Source: https://blog.clearstoneip.com/category/courts/
Timestamp: 2019-04-24 08:41:45+00:00

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Pirates Among Us? How Have Courts Treated Willful Infringers in the Year Following Halo v. Pulse?
As the Supreme Court’s Halo decision recently celebrated its first anniversary, we take a look to see whether the lower courts have effectively rooted out the “wanton and malicious pirates” about whom the unanimous High Court was so gravely concerned. Have we found and singled out our swash-buckling ne’er-do-wells for public shaming, or have we discovered that the label, if defined by the reduced willfulness standard set out in Halo, might suggest that even some of the best-intentioned among us might be keeping parrots in their desk drawers and their closets well-stocked with puffy shirts? And importantly, what can we do to trade those bandannas for halos in the eyes of the court?
In Halo v. Pulse, the Supreme Court made it easier for a patentee to obtain enhanced damages from a willful infringer under 35 U.S.C. § 284. The Court rejected a part of the previous requirement, under Seagate, in which the patentee had to show that the infringer acted “objectively recklessly.” It also lowered the burden of proof from “clear and convincing” to “preponderance of the evidence.” In practice, the old standard allowed even willful infringers to escape liability for enhanced damages if they could come up with a reasonable non-infringement position even as late as during litigation. The Court felt that this standard was too rigorous. It ratcheted back the necessary showing to, essentially, “egregiousness,” which is centered on the subjective knowledge, intent, and behavior of the infringer.
Read Factor #1: Whether the infringer deliberately copied the patentee’s ideas or design.
Read Factor #2: Whether the infringer, upon knowing of the patent, investigated the scope of the patent and formed a good faith belief that it was invalid or that it was not infringed.
Read Factor #7: Remedial action taken by the infringer.
If one pattern clearly emerges, it is that courts disfavor infringers who “know” about a patent but do not conduct an analysis of the scope of its claims (Read factor #2). Mere knowledge of a patent is generally not sufficient in itself to find willfulness, but knowledge in combination with copying and malicious intent, with no investigation, has proven extremely dangerous.
In Dominion v. Alstom, a Pennsylvania district court found that seven of the nine Read factors weighed in favor of enhanced damages against the defendant. The court doubled the reasonable royalty findings to $972,000. The court found evidence of copying over a long period of time and took particular issue with the fact that “Alstom’s belief it did not infringe . . . is based entirely on the opinion of people without expertise in reading patent claims. On balance, it is not a good faith belief in non-infringement.” The court noted that Halo played a role here and may have ultimately led to Alstom’s downfall. During the course of infringement, Alstom was operating in a Seagate world where an infringer can avoid enhanced damages if they can “muster a reasonable (even though unsuccessful) defense at the infringement trial.” But the Halo ruling did away with that post hoc safe harbor and essentially requires a good faith belief of non-infringement during the actual period of infringement.
SRI International v. Cisco Systems also involved large damages numbers. There, the Delaware trial court doubled the jury’s damages verdict to award more than $46 million to the plaintiff. Again, the court was swayed by a finding that the defendant did not perform a sufficient analysis of known patents, noting that evidence showed “that key Cisco employees did not read the patents-in-suit until their depositions.” The fact that Cisco knew about the asserted patents but did not investigate the technical aspects relating to infringement led to more than $23 million in additional damages.
How have defendants avoided enhanced damages?
Here is where the contrast becomes sharp. Even in cases where the Read factors might suggest some troublesome behavior, like knowing and intentional copying, defendants were spared enhanced damages because they made a reasonable investigation at the time of infringement.
In Greatbatch Ltd. v. AVX Corp., a Delaware district court found no willfulness in relation to three patents infringed by AVX. Even though AVX knew about all three patents at the time of the culpable activity, the court held that the conduct was not egregious or wanton because AVX performed a reasonable investigation at the time. The court distinguished a Federal Circuit case in which enhanced damages were awarded by noting that “here, by contrast, AVX sought and obtained invalidity and non-infringement opinions of counsel before litigation and developed designs and processes to avoid infringement” (court’s emphasis). AVX relied upon opinions of counsel with respect to two of the three asserted patents, and “made significant efforts to avoid infringement of the [third] patent” (i.e., design around) according to the court.
In another remarkable case, Sociedad Espanola de Electromedicina y Calidad v. Blue Ridge X-Ray Co., the jury explicitly found that the defendants “knowingly and intentionally copied Sedecal’s transformer,” and the court upheld a finding of willful infringement. However, the trial court has discretion to award enhanced damages even when infringement conduct is egregious and willful. Using this discretion, the court appreciated that the defendants “conducted a reasonable investigation of Sedecal’s patent claims and made a good faith determination that the patent was not infringed by their activities and that the patent was likely invalid,” and did not enhance damages. In other words, the defendants here blatantly copied the plaintiff’s product but escaped increased willfulness liability because they made the pre-suit effort to formulate reasonable (though ultimately incorrect) non-infringement positions. In this case, the pre-litigation investigation was conducted by a head engineer.
An important practical result here is that Halo has effectively shifted the point in time at which an accused infringer should establish reasonable non-infringement or invalidity positions. We can no longer rely upon arguments that were first conjured up after being sued. By and large, future patent defendants stand a good chance of avoiding enhanced damages if they have a process in place to competently evaluate asserted patents at an early stage. They should have systems to collect relevant information such as analysis, documents, technical information, and relevant discussions in order to bolster a good faith belief of non-infringement or invalidity. That, or else they may find themselves walking the plank.
Halo Elecs., Inc. v. Pulse Elecs., Inc., 136 S.Ct. 1923 (2016).
 In re Seagate Technology, LLC, 497 F.3d 1360 (2007).
 The Read factors include: (1) whether the infringer deliberately copied the patentee’s ideas or design; (2) whether the infringer, upon knowing of the patent, 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 litigation behavior; (4) the infringer’s size and financial condition; (5) the closeness of the case; (6) the duration of the infringer’s misconduct; (7) remedial action taken by the infringer; (8) the infringer’s motivation for harm; and (9) whether the infringer attempted to conceal its misconduct. See Read Corp. v. Portec, Inc., 970 F.2d 816, 826-27 (Fed. Cir. 1992).
 Dominion Res. Inc. v. Alstom Grid, Inc., Civil Action No. 15-224 (E.D. Pa. Oct. 3, 2016).
 Imperium IP Holdings (Cayman), Ltd. v. Samsung Elecs. Co., Civil Action No. 4:14-CV-00371, at *12 (E.D. Tex. Aug. 24, 2016).
 Sri Int’l, Inc. v. Cisco Sys., Inc., Civil Action No. 13-1534-SLR (D. Del. May. 25, 2017).
 Greatbatch Ltd. v. AVX Corp., Civil Action No. 13-723-LPS (D. Del. Dec. 13, 2016).
 Id. at *5 (distinguishing WBIP, LLC v. Kohler Co., 829 F.3d 1317, 1340-41 (Fed. Cir. 2016) (“as the Supreme Court explained in Halo, timing does matter. Kohler cannot insulate itself from liability for enhanced damages by creating an (ultimately unsuccessful) invalidity defense for trial after engaging in the culpable conduct of copying, or ‘plundering,’ WBIP’s patented technology prior to litigation.”)).
 Sociedad Espanola de Electromedicina y Calidad, S.A. v. Blue Ridge X-Ray Co, No. 1:10-cv-00159-MR, at *19-23 (W.D.N.C. Dec. 28, 2016).
 Koninklijke Philips N.V. v. Zoll Med. Corp., Civil Action No. 10-11041-NMG (D. Mass. Jun. 26, 2017).
The Federal Circuit’s recent decision in Enfish v. Microsoft Corp. was significant in that it was the first time that the court reversed a trial court’s finding of invalidity under § 101 based on the Supreme Court’s Alice decision, and only the second time that it upheld validity under that section post-Alice (the first being DDR Holdings v. Hotels.com).
The opinion was well-received by the patent bar, and the software industry in particular, as powerful precedent that can be used to fight rejections by the USPTO, defend counterclaims of invalidity in court, and otherwise strengthen the value of software patents. While the line between eligible and ineligible subject matter has become somewhat clearer, there is still ambiguity in certain areas, and questions exist regarding practical implications.
The court referred to the invention generally as “an innovative logical model for a computer database.” The primary contribution to the art of the invention was the “self-referential” aspect, which purportedly avoided the need in conventional “relational database model” systems to define and maintain many separate tables. Instead, the claimed invention can store the pertinent information in a single table. According to the patents, the new approach improved searching efficiency and resulted in more-effective storage of unstructured data.
The court began with the two-step analysis set forth in Alice and prior cases, in which the first step determines whether the claims are directed to a patent-ineligible concept, such as an abstract idea, and the second step considers whether the particular elements of the claims transform the nature of the claim into a patent-eligible application.
There is no doubt that the Federal Circuit took aim at some of the more egregious gaps that Alice left open. Primary among these gaps was the perceived Alice takeaway that there was no real limit on the height of abstraction that can be carried out on software claims in step one. In other words, one could conclude from Alice, and courts often did conclude, that a software claim is abstract if it can be summarized into something reasonably conventional, specific claim limitations be damned.
Enfish at least partly rectified this misconception by recognizing that “[t]he ‘directed to’ inquiry, therefore, cannot simply ask whether the claims involve a patent-ineligible concept, because essentially every routinely patent-eligible claim involving physical products and actions involves a law of nature and/or natural phenomenon—after all, they take place in the physical world.” Further, “describing the claims at such a high level of abstraction and untethered from the language of the claims all but ensures that the exceptions to § 101 swallow the rule.” Instead, claims must be considered as a whole and in light of the specification.
Accordingly, the Enfish panel carefully considered each element of the claims, including applying § 112, sixth paragraph, to interpret means-plus-function limitations, and examined the patent specification to both (i) shed light on the claim language; and (ii) express the advantages of the claimed invention over the prior art.
The court ultimately held that the relevant question is “whether the claims are directed to an improvement to computer functionality versus being directed to an abstract idea.” It concluded that the claimed self-referential database logic model is “a specific type of data structure designed to improve the way a computer stores and retrieves data in memory” and is therefore not an abstract idea. Having satisfied the first step of the Alice inquiry in the patentholder’s favor, the court did not need to address step two.
The Enfish holding gives teeth to the first step of the Alice inquiry and requires that the analysis take into consideration the nature of the invention and how it affects computer capabilities. In cases where the claims simply add conventional computer components to “well-known business practices,” they might be more likely to be found abstract under step one of the Alice inquiry.
Enfish is certainly a useful precedent for owners and seekers of software patents and should serve to strengthen patents as a general matter, but it does not (and cannot) fix the real havoc that was wreaked by the Supreme Court in Alice. Namely, the biggest problem with Alice is that it conflated and blurred the lines between questions of eligibility and those of prior art (i.e., novelty and obviousness).
Questions as to whether a claimed idea is “conventional,” “well known,” or is a “fundamental practice” have no place in an abstractness inquiry. These are questions that can be answered only by proving the existence or absence of prior art, not by some common sense-based purely mental exercise. Whether a claimed invention is abstract or practical is completely independent of novelty. The “abstractness” question should rely predominantly, if not entirely, on an isolated analysis of the actual features of the invention and whether it has some technical or practical component that makes it more than a mere idea in the ether. But that is a battle for another day, and one which the Federal Circuit does not appear to have the authority to fight until Alice is overturned or distinguished by future Supreme Court decisions.

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