The Halo Effect on Patent Infringement Risk: Should You Revisit Your Corporate Strategy for Mitigating Risk? March 23, 2017 Cleveland, OH

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1 The Halo Effect on Patent Infringement Risk: Should You Revisit Your Corporate Strategy for Mitigating Risk? March 23, 2017 Cleveland, OH

2 Steven M. Auvil, Partner Squire Patton Boggs (US) LLP Steve Auvil leads the Squire Patton Boggs Intellectual Property & Technology Practice Group s litigation practice in the US, and his practice is focused on litigation of intellectual property (IP) disputes. He has served as lead trial counsel and successfully represented clients in numerous patent, trade secret, copyright and trademark/trade dress cases in federal district courts. Steve has also argued several patent-related appeals before the US Court of Appeals for the Federal Circuit and handled disputes before US administrative agencies. Steve has considerable experience counseling clients on IP matters, preparing and prosecuting patent applications, and negotiating agreements. Steve is active in a number of professional organizations, has taught patent law and practice as an adjunct faculty member. He has been listed in Chambers USA Leading Lawyers since 2007 and The Best Lawyers in America since

3 Kevin M. Dunn, Chief Counsel, Intellectual Property The Lincoln Electric Company Kevin M. Dunn serves as Chief Counsel, Intellectual Property for The Lincoln Electric Company, directing the procurement and enforcement of the company s intellectual property portfolio. Mr. Dunn manages a worldwide team of attorneys and other professionals to protect Lincoln s innovation and branding, engage in dispute resolution, and forge business relationships. Prior to joining Lincoln, Mr. Dunn advised clients including Microsoft, Xerox, General Electric, Advanced Micro Devices and Rockwell Automation on various intellectual property matters. He earned his bachelor s degree in electrical engineering from The Ohio State University and his juris doctor from The University of Akron School of Law. An active community leader, Mr. Dunn serves on the IP Advisory Council for The University of Akron School of Law and chairs the In-House Committee for the Cleveland Intellectual Property Law Association. Mr. Dunn has served as a trustee on the board of both the Cleveland Metropolitan Bar Association (CMBA) and the Cleveland Metropolitan Bar Foundation, and is a past chair of the CMBA s Young Lawyers Section. 3

4 Rachael A. Harris, Senior Associate Squire Patton Boggs (US) LLP Rachael Harris is a senior associate in Squire Patton Boggs Intellectual Property & Technology Practice Group s litigation group. Her practice is focused on litigation, at both the trial and appellate level, of intellectual property disputes. Rachael has litigated patent-related cases involving a diverse array of technologies in the federal district court. She has also litigated cases involving trade secret misappropriation, false advertising, and unfair competition. Rachael also has significant experience handling and arguing patent-related appeals at the United States Court of Appeals for the Federal Circuit, and other IP-related appeals in other Circuits. Rachael is an active member of a number of professional and community organizations. She has been named a Washington DC Rising Star since

5 Agenda Pre-Halo: The Seagate Test for Willfulness Halo: Rejecting Seagate and Restoring Discretion to the District Courts Post-Halo: District Courts Application of Halo Patent Infringement Risk Management in Light of Halo 5

6 Statutory Basis for Enhanced Damages 35 U.S.C

7 Read Factors for Awarding Enhanced Damages Under Whether the infringer deliberately copied the ideas or design of another 2. Whether the infringer, when he knew of the other s patent protection, 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 behavior as a party to the litigation 4. Defendant s size and financial condition 5. Closeness of the case 6. Duration of defendant s misconduct 7. Remedial action by the defendant 8. Defendant s motivation for harm 9. Whether defendant attempted to conceal its misconduct 7

8 Pre-Halo Standards for Willfulness The Underwater Devices Duty of Care and Seagate Walk Back

9 Underwater Devices Inc. v. Morrison-Knudsen Co., 717 F.2d 1380 (Fed. Cir. 1983) Where, as here, 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 [citations omitted]. Such an affirmative duty includes, inter alia, the duty to seek and obtain competent legal counsel before the initiation of any possible infringing activity. 9

10 In re Seagate Technologies, Inc., 497 F. 3d 1360, 1371 (Fed. Cir. 2007) (en banc) Two-part test for a finding of willfulness: 1) a showing that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent (objective recklessness); and 2) that the risk of infringement was either known or so obvious that it should have been known to the accused infringer (subjective intent). Both elements must be found by clear and convincing evidence. Standard of review: Federal Circuit utilized tripartite standard: 1) objective recklessness: de novo; 2) subjective intent: substantial evidence test; and 3) whether and in what amount to award enhanced damages: abuse of discretion. 10

11 Seagate and Progeny Objective Recklessness Objective Recklessness The infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent. Courts could look to: claim construction positions, noninfringement or invalidity defenses (made prior to or at trial). If positions were reasonable, then no objective recklessness. Bard Peripheral Vascular (Fed. Cir. 2012): objective recklessness inquiry is a threshold inquiry made by the judge. If no objective recklessness, then the issue of subjective intent does not go to the jury. 11

12 Seagate Subjective Intent Subjective Intent The risk was either known or so obvious that it should have been known to the accused infringer. Possible factors: Knowledge of patents Copying the products Response (or lack thereof) to notice Concealment of actions 12

13 Seagate Repercussions Difficult to obtain a finding of willfulness to even allow the court to get to enhanced damages. If an accused infringer advanced any viable defense at trial, its actions were deemed not to be objectively reckless and enhanced damages could not be awarded. Should the court determine that the infringer s reliance on a defense was not objectively reckless, it cannot send the question of willfulness to the jury, since proving the objective prong is a predicate to consideration of the subjective prong. Powell v. Home Depot U.S.A., Inc., 663 F.3d 1221, 1236 (Fed. Cir. 2011). Trial court discretion to award enhanced damages narrow. 13

14 Halo Elecs., Inc. v. Pulse Elecs., Inc., 136 S. Ct (2016) Rejecting Seagate and Restoring Discretion to the District Courts

15 Halo Elecs., Inc. v. Pulse Elecs., Inc., 136 S. Ct (2016): The Core Concern Halo Elecs., Inc. v. Pulse Elecs., Inc., 136 S. Ct. 1923, 1932 (2016) 15

16 Halo Elecs., Inc. v. Pulse Elecs., Inc. Parties Competitors in the market for electronic component parts Relationship Between the Parties 1998: Pulse learned of patents 2002: Halo sent two notice letters to Pulse Procedural History 2007: Halo files lawsuit 2012: Jury trial. Infringement, and a highly probability of willful infringement $1.5MM in compensatory damages 2013: Post-trial Motions: No objective reckless, so no enhanced damages 2014: Federal Circuit affirms 16

17 Stryker Corp. v. Zimmer Inc. Parties: Competitors in the pulses lavage device market Relationship Between the Parties Stryker created first prod in 1993; patents issued in 2000, 2001 & 2006 Zimmer created products in 1998 Procedural History 2010: Stryker files lawsuit 2013: Jury trial, jury found: Zimmer willfully infringed Awarded $70 million in lost profits 2013 Post-trial motions: rejected JMOL of no willfulness, trebled damages, found the case exceptional and awarded fees 2015: Fed. Cir. reversed enhanced damages award. Court failed to do objective recklessness assessment 17

18 Halo: The Problems with Seagate Halo Elecs., Inc. v. Pulse Elecs., Inc., 136 S. Ct. 1923, 1932 (2016) 18

19 Halo Rejected Clear and Convincing Standard and Non-Deferential Standard of Review Rejected the clear and convincing standard: The Seagate test is also inconsistent with 284 because it requires clear and convincing evidence to prove recklessness. Rejected the Federal Circuit s standard of review: Finally, because we eschew any rigid formula for awarding enhanced damages under 284, we likewise reject the Federal Circuit s tripartite framework for appellate review. 19

20 So.What is Halo s New Standard? Preponderance of the evidence standard Abuse of discretion standard of review No objective recklessness requirement, but subjective intent is still relevant Enhanced Damages are for egregious cases of misconduct Enhanced damages are not to be meted out in a typical infringement case, but are instead designed as a punitive or vindictive sanction for egregious infringement behavior. 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. Halo, 136 S.Ct. at

21 Halo and Stryker: Post-Script Supreme Court: vacated and remanded both Fed. Cir. decisions Halo Federal Circuit Jury verdict w/r/t willfulness was not challenged,so this is upheld Vacated determination of no willful infringement Remanded to determine whether to enhance damages and in what amount District Court (D. Nev.) Stryker Halo re-moved for enhanced damages; briefing in ongoing Federal Circuit Affirmed jury s finding of willfulness Vacated and remanded for consideration of award of enhanced damages District Court (W.D. Mich.) Renewed motion for enhanced damages is pending 21

22 Post-Halo The District Courts Application of Halo

23 How Are District Court s Applying Halo? Who decides willfulness, without an objective recklessness requirement judge or jury? What do the jury instructions look like? What factors have juries and courts actually relied on in evaluating willfulness? What trends can we expect to see from the District Courts in applying Halo? 23

24 Who Decides Willfulness Judge or Jury? Pre-Halo: District Court s acted (or were supposed to act) as gate-keepers to willfulness Post-Halo: Willfulness is for the jury We do not interpret Halo as changing the established law that the factual components of the willfulness question should be resolved by the jury. WBIP, LLC v. Kohler Co., 829 F.3d 1317, 1341 n.13 (Fed. Cir. 2016) District courts have followed suit and have allowed juries to determine willfulness in the first instance. Verdict can be reviewed for substantial evidence on post-trial motions 24

25 Federal Circuit Model Jury Instruction B.3, 3.10: Willful Infringement Preponderance standard worthy of punishment most egregious Consider all facts Opinion of counsel 25

26 Jury Instruction District Court example Polara Eng'g, Inc. v. Campbell Co. Case No., DFM, Dkt

27 Specific Factors Reviewed by Courts in Recent Case Law Factors favoring a willfulness findings: Knowledge of the patent Copying of the patent holder s product Failing to analyze the patent carefully Failing to stop selling/making/using after notice of infringement 27

28 Specific Factors Reviewed by Courts in Recent Case Law Factors cutting against a willfulness findings: Established internal record of patent investigation and analysis Record of own invention (cuts against allegations of copying) Design around efforts Opinion of counsel (validity and/or infringement) at the time of alleged infringement 28

29 Opinion of Counsel Letters Litigation inspired legal defenses cannot save a defendant from a willfulness finding. Opinion of counsel letters can be helpful to a defendant if they are: Written at the time of the purported infringement; Written by someone with an expertise in analyzing patent claims Thorough and not conclusory; and Based on a complete understanding of the patents, prosecution history, and the accused product. 29

30 District Court Decisions Trends Halo potentially offers more hope to parties seeking enhanced damages based on willfulness. Octane Fitness which addressed similar issues in the context of attorneys fees has led to an increase in the first two years after that decision, in attorneys fees requests and awards. Nirav Desai and Lauren Johnson, Octane Fitness, Two Years On: How It Has Impacted District Courts Award of Attorneys Fees in Patent Cases, 31 Legal Backgrounder, No. 12 (Apr. 29, 2016) 30

31 Practical Applications of Halo What should be done when a problematic patent is brought to your company s attention? Should an opinion of counsel be obtained? From inside or outside counsel? Should it be in writing? What should it discuss? Can the opinion be qualified to be useful? How promptly should an opinion of counsel be obtained? What should be done with opinion on receipt? Should an accused infringer respond to a letter alleging infringement? 31

32 Tool for Mitigating Willful Infringement Risk This does not constitute legal advice. Consult an attorney for specific legal advice. 32

33 Questions? 33