The Federal Circuit’s Give-and-Take in Cisco’s Willful Infringement

The first time at the Court of Appeals for Federal Circuit, Cisco was able to slice its damages penalty in half by eliminating the extra $23.6 million awarded by the trial court for enhanced damages due to willful infringement. On its second visit to the court of appeals, it was not so lucky.

In SRI International v. Cisco Systems (Fed. Cir. Sept. 28, 2021), once again the main and critical question that dominated the willfulness inquiry was whether Cisco had a reasonable belief that it did not infringe the patents in suit or that the patents were invalid. In its defense, Cisco presented an invalidity argument based on a prior art reference that was twice considered and twice rejected by the Patent Office. It also presented a non-infringement argument that was inconsistent with the court’s claim construction as well as one that was directly contradicted by its own evidence. The appeals court found these arguments unreasonable, held that Cisco’s infringement was willful as a result, and reinstated the original willfulness finding as well as the original damages enhancement.

What changed since the first appeal?

The relevant facts were essentially the same, but the Federal Circuit acknowledged that the standard it applied in the first appeal was erroneous and, importantly (though relegated to a footnote), the original jury did in fact consider behavior during the correct time period as opposed to what the court understood to be the case at the time.

Indeed, trial courts have been confused since the issuance of the first SRI v. Cisco decision as to the proper standard to apply to the threshold question of willfulness before looking at enhanced damages. Was it the higher “wanton, malicious, and bad-faith” behavior that was stated in the first SRI case, or was it the “deliberate or intentional,” “knew or should have known of the risk” standard that was set forth in Eko Brands v. Adrian Rivera Maynez Enters. and Arctic Cat v. Bombardier and others? See, for example, the trial court decisions Bos. Scientific Corp. v. Nevro Corp., 415 F.Supp.3d 482 (D. Del. 2019) and VLSI Tech. v. Intel Corp. (D. Del. 2020), both of which include the explanation: “All three of these [Federal Circuit] cases [following the Arctic Cat standard] were decided before SRI, and, in my view, cannot be reconciled with Halo. I will therefore follow SRI.” See also Schwendimann v. Stahls’, Inc., 510 F.Supp.3d 503, 512-513 (E.D. Mich. 2021) (“a debate has emerged at the district court level concerning whether a patentee, in order for its complaint to survive a motion to dismiss willful infringement claims, must allege ‘egregious infringement behavior.'”).

So the Federal Circuit in this second SRI case made clear that, as far as the initial question of willfulness, the standard is as set forth in Eko Brands and Arctic Cat, which is “no more than deliberate or intentional infringement,” (Eko Brands, at 1378) and which can be established by showing that the risk of infringement “was either known or so obvious that it should have been known” (Arctic Cat, at 1371).

Takeaways

  • This case clarifies that there is no heightened standard for willfulness. Only a showing of deliberate or intentional infringement is required. Eko Brands v. ARM.
  • Deliberateness or intentionality can be met when the defendant knew or should have known of the risk. Arctic Cat v. Bombardier.
  • When considering the defendant’s state of mind, the factor that typically carries the most weight is the second Read factor: whether the infringer, when it knew of the other’s patent protection, investigated the scope of the patent and formed a good-faith belief that the patent was invalid or not infringed.
  • For manufacturers and product companies, this case reinforces the need to establish noninfringement and invalidity positions as early as possible.