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.
- 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.
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.