Deloitte Survey Highlights Value of Legal Tech for In-house Legal Departments

Deloitte recently published a survey of 300 in-house legal department executives in nine different countries about their transformations in making better use of advances in technology to maximize efficiency, reduce cost and free up lawyers’ time to work more closely with the organization as a trusted business partner.

Risk management functions lead the way in readiness and adoption, which aligns well with our mission at ClearstoneIP to bring efficiencies and insight in patent risk management (i.e., freedom-to-operate and patent clearance).

The entire survey is worth a read, but here are a few interesting snippets:

  • “Legal’s core missions of risk management and compliance involve a number of time consuming, repetitive tasks that leave little time to focus on innovation, strategy and value creation. These can often be alleviated through legal technology solutions that leverage process automation, artificial intelligence and advanced analytics.”
  • “Between 50-68% of respondents, depending on the sector, say automation and process design could help reduce costs significantly and create efficiencies.”
  • “As a whole, legal will become strategic, replacing rigid silos with more fluid structures so that in-house lawyers can transition to “business partnering,” which allows Legal to participate in the achievement of the organization’s objectives.”

ClearstoneIP to Attend Upcoming IP Law Events

ClearstoneIP will be attending two major IP community events this fall.
We’d love to meet you!

2018 IPO Annual Meeting, Chicago

First, it’s the 2018 IPO Annual Meeting in Chicago on September 23-25th. ClearstoneIP will be exhibiting as part of the IP Expo, showcasing our continually evolving cloud platform for managing the complexities of the patent clearance and freedom-to-operate process, Clearstone FTO.

Click here for program and registration information.

2018 AIPLA Annual Meeting, Washington DC

Then, we’ll be at the 2018 AIPLA Annual Meeting in Washington, DC on October 25-27th. ClearstoneIP’s CEO and Co-Founder, Gabe Sukman, will be speaking as part of a panel on the timely subject of:

Defending Against Willful Infringement Post-Halo

Learn what steps you can take, both pre-suit and during litigation, to minimize your risk of exposure to enhanced damages due to willful infringement.

Click here for program and registration information.

We hope to see you at these great events!

Willful Infringement Case Update – Eidos Display v. Chi Mei Innolux

Earlier this month, Judge Gilstrap of the Eastern District of Texas issued a post-trial decision penalizing a patent infringer for failing to form a good-faith non-infringement or invalidity position before the lawsuit. The court doubled the $4.1 million verdict for a total of $8.2 million in damages. Eidos Display, LLC v. Chi Mei Innolux Corp., 6:11-cv-00201 (E.D. Tex. Mar. 5, 2018).

This case arose in 2011 when Eidos Display sued a number of defendants alleging infringement of U.S. Patent No. 5,879,958, which related to a method for forming an electro-optical device. Chi Mei Innolux and Chi Mei Optoelectronics (collectively, “Innolux”) were the only defendants remaining when the case went to trial after all of the others settled out.

After trial in mid-2017, the jury returned a verdict finding that Innolux willfully infringed the ‘958 patent and awarded $4.1 million in damages.

Eidos moved for enhanced damages, alleging that Innolux’s conduct was “willful, wanton, malicious, bad-faith, deliberate, consciously wrongful, flagrant, or—indeed—characteristic of a pirate” per the standard set forth in the Supreme Court case Halo v. Pulse (see our earlier discussion of Halo here). As is typical in such cases, the court did not parse the meanings of those flowery words and instead walked through a measured analysis by considering the nine Read factors.

Judge Gilstrap found that five factors favored Eidos’ argument for enhancement, one factor favored Innolux, and three factors were neutral. With the weight of the factors on the plaintiff’s side, Judge Gilstrap opted to enhance the damages by 100%, to $8.2 million, which was short of the fully tripled amount allowed by statute.

Factors favoring enhanced damages:

  • Lack of Investigation or Good-Faith Belief of Non-Infringement/Invalidity (Read factor #2) – This factor weighed the heaviest against Innolux. Innolux’s predecessor (CMO) first learned about the ‘958 patent through one of its customers, Fujitsu, who received infringement claims from the patentholder and “repeatedly asked CMO to undertake a serious analysis.” The court found that no good faith pre-suit investigation occurred and that Innolux had not “formed, prior to this lawsuit, any reasonable non-infringement or invalidity positions.” As such, this factor favored enhancement.
  • Litigation Conduct (Read factor #3) – The court found that Innolux engaged in some degree of discovery misconduct relating to delays in producing documents, waiting until the last minute to resolve disputes, and other gamesmanship tactics. Though the behavior was not so severe as to warrant adverse jury instructions, the court found that it weighed in favor of enhancement.
  • Size and Financial Condition (Read factor #4) – This factor favored enhancement simply because “Innolux is a large company with billions in revenue.”
  • Duration of Misconduct (Read factor #6) – Innolux continued to infringe the ‘958 patent for at least 8 years prior to the filing of the lawsuit. While it attempted to point to Eidos’s delay in bringing suit to justify its behavior, that argument was not persuasive and the court held that “Innolux is responsible for its own actions, including failing to meaningfully investigate the ’958 patent while continuing to infringe it for several years. This conduct supports an enhancement in this case.”
  • Lack of Remedial Action (Read factor #7) – There was no real dispute that Innolux did not take any remedial action after learning of the ‘958 patent.

Factors against enhanced damages:

  • Closeness of the Case (Read factor #5) – The single factor found in Innolux’s favor was supported by the fact that Innolux had previously won summary judgment of invalidity due to indefiniteness, which decision was later reversed by the Federal Circuit on appeal.

Neutral factors:

  • Deliberate Copying (Read factor #1) – Eidos conceded that there was no evidence of affirmative copying.
  • Motivation for Harm (Read factor #8) – “[T]he record lacks evidence that Innolux gained some specific ‘competitive edge’ over LG or Eidos in the marketplace by infringing the ’958 Patent. The record also lacks any indication that Innolux carried on its infringing conduct to gain such an edge or to harm LG or Eidos.”
  • Attempts to Conceal Misconduct (Read factor #9) – To the extent that Innolux’s discovery abuses could be considered an attempt to conceal misconduct, they had already been considered with respect to factor #3. The court did not address any other arguments.

Conclusion

The takeaways from this case are in line with other post-Halo decisions. They stress the importance of conducting early patent investigations and establishing good faith non-infringement and invalidity positions:

  • Ignorance is not bliss when it comes to others’ patents.
  • A solid approach is to adopt a policy of prompt investigation, and to establish reasonable non-infringement or invalidity positions as soon as a relevant patent becomes known by anyone in the company.
  • Evidence demonstrating pre-suit non-infringement or invalidity positions would likely have saved this defendant $4.1 million, and may have led to design-arounds that could have avoided liability entirely.

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.

This article is made available for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand that there is no attorney client relationship between you and the author or ClearstoneIP. The blog site should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.


[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.