A recent order from the Northern District of California provides patent practitioners interesting guidance regarding conduct during licensing discussions—and may be a cautionary tale to potential licensors engaged in efficient infringement. In Finjan, Inc. v. SonicWall, Inc., 5-17-cv-04467, the court denied the defendant SonicWall’s motion to dismiss the plaintiff Finjan, Inc.’s (“Finjan”) willfulness allegations. Finjan alleges both that SonicWall infringes ten of Finjan’s patents covering behavior-based and antimalware security, and also that SonicWall’s infringement was willful because it engaged in insincere licensing discussions in order to intentionally delay the infringement litigation.
Last month, following a jury verdict in federal district court in Delaware awarding Plaintiff Idenix Pharmaceuticals LLC $2.54 billion in damages—“the largest damages verdict ever returned in a patent [infringement] trial”—Chief Judge Leonard Stark denied Idenix’s motion for enhanced damages. Idenix Pharm. LLC v. Gilead Scis., Inc., No. 14-CV-00846, at *2, 15 (D. Del. Sept. 22, 2017). Chief Judge Stark determined that even though the jury concluded that Defendant Gilead Sciences, Inc. willfully infringed Idenix’s patent directed to novel treatments of the Hepatitis C Virus (“HCV”), the totality of the circumstances did not warrant the award of enhanced damages. He based the denial of the motion on the public health benefit of the accused products and on the amount of the jury award.
On Monday, October 19, 2015, the U.S. Supreme Court granted certiorari to hear two patent infringement cases on the issue of willfulness. The first case is Stryker Corp. v. Zimmer Inc. and the second one is Halo Elecs., Inc. v. Pulse Elecs., Inc.
The issue of willful patent infringement, which occurs when an infringer acts deliberately and intentionally with knowledge of the patent, is important because a finding of willfulness may lead to an enhanced award of damages. Under 35 U.S.C. § 284 court may award treble damages in a finding of willful infringement. In deciding whether infringement is willful, the Federal Circuit has established a two-part test that asks whether a patent infringer acted despite “an objectively high likelihood” of infringement while being “subjectively aware of that risk.” In re Seagate Tech. LLC, 497 F.3d 1360, 1371 (Fed. Cir. 2007) (en banc). The Supreme Court’s review of these two patent cases may lead to a change of the legal standard in reviewing willfulness, and if the standard is relaxed accused infringers may face the threat of treble damages for patent infringement more often.
The Stryker case involves portable pulsed lavage devices which deliver pressurized irrigation for cleaning wounds and tissue during orthopedic surgery. In 2010, Stryker asserted three patents against its major competitor Zimmer in the United States District for the Western District of Michigan. Zimmer was found to willfully infringe all three patents and the jury awarded $70 million in damages. The district court then entered a final judgment awarding treble damages for willful infringement for a final judgement of $210 million. Stryker Corp. v. Zimmer Inc., 2013 U.S. Dist. LEXIS 171817 (W.D. Mich.). The Federal Circuit reversed the judgment on willfulness in December 2014, finding that the non-infringement and invalidity defenses asserted by Zimmer were not “unreasonable” and thus that the “objective recklessness” prong of the Seagate’s two-part was not satisfied. Stryker Corp. v. Zimmer, Inc., 774 F.3d 1349 (Fed. Cir. 2014). In Octane Fitness, the Supreme Court held that judges can award attorney’s fees in a case that merely “stands out from others” and rejected the Federal Circuit’s rule that sanctions are warranted only when a case is “objectively baseless” and “brought in subjective bad faith.” Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749, 1756-57 (2014). Stryker petitioned the Supreme Court seeking review of the appropriateness of Federal Circuit’s two-part Seagate test in view of the Supreme Court’s decision in Octane Fitness, and the Supreme Court granted certiorari to review this question. Stryker Corp. v. Zimmer, Inc., 2015 U.S. LEXIS 6727 (U.S. Oct. 19, 2015).
The Halo case involves electronic components used in circuit boards. Halo owns three patents that cover surface mount electronic packages containing transformers for mounting on a printed circuit boards. Pulse designs, manufactures, and sells surface mount electronic packages overseas but its products are incorporated into downstream products of electronics manufacturers like Cisco which are then distributed throughout the world. Halo asserted patent infringement against Pulse in the United States District Court for the District of Nevada and prevailed in a jury trial with a $1.5 million award. Halo Elecs., Inc. v. Pulse Eng’g, Inc., 810 F. Supp. 2d 1173, 1205-08 (D. Nev. 2011). In response to Pulse’s post-trial motion, the district court found that Pulse’s infringement was not willful. Halo Elecs., Inc. v. Pulse Elecs., Inc., No. 2:07-CV-00331, 2013 WL 2319145, at *14–16 (D. Nev. May 28, 2013). On appeal, the Federal Circuit affirmed all of the district court’s holdings. On the willfulness issue, the Federal Circuit reasoned that the objective prong of the Seagate inquiry was not satisfied because Pulse raised a substantial question of the patents’ obviousness and the obviousness defense was not objectively unreasonable. Halo Elecs, Inc. v. Pulse Elecs, Inc., 769 F.3d 1371, 1382-83 (Fed. Cir. 2014). Halo petitioned the Supreme Court urging the Court to relax the “rigid” test on willfulness in view of the Court’s decision in Octane Fitness. The Supreme Court granted certiorari in part to review this question and consolidated it with the Stryker petition. Halo Elecs., Inc. v. Pulse Elecs., Inc., 2015 U.S. LEXIS 6634 (U.S. Oct. 19, 2015).
The issue of what standard should apply to willful infringement is hotly debated and a change in the law could have a large impact on accused infringers. We will continue to monitor the Supreme Court’s movement on these patent cases.