The Restoration of (Bad) Faith: The Proper Standard for a Factual Finding of Willful Infringement

Enhanced Damages Under the Patent Act

The Patent Act provides that once infringement has been established, a district court may “increase the damages up to three times the amount found or assessed.” 35 U.S.C. § 284. The United States Court of Appeals for the Federal Circuit has long held that there must be a showing of willful infringement in order for a court to enhance damages pursuant to section 284.¹  A finding of willful infringement also may serve as a basis for the district court to declare a case exceptional and award attorneys’ fees against an infringer.²  The term “willful infringement,” however, has not had a consistent definition over the years.³

Background

In 2007, the Federal Circuit in In re Seagate Tech., LLC, set forth a two-part test for establishing willful infringement.⁴  First, “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.”⁵  And second, “[i]f this threshold objective standard is satisfied, the patentee must also demonstrate that this objectively defined risk (determined by the record developed in the infringement proceeding) was either known or so obvious that it should have been known to the accused infringer.”⁶  Both steps had to be satisfied in order for the district court to consider whether to exercise its discretion to award enhanced damages “up to three times the amount found or assessed” under 35 U.S.C. § 284.

Nine years after Seagate, in Halo Electronics, Inc. v. Pulse Electronics, Inc., the Supreme Court of the United States ruled that Seagate’s two-part test was “unduly rigid, and [] impermissibly encumber[ed] the statutory grant of discretion to district courts.”⁷  The Supreme Court was troubled that requiring a finding of “objective recklessness” as a prerequisite to enhancing damages “excludes from discretionary punishment many of the most culpable offenders, such as the ‘wanton and malicious pirate’ who intentionally infringes another’s patent” and would permit such offender to “escape any comeuppance under [section] 284 solely on the strength of his attorney’s ingenuity.”⁸  The Court held that “the subjective willfulness of a patent infringer, intentional or knowing, may warrant enhanced damages, without regard to whether his infringement was objectively reckless.”⁹  The Court explained that the “sort of conduct warranting enhanced damages has been variously described in our cases as willful, wanton, malicious, bad-faith, deliberate, consciously wrongful, flagrant, or—indeed—characteristic of a pirate.”¹⁰

The Supreme Court’s Halo decision has “had a profound impact on how district courts have assessed willful infringement claims.”¹¹  Following Halo, most courts recognized that the question of willful infringement was a fact question that “should be resolved by the jury” because “there is a right to a jury trial on the willfulness question.”¹²  Even so, “courts have often disagreed about what lessons are properly drawn from Halo.”¹³

Conflicting Willfulness Decisions in the Wake of Halo

The disagreement about the proper willfulness standard in the wake of Halo is illustrated by a review of post-Halo decisions from the United States District Court for the District of Delaware, where approximately one in four U.S. patent cases are filed. In one decision issued earlier this year, the court in Deere & Company v. AGCO Corp. held that “proof that a defendant ‘should have known that its actions constituted an unjustifiably high risk of infringement’ was sufficient to establish willfulness under Halo.”¹⁴  The court relied on post-Halo Federal Circuit decisions, particularly Arctic Cat, that “make clear that a plaintiff can establish willfulness for § 284 purposes with proof that ‘the defendant acted despite a risk of infringement that was either known or so obvious that it should have been known.’”¹⁵  The court determined that to make a claim for enhanced damages based on willful misconduct, a plaintiff need only establish “that the defendant acted despite a risk of infringement that was either known or so obvious that it should have been known.”¹⁶  With reservations, the district court stated that a factual finding of willfulness is a “low threshold” that “arguably conflicts with the Supreme Court’s Global Tech and Halo decisions,” reserving to the court the ultimate decision as to “whether it’s an exception[al] or an egregious case that meets the Supreme Court’s rulings as to what is necessary to establish an enhanced damages award” pursuant to section 284.¹⁷  Soon after, this standard began finding its way into jury instructions for willful infringement despite the district court’s concerns.¹⁸

The Restoration

On March 20, 2019, the Federal Circuit provided guidance in SRI Int’l, Inc. v. Cisco Systems, Inc., a case that originated from the District of Delaware.¹⁹  In SRI, the Federal Circuit vacated and remanded a denial of JMOL from a jury finding of willful infringement that was not supported by substantial evidence. The Federal Circuit concluded that “the record is insufficient to establish the jury’s finding that Cisco’s conduct rose to the level of wanton, malicious, and bad-faith behavior required for willful infringement,” the standard for which the district court “should bear in mind.”²⁰  Among other reasons, the Federal Circuit found that the rationale “that Cisco designed the products and services in an infringing manner and that Cisco instructed its customers to use the products and services in an infringing manner—is nothing more than proof that Cisco directly infringed and induced others to infringe that patent-in-suit.”²¹

Reviewing the SRI opinion, the district court revisited its prior analysis, stating:

[I]t’s clear from this decision that the Federal Circuit believes that a jury’s verdict for willfulness is only sustainable if the conduct in question rose to the level of wanton, malicious and bad faith behavior. And that is consistent with the Supreme Court’s case law in my opinion, so I am going…with SRI International as set[ting] forth…the proper standard for willfulness.²²

After SRI, district courts—led by the District of Delaware, guided by SRI and consistent with Supreme Court precedent—recalibrated the standard necessary for a jury in a patent case to find willful infringement as a factual matter. In a recent case, the court instructed the jury that “willful infringement is reserved for the most egregious behavior, such as where the infringement is malicious, deliberate, consciously wrongful, or done in bad faith.”²³  Other courts have followed.²⁴

Conclusion

The standard for a factual finding of willful infringement is not insubstantial. It requires more than just knowledge of the patent alleged to be infringed and recognition of a mere “risk of infringement.” This higher standard should properly protect many accused infringers from being adjudged willful infringers where infringement was not intentional—indeed, where the accused infringer did not willfully infringe. As a result, the likelihood of enhanced damages or attorneys’ fees being awarded against an infringer acting in good faith is significantly reduced. For example, common situations where an accused infringer knows of the patent, but obtains and relies on a competent opinion of counsel or attempts in good faith to design around the patent, should carry a minimized risk of a finding of willful infringement. Both examples—which should be encouraged by the patent system²⁵ —involve accused infringers that are both aware of the patent and implicitly recognized a “risk of infringement.” But merely recognizing a risk of infringement after learning of a patent should not by itself lead to a finding of willful infringement. The restoration of a higher standard of intentional—bad faith—infringement before a finding of willful infringement is a positive development for responsible companies accused of patent infringement.