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II. Background
The guiding principle of U.S. patent law is that a patentee shall disclose its invention to the public in exchange for a right to prohibit others from making, using, or selling (collectively “practicing”) the claimed invention during the twenty-year term of the patent.
A patentee is entitled to certain remedies when others practice the claimed invention during the patent term. The patentee may recover the actual monetary damages incurred as a result of the infringement.
The patentee also may be entitled to one or more equitable remedies, including an injunction prohibiting the infringer from practicing the claimed invention, attorney's fees for actions brought to enforce the patentee's rights, and enhancement of the actual damages award.
A. History of Enhanced Damages under Title 35
Although several patent statutes were enacted by Congress from 1790 to 1792, the Patent Act of 1793 was the first to include a provision for enhanced damages.
Specifically, the Act required that the infringer shall pay damages of “a sum, that shall be at least equal to three times the price, for which the patentee has usually sold or licensed to other persons.” One historian has theorized that this provision was the result of lobbying by Joseph Barnes, a well-known attorney.
Barnes believed that most jury members, due to their ignorance of patent policy goals, would be disrespectful of patent rights and inclined to minimize damages awards to discourage patentees from bringing suits against alleged infringers.
If Barnes' writings did influence this legislation, then the initial purpose of enhanced damages was at least partially compensatory.
One difficulty arose when the courts narrowly interpreted the language of the Patent Act of 1793 to require that defendants make and use a patented invention in order to be held liable for infringement.
This interpretation generally made it more difficult for patentees to recover damages. The Patent Act of 1800 addressed this difficulty by imposing liability for anyone who “shall make, devise, use or sell” the patented invention, thereby making damages more readily available to patentees. At the same time, however, this legislation capped the enhancement of damages available to patentees to “a sum equal to three times the actual damage sustained.”
Nevertheless, the early U.S. patent system continued to be plagued by a variety of complaints, including the prevalence of fraud upon the Patent Office, the ease at which patents were granted, and the frequency of litigation involving overlapping patent rights.
All of these complaints were addressed by the Patent Act of 1836.
The force behind this legislation was Senator John Ruggles, a former Maine Supreme Court justice and aspiring patentee with a strong interest in mechanics and engineering.
The Act repealed earlier patent laws, established the patent examination system that remains in effect today, and replaced the mandatory treble damages provisions of the Patent Acts of 1793 and 1800.
The revised damages provision in the Patent Act of 1836 stated that “it shall be within the power of the court to render judgment for any sum above the amount found by such verdict . . . not exceeding three times the amount thereof, according to the circumstances of the case.”
Thus, in a span of forty-three years, Congress converted treble damages from a statutory minimum to a statutory maximum. Two factors may have influenced this change. First, early U.S. courts admittedly were more liberal in upholding patent rights than their English counterparts, especially in regards to upholding patent validity.
Congress recognized the problem that this judicial tendency posed, especially in conjunction with the low quality of patents that issued from a process based on registration rather than examination.
Second, there was political tension in the 1836 Congress between the general principle that monopolies were strongly disfavored and the specific principle that innovation should be rewarded by the monopoly conferred by a patent.
These two factors motivated Congress to provide “a check upon the granting of patents,” issuing them only for truly novel and useful inventions, thereby “put[ting] an end to litigation before it begins.”
While the Patent Act of 1836's provision for an examination-based system addressed the “front-end” issue of patent quality,
Congress may have reasonably intended the limitation of damages to provide a complementary counterbalance to the “back-end” issue of liberal judicial interpretation of patent rights.
Although Congress removed the requirement for courts to enhance awards of actual damages when infringement was found,
it provided no guidance for the new judicial discretion that it conferred.
Likewise, no clear rationale for the new damages provision is evident from the legislative history. While one of Senator Ruggles' main goals for the new patent laws as a whole was to prevent “piracy or fraud” of “American ingenuity and intellect,”
other members of Congress viewed rewarding invention as the primary purpose of the patent laws.
Even after the enactment of the Patent Act of 1836, a patentee was faced with a choice of trying to recover either actual damages as a remedy at law or, as incident to a claim for injunctive relief, the infringer's profits as a remedy in equity.
In response to this perceived shortcoming, Congress enacted the Patent Act of 1870 which expanded available equitable remedies to include the patentee's actual damages.
Courts were often reluctant, however, to allow recovery of both lost profits and actual damages, preferring to limit the award of actual damages to cases in which financial injury to the patentee was greater than the profits made by the infringer.
This rule was motivated at least in part by the need to adequately compensate the patentee, even to the extent of enhancing the actual damages.
Two Patent Acts from the mid-twentieth century have shaped the award of enhanced damages to a lesser extent. The Patent Act of 1946
was the first to require the “reasonable royalty” standard to be used to measure damages,
which affects the ultimate amount resulting from any enhancement. The Patent Act of 1952
made non-substantive changes to the enhanced damages provision from the Patent Act of 1836
to create the current § 284:
Upon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court. . . . [T]he court may increase the damages up to three times the amount found or assessed.
Consistent with prior legislation regarding enhanced damages, the legislative history of the 1952 Act offers no additional information about the purposes of the enhanced damages provisions of § 284.
In summary, the current § 284 represents the evolutionary product of numerous Patent Acts enacted over a period of more than 200 years. None of the Patent Acts enacted during this period, however, articulate any specific criteria for awarding enhanced damages.
Furthermore, their legislative histories provide no significant guidance on criteria or purposes for such awards.
B. Emergence of the Federal Circuit's Willfulness Doctrine
In the absence of guidance from the text and legislative histories of the various Patent Acts,
it was left to the courts to develop an enhanced damages doctrine. Prior to the establishment of the Federal Circuit and its jurisdiction over appeals from patent infringement cases,
one of the principal cases dealing with the issue of enhanced damages was Union Carbide Corp. v. Graver Tank & Manufacturing Co.
In this case, Union Carbide sued manufacturer Lincoln and end-user Graver, respectively, for making and using several variants of a product that ultimately were found to infringe Union Carbide's patent.
The Seventh Circuit Court of Appeals first reversed the district court by finding that Lincoln had not infringed willfully.
A key factor in this finding was that Lincoln relied on the advice of patent counsel in trying to avoid infringing the claims of the patent.
Next, the court found that the district court's award of enhanced damages not explicitly based on the finding of willful infringement was improper because such damages should have been accounted for in the actual damages awarded under a reasonable royalty approach.
The court noted that “it is only on the basis of conscious and willful infringement that exemplary or punitive damages are allowed in addition to those which are compensatory.”
For twenty-three years, Graver Tank was the principal case supporting the proposition that a patentee could not obtain an award of enhanced damages unless the infringer willfully copied the patented invention.
After the creation of the Federal Circuit, one of the court's first cases that dealt with the issue of enhanced damages was Underwater Devices, Inc. v. Morrison-Knudsen Co.
In Underwater Devices, the court held that when “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.”
Furthermore, the court held that failure to comply with this affirmative duty was sufficient to support a finding of willfulness.
The court found that because defendant Morrison-Knudsen did not seek advice from competent patent counsel in a timely manner, it failed to comply with this affirmative duty and thus acted in “willful disregard of [the] patents.”
Based on this finding, the Federal Circuit held that the district court did not abuse its discretion by trebling the actual damages award.
The Federal Circuit also addressed the relation between enhanced damages and willful infringement in Beatrice Foods Co. v. New England Printing & Lithographing Co.
The court stated “it is well-settled that enhancement of damages must be premised on willful infringement or bad faith.”
The court expressed concern that awarding enhanced damages for compensatory purposes would cause plaintiffs to seek enhanced damages whenever a defendant failed to keep proper sales records for an allegedly infringing product.
Taken together, Underwater Devices and Beatrice illustrate the Federal Circuit majority rule requiring willfulness to justify an award of enhanced damages
because of their primarily punitive purpose.
Notwithstanding the assertions in the above cases, several Federal Circuit cases continue to support the proposition that willfulness is not required to sustain enhanced damages.
Several of these cases rely on the principle that awarding enhanced damages under § 284 has a purpose that is at least partially compensatory.
One of the most thorough discussions of the relation between culpability and the purposes of enhanced damages is found in Rite-Hite Corp. v. Kelley Co.
In Rite-Hite, rather than merely equating willfulness and enhanced damages, Judge Pauline Newman stated:“[W]illfulness” thus reflects a threshold of culpability in the act of infringement that, alone or with other considerations of the particular case, contributes to the court's assessment of the consequences of patent infringement. . . . Whether or not “willfulness” is found, the court has authority to consider the degree of culpability of the tortfeasor.
In this approach, “willfulness” is used to describe a range of culpability for which the court may consider awarding enhanced damages.
Regardless of culpability, the court must “balance equitable concerns as it determines whether and how to recompense the successful litigant.”
Thus, Judge Newman's approach incorporates the infringer's culpability and equitable principles in determining enhanced damages, which have both compensatory and deterrent purposes.
The Federal Circuit's opinion in SRI International, Inc. v. Advanced Technology Laboratories, Inc.
also illustrates a non-trivial relationship between willfulness and enhanced damages under § 284.
The court first defined “ 'willful infringement' . . . [as] the term designating behavior for which enhanced damages may be assessed.”
The court went on to state that when willful infringement or bad faith has been found, the remedy of enhanced damages serves not only as a punishment and deterrent but also addresses the equitable issues between patentee and infringer.
In King Instruments Corp. v. Perego,
the Federal Circuit reviewed a district court ruling that awarded enhanced damages without a finding of willfulness.
The appellate court noted that “[t]he problem of inadequate compensation when damages are based on a reasonable royalty has been expressly recognized in several cases.”
In such situations, courts have the discretion to award damages greater than a reasonable royalty when plaintiffs are not able to prove direct and foreseeable damages.
Similarly, in State Industries, Inc. v. Mor-Flo Industries, Inc.,
the Federal Circuit noted that a finding of willfulness was sufficient for, but did not compel, an award of enhanced damages.
In summary, there has been a longstanding conflict in Federal Circuit jurisprudence as to whether a finding of willfulness is necessary or merely sufficient for awarding enhanced damages under § 284. This conflict turns, at least in part, on whether the purpose of enhanced damages is compensatory or punitive. As one patent law scholar has noted, perhaps the best view of this conflict is that enhanced damages awards serve both purposes.
C. The Modern Nexus-Seagate
These conflicting lines of Federal Circuit willfulness cases found a nexus in Seagate. Plaintiffs Convolve, Inc. (“Convolve”) and Massachusetts Institute of Technology (“MIT”) sued defendant Seagate Technology, L.L.C. (“Seagate”), alleging willful infringement of three patents.
Shortly after receiving the complaint, Seagate received three separate written opinions from outside counsel Gerald Sekimura indicating that the patents were likely to be invalid, unenforceable, or not infringed by Seagate.
Seagate notified Convolve and MIT of its intention to rely on these opinions as a defense to willfulness and disclosed Sekimura's work product.
The plaintiffs, however, moved for discovery of communications on this issue between Seagate and its outside litigation counsel, who operated independently from opinion counsel Sekimura.
The trial court concluded that Seagate waived its attorney-client privilege and work-product confidentiality for all counsel on the issue of willfulness by invoking Sekimura's opinions as a defense, and ordered Seagate to produce documents and testimony as requested.
After the trial court refused to certify an interlocutory appeal, Seagate filed a petition for a writ of mandamus with the Federal Circuit, which ordered an en banc hearing on the petition.
Before addressing the extent of waiver of attorney-client privilege and attorney work-product confidentiality upon invocation of the opinion-of-counsel defense, the court addressed its willfulness doctrine. After analyzing various federal statutes and Supreme Court cases related to areas outside of title 35, the court held that “proof of willful infringement permitting enhanced damages requires at least a showing of objective recklessness.”
Furthermore, because the Seagate court determined that the duty-of-care standard established in Underwater Devices sets a lower threshold for willfulness that is closer to negligence, it explicitly overruled that case.
The court went on to establish a two-part test for willfulness. 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.”
If this threshold is met, then the patentee “must also demonstrate that this objectively-defined risk . . . was either known or so obvious that it should have been known to the accused infringer” to justify a finding of willfulness.
This second, subjective prong establishes that actual or constructive knowledge is a necessary element of objective recklessness which itself is required for a finding of willfulness.
This higher threshold of culpability is likely to result in fewer findings of willfulness and, consequently, fewer awards of enhanced damages under the current Federal Circuit doctrine.
The opinion articulating this new standard was joined by the entire panel, but two concurring opinions were issued by Judge Newman and Judge Gajarsa.
Judge Newman's opinion pointed out, inter alia, the failure of the court to articulate any criteria for the objective part of the willfulness test, and suggested “the standards of fair commerce” should be a guideline for these criteria.
The lengthy concurring opinion by Judge Gajarsa, however, took the majority to task for not removing the graft of willfulness onto § 284.
Judge Garjarsa's opinion makes a strong argument for reforming the role of willfulness in the determination of enhanced damages. This argument is based on a combination of an analysis of the text and legislative history of the Patent Acts
and comparisons of § 284 to other equitable remedies available under title 35 and with other enhanced damages statutes outside of title 35.
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