What adds insult to injury?
As I noted the other day, I spent Friday at the Federal Circuit’s (roughly) triennial Judicial Conference. I enjoyed lively conversations with good friends. And a patent law matter from the conference remains on my mind. The issue sits at the core of patent law’s punitive damages regime, known as willful infringement damages.
A little background: At the conference’s afternoon breakout session on patent law, the first roundtable discussed rules and practices for litigating the willful infringement question in the aftermath of the Federal Circuit’s September 2004 decision in Knorr-Bremse Systeme Fuer Nutzfahrzeuge GmbH v. Dana Corp., 383 F.3d 1337 (Fed. Cir. 2004) (en banc). (Patently-O covered Knorr here.)
For me, the most interesting aspect of Knorr is not the elimination of the adverse inference that (before Knorr) flowed from failing to produce, when accused of having infringed willfully, an exculpatory opinion letter. (The adverse inference was that the unproduced letter was (or, if obtained, would have been) unfavorable to the alleged infringer.) Instead, I am most interested in Judge Dyk’s dissent from that portion of the court’s ruling that left in place the basic duty to avoid infringing the known patent rights of others … the duty, in other words, that triggers the need to get opinion letters in the first place. See 383 F.3d at 1348-52 (Dyk, J., dissenting in part). According to Judge Dyk, “[t]here is a substantial question whether the due care requirement is consistent with the Supreme Court cases holding that punitive damages can only be awarded in situations where the conduct is reprehensible.” Id. at 1348. I think Judge Dyk is on to something big here. More after the jump.
Driven by Judge Dyk’s dissent in Knorr, and by the need to prepare for my participation in the willfulness roundtable at the circuit conference, I read the Supreme Court decisions to which Judge Dyk referred. They are BMW v. Gore, 517 U.S. 559 (1996), and State Farm v. Campbell, 538 U.S. 408 (2003). I also read a highly engaging, informative working paper on punitive damages, Anthony J. Sebok, Punitive Damages: From Myth to Theory (March 2006) (downloadable from SSRN, here).
The upshot of the Supreme Court’s punitive damages jurisprudence for willful patent infringement is, I think, a bit muffled. The Supreme Court has, after all, been concerned primarily with “grossly excessiveâ€? awards, i.e., with the size of the ratio of punitive to compensatory damages. It has scrutinized and struck down grossly excessive awards in contexts where the ratio of punitive to compensatory damages could vary freely and went too high. (In BMW, the punitive to compensatory ratio was 500 to 1, and in State Farm it was 145 to 1.) In patent law the punitive to compensatory ratio varies in a much smaller range, capped at 3 to 1. And this 3 to 1 cap is well within the single-digit multiplier territory that the Supreme Court explicitly blessed in State Farm. 538 U.S. at 425 (”[I]n practice, few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process.”).
This same jurisprudence, however, stresses that the Due Process bedrock of any punitive damages award is “the degree of reprehensibility of the defendant’s conduct.” BMW, 517 U.S. at 575. In BMW, the Court calls reprehensibility “[p]erhaps the most important indicium of the reasonableness of a punitive damages award.” Id. (emphasis added). In State Farm, the Court admonishes that “punitive damages should only be awarded if the defendant’s culpability, after having paid compensatory damages, is so reprehensible as to warrant the imposition of further sanctions to achieve punishment or deterrence.” 538 U.S. at 419.
So, we have the makings of a syllogism: All punitive damages awards are limited to situations involving reprehensible conduct. Willfulness damages in patent law is a form of punitive damages. Therefore, willfulness damages in patent law is limited to situations involving reprehensible conduct.
The Federal Circuit’s current duty of care approach to willfulness — knowledge of a patent pertinent to one’s activity triggers a duty to avoid infringing the patent, on pain of punitive damages if one infringes without a (mistaken) good faith belief that the patent doesn’t block one’s activity — arguably sets the whole inquiry off in the wrong direction. If Judge Dyk is right, we should reserve willfulness damages for only those cases where the alleged infringer has engaged in genuinely reprehensible behavior.
What is reprehensible behavior, for a potential patent infringer? What adds the insult of contemptuous disregard to the injury of patent infringement? Merely knowing about a patent and its superficial pertinence to your own activity, and failing to investigate whether you are, in fact, infringing it, seems far from reprehensible to me. It’s the equivalent of bumping into someone in a subway car or elevator.
Here’s my first second crack at a list of the kinds of reprehensible conduct on an accused infringer’s part that merit punitive damages [after having the benefit of Max's comments, below]:
- A knowing and deliberate effort literally to copy a patented invention from the patent, unless one has strong grounds for concluding the patent is invalid or unenforceable.
- Practicing a patented invention, rather than inventing a new solution of one’s own, after unsuccessfully having tried to license it from the patentee.
- Providing false or misleading information to a patentee when asked for details about one’s product or process. (Of course, simply refusing to answer is not deceptive.)
- Failing to investigate whether one infringes AFTER having received from the patentee (a) a detailed statement that expressly maps each individual limitation of an asserted claim onto a particular feature or characteristic of the accused item, and (b) a complete copy of the asserted patent’s prosecution history.
It is interesting that my list of potential infringer behaviors that I’m willing to count as genuinely reprehensible looks a great deal like the reform of willfulness damages set forth in various House patent reform bills now pending. I didn’t set out to explain the precise contours of the reform proposals, but I think I’ve done so anyway (at least as a matter of Due Process theory).
What does all this mean now, given that the current patent reform measures may fail to pass? One thing it means is that accused infringers should seriously consider, in an appropriate case, moving for summary judgment of no willful infringement on the ground that the Due Process Clause imposes a reprehensibility threshold that the patentee must overcome before infringement can be found to have been willful, and that the facts before the court don’t meet that threshold level of egregiousness. Indeed, until Congress changes willfulness doctrine, this Due Process challenge to the Federal Circuit’s current duty of care rule is the only way to tee up the issue.
In UK, reckless driving is a lot more serious than “driving without due care and attention”. Willful/reprehensible to me means something like reckless. I have trouble with your points 1-2 because to me they don’t equate automatically to reckless infringement, but could instead be the actions of a reasonably circumspect and competently advised business person. Who is more reckless, the one who asked for a licence, or the one who never tried?
What if, on the preponderance of evidence, the asserted claim is invalid. Not so unusual, I would surmise. In such a case, it is for me reasonable, not reckless or reprehensible or willful, to perform within the scope of the claim (whether or not you have asked the patent holder for a licence, and whether or not you have copied the patented invention).
Are the reckless owners of weak claims to continue to enjoy overly broad opportunities to intimidate?
Comment by MaxDrei — May 21, 2006 @ 2:41 pm
Max,
You make great points. A few thoughts …
First, I agree that recklessness, or wanton disregard, is what we should be inquiring about if we are to impose punitive damages.
Second, I should have prefaced my list of items by saying that we only engage in the willfulness inquiry if the patent is ajudged to be infringed and not invalid. (In the U.S., the standard for invalidity is clear-and-convincing, rather than preponderance.)
So, let’s assume that the patent is adjudged to be infringed and not invalid. Is it reprehensible that I knowingly set out to copy the claimed invention literally, and succeeded, without approving the patentee’s authority? I think it is, at least in the instance where I did not have a strong ground for believing the patent is invalid.
Also, if the patent is held to be infringed and not invalid, is it reprehensible that, before the litigation began, I sought a license from the patentee and was refused? I think it is, because it suggests that, as a business person, I appreciated that I should not proceed with my plan because there was a sufficiently high probability that my activity would be found to infringe a valid patent. If I go ahead and infringe anyway, rather than inventing an alternative approach of my own, it seems to me I’ve behaved with wanton disregard for the patentee’s rights.
Comment by Joe — May 21, 2006 @ 5:01 pm
Joe,
In example #1, the crux of the fact decision seems to be how strong a grounds an infringer had for believing the infringed patent claim to be invalid. And that is where the fight seems to be in many “close” cases. Would an infringer need to have sought a validity opinion? Would the assertion of a counter-claim of invalidity be supportive of that belief?
Just some thoughts on a rainy Monday morning.
Comment by Jim Hilsenteger — May 22, 2006 @ 9:03 am
Under US law, willfulness requires proof by clear and convincing evidence. It is also subject to a further procedural safeguard in that, if the fact-finder finds the infringment was willful, the district court must then exercise discretion and determine whether the totality of the circumstances show conduct so egregious that equity warrants the award of enhanced damages. The district court retains full discretion NOT to enhance damages despite a finding of fact that the infringement was willful. See collection of cases in the Annotated Patent Digest at § 31:63 Denying Enhanced Damages Despite Finding of Willful Infringement. Hence, due process concerns seem amply protected by these two procedural requirements.
While the theoretical due process considerations are interesting, I believe that in practice the CAFC limits its affirmance of enhanced damages to conduct falling into the four scenarios you outline. In § 31:60 Awarding Enhanced Damages and § 31:61 Vacating Finding of No Willful Infringement or Denial of Enhanced Damages of the Annotated Patent Digest, I have collected every published CAFC case affirming an award of enhanced damages or vacating the denial of such and award. Most, if not all, of the cases where enhanced damages were affirmed or the denial thereof vacated, there was either deliberate copying or continued infringement after actual notice by the patentee. Thus, while we won’t likely find any statements in the case law stating that willfulness will be found only in the situations of deliberate copying or actual notice, or something equally reprehensible, the CAFC’s actual holdings appear to track this position.
Presently, there appear to be very few cases addressing willfulness in the context of summary judgment (There is one published CAFC opnion, Avia, affirming a SJ finding willful infringement. I don’t believe there are any published CAFC cases considering a SJ of no willful infringement). There is at least one published CAFC opinion in the context of a JMOL that may show a SJ of no willfulness might be feasible. Norian Corp. v. Stryker Corp., 363 F.3d 1321, 1332-33, 70 USPQ2d 1508, 1517 (Fed. Cir. 2004) (affirming district court’s granting accused infringer a JMOL of no willful infringement where the district court found “No evidence of copying was presented. No evidence of failure to obtain an opinion of counsel was presented. No evidence was presented as to whether or not Stryker had acted reasonably once it acquired knowledge of the patent”)
Comment by Bob Matthews — May 22, 2006 @ 9:52 am
Bob,
Your assessment of the cases is interesting, and I’ll take it as a given for purposes of the following question: If willfulness damages are, in fact, limited to egregious circumstances, why on earth wouldn’t we conform the legal doctrine accordingly? As things stand now, willfulness is alleged in 90%+ of patent infringement complaints. Once willfulness is alleged, it creates all manner of tortured — and torturing — questions of waiver of attorney-client privilege and all the rest; this drives up the cost of litigation enormously. We can save much of this cost, can’t we, if we impose an explicit egregiousness threshold requirement that knocks the willfulness issue out of a case much earlier (and thus also, over time, deters people from routinely alleging willfulness in the first place)?
Comment by Joe — May 22, 2006 @ 1:49 pm
So, 90% of cases include a plea of willful infringement. A system that encourages you to start out with the cry that your Opponent is a bad hat seems to me like a system calculated to inflame disputes rather than settle them. Shouldn’t the legal system promote civilised behaviour rather than aggravate tendencies to uncivilised behaviour. I start from the proposition that Plaintiff patentees are just as likely to act inequitably as Defendant infringers, that patent litigation should be a last resort, that only after discovery does one know whether the other side is willful or inequitable, and that there should be consequences if without very good reason one calls the other side a bad character.
To me, this leads to thoughts that the system needs:
1) a “Loser pays” principle (the consequence of burdening the Court with losing pleas)
2) the opportunity after discovery to assert aggravated infringement or that the patent is rendered unenforceable by the inequitable conduct of the patentee.
Being British, but living in Munich, I can see how common law scores over civil law, but also how it can encourage unecessarily aggressive behaviour, which is disturbing to the harmony of society. The UK, being these days a member of civil law Europe, adjusts its adversarial common law system to accommodate civil law precepts. It clings to equity but, given that the litigation community can choose whether to litigate its European patents in London or in Duesseldorf, it cannot sustain, for example, the full glory of unlimited discovery. The competition is bringing benefits to patent litigation in both England and Germany. In England, parties to patent litigation don’t routinely begin by calling each other reprehensible or reckless or willful or inequitable, but the sanctions are there, and powerful enough to deal with willful infringers or inequitable patent owners. For the US to get to that balance, but without invoking a “Loser pays” principle, seems to me impossibly tough.
Joe, on the “Approach for a licence” point, the alternative is to bring proceedings against the validity of the patent. But litigation should be a last resort. I still think that most claims are of dubious validity, so each side tends to get an opinion to match its wishful thinking, so that it is not unreasonable for the business people to approach the patent owner, but also not unreasonable for them to press on, if the talks fail when the patentee reacts unreasonably.
Comment by MaxDrei — May 22, 2006 @ 11:33 pm
Max,
I agree that a “loser pays” fee shifting rule in U.S. patent litigation could go a long way toward restoring some balance to our patent litigation system. We already have something close to “loser pays” in U.S. copyright litigation. Perhaps it will work its way into the current patent reform bills that are now before Congress. Also, the competition between civil and common law approaches sounds interesting indeed. You mention improvements in England. What have the improvements or benefits been in Germany?
Comment by Joe — May 23, 2006 @ 6:04 am
Max and Joe:
Interesting comments from both of you. Given the strength of the small-inventor lobby here in the U.S. I suspect that it is very unlikely that a “loser pay” provision would ever be adopted. Further, given the high reversal rate at the CAFC on patent issues, I have my doubts whether a loser pay provision would be fair. As Judge Lourie stated in Phillips, and the case law shows repeatedly, “reasonable minds” can often disagree about the proper outcome of a patent dispute. Under the current system attorney fees can be awarded for exceptional circumstances. Baseless infringement claims, asserting a patent procured by inequitable conduct, and willful infringement can lead to an award of attorney fees. (Baseless infringement claims can, in some circumstances, also lead to liability for an unfair competition claims, which can be an alternative mechanism to recover attorney fees when they form an element of damages for the unfair competition claim). These seem to provide sufficient mechanisms to punish the truly baseless assertions of infringement claims or defenses. Whether they create sufficient deterrence so baseless claims are not asserted in the first place is probably an open question.
Patentees often allege willfulness, and accused infringers often allege inequitable conduct. Its part of the current life in litigating a patent. There is no debate that willfulness when in the case adds to the costs. But from my observations in litigating patent cases for 14 plus years, I don’t think it drives them up enomorously in relation to the other costs for the case. It creates some more discovery headaches, i.e., the wavier questions, may require one more expert, and will require some deposition questioning. In my view, the real practical impact of an allegation of willfulness is to drive up the accused infringer’s risks. As a consequence, the allegation of willfulness may unfairly skew the calculus for an accused infringer when deciding whether to fight the dispute to the end or to accept a settlement when the accused infringer has a decent level of confidence that the patent is invalid and/or not infringed. I agree that if the statute clearly delinated the egregious conduct necessary to support enhanced damages, this skewing of the calculus would probably be reduced.
Since willfulness is based on a totality of the circumstances and equitable discretion (for which the judge may want to hear witness testimony to assess credibility) it seems unlikely that many cases of willfulness can be decided on summary judgment. I don’t know why the statute is not expressly conformed to what appears to be the CAFC’s current practice of limiting willfulness to truly egregious circumstances. Maybe it just oversite, maybe its a recognition that statutes just provide a baseline standard on which judicial precedent is built consturing the statute to a flexible working model since a “one-size-fits-all” approach does not lend itself well to legal issues that often have a multitude of factual scenarios. I’m not so sure that an amendment to the willfulness statute of limiting willfulness to specified egregious conduct, by itself, would reduce the number of willfulness allegations. It may be better to also include a specifity pleading requirement, e.g., something similar to F.R.C.P 9(b), which has been held to apply to assertion of inequitable conduct. Hence, the willfulness statutory provision could be amended to require that the acts of willfulness must be pled with specifity rather than the current pracitice of pleading “on information and belief the aforseaid infringement was done willfuly.” With a rigorous enforcment of Rule 11, a heightened pleading requirement may help eliminate baseless willful infringement claims from ever making it into the pleadings. In the inequitable conduct arena, it now seems that inequitable conduct makes its way into a case only after some discovery has been done, since the accused infringer can’t comply with Rule 11 or meet Rule 9(b) until some discovery shows a factual basis to assert inequitable conduct. The case law also recognizes this, as courts appear lenient in finding good cause under Rule 16(b) to allow an amendment of an answer to add inequitable conduct where the amendment is sought after the deadline to amend.
Comment by Bob Matthews — May 23, 2006 @ 7:19 am
Joe, here are two recent improvements in Germany (which I suspect have come in as a result of competition with common law jurisprudence):
1) restrictions on fact-finding de novo in the appeal instance
2) more realistic appreciation by the courts of what quantum of damages is fair to patentee, like, instead of a bare arm’s length royalty, the profits that the infringer made.
Bob, as to the extent of reversals by the CAFC, I would like to say a word about the efficiency of the patent litigation system in England. Maybe only one third of losing parties even bother to appeal, because the prospects of reversal are so slim.
Why so slim? well, the first instance judges are seasoned former patent litigators, the leading barrister QC’s. In the 20 or so years before making judge, they act 50% of their time for “infringers” and the other 50% against them. This gives them the authority to limit discovery, manage cases efficiently, see through the tricks, and judge cases fairly.
Continental European civil law jurisdictions cannot imagine getting the judgement right at first instance. There, the first instance Decision is the basis of an attempt at settlement. Call it ADR if you like (alternative to full-blown adversarial common law litigation). But the civil law way of litigation has the merit that it tends to avoid the severe front loading of costs inherent in common law adversarial proceedings.
Many say that Europe needs its own CAFC. I am not so sure. I think the present competition between Germany and England is raising standards in both jurisdictions.
Comment by MaxDrei — May 23, 2006 @ 2:15 pm
Hi Max:
Sounds like some there are some very positive aspects with the English System.
There are some current legislative proposals here in the U.S. to develop more patent savy trial judges and have them hear the majority of patent cases. While that sounds good in principle, I have seen some first-rate quality patent decisions come out of district courts that typically handle very few patent cases and some really odd-ball decisions from courts with judges who have handled many patent cases.
The quality of the judicial decision, and thus its likelihood of being reversed, likely depends more on the time and effort the trial judge can put into the case and the quality, integrity, honesty, and thoroughness of the presentions made to the trial court by the lawyers representing the parties. I personally think that in the U.S. system, many lawyers often tend to be too over zealous in their win-at-all costs tactics and refusal to cooperate with the adversary on any point. This may play a more significant part in driving up the costs of U.S. litigation and inefficenies than the complexity of the patent law or scientific technology at issue.
Comment by Bob Matthews — May 23, 2006 @ 3:32 pm
My litigation experience gives me an impression similar to Bob’s: Incivility drives up costs considerably, and may even distort the court’s factfinding and law-determining process.
Max, because the comparisons to English and German practice are so interesting, and because I don’t have a comparative law background, I’m moved to ask:
Can you please recommend a book or two that an interested reader should consult if she wants to learn more about patent litigation practice in England, or in a civil law jurisdiction such as Germany?
Comment by Joe — May 23, 2006 @ 4:59 pm
Bob, isn’t it the job of the first instance judges to curb (penalise) attorney behaviour that brings the litigation system into disrepute?. Do they lack effective sanctions? Not in England.
Joe, in haste. Book titles below. One difficulty is that books on English patent litigation don’t compare it with litigation in Germany, and vice versa. Another thing to watch is that litigators fight over typically 15 year old patents, yet people today write patent applications in Europe very different from the way they did 15 years ago. Ask any patent attorney who has to write a “European clearance opinion” on a recently published EPO A publication.
For UK, use “Terrell on the Law of Patents”, 16th Edn, publ 2006 ISBN 0421 886 501
For Germany, even though it is old now, use Hansen, “Protecting Inventions in Chemistry”, Wiley 1997 ISBN 3 527 28808 2.
Happy reading.
Comment by MaxDrei — May 24, 2006 @ 2:22 pm
Joe:
I recall seeing a few years ago a good article in the AIPLA QJ or JPTOS comparing the German patent litigation system with the U.S. system. If my memory is correct there is no discovery, unless the court orders it and I think it even does the discovery itself. Separate proceedings for infringement and validity.
Max:
I don’t think the U.S. is set up so that the judges consider policing the litigants and their counsel to be the first order of priority. Nevertheless, the judges in the U.S. courts have multiple grounds of authority for sanctioning litigants and the attorneys for all forms of misconduct. But the judges seem cautious in exercising that power too loosely, and typically save sanctioning for egregious misconduct. (Although there is a judge in the ED of Texas who within the last year sanctioned an accused infringer a half a million dollars as a fine payable to the court for discovery misconduct).
The aspects of overzealous advocacy, lack of civility, proper citing of controlling authority to the court, often fall under the ethics rules of the invidiual states. Thus, while judges have contempt sanctions and monetary sanctions at their fingertips, for conduct that might warrant disbarment, the judges refer the matter to the state attorney disciplinary board if deemed serious enough.
Some of the biggest acts of incivility occur during discovery, which is supposed to be a process self-adminstered by the parties with very little judicial oversight. Being a cynic, I often view these discovery battles as children on a playground that can’t get along until the teacher comes in and knocks some heads. Many US courts have magistrate judges handled these discovery tats so that the district court judge can focus on the more substantive aspects of the cases before the court. In some circumstances, the court may even appoint a special master (another attorney) to oversee the discovery issues and report to the court on issues requiring the court’s intervention. Given this structure, the daunting caseload facing the judges, its not surprising that the courts don’t want to and don’t have the time to spend policing litigants in pretrial matters. I think every federal judge has complete control of the court room, and no misbehavior is tolerated during a trial or presentations to the courts. But for pretrial matters, as in creating the arguments asserted in briefs and discovery matters, the judge is not present to keep an eye that all is done right.
Comment by Bob Matthews — May 24, 2006 @ 3:49 pm
Bob, thanks for the detail on case management. Mention of children raises another comparison. Under civil law, squabbling parties are like children who turn to “Uncle Judge” to lay down a just decision. The kindly uncle takes an inquisitorial approach, then decides on the basis of his or her opinion. Common law litigation ought to be between adults, with the judge deciding the case on the better basis of the facts (witness evidence) and the law, so it is disappointing if the common law courts can’t effectively deter the parties from behaving like children.
Your observations on Germany are spot on. Separate tracks for infringement (District Court) and validity (Federal Court), and no discovery. But things in the civil law world are changing fast, under pressure from litigants who want what they can get in a common law jurisdiction. So, now in Germany there are inspection orders and, in Japan (modelled 100 years ago on German patent law) infringement and validity will now be heard for the first time in the same court at the same time.
Comment by MaxDrei — May 25, 2006 @ 12:37 am