Your Business May Be Infringing on a Patent. What Should You Do?

What should your company do if it becomes aware of a patent having claims that appear to be relevant to one of its products or receives a cease and desist letter charging infringement?

Enhanced Damage Awards and Awards of Attorney’s Fees in Patent Cases

When a suit for patent infringement is filed, in the event of an adverse judgment, an infringer may be subject to permanent injunction that precludes further infringement and an order to pay the patent owner money damages to compensate for the infringement.

In certain circumstances, the courts have the discretion to increase the amount of the damage award. Under the patent laws “the court may increase the damages up to three times the amount found or assessed.” The damages are enhanced in circumstances where the infringement is said to be “willful.” Additionally, “[t]he court in exceptional cases may award reasonable attorney’s fees to the prevailing party.” A finding that the infringement is willful and that the case is exceptional often go hand in hand. These provisions pose substantial risks in the event a court finds that the accused party infringes the asserted patent(s) and that the infringement was willful or that the case was exceptional since the multiplication of the damages and the patent owner’s attorney fees can involve large sums.

The Evolution of the Law of Willful Infringement

A historical perspective is useful in understanding how the courts have dealt with claims that an infringement was willful.

In 1983, the U.S. Court of Appeals for the Federal Circuit (CAFC) in Underwater Devices v. Morrison-Knudsen Co., held that where “a potential infringer has actual notice of another’s patent rights, he has an affirmative duty to exercise due care to determine whether or not he is infringing. . . . Such an affirmative duty includes, inter alia, the duty to seek and obtain competent legal advice from counsel before the initiation of possible infringing activity.” The 1983 decision of the CAFC was in response to “widespread disregard of patent rights” that was perceived to be “undermining the national innovation incentive.”

The Underwater Devices Court stated that where a defendant, in good faith, relied on a competent opinion of counsel that concluded there was no infringement or that the relevant patent claims were invalid, the opinion would serve as a defense to a charge of willful infringement. Thus, as of the 1983 timeframe, in response to a cease and desist letter charging infringement, the accused infringer was well advised to obtain an opinion of counsel that concluded that there was no infringement or that the asserted claims were invalid if counsel could provide such an opinion. To satisfy the requirement that the opinion be viewed as a “competent opinion of counsel” such opinions usually would involve a thorough analysis of the claims, the patent specification, the Patent Office file history and any relevant prior art.

Competent opinions of counsel routinely served as a defense to charges that an infringement was willful and that a case was exceptional so as to justify increased damages and an award of attorney fees.

The CAFC revisited the law of willful infringement in 2007 in In re Seagate Technology, LLC. In the Seagate case, the Court held that “to establish willful infringement, 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.” The Seagate Court thus equated “willfulness” to reckless behavior; i.e. a reckless disregard to the patent owner’s rights, and expressly abandoned the duty of due care requirement along with the associated affirmative obligation to obtain an opinion of counsel enunciated in the Underwater Devices case. As a consequence of the Seagate decision, it became more difficult for patent owners to obtain enhanced damage awards and parties charged with infringement were more reluctant to seek opinions of counsel and incur the costs associated therewith. Instead, when charged with infringement, parties often asserted that their conduct was not objectively reckless based on internally generated theories or theories developed during the litigation. With the Seagate decision, the pendulum had swung in favor of parties accused of infringement and enhanced damage awards were more difficult to obtain.

In 2016, the Supreme Court, in Halo Electronics, Inc. v. Pulse Electronics, Inc., considered the requirements for a finding of willful infringement. As a result of this decision, the pendulum once again swung in favor of the patent owner. The Halo Court stated that the Seagate test reflected “a sound recognition that enhanced damages are generally appropriate ... only in egregious cases” but that the Seagate test was unduly rigid and “impermissibly encumbers” the discretion granted to the district courts. The Supreme Court in Halo equated willfulness with egregious conduct without setting forth a more explicit standard and explained that “[a] patent infringer's subjective willfulness, whether intentional or knowing, may warrant enhanced damages, without regard to whether his infringement was objectively reckless.” The Halo Court also rejected the requirement that willfulness be proved by clear and convincing evidence as had been the standard of proof applied for decades and held that “the statute at issue supplied no basis for imposing a heightened standard.” Thus, post Halo, patent owners may satisfy their burden of proof for a finding of willful infringement by showing egregious behavior by the infringer with proof by a preponderance of the evidence rather than by the heightened clear and convincing evidence standard. Left open for interpretation was what actually constitutes egregious behavior. Given this context, following the Halo decision, opinions of counsel appear once again to take on greater importance as is it less likely that an accused infringer, having sought and obtained a competent opinion of counsel as to non-infringement or invalidity, would be found to have engaged in egregious behavior so as to justify enhanced damages.

Conclusion

As a result of the Halo decision, in response to receipt of an assertion that a product infringes another’s patent rights, or upon recognition that the claims of an issued patent could potentially be relevant to a company’s business, the matter be referred to patent counsel to assess the patent claims with respect to their applicability and/or validity. Patent counsel may then consider whether, given the circumstances, an opinion of counsel can or should be provided. The costs associated with the preparation of such an opinion are typically far less than the additional amount payable to a patent owner should enhanced damages or attorney fees be awarded following an adverse judgment.