Serving the Creative and Legal Communities

Roy P. Issac, Ph.D., J.DAIPLA Mid-Winter Institute

27 January, 2016

Company and Attorney Liability: Attorney Fee Shifts and Enhanced

Damages

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This presentation is intended for educational purposes only. It is not intended to convey legal advice pertaining to any particular situation and is not a substitute for legal advice.

Disclaimer

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35 U.S.C. § 284 (Damages)Stryker v. Zimmer and Halo v. Pulse (Cert. granted)…the court may increase the damages up to three times the amount found or assessed…

35 U.S.C. § 285 (Attorney Fees)Octane Fitness v. Icon Health (Sup. Ct. 2014)The court in exceptional cases may award reasonable attorney fees to the prevailing party.

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• Octane Fitness overturned Federal Circuit’s test from Brooks Furniture for attorney fee awards.Section 285 authorizes district courts to award attorney’s fees to prevailing parties in “exceptional cases.”

The Federal Circuit interpreted “exceptional cases” as ones involving:

Material inappropriate conduct (sanctions) orObjectively baseless, and brought in bad faith

(sham)

The Federal Circuit also required evidence to establish facts relating to exceptionality under clear and convincing standard.

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Octane argued that ICON's infringement action was objectively baseless.The district court had rejected ICON's arguments relating to the construction of certain means-plus-function claim limitations and infringement of Octane's accused elliptical machines as frivolous.

Octane asserted that ICON's allegations were "unreasonable and unsupportable" because the court's noninfringement determination "should have been a foregone conclusion to anyone who visually inspected its machines."

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Octane Fitness (Supreme Court)

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Octane also argued that ICON's case was brought in subjective bad faith: (i) an email exchange between two ICON sales executives suggesting that the litigation was undertaken as a matter of commercial strategy; and (ii) ICON is a larger company that never commercialized its '710 patent.

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In Octane Fitness, the Supreme Court held that within the context of § 285 "an 'exceptional' case is simply one that stands out from others with respect to the substantive strength of a party's litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated."

“A case presenting either subjective bad faith or exceptionally meritless claims may sufficiently set itself apart from mine-run cases to warrant a fee award.“

The exceptional nature of the case must be established by a preponderance of the evidence through a case-by-case analysis of the totality of the circumstances.7

Octane Fitness v. ICON Health

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• Overall, the change in the standard is expected to increase the number of attorney fee awards to prevailing parties.

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"The absence of a pre-filing analysis, when combined with Icon's exceptionally weak litigation position, leads to the inference that the pre-filing investigation resulted in a conclusion that probable success on the merits was remote.” (Dist. Ct. 2015)

ICON’s emails reflect improper motivation:"We are suing Octane. Not only are we coming out with a great product to go after them, but throwing a lawsuit on top of that."

"ICON Health & Fitness does not mess around with this. They are going to end up paying royalty plus compensation. Funny thing is — this patent is over 10 years old!"

"Yes. Old patent we had for a long time that was sitting on the shelf. They are just looking for royalties."9

Octane Fitness on Remand

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(1) Establishing that the plaintiff failed to conduct an adequate pre-filing investigation or to exercise due diligence before filing suit (Yufa v. TSI Inc. (N.D. Cal. 2014))

(2) Showing that the plaintiff should have known its claim was meritless and/or lacked substantive strength (Yufa v. TSI Inc.)

(3) Showing that the plaintiff initiated litigation to extract settlements from defendants who want to avoid costly litigation (Summit Data Sys., LLC v. EMC Corp.(D. Del. 2014)

(4) showing a party proceeded in bad faith (Pure Fishing, Inc. v. Normark Corp.,(Fed. Cir., 2015)

(5) litigation misconduct (Logic Devices, Inc. v. Apple Inc. (N.D. Cal. 2014)

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Ways to establish “exceptionality”

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District courts may determine whether a case is 'exceptional' in the case-by-case exercise of their discretion, considering the totality of the circumstances

Although Octane Fitness lowered the bar for an exceptional case finding, it did not eliminate it. (Veracode v. Appthority, Inc. Dist. Mass.)

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Octane Fitness v. ICON Health:About $1.4 million attorney fees and $200,000 in additional fees awarded.

Bayer CropScience AG v. Dow Agrosciences LLC, (Dist. Del., 2015): About $6 million awarded to Dow.

Advanced Video Techs. LLC v. HTC Corp. (S.D.N.Y. 2015)Fees awarded; exact amount unknown.

River Light V, L.P. v. Lin & J Int'l, Inc. (S.D.N.Y. 2015)About $2.3 million awarded.

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Examples of Fee Awards Post Octane Fitness

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Boys v. Monster Energy Co. (S.D.N.Y. 2015)Beastie Boys were awarded about $700,000.

Skyline Steel v. Pilepro(S.D.N.Y. 2015)About $100,000 awarded.

Lumen View Technology v. Findthebest.com, (S.D.N.Y. 2014)About $300,000 awarded.

Cognex v. & Microscan (S.D.N.Y. 2014)Fees awarded.

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35 U.S.C. § 284 (Damages)Stryker v. Zimmer and Halo v. Pulse (Cert. granted)…the court may increase the damages up to three times the amount found or assessed…

Enhanced damages require a finding of “willful infringement.”

Issues being considered by the Supreme Court:Federal Circuit test from In re Seagate

Burden of proof: Clear and convincing or preponderance of evidence

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Enhanced Damages

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Enhanced damages under Section 284 are available if the court determines that a patent infringement was willful.

However, the trial court has discretion in awarding them.

The potential for enhanced damages discourages infringement by significantly increasing potential liability.

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Willful Infringement

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The Federal Circuit’s en banc decision in In re Seagate sets out the test for determining willful infringement.

“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.”

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In re Seagate

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Two-step analysis under Seagate:Patent infringer took its wrongful actions despite an objectively high likelihood that its actions constituted infringement of a valid patent.

The objectively-defined risk was subjectively known or should have been known to the infringer.

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Note that the standard for proving patent infringement is preponderance of evidence. The affirmative defenses of invalidity and unenforceability must be proved under the clear and convincing standards.

The Federal Circuit in In re Seagate required willful infringement to be proved under the clear and convincing standard.

The Supreme Court in Halo and Stryker cases will consider whether a heightened burden of proof is required for awarding enhanced damages.

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Patents directed to medical devices that deliver pressurized irrigation for medical therapies.

District Court:“In essence, Zimmer handed the independent contractor a copy of Stryker's product and said, ‘Make one for us.’ Under those conditions, it is not surprising that the finished Zimmer product turned out to look and function like Stryker's product. Nevertheless, Zimmer got its product to market quickly and in direct competition with Stryker.” “[Zimmer] did not seek advice of outside patent counsel to assess the potential for infringement of Stryker's patents, or to opine on the validity of Stryker's patents.”

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Stryker v. Zimmer

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Federal Circuit:Two step analysis: Step 1 (Objective Analysis): First the patentee (Stryker) has to show that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent. Step 2 (Subjective Analysis): The objectively-defined risk was either known or so obvious that it should have been known to the accused infringer.

The first step is not met since Zimmer presented reasonable defenses to asserted claims.“Zimmer’s defenses to the infringement of each patent claim that Stryker asserted were not objectively unreasonable, and, therefore, it did not act recklessly.”

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Patents related to surface mount electronic packages containing transformers for mounting on a printed circuit board inside electronic devices such as computers and internet routers.

The president of Pulse contacted a Pulse engineer, who spent about two hours reviewing the Halo patents and concluded that they were invalid in view of prior Pulse products.

Pulse did not seek an opinion of counsel on the validity of the Halo patents at that time and continued to sell its surface mount electronic package products.

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Halo v. Pulse

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No willful infringement;“The obviousness defense that Pulse presented at trial was not objectively baseless.”

Halo argued that Pulse did not actually rely on any invalidity defense pre-suit when selling the accused products because Pulse’s obviousness defense was developed after the lawsuit was filed in 2007.

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Halo v. Pulse

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The net effect of the two step analysis is that it is very difficult to prove willful infringement.

If the Supreme Court provides an analysis that is similar to the fee-shifting issue, a “totality of circumstances” test may be adopted.

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(1) whether the infringer deliberately copied the ideas or design of another; (2) whether the infringer, when he knew of the other’s patent, investigated the patent and formed a good faith belief that it was invalid or that it was not infringed; (3) the infringer’s behavior in the litigation; (4) the infringer’s size and financial condition; (5) the closeness of the case; (6) the duration of the misconduct; (7) the remedial action by the infringer; (8) the infringer’s motivation for harm; and (9) whether the infringer attempted to conceal its misconduct.Read Corp. v. Portec, Inc., 970 F.2d 816 (Fed. Cir. 1992)

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Read Factors: A Guide to Avoid Willful Infringement

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The Supreme Court can increase the likelihood of enhanced damage awards by lowering the burden or proof to “preponderance of evidence” standard, and/or providing a more flexible approach to finding “willful infringement.”

The change in fee-shift standard post-Octane Fitness has already increased the number of fee awards.

The changes increases liabilities for companies from potential award of treble damages and attorney fee-shifts.

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