Federal Circuit rules objective prong of willful infringement best decided by judge

On June 14, 2012, the Federal Circuit, in Bard Peripheral Vascular, Inc v. W.L. Gore & Associates, Inc., set a new standard for proving willful infringement, essentially making the judge the gatekeeper of the issue of willfulness. Under 35 U.S.C. § 284, a finding of willful infringement allows courts the discretion to enhance damages up to three times the compensatory amount if the two-pronged Seagate test is met. In Bard, the Federal Circuit addressed the application of the two-pronged test and whether it resides in the province of the judge or the jury. Although the court affirmed that a jury is to consider the second prong as a question of fact, the court modified the threshold objective prong as best decided by the trial judge as a question of law. Previously, both prongs of the test were considered by juries as questions of fact.

Willful infringement until Bard

The Bard decision is the most recent in a line of Federal Circuit cases elevating the standard for willful infringement. The original standard applied by courts for nearly twenty-four years was handed down by the Federal Circuit in 1983 in Underwater Devices Inc. v. Morrison-Knudsen Co. The Underwater Devices decision established that an accused infringer had “an affirmative duty to exercise due care” to ensure their activities were not infringing the valid patent rights of another. The duty of due care standard for willful infringement approximated the duty of care standard for negligence. This affirmative duty included “the duty to seek and obtain competent legal advice from counsel before the initiation of any possible infringing activity.” However, in its 2004 Knorr-Bremse decision, the Federal Circuit no longer required an affirmative duty to seek and obtain a favorable legal opinion of counsel to counter an “adverse inference that an opinion of counsel was or would have been unfavorable” as to willful infringement.

Subsequently, in 2007, the Federal Circuit’s decision in In re Seagate Technology overruled Underwater Devices’s duty of care standard that had guided patent litigants and courts for over twenty years and replaced it with an objective recklessness standard. In establishing such a standard, the court set out a two-pronged inquiry for willful infringement. The Seagate Technology court held that in order to receive an award of enhanced damages under 35 U.S.C. § 284, a patentee must show by clear and convincing evidence that: (1) “the infringer acted despite an objectively high likelihood that its action constituted infringement of a valid patent”; and (2) this “objectively-defined risk…was either known or so obvious that it should have been known to the accused infringer.” The first prong is a threshold objective assessment that must be met before considering the second subjective component. While Seagate established this new standard for willful infringement, its application was left for future cases to develop.

Bard: New standard for willful infringement

Bard is one of the first precedential decisions modifying the application of the willful infringement standard articulated in Seagate. In the underlying case, Bard Peripheral Vascular (“Bard”) sued W.L. Gore & Associates, Inc. (“Gore”) in 2003 for patent infringement on Bard’s blood vessel graft patent. Bard’s patent had only recently issued in 2002, twenty-eight years after its application was first filed. In the district court, a jury awarded damages to Bard finding its patent valid and willfully infringed by Gore. The district court denied Gore’s motion for judgment as a matter of law. The court further enhanced damages due to willful infringement by a factor of two, which brought the jury’s award to over $371 million with an ongoing royalty, and also awarded attorney’s fees in the amount of $19 million. Gore appealed the verdict to the Federal Circuit.

On appeal, a divided three-judge Federal Circuit panel initially upheld the district court’s determination of willfulness. Upon a petition by Gore for a rehearing en banc, the Federal Circuit vacated its initial decision and reissued its opinion on June 14, 2012 with a modified finding on willfulness and damages. In this decision, the court reiterated that the ultimate question of willful infringement is a question of fact. However, the court expanded this view, stating that the “threshold determination of objective recklessness…is best decided by a judge as a question of law subject to de novo review.” The Federal Circuit felt that the court, rather than a jury, is in the best position to decide whether a defense to willful infringement is reasonable, drawing a parallel to Markman v. Westview Instruments, Inc.’s holding that claim construction is best left to the judge.

In light of this clarification on willful infringement, the Federal Circuit remanded the case to the district court to “apply the correct standard to the question of willfulness in the first instance.”

Practical implications of Bard

The number of successful willful infringement claims will likely reduce because judges now decide “objective recklessness.” Judges can more easily resolve the issue of willful infringement in favor of the accused infringer on summary judgment particularly where the accused infringer’s noninfringement defense is based on a reasonable claim construction position, which is purely a legal issue. Even if a patentee survives a summary judgment determination on willfulness, it will be more challenging to convince a judge that the accused infringer’s defenses are unreasonable. Moreover, some judges may be more reluctant to find willfulness out of concern of being reversed, because their decision on willfulness will receive no deference on appeal under de novo review.

Certainly, litigants will have to refine their strategies to account for the trial judge’s new role in evaluating whether an accused infringer has acted reasonably or recklessly. In the future, this may involve separate “reasonableness” proceedings where an expert must testify as to the reasonableness of a defense. Moreover, jury instructions may have to be drafted to explain a judge’s finding on the first prong of the willfulness inquiry.

Even though litigants may have to adjust their litigation strategies, parties will be able to better assess their possible exposure to damages at an earlier stage of the litigation. Equally important, the new standard regarding willfulness should also reduce the number of excessive damages awards.