Damages for Willful Patent Infringement

If a patentee prevails in a suit for infringement, he or she will be entitled to damages in an amount that is deemed adequate to compensate him or her for the infringement but in no event less than a reasonable royalty for the use of the invention by the infringer, together with interest and costs as fixed by the court. 35 U.S.C.A. § 284.  It should be noted, however, that monetary damages for infringement cannot be recovered unless and until the infringer has been put on notice about the infringement and notice may be provided by actually notifying the infringer, filing an action for infringement, or marking the product (or its packaging where marking the product is impractical) with the word “patent” or the abbreviation “pat.,” together with the patent number. 35 U.S.C.A. § 287(a). The concept of “marking” does not apply to methods since there is generally nothing that can be marked. American Medical Systems, Inc. v. Medical Engineering Corp., 6 F.3d 1523, 1538, 28 U.S.P.Q.2d 1321 (Fed. Cir. 1993) (note that products can often be claimed as methods).  Software can be marked in the software code and accompanying documentation, and websites are “tangible items” that also can, and therefore must, be marked to provide the notice required by the marking statute.  Soverain Software LLC v. Amazon.com, Inc., 383 F. Supp. 2d 904, 79 U.S.P.Q.2d 1208 (E.D. Tex. 2005). Any person is allowed to assert an action for “false marking,” including falsely marking or indicating in advertising in connection with any article that a patent application is pending; however, a finding of liability requires a purpose of deceiving the public. A fine of not more than $500 is provided for “every such offense.” 35 U.S.C.A. § 292.

The measure of damages in an infringement action will be determined with reference to the lost profits of the patentee. Lost profits in an infringement action may take three different forms: lost profits from potential sales which were lost to actual sales made by the infringer; lost profits from price reductions which the patentee was forced to make in response to competition from the infringer; and lost profits from any projected lost sales, including the inability of the patentee to raise its prices due to competition from the infringer and a reduction in the rate of the patentee’s sales growth after the initial infringement. Lam Inc. v. Johns-Manville Corp., 718 F.2d 1056, 1065-68 (Fed. Cir. 1983). An award of projected lost profits is proper and not speculative in a two-supplier market if the patent owner can show its sales growth rate decreased during the infringement period and that it had a higher growth rate before and after the infringement period. Lam Inc. v. Johns-Manville, 718 F.2d at 1067.

Additionally, a finding of “willful infringement” allows award of both reasonable attorney’s fees and enhanced damages to the plaintiff. See e.g., Minks v. Polaris Industries, Inc., 546 F.3d 1364, 89 U.S.P.Q.2d 1102 (Fed. Cir. 2008). Actual damages may be assessed either by judge or jury. In either case, if infringement was willful, the judge may enhance the damages award to an amount up to three times the actual damages. See 35 U.S.C.A. § 284; Minks v. Polaris Industries, Inc., 546 F.3d 1364, 89 U.S.P.Q.2d 1102 (Fed. Cir. 2008).

In Liquid Dynamics Corp. v. Vaughan Co., Inc., 449 F.3d 1209, 79 U.S.P.Q.2d 1094, 70 Fed. R. Evid. Serv. 315 (Fed. Cir. 2006), the court set out the standard for determining willful patent infringement as follows:

“A finding of willful infringement is made after considering the totality of the circumstances … Courts consider several factors when determining whether an infringer has acted in bad faith and whether damages should be increased. They include: “(1) whether the infringer deliberately copies the ideas or designs of another; (2) whether the infringer, when he knew of the other’s patent protection, investigated the scope of the patent and formed a good-faith belief that it was invalid or that it was not infringed; … (3) the infringer’s behavior as a party to the litigation”; (4) “defendant’s size and financial condition”; (5) “closeness of the case”; (6) “duration of defendant’s misconduct”; (7) “remedial action by the defendant”; (8) “defendant’s motivation for harm”; (9) “whether defendant attempted to conceal its misconduct.” … Good faith may normally be shown by obtaining the advice of legal counsel as to infringement or patent validity. … If counsel’s opinion is found to be incompetent, however, a fact finder may discount its usefulness in determining a party’s good faith. [Citations omitted by author.]”

On August 20, 2007, in a unanimous en banc opinion In re Seagate Technology, LLC, 497 F.3d 1360, 83 U.S.P.Q.2d 1865 (Fed. Cir. 2007), the Court of Appeals for the Federal Circuit overruled its 1983 decision in Underwater Devices Inc. v. Morrison-Knudsen Co., Inc., 717 F.2d 1380, 219 U.S.P.Q. 569 (Fed. Cir. 1983) (overruled by, In re Seagate Technology, LLC, 497 F.3d 1360, 83 U.S.P.Q.2d 1865 (Fed. Cir. 2007)) and established a new standard of proof for demonstrating willful patent infringement. In reaching its decision, the Federal Circuit reviewed the “affirmative duty of due care” standard established in Underwater that required that once a party had notice of a patentee’s rights the party had an affirmative duty of care to avoid infringing the patent. In order to comply with this duty many companies sought and obtained an opinion of counsel that the patent was either invalid or not infringed. In the Seagate case, however, the Federal Circuit adopted a new rule that calls for a showing of “objective recklessness” in order to prove willful infringement. Specifically, the Federal Circuit stated that “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” and that “the patentee must also demonstrate that the objectively-defined risk was either known or so obvious that it should have been known to the accused infringer.”

At the same time, the Federal Circuit held that when an accused infringer offers an opinion of counsel as part of a defense against a claim of infringement, there would be a waiver of the attorney-client privilege and work product protection as to the counsel rendering the opinion but not as to the trial counsel of the accused counsel so long as trial counsel is different. Interestingly, the Federal Circuit noted that since it was abandoning the “affirmative duty of due care” an accused infringer no longer had an affirmative obligation to obtain an opinion of counsel regarding the infringement issue.

The U.S. Supreme Court disapproved the Federal Circuit’s teaching regarding enhanced damages awards for willful infringement in Halo Electronics, Inc. v. Pulse Electronics, Inc., 136 S. Ct. 1923, 118 U.S.P.Q.2d 1761 (2016). The Court explained that pursuant to In re Seagate Technology, LLC, 497 F.3d 1360, 83 U.S.P.Q.2d 1865 (Fed. Cir. 2007) (abrogated by, Halo Electronics, Inc. v. Pulse Electronics, Inc., 136 S. Ct. 1923, 118 U.S.P.Q.2d 1761 (2016)) (en banc), “a patent owner must first show by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent…. Second, the patentee must demonstrate, again by clear and convincing evidence, that the risk of infringement was either known or so obvious that it should have been known to the accused infringer.” Halo, 2016 WL 3221515. The Court explained that the Federal Circuit’s structured formula imposed a rigidity Congress had not chosen. Additionally, the statute did not specify the requirement of proof by clear and convincing evidence. Therefore, the Federal Circuit’s formula prevented trial courts from enhancing damages in some of the most egregious cases. The U.S. Supreme Court instructed that enhanced damages were to be granted on facts shown by a preponderance of the evidence pursuant to the trial courts’ discretion. Trial courts must explain their reasoning, but that was to be reviewed for an abuse of discretion.

For further discussion, see Patents (§§196.1 et seq.) in Business Transactions Solution on WESTLAW.

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