Monday, December 2, 2013

Recent Federal Circuit Decision on Enhanced Damages and Attorneys' Fees

Dennis Crouch has already blogged about this opinion, but it's worth a mention here too.  Two weeks ago the court handed down a nonprecedential opinion in Lee v. Mike's Novelties, Inc., available here.  The patent claims a "metal tobacco pipe designed to resemble a Colt Six Shooter pistol."  Mike's also sold a pipe with rotatable turrets, and Lee filed suit for infringement.  A jury found for Lee and concluded that the infringement was willful, following which the district court awarded enhanced damages and attorneys' fees, the latter based both on the finding of willful infringement and on the basis of alleged "litigation misconduct, consisting of bad faith settlement offers, bad faith conduct during discovery, and threats to report Lee's counsel to state bar associations."  On appeal, the Federal Circuit affirmed the district court's claim construction and the findings of validity and infringement.  It reversed the award of enhanced damages, however, on the ground that the infringement was not objectively reckless, as required for a showing of willful infringement under the first prong of Seagate.  Specifically:
Although MWI raised a number of invalidity and noninfringement  theories, we focus on the objective reasonableness of its infringement defense. As the district court explained in its summary judgment order, there was a “genuine issue of material fact as to whether the turret remains stationary because the turret is heavier than the manifold” and therefore infringed the limitations of claims 1 and 11. JA 240. MWI argued at trial that Lee had not proven that the weight differential between the manifold and turret of the accused pipes was enough to keep the turret stationary, as the district court’s claim construction required. When asked at oral argument in this court why it was unreasonable for MWI to argue that the weight differential was insufficient to ensure stability,Lee’s counsel stated, “that would be a reasonable argument.” See Oral Argument at 16:45-16:48, available at He offered no explanation why such an argument would be objectively unreasonable other than the fact that the jury reached the opposite conclusion.

To be sure, it was reasonable for the jury to conclude that the turret remained stationary relative to the manifold because of the weight differential, but that does not make the accused infringer’s defense objectively unreasonable. In this case, the evidence was close, and the critical factual determinations were left in the jury’s hands. The verdict was supported by substantial evidence, but there was countervailing evidence to support the defendant’s theory as well. The weight differential amounted to only 13 grams, which the jury might have considered insufficient. Moreover, Lee only weighed one of the two pipes and as the above discussion indicates, the jury could have reasonably concluded that MWI did not sell that pipe. Therefore, it was reasonable for MWI to contest the allegation of infringement and to argue that the plaintiff had not proven that the “weight differential actually maintains the turret [in a] stationary [position]” in either accused device. JA 606, ll. 4-5.
On the question of attorneys' fees, the  court remanded to determine whether the defendant's litigation misconduct standing alone was sufficient to make the case "exceptional . . . such that attorney's fees are warranted." (For my previous post on the two pending Supreme Court cases addressing attorneys' fees in patent cases, see here.)

As a matter of policy, I think the decision in Seagate was a step in the right direction, in that it makes it more difficult to justify awarding enhanced damages for infringement.  As an economic matter, enhanced damages make sense only to make up for a risk that the infringement would go undetected or that the defendant sought to make the enforcement of valid rights prohibitively expensive (see my book, pp. 72-73, 145-46).  The objective reasonableness of the defendant's defense is not a perfect proxy for either consideration, by any means, but at least the inquiry into reasonableness means that enhanced damages should be relatively rare--though for empirical evidence that they're not as rare as you might think, even after Seagate, see Christopher B. Seaman, Willful Patent Infringement and Enhanced Damages After In re Seagate : An Empirical Study, 97 Iowa L. Rev . 417, 420, 441 (2012) (reporting that findings of willful infringement had declined by about only 10% after Seagate).   

As for attorneys' fees, as I've said before I think a reasonable case can be made for awarding them as a matter of course to the prevailing party, as is the case in most countries (up to a point, anyway), but such a rule would certainly go against the grain in the U.S. (just as awarding enhanced damages would go against the grain in most other countries, though some inroads are being made on this front in Canada, Taiwan, and possibly China, as discussed here). Some of the current patent reform bills pending in Congress, however, would make fee awards somewhat more common, by permitting them in cases in which the defendant's position was not "substantially justified."  See my post on one of the pending bills, here.

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