal problem with
Seagate’s two-part test is that it requires a finding of
objective recklessness in every case before district courts
may award enhanced damages.” Id. In particular, the
Court rejected Seagate’s strict requirement that a patentee
prove the objective unreasonableness of an infringer’s
defenses. Id.; see WBIP, LLC v. Kohler Co., No. 15-1038,
2016 WL 3902668, at *15 (Fed. Cir. July 19, 2016) (under
Halo, “[p]roof of an objectively reasonable litigationinspired
defense to infringement is no longer a defense to
willful infringement”). At the same time, Halo did not
disturb the substantive standard for the second prong of
Seagate, subjective willfulness. Rather, Halo emphasized
that subjective willfulness alone—i.e., proof that the
defendant acted despite a risk of infringement that was
“‘either known or so obvious that it should have been
known to the accused infringer,’” Halo, 136 S. Ct. at 1930
(quoting Seagate, 497 F.3d at 1371)—can support an
award of enhanced damages. “The subjective willfulness
of a patent infringer, intentional or knowing, may warrant
enhanced damages, without regard to whether his
infringement was objectively reckless.” Id. at 1933; see
also id. at 1930 (describing the second prong of Seagate as
an evaluation of the infringer’s “subjective knowledge”).

Additionally, the Court stressed throughout Halo
that, if willfulness is established, the question of enhanced
damages must be left to the district court’s discretion.
So too, Halo stressed 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.”
Id. at 1932. “[N]one 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.” Id. at 1933–34. On remand
from the Supreme Court, our court recently reconsidered
enhanced damages in the case of Halo itself and, in returning
the issue to the district court, emphasized the
district court’s discretion. Halo Elecs., Inc. v. Pulse Elecs.,
Inc., No. 13-1472, 2016 WL 4151239, at *10 (Fed. Cir.
Aug. 5, 2016).

After Halo, the objective reasonableness of the accused
infringer’s positions can still be relevant for the
district court to consider when exercising its discretion.
Halo looked to Octane Fitness for the relevant standard.
Halo, quoting Octane Fitness, held that there is “‘no
precise rule or formula’” to determine whether enhanced
damages should be awarded and that district courts
should generally “‘exercise[] [their discretion] in light of
the considerations’ underlying the grant of that discretion.”
Halo, 136 S. Ct. at 1932 (quoting Octane Fitness,
134 S. Ct. at 1756). Octane Fitness in turn held that, in
determining whether to award attorney’s fees under
§ 285, a district court should “consider[] the totality of the
circumstances.” Octane Fitness, 134 S. Ct. at 1756. In
that connection Octane Fitness relied on “the comparable
context of the Copyright Act,” id., noting that “[i]n Fogerty
v. Fantasy, Inc., for example, [the Court] explained that in
determining whether to award fees under a similar provision
in the Copyright Act, district courts could consider a
‘nonexclusive’ list of ‘factors,’ including ‘frivolousness,
motivation, objective unreasonableness (both in the factual
and legal components of the case) and the need in particular
circumstances to advance considerations of compensation
and deterrence,’” id. at 1756 n.6 (emphasis added and
internal citation omitted). Thus, objective reasonableness
is one of the relevant factors.

As to the WesternGeco case:

Here, in granting ION’s motion for JMOL of no willful
infringement, the district court found that WesternGeco
had not proved that ION’s defenses to infringement were
objectively unreasonable and consequently concluded that
the first, objective prong of the Seagate test had not been
met. WesternGeco I, 953 F. Supp. 2d at 751. As Halo has
rejected the Seagate rule that a patentee’s failure to
establish the objective recklessness of the defendant’s
infringement precludes a finding of willfulness, we must
vacate the district court’s determination of no willful
infringement by ION

Judge Wallach dissented in part:

I join the majority’s opinion to the extent it applies
the Supreme Court’s decision in Halo on the issue of
enhanced damages for willful infringement under 35
U.S.C. § 284 (2012). See Halo Elecs. Inc. v. Pulse Elecs.,
Inc., 136 S. Ct. 1923 (2016). However, for the reasons
articulated in my original dissent, see WesternGeco L.L.C.
v. ION Geophysical Corp. (WesternGeco II), 791 F.3d 1340,
1354–64 (Fed. Cir. 2015) (Wallach, J., dissenting-in-part),
I dissent-in-part from today’s panel opinion, which
reinstates our earlier opinion “in all other respects.” Maj.
Op. at 2.

The majority misunderstands the import of its prior
holding, stating that my original dissent-in-part was from
the panel’s “holding that WesternGeco was not entitled to
lost profits resulting from foreign uses of its patented
invention.” Id. at 4. It is of course uncontroversial that
patentees are not entitled to lost profits resulting from
foreign uses of a patented invention. See Brown v.
Duchesne, 60 U.S. (19 How.) 183, 195–96 (1856) (“[T]he
use of [the invention] outside of the jurisdiction of the
United States is not an infringement of his rights, and he
has no claim to any compensation for the profit or
advantage the party may derive from it.”).

Judge Wallach stated:

The key issue left unaddressed in the now-reinstated
opinion’s analysis is: When a patent holder successfully
demonstrates both patent infringement under United
States law and foreign lost profits, what degree of
connection must exist between the two before the foreign
activity may be used to measure the plaintiff’s damages?

Footnote 1 observes:

According to the majority, “the issue of lost profits
is not properly before [this court],” Maj. Op. at 5 n.1,
because “[t]he scope of the Supreme Court’s [grant
certiorari, vacate, and remand (‘GVR’)] order was limited
to the second question [presented],” i.e., “‘[w]hether the
Court should hold this Petition for Halo and Stryker
[Corp. v. Zimmer, Inc., 136 S. Ct. 356 (2015) (mem.)],’” Id.
(quoting Petition for Writ of Certiorari, WesternGeco LLC
v. ION Geophysical Corp., No. 2015-1085, 2016 WL
792196, at *1 (U.S. Feb. 26, 2016)). However, the
majority reads the Supreme Court’s GVR Order too
narrowly. First, although the Supreme Court did not
grant certiorari on the question of foreign lost profits in
Halo, “a denial of certiorari has no precedential value.”
Cty. of Sonoma v. Isbell, 439 U.S. 996, 996 (1978).
Second, the Order does not limit this court’s review to a
specific issue or question presented, as many GVR orders
do. See, e.g., Herrmann v. Rogers, 358 U.S. 332, 332
(1959) (limiting the appellate court’s review on remand to
a finite issue of Idaho property law).

Judge Wallach mentions creative lawyers:

In reinstating its earlier decision, the majority
expresses no concern for the consequences that may result
from that decision. Creative lawyers, for example, may
seek to insulate their clients from infringement liability
by structuring market transactions so as to distance the
infringer from the foreign activities, seeking to mirror the
present case in which ION sells the device in question “to
its customers, who perform surveys” on the high seas “on
behalf of oil companies.” WesternGeco II, 791 F.3d at
1343. When done for liability-avoidance reasons, such a
change in form can increase costs without altering the
underlying economic substance of the transaction.

Of evidentiary standards, Judge Wallach wrote:

The importance of such complex factual issues to the
damages calculation explains why discretion is afforded to
district courts and juries in arriving at an appropriate
damages figure. See AstraZeneca AB v. Apotex Corp., 782
F.3d 1324, 1333 (Fed. Cir. 2015) (“The amount of damages
awarded to a patentee . . . is . . . reviewed for clear error,
while the methodology underlying the court’s damages
computation is reviewed for abuse of discretion.”
(emphases added)); Lucent Techs., Inc. v. Gateway, Inc.,
580 F.3d 1301, 1310 (Fed. Cir. 2009) (“We review the
jury’s determination of the amount of damages, an issue
of fact, for substantial evidence.” (emphasis added)). An
unduly rigid rule barring the district court from
considering foreign lost profits even when those lost
profits bear a sufficient relationship to domestic
infringement improperly cabins this discretion,
encourages market inefficiency, and threatens to deprive
plaintiffs of deserved compensation in appropriate cases.
Accordingly, I again respectfully dissent-in-part.


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