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April 18, 2012 Articles

Willfulness under the America Invents Act

Section 298 says that the failure of an infringer to obtain the advice of counsel may not be used to prove that the accused willfully infringed a patent.

By Rick Sanchez

On September 16, 2012, section 298 of title 35, United States Code, regarding advice of counsel, will come into effect. This section codifies the premise asserted by the Federal Circuit in In re Seagate Technology, that the failure of an infringer to obtain the advice of counsel, or to present such advice to the court or jury, with respect to any allegedly infringed patent, may not be used to prove that the accused infringer willfully infringed the patent. In other words, courts are to exclude evidence of failure to obtain an opinion of counsel regarding infringement of an asserted patent to show willfulness. However, the provision omits any guidance for satisfying pleading requirements for willful infringement.

Willful Infringement
Willful infringement is built on the legal first principle that intentional disregard for the law justifies deterrence. "Damages have been defined to be the compensation which the law will award for an injury done, and are said to be exemplary and allowable in excess of the actual loss, where a tort is aggravated by evil motive, actual malice, deliberate violence or oppression." Scott v. Donald, 165 U.S. 58, 86 (1897). Section 284 of title 35 of the United States Code provides a basis for this principle in patent law by stating that "[u]pon finding for the claimant the court . . . may increase the damages up to three times the amount found or assessed."

Initially, the Federal Circuit established that a potential infringer, upon actual notice of another's patent rights, owed the patent holder a duty of investigation as to whether a patent was infringed. Underwater Devices Inc. v. Morrison-Knudson Co., 717 F.2d 1380, 1389–90 (Fed. Cir. 1983). This duty was typically evidenced by an opinion of counsel as to whether the potential infringer infringed the asserted patent. However, in In re Seagate, a unanimous en banc Federal Circuit panel struck down the duty of a potential infringer to investigate whether or not another's patent was infringed. Instead, the Federal Circuit panel required that for enhanced damages, there must be "at least a showing of objective recklessness" on the part of the potential infringer. In re Seagate Tech. LLC, 497 F.3d 1360, 1371 (Fed. Cir. 2007) (en banc).

35 U.S.C. § 298: Advice of Counsel
President Obama signed the America Invents Act (AIA) into law on September 16, 2011. Chapter 29 of title 35, United States Code, is entitled "Remedies for Infringement of Patent, and Other Actions." Section 17(a) of the AIA amends chapter 29, by adding at its end, the following:

§ 298. Advice of counsel

The failure of an infringer to obtain the advice of counsel with respect to any allegedly infringed patent, or the failure of the infringer to present such advice to the court or jury, may not be used to prove that the accused infringer willfully infringed the patent or that the infringer intended to induce infringement of the patent.

In effect, section 298 protects defendants in a patent action from being liable for enhanced damages for willful infringement based entirely on whether or not a patent opinion was obtained. Prior to In re Seagate, defendants were in a precarious position with regard to this advice-of-counsel issue. If the potential infringer did obtain advice of counsel, upon asserting an advice-of-counsel defense to refute the willfulness allegation, the potential infringer waived privilege as to both attorney-client communications and communicated work product regarding the subject matter of the opinion. See In re EchoStar Commc'ns Corp., 448 F.3d 1294, 1302–3 (Fed. Cir. 2006). If, however, the potential infringer did not obtain advice of counsel as to infringement, there could be a presumption that if the potential infringer infringed, it did so willfully. Section 298 simply codifies the premise asserted by the Federal Circuit in In re Seagate, that the failure of an infringer to obtain the advice of counsel, or to present such advice to the court or jury, with respect to any allegedly infringed patent, may not be used to prove that the accused infringer willfully infringed the patent.

Pleading Willful Infringement
The America Invents Act provides no clarification for pleading willful infringement. Therefore, recent decisions will be helpful in pleading and proving willful infringement. In Mitutoyo Corp. v. Central Purchasing LLC, the Federal Circuit held that Mitutoyo's complaint was "plainly more than sufficient to meet the requirements of Rule 8(a)(2) for pleading a willful infringement claim and avoid dismissal under Rule 12(b)(6)." 499 F.3d 1284, 1290–91 (Fed. Cir. 2007) (reversing the district court's dismissal of patentee's willful infringement claim for being insufficiently pled). Mitutoyo's complaint alleged, in part, that "[t]he acts of infringement by Central Purchasing have occurred with full knowledge of U.S. Patent No. 4,743,902 and have been willful and deliberate, making this case exceptional within the meaning of the United States patent laws." Id. at 1290.

Since Mitutoyo, defendants have attacked willfulness pleading from another angle. In Milwaukee Electric Tool Corp. v. Hitachi Koki, Ltd., the court had to determine whether Milwaukee's allegation of willful infringement should be considered an independent claim under Federal Rule of Civil Procedure 8(a)(2) or as part of its request for enhanced damages pursuant to Rule 8(a)(3). No. 09-C-948, 2011 WL 665439, at *4 (E.D. Wis. Feb. 14, 2011). The court chose to treat the allegation of willful infringement as a claim under Rule 8(a)(2) for purposes of the defendants' motion to dismiss. In denying Hitachi's motion to dismiss, the court held that "[u]ltimately, the plaintiffs' allegation that the defendants were aware of the plaintiffs' five patents that the defendants allegedly had infringed and continued to infringe upon, is sufficient to plead willful infringement in the context of the plaintiffs' request for a finding of willful infringement and treble damages." Id. at *5. Milwaukee pled adequate factual detail to set forth a facially plausible willfulness claim and also to provide the defendants with adequate notice of that claim. Id. Milwaukee's complaint alleged willfulness as follows:  "Hitachi was aware of the '257 patent prior to the filing of this Amended Complaint." Amended Complaint for Patent Infringement, Milwaukee Elec. Tool Corp. v. Hitachi Koki, Ltd., No. 09-C-948, 2009 WL 5138003 (E.D. Wis. Nov. 19, 2009).

The court went on to state that although In re Seagate sets forth the standard for establishing willful infringement, the defendants failed to recognize that In re Seagate is not controlling for purposes of pleading under Rule 8(a). Milwaukee, 2011 WL 665439 at *3. Several courts have noted that, as far as willfulness pleading is concerned, "Seagate is not appropriate for the pleading stage of litigation." Id. In conclusion, Rule 8(a)(2) requires only allegations of infringement and knowledge of the asserted patent by the potential infringer.

Proving Willful Infringement
Moving past the pleading stage, it is important to note that determination of whether infringement is willful is a factual question that must be proven by clear and convincing evidence. Acumed LLC v. Stryker Corp., 483 F.3d 800, 804 (Fed. Cir. 2007). The stage at which the willfulness issue is addressed by the court varies by jurisdiction. See, e.g., B. Braun Med. Inc. v. Abbott Labs., 32 U.S.P.Q.2d 1211, 1215 (E.D. Pa. 1994) (ordering bifurcation of willfulness and damages from liability phase); Great Northern Corp. v. Davis Core & Pad Co., Inc., 782 F.2d 159, 167 (Fed. Cir. 1986) (determining willfulness and award of treble damages in liability phase).

A two-prong analysis must be made to determine whether there is willful infringement. In re Seagate established a threshold, objective standard to find willful infringement—"objective recklessness." In this first prong, a plaintiff "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." In re Seagate, 497 F.3d at 1371. Significantly, the "state of mind of the accused infringer is not relevant. . . ." Id. In re Seagate further established that failure to obtain an exculpatory opinion of counsel is not of itself probative of willful infringement. Spectralytics, Inc. v. Cordis Corp., 649 F.3d 1336, 1347 (Fed. Cir. 2011). Once willful infringement is found, "it is inappropriate to discount evidence relating to whether there was adequate investigation of adverse patent rights." Id. at 1348.

If the first prong is satisfied, the analysis moves to the second prong—the plaintiff must show that the "objectively-defined risk . . . was either known or so obvious that it should have been known to the accused infringer." Id. This second prong analysis is a subjective inquiry. Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292, 1310 (Fed. Cir. 2011), reh'g denied, 420 F. App'x 992 (Fed. Cir. 2011). The test for willfulness is distinct and separate from the factors guiding a district court's discretion regarding enhanced damages. i4i Ltd. P'ship v. Microsoft Corp., 598 F.3d 831, 859 (Fed. Cir. 2010), aff'd, 131 S. Ct. 2238 (2011).

Enhanced Damages: Applying the Read Factors
Once willfulness has been established, the court must exercise its discretion in deciding whether, and to what degree, it will award enhanced damages:

In deciding whether to enhance damages, the district court properly declined to reapply the test for willfulness set out in In re Seagate. Although a finding of willfulness is a prerequisite for enhancing damages under § 284, the standard for deciding whether—and by how much—to enhance damages is set forth in Read, not Seagate.

Id. (citation omitted).

The Federal Circuit clarified in Spectralytics that it did not hold that after willful infringement is established, it is improper to consider whether the infringer exercised adequate investigation of any adverse patents. 649 F.3d at 1348.

The paramount determination in deciding to grant enhancement and the amount thereof is the egregiousness of the defendant's conduct based on all the facts and circumstances. Rite-Hite Corp. v. Kelley Co., 819 F.2d 1120, 1125–26 (Fed. Cir. 1987). In Read Corp. v. Portec, Inc., the Federal Circuit held that it "must consider factors that render defendant's conduct more culpable, as well as factors that are mitigating or ameliorating." 970 F.2d 816, 826 (Fed. Cir. 1992), overruled in part on other grounds by Markman v. Westview Instruments, Inc., 52 F.3d 967 (Fed. Cir. 1995), aff'd, 517 U.S. 370 (1996). The court went on to establish nine factors for consideration in determining when an infringer "acted in [such] bad faith as to merit an increase in damages awarded against him." Id. The factors are as follows:

  • Whether the infringer deliberately copied the ideas or design of another;
  • 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;
  • Infringer's behavior as a party to the litigation;
  • Defendant's size and financial condition;
  • Closeness of the case;
  • Duration of the defendant's misconduct;
  • Remedial action by the defendant;
  • Defendant's motivation for harm; and
  • Whether the defendant attempted to conceal its misconduct.

 Id. at 827 (citations omitted).

The Federal Circuit also stated that a plaintiff should implement self-help by seeking a preliminary injunction for post-filing willful infringement. In re Seagate, 497 F.3d at 1374. Further, the court held that a plaintiff who fails to assert its exclusive rights via a preliminary injunction should not be allowed to accrue enhanced damages. The process of a plaintiff asserting its rights seems to be the primary concern of the court, as it conceded that a substantial question about invalidity or infringement is likely sufficient not only to avoid a preliminary injunction but also a charge of willfulness based on post-filing conduct.

AIA Effective Dates
The provisions of the AIA became, or will become, effective on varying dates. Those provisions of the AIA that state an effective date become effective thereon. However, many of the provisions do not state an effective date and so become effective on the one-year anniversary of the AIA's enactment. Section 35 of the AIA states that:

Except as otherwise provided in this Act, the provisions of this Act shall take effect upon the expiration of the 1-year period beginning on the date of the enactment of this Act and shall apply to any patent issued on or after that effective date.

Therefore, section 17 of the AIA (adding 35 U.S.C. § 298) becomes effective on  September 16, 2012.

A Reflection of Case Law
Clearly, section 17(a) of the AIA, 35 U.S.C. § 298, codifies the holding in In re Seagate. However, the new provision goes on to track more recent case law. Section 298 states that "the failure of the infringer to present such advice to the court or jury, may not be used to prove that the accused infringer willfully infringed the patent." 35 U.S.C. § 298. This reflects the premise in Spectralytics, where the Federal Circuit held that "the failure to obtain an opinion of counsel or otherwise investigate the patent situation can be considered, in the totality of the circumstances." 649 F.3d at 1348. Therefore, the district court can consider the potential infringer's failure to seek advice of counsel in its discretion regarding enhanced damages, not willful infringement. i4i, 598 F.3d at 859.

Section 298 of the America Invents Act does not change existing standards for willful patent infringement. Rather, it solidifies the proposition that advice of counsel is not determinative of willful patent infringement by a potential infringer. Although the provision specifically excludes consideration of a potential infringer's acts as they relate to advice of counsel, it does not preclude them from the court's consideration for application of its discretion in determining enhanced damages.

Keywords: litigation, intellectual property, America Invents Act, willful infringement, enhanced damages

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