The decision, released earlier today, is SRI Int'l, Inc. v. Cisco Sys., Inc. The majority opinion is by Judge Stoll, joined by Judge O'Malley. The principal issue on appeal is whether the claims recite patentable subject matter. Representative claim 1 of the '615 Patent reads:
A computer-automated method of hierarchical event monitoring and analysis within an enterprise network comprising:
deploying a plurality of network monitors in the enterprise network;
detecting, by the network monitors, suspicious network activity based on analysis of network traffic data selected from one or more of the following categories: {network packet data transfer commands, network packet data transfer errors, network packet data volume, network connection requests, network connection denials, error codes included in a network packet, network connection acknowledgements, and network packets indicative of well-known network-service protocols};
generating, by the monitors, reports of said suspicious activity; and
automatically receiving and integrating the reports of suspicious activity, by one or more hierarchical monitors.
The majority agrees that the claim is patent-eligible, stating (at p.9) what is arguably becoming the dispositive factor in U.S. cases involving computer-related subject matter--namely, that "the claims are directed to an improvement in computer network technology." Judge Lourie dissents on this issue.
There are some other issues as well, including anticipation and claim construction, but I'll focus on damages. The jury awarded damages for past infringement using a 3.5% rate on infringing products, and it also found that Cisco had willfully infringed. The judge then doubled the damages; concluded that the case was exceptional and awarded SRI its attorneys' fees; and awarded SRI an ongoing royalty, in lieu of an injunction, at the same (3.5%) rate as the pre-verdict damages. The Federal Circuit vacates the willfulness finding, but affirms the finding that the case was exceptional and the ongoing royalty.
On willfulness, the court concludes that the evidence did not permit the inference that Cisco willfully infringed during the entire time period that finding covered, and remands for further proceedings:
In denying Cisco’s motion for JMOL on willfulness, the district court concluded that the jury’s willfulness determination was supported by two evidentiary bases. First, the court identified evidence that “key Cisco employees did not read the patents-in-suit until their depositions.” . . . Second, the court identified evidence that Cisco designed the products and services in an infringing manner and that Cisco instructed its customers to use the products and services in an infringing manner. . . .
On appeal, SRI identifies additional evidence that pur-portedly supports the jury’s willfulness verdict. Specifically, SRI presented evidence that Cisco expressed interest in the patented technology and met with SRI’s inventor in 2000 before developing its infringing products. . . . Additionally, SRI submitted evidence that Cisco received a notice letter from SRI’s licensing consultant on May 8, 2012, informing Cisco of the asserted patents (a year before SRI filed the complaint). Finally, like the district court, SRI makes much of the fact that “key engineers” did not look at SRI’s patents until SRI took their depositions during this litigation. . . .
Even accepting this evidence as true and weighing all inferences in SRI’s favor, we conclude that the record is insufficient to establish that Cisco’s conduct rose to the level of wanton, malicious, and bad-faith behavior required for willful infringement. First, it is undisputed that the Cisco employees who did not read the patents-in-suit until their depositions were engineers without legal training. Given Cisco’s size and resources, it was unremarkable that the engineers—as opposed to Cisco’s in-house or outside counsel—did not analyze the patents-in-suit themselves. The other rationale offered by the district court—that Cisco designed the products and services in an infringing manner and that Cisco instructed its customers to use the products and services in an infringing manner—is nothing more than proof that Cisco directly infringed and induced others to infringe the patents-in-suit.
It is undisputed that Cisco did not know of SRI’s patent until May 8, 2012, when SRI sent its notice letter to Cisco. . . . It is also undisputed that this notice letter was sent years after Cisco independently developed the accused systems and first sold them in 2005 (Cisco) and 2007 (Sourcefire). As SRI admits, the patents had not issued when the parties met in May 2000. Indeed, the patent application for the parent ’203 patent was not even filed until several months after the parties met. Thus, Cisco could not have been aware of the patent application.
While the jury heard evidence that Cisco was aware of the patents in May 2012, before filing of the lawsuit, we do not see how the record supports a willfulness finding going back to 2000. As the Supreme Court recently observed, “culpability is generally measured against the knowledge of the actor at the time of the challenged conduct.” Halo, 136 S. Ct. at 1933. Similarly, Cisco’s allegedly aggressive litigation tactics cannot support a finding of willful infringement going back to 2000, especially when the litigation did not start until 2012. Finally, Cisco’s decision not to seek an advice-of-counsel defense is legally irrelevant under 35 U.S.C. § 298.
Viewing the record in the light most favorable to SRI, the jury’s verdict of willful infringement before May 8, 2012 is not supported by substantial evidence. Given the general verdict form, we presume the jury also found that Cisco willfully infringed after May 8, 2012. . . . We leave it to the district court to decide in the first instance whether the jury’s presumed finding of willful infringement after May 8, 2012 is supported by substantial evidence. . . .
Cisco also argues that the district court abused its discretion by doubling damages. Enhanced damages under § 284 are predicated on a finding of willful infringement. Because we conclude that the jury’s finding of willfulness before 2012 was not supported by substantial evidence, we do not reach the propriety of the district court’s award of enhanced damages. Instead, we vacate the award of enhanced damages and remand for further consideration along with willfulness. (pp. 18-21).
Surprisingly, perhaps, since fees often are not awarded to the plaintiff unless the infringement was willful, the court affirms the exceptionality finding, though it remands for a recalculation:
We see no such error in the district court’s determination that this was an exceptional case. The district court found:
There can be no doubt from even a cursory review of the record that Cisco pursued litigation about as aggressively as the court has seen in its judicial experience. While defending a client aggressively is understandable, if not laudable, in the case at bar, Cisco crossed the line in several regards. . . .
The district court further explained that “Cisco’s litigation strategies in the case at bar created a substantial amount of work for both SRI and the court, much of which work was needlessly repetitive or irrelevant or frivolous.” . . . Indeed, the district court inventoried Cisco’s aggressive tactics, including maintaining nineteen invalidity theories until the eve of trial but only presenting two at trial and pursuing defenses at trial that were contrary to the court’s rulings or Cisco’s internal documents. . . . The district court concluded that all of this, in addition to the fact that the jury found that Cisco’s infringement was willful, led it to exercise its discretion pursuant to § 285 to award SRI its attorneys’ fees and costs. . . . We conclude that the district court did not abuse its discretion in so finding.
We thus take no issue with the district court’s award of attorneys’ fees generally (including keeping the attorneys’ billing rates without adjusting them to Delaware rates). At the same time, however, the district court erred in granting all of SRI’s fees. Section 285 permits a prevailing party to recover reasonable attorneys’ fees, but not fees for hours expended by counsel that were “excessive, redundant, or otherwise unnecessary.” Hensley v. Eckerhart, 461 U.S. 424, 434 (1983). We accordingly conclude that the district court should have reduced SRI’s total hours to eliminate clear mistakes. For example, one billing entry reads “DON’T RELEASE, CLIENT MATTER NEEDS TO BE CHANGED.” J.A. 32384. Accordingly, we remand only for removal of attorney hours clearly included by mistake and consequent recalculation of reasonable attorneys’ fees (pp. 22-23).
Finally, the court rejects Cisco's argument that "the district court abused its discretion in awarding the 3.5% ongoing royalty on 'all post-verdict sales' without considering Cisco’s design-arounds," on the ground that Cisco didn't raise this issue in a timely fashion below. Nevertheless, the court concludes that "the district court has not yet determined whether products and services that were not accused (that is, changed after the jury verdict) are colorably different for purposes of ongoing royalty calculations. Such an issue could be resolved in a future proceeding" (pp. 24-25).
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