Pirates Among Us? How Have Courts Treated Willful Infringers in the Year Following Halo v. Pulse?

 

As the Supreme Court’s Halo decision[1] recently celebrated its first anniversary, we take a look to see whether the lower courts have effectively rooted out the “wanton and malicious pirates” about whom the unanimous High Court was so gravely concerned. Have we found and singled out our swash-buckling ne’er-do-wells for public shaming, or have we discovered that the label, if defined by the reduced willfulness standard set out in Halo, might suggest that even some of the best-intentioned among us might be keeping parrots in their desk drawers and their closets well-stocked with puffy shirts? And importantly, what can we do to trade those bandannas for halos in the eyes of the court?

Recap

In Halo v. Pulse,[2] the Supreme Court made it easier for a patentee to obtain enhanced damages from a willful infringer under 35 U.S.C. § 284. The Court rejected a part of the previous requirement, under Seagate,[3] in which the patentee had to show that the infringer acted “objectively recklessly.” It also lowered the burden of proof from “clear and convincing” to “preponderance of the evidence.” In practice, the old standard allowed even willful infringers to escape liability for enhanced damages if they could come up with a reasonable non-infringement position even as late as during litigation. The Court felt that this standard was too rigorous. It ratcheted back the necessary showing to, essentially, “egregiousness,” which is centered on the subjective knowledge, intent, and behavior of the infringer.

To that end, courts will consider the nine so-called Read factors[4] in considering whether to award enhanced damages. In terms of guiding behavior outside the context of a specific dispute or litigation, three of these factors are most salient here:

  • Read Factor #1: Whether the infringer deliberately copied the patentee’s ideas or design.
  • Read Factor #2: Whether the infringer, upon knowing of the patent, investigated the scope of the patent and formed a good faith belief that it was invalid or that it was not infringed.
  • Read Factor #7: Remedial action taken by the infringer.

Enhanced Damages After Halo

If one pattern clearly emerges, it is that courts disfavor infringers who “know” about a patent but do not conduct an analysis of the scope of its claims (Read factor #2). Mere knowledge of a patent is generally not sufficient in itself to find willfulness, but knowledge in combination with copying and malicious intent, with no investigation, has proven extremely dangerous.

In Dominion v. Alstom, a Pennsylvania district court found that seven of the nine Read factors weighed in favor of enhanced damages against the defendant.[5] The court doubled the reasonable royalty findings to $972,000. The court found evidence of copying over a long period of time and took particular issue with the fact that “Alstom’s belief it did not infringe . . . is based entirely on the opinion of people without expertise in reading patent claims. On balance, it is not a good faith belief in non-infringement.”[6] The court noted that Halo played a role here and may have ultimately led to Alstom’s downfall. During the course of infringement, Alstom was operating in a Seagate world where an infringer can avoid enhanced damages if they can “muster a reasonable (even though unsuccessful) defense at the infringement trial.” But the Halo ruling did away with that post hoc safe harbor and essentially requires a good faith belief of non-infringement during the actual period of infringement.

In Imperium IP Holdings v. Samsung, an Eastern District of Texas court tripled jury verdict damages to nearly $21 million due to willfulness, the maximum enhancement allowed. The crux of the decision was that, “despite knowing of Plaintiff’s patents since at least April 2011, Defendants never undertook any serious investigation to form a good-faith belief as to non-infringement or invalidity.”[7] In deciding Samsung’s JMOL motion, the court reiterated that “evidence offered at trial established that Defendants had pre-suit knowledge of the patents-in-suit and took no steps to avoid infringement after becoming aware of the patents.”[8]

SRI International v. Cisco Systems also involved large damages numbers.[9] There, the Delaware trial court doubled the jury’s damages verdict to award more than $46 million to the plaintiff. Again, the court was swayed by a finding that the defendant did not perform a sufficient analysis of known patents, noting that evidence showed “that key Cisco employees did not read the patents-in-suit until their depositions.” The fact that Cisco knew about the asserted patents but did not investigate the technical aspects relating to infringement led to more than $23 million in additional damages.

How have defendants avoided enhanced damages?

Here is where the contrast becomes sharp. Even in cases where the Read factors might suggest some troublesome behavior, like knowing and intentional copying, defendants were spared enhanced damages because they made a reasonable investigation at the time of infringement.

In Greatbatch Ltd. v. AVX Corp.,[10] a Delaware district court found no willfulness in relation to three patents infringed by AVX. Even though AVX knew about all three patents at the time of the culpable activity, the court held that the conduct was not egregious or wanton because AVX performed a reasonable investigation at the time. The court distinguished a Federal Circuit case in which enhanced damages were awarded by noting that “here, by contrast, AVX sought and obtained invalidity and non-infringement opinions of counsel before litigation and developed designs and processes to avoid infringement” (court’s emphasis).[11] AVX relied upon opinions of counsel with respect to two of the three asserted patents, and “made significant efforts to avoid infringement of the [third] patent” (i.e., design around) according to the court.

In another remarkable case, Sociedad Espanola de Electromedicina y Calidad v. Blue Ridge X-Ray Co.,[12] the jury explicitly found that the defendants “knowingly and intentionally copied Sedecal’s transformer,” and the court upheld a finding of willful infringement.[13] However, the trial court has discretion to award enhanced damages even when infringement conduct is egregious and willful. Using this discretion, the court appreciated that the defendants “conducted a reasonable investigation of Sedecal’s patent claims and made a good faith determination that the patent was not infringed by their activities and that the patent was likely invalid,” and did not enhance damages. In other words, the defendants here blatantly copied the plaintiff’s product but escaped increased willfulness liability because they made the pre-suit effort to formulate reasonable (though ultimately incorrect) non-infringement positions. In this case, the pre-litigation investigation was conducted by a head engineer.

Similarly, in Koninklijke Philips v. Zoll Medical,[14] a plaintiff’s request for enhanced willfulness damages was rejected on summary judgment because the defendant had evaluated the asserted patents before the lawsuit and established a reasonable non-infringement position. After a portion of the case was appealed, the court quoted the Federal Circuit’s binding finding “that [although] Zoll’s claim construction argument against the jury’s direct infringement verdict . . . was incorrect, [its] argument was based on a reasonable interpretation of the claims in light of the specification and the prosecution history. . . . [T]his belief in non-infringement was reasonable . . . .”

Conclusion

An important practical result here is that Halo has effectively shifted the point in time at which an accused infringer should establish reasonable non-infringement or invalidity positions. We can no longer rely upon arguments that were first conjured up after being sued. By and large, future patent defendants stand a good chance of avoiding enhanced damages if they have a process in place to competently evaluate asserted patents at an early stage. They should have systems to collect relevant information such as analysis, documents, technical information, and relevant discussions in order to bolster a good faith belief of non-infringement or invalidity. That, or else they may find themselves walking the plank.


[1]Halo Elecs., Inc. v. Pulse Elecs., Inc., 136 S.Ct. 1923 (2016).

[2] Id.

[3] In re Seagate Technology, LLC, 497 F.3d 1360 (2007).

[4] The Read factors include: (1) whether the infringer deliberately copied the patentee’s ideas or design; (2) whether the infringer, upon knowing of the patent, 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 litigation behavior; (4) the infringer’s size and financial condition; (5) the closeness of the case; (6) the duration of the infringer’s misconduct; (7) remedial action taken by the infringer; (8) the infringer’s motivation for harm; and (9) whether the infringer attempted to conceal its misconduct. See Read Corp. v. Portec, Inc., 970 F.2d 816, 826-27 (Fed. Cir. 1992).

[5] Dominion Res. Inc. v. Alstom Grid, Inc., Civil Action No. 15-224 (E.D. Pa. Oct. 3, 2016).

[6] Id. at *52-70.

[7] Imperium IP Holdings (Cayman), Ltd. v. Samsung Elecs. Co., Civil Action No. 4:14-CV-00371, at *12 (E.D. Tex. Aug. 24, 2016).

[8] Id. at *33.

[9] Sri Int’l, Inc. v. Cisco Sys., Inc., Civil Action No. 13-1534-SLR (D. Del. May. 25, 2017).

[10] Greatbatch Ltd. v. AVX Corp., Civil Action No. 13-723-LPS (D. Del. Dec. 13, 2016).

[11] Id. at *5 (distinguishing WBIP, LLC v. Kohler Co., 829 F.3d 1317, 1340-41 (Fed. Cir. 2016) (“as the Supreme Court explained in Halo, timing does matter. Kohler cannot insulate itself from liability for enhanced damages by creating an (ultimately unsuccessful) invalidity defense for trial after engaging in the culpable conduct of copying, or ‘plundering,’ WBIP’s patented technology prior to litigation.”)).

[12] Sociedad Espanola de Electromedicina y Calidad, S.A. v. Blue Ridge X-Ray Co, No. 1:10-cv-00159-MR, at *19-23 (W.D.N.C. Dec. 28, 2016).

[13] Id.

[14] Koninklijke Philips N.V. v. Zoll Med. Corp., Civil Action No. 10-11041-NMG (D. Mass. Jun. 26, 2017).

Three Keys to Effective Freedom-to-Operate Management

Freedom-to-operate is a murky world where the quality of the investigation greatly depends on the skills and resourcefulness of the lawyer or analyst doing the work. Best practices and standards of care are not very well defined and, even when systems exist, they are rarely adaptable to changing needs.

It is our mission at ClearstoneIP to gather, implement, and standardize best practices in FTO and patent risk management. This article is a step in that process and sets forth three basic foundational concepts for effective FTO management.

  1. Well-defined product parameters. For an effective FTO investigation, it is important to define the product or project parameters at the outset. FTO is necessarily carried out with regard to a specific subject. Thus, the analyst should create or ascertain a detailed definition of the product, process, system, or future concept that is being cleared  in order to memorialize the current state of the product. This contrasts with the sort of “invention harvesting” that might be done as part of growing a patent portfolio, where the goal is to identify broad inventive concepts and build on them in creative, but not necessarily actualized, ways. In FTO, the more that is known about the actual product intended to be sold, the more effective the investigation will be. Also, as a product evolves over time, past FTO analysis on that product may change radically. We should document parameters and features at a specific point in time in order to establish a clear historical record.
  2. Patent analysis must focus on the claims. More critically than perhaps any other activity in patent law, an FTO investigation must be centered on patent claims. Prior art patents might include any number of embodiments, alternatives, and everything else under the sun in its specification, but the claims define the exclusive rights. If we can point to a single element of a claim that is not present in the product being investigated, then the claim is cleared and we can move on. There may be some exceptions to this when, for example, we’d want to monitor a cleared patent and its family when the subject matter is particularly close. But the point remains that infringement analysis is all about the claims. Losing sight of this, and using systems that make it difficult to access and act upon claims, can result in inefficiency and wasted time.
  3. A mechanism to tie products to claim determinations. Building on the first two keys, it follows that the investigation would fall apart if we don’t use an effective mechanism to track, memorialize, and manipulate our work product. If we only had one simple product that never changed, this part wouldn’t be too difficult. But as products become more complex, upgrades and modifications are implemented, and product lines grow larger, our need for a robust system to handle the different permutations of product-analysis combinations becomes critical.

There is, of course, much more to the process, such as how to locate relevant patents, how to properly interpret patent claims, when to dismiss patents or merely flag them for monitoring, how to strategically assess relative risk among critical sets of patents, and more. We will touch on specific nuances and more in-depth analysis techniques in future articles.

ClearstoneIP Announces New FTO Platform

ClearstoneIP is proud to announce the beta release of its next generation freedom-to-operate management platform, Clearstone FTO. With guidance and feedback from IP industry leaders, we’ve infused this new web-based application with the ideal combination of best practices, workflows, and collaboration features to bring much-needed efficiency to a critical process.

Some of the core features of the platform include:

  • Product-focused organization of FTO reviews – all reviews for a product easily locatable in one place.
  • Claim-by-claim FTO determinations with integrated patent review interface.
  • Team collaboration – messaging, workflow management, asset sharing, all easily handled between team members.
  • Patent history review – easily see what decisions were made on a patent, in any prior review and any other product.
  • Customizable reporting – user-configurable to report the most essential information.

With state-of-the-art security features, Clearstone FTO makes it simple and safe to access vital information from anywhere. It’s an intuitive and powerful approach to manage and interact with information that was previously relegated to hundreds of spreadsheets scattered throughout organizations.

Click here to learn more.

Accuracy and Speed in Patent Infringement Searching Need Not Be “One or the Other”

“Faster and better results at lower cost!”

A claim so common it blends in with the hum of office chatter. We’d like to believe that patent searches could be turned around within a day or two, but it typically takes much longer.  We’d like to believe that the work returned to us includes everything we need to know.  But, at some level, we sense there are shortcomings.

This is particularly true in the case of freedom-to-operate investigations (FTO).  Searchers often fail to consider certain product features.  Claims are not always afforded their full scope.  And sometimes key patents are just plain missed.  Despite relying on highly competent and experienced analysts, “faster, better and cheaper” just does not seem a reality.

But a departure from conventional methods can overcome the trade-off between speed and accuracy. We can achieve both.  Clearstone Elements is that departure.

Why is there a speed/accuracy trade-off when using conventional search methods?

Imagine for a moment that you have been asked to carry out an FTO analysis.  Let’s also say that, as is often the case, you must complete this analysis under budget, say $3,500.  Assume a billing rate of $75/hour (you have overhead and a boss) and that you’re able to review a patent every 6 minutes.  That means you only have budget to manually review about 470 patents.

This might seem like a reasonably-sized lot.  However, experienced FTO searchers would likely feel that it’s not nearly enough to guarantee a high level of recall (i.e., the ratio of the number of relevant patents retrieved to the total number of relevant patents), say of about 95%.  This will of course vary case-by-case.  But, for many competitive industries, you’d need a starting set in the range of about 2,500-5,000 patents to achieve a sufficiently high recall.

Why must so many patents be manually reviewed in FTO?

Certainly, products don’t typically infringe thousands of patents.  Else, industries would come to a grinding halt.  Indeed, out of a robust set of patents to be reviewed, a searcher is likely to only uncover a handful of relevant ones.

The short answer to the above question is that it’s very difficult for a searcher to anticipate whether a patent is relevant without actually reading and understanding its legal claims.  Products may be described in countless ways, many of which will go unnoticed to a searcher.  Claims of a patent may be written in much broader terms than used to describe the specific embodiments of the patent’s technical disclosure.  For these and other reasons (see here for more information), conventional search tools are imprecise blunt instruments in the FTO context.  Thus, a broad net must be cast.

It should now be obvious why inaccuracy seeps in.

A searcher will typically approach a search with the best of intentions, considering every angle of attack.  Patent classes will be reviewed, important ones selected and queried.  Key assignees will be queried.  Citation, clustering, and family analysis will be conducted on patents flagged as relevant.  Natural language queries, perhaps using semantic analysis, will also be applied relating to key product features.

These tools are all great at robustly representing technology areas.  However, most likely, this aggregation will far exceed, in number, what could be reviewed under budget in an FTO context.  Accordingly, the searcher will necessarily have to take additional steps to downsize this set.  And this is where it goes awry.  The searcher may do as follows:

  1. limit all results by requiring the inclusion of certain key terms;
  2. exclude unknown or small-scale assignees;
  3. exclude patents based on Title, Abstract and/or Drawings; and/or
  4. limit patents by relevancy score cut-off (if relevancy scores are provided).

These processes are generally arbitrary in nature and bare little correlation with relevance.  They are simply not sound bases for reducing a large aggregation of patents in an FTO search.  Inevitably, they cause omission of critical patents.

How does Clearstone Elements overcome this dilemma?

Clearstone Elements is a fundamentally unique search platform.  In Clearstone Elements, associations between patents and technical attributes are memorialized, forming specialized data files called workspaces.  Notably, these technical attributes are associated with patents on the basis of their claims and using human analysis.  These attributes (or elements) are then presented to a searcher as an interactive taxonomy.  A searcher may than effortlessly eliminate swaths of patents from a robust patent set by selecting elements not embodied by the product undergoing search (more on this process here).  In contrast to the arbitrary procedures discussed above, the Clearstone process is objective, reliable, and deliberate.

In fact, current users of Clearstone Elements are typically able to reduce a robust patent set by 90-95%.  This means that, once a workspace is put in place, provided the same constraints as in the above example, a searcher using Clearstone Elements is actually able to objectively consider upwards of 4,700-9,400 patents.  We are essentially empowering searchers to cast significantly broader nets with significantly reduced manual effort.  By replacing the conventional tools that are blunt and arbitrary with Clearstone Element’s logic-based reduction process, “faster, cheaper and more accurate” is no longer an empty promise.