Monday, December 22, 2014

Federal Circuit Affirms in Part, Reverses in Part, in Stryker v. Zimmer

I blogged about the district court opinion in this case, which awarded $217 million in trebled lost profits damages, almost a year ago (see here).  From my previous post:
The plaintiff and the defendant are the two principal competitors in the market for a medical device, known as an orthopedic pulsed lavaged device, used for cleaning wounds and tissue during surgery. In December 2010, Stryker sued Zimmer for infringing three patents.  Two years later, the jury returned a verdict that the patents were valid and willfully infringed, and awarded Stryker $70 million in lost profits.   In August 2013, the district court denied Zimmer’s post-verdict motions for judgment as a matter of law or for new trial; concluded that the case was exceptional and merited an award of attorneys’ fees, and that Stryker was entitled to $2,351,257.66 in supplemental (post-verdict) damages and $11,167,670.50 in prejudgment interest as well; and ordered judgment for treble the lost profits and supplemental damages, or about $217 million, not including the interest and fees. 
The Federal Circuit's opinion, authored by Judge Prost, came out on Friday (available here).  The court affirmed the jury's findings of validity and infringement (pp. 4-16).  Moving along to the damages issues, here are the highlights of the court's opinion:

First, as I noted in my January 2014 post, the district court had rejected Zimmer's argument that Stryker did not mark “substantially all” of its products, and therefore was not entitled to recover lost profits damages for the period preceding the date on which Stryker filed suit.  The Federal Circuit affirmed, though with a caveat (pp. 16-17 n.5):
Zimmer also appeals the jury’s finding that Stryker’s products were sufficiently marked by the ’383 patent during part of the period for which it sought damages. We need not reach this issue, because we affirm the finding that Zimmer infringed the ’807 and ’329 patents, which is sufficient to support all of Stryker’s award of damages for lost profit. However, we note that the jury was indeed incorrectly instructed that it should consider “whether some portion of the Stryker products not with other related patent notices.” Stryker Corp. v. Zimmer, Inc., No. 10-1223, slip op. at 18 (W.D. Mich. Aug. 7, 2013), ECF No. 537 (“Post-Verdict Order”) (emphasis added). Because of this instruction, the jury could have been misled to consider a product marked with the number of a patent related to the ’383 patent—but not with the ’383 patent number itself—as being sufficiently marked. While the district court appears to have relied on cases that suggest that there is some flexibility in what constitutes sufficient marking, the statute is not so broad as to allow marking with a different patent—with different claims—to provide sufficient notice to the public. Rather, the plain language of the marking statute provides that the patented article be marked with the “number of the patent.” 35 U.S.C § 287(a) (emphasis added). 
Second, the court affirmed the lost profits award without further explanation (p.20).

Third, and most significant, was the question of whether Zimmer had willfully infringed and therefore was potentially liable for enhanced damages.  Section 284 of the U.S. Patent Act states that "the court may increase the damages up to three times the amount found or assessed" but provides no criteria for determining when such an enhancement is appropriate.  Under Federal Circuit case law, however, enhanced damages are available only for “willful” infringement, see Cohesive Techs., Inc. v. Waters Corp., 543 F.3d 1351, 1374 (Fed. Cir. 2008); and in In re Seagate Tech., LLC, 497 F.3d 1360, 1371 (Fed. Cir. 2007) (en banc), the court held that for infringement to be “willful” it must be both objectively and subjectively reckless.  More specifically, Seagate holds that “to establish willful infringement, a patentee must show by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent. . . . If this threshold objective standard is satisfied, the patentee must also demonstrate that this objectively-defined risk (determined by the record developed in the infringement proceeding) was either known or so obvious that it should have been known to the accused infringer.”  As noted in my January 2014 post, the district court in Stryker had rejected the argument that "because the Court did not grant Stryker's motions for summary judgment on the issues that went to trial, Zimmer's positions on those issues were, necessarily, reasonable," stating that "[t]he flaw in Zimmer's argument is that there is a difference between an 'objectively reasonable' position and a position with which a reasonable jury could agree. The bare fact that some jury, somewhere might adopt Zimmer's position does not mean Zimmer's position is objectively reasonable."  While not adopting Zimmer's argument about the effect of surviving a pretrial motion, the Federal Circuit nevertheless reversed the district court, stating that "[t]he district court failed to undertake an objective assessment of Zimmer’s specific defenses to Stryker’s claims," and that "[a]n objective assessment of the case," which the court then purported to undertake, "shows that Zimmer presented reasonable defenses to all of the asserted claims of Stryker’s patents" (p.18).  

Fourth, the court vacated the award of attorneys' fees because the award was based on the district court's determination of willfulness, and remanded for further consideration of that issue (p.20).

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The standard for "willful infringement" continues to present some interesting issues.  First, although the fact that the defendant survived a pretrial motion for summary judgment doesn't necessarily mean that the defendant has a sufficiently reasonable defense to withstand a subsequent finding of willful infringement, one might imagine that if (as in Stryker) the defendant survived a dispositive pretrial motion it has a decent chance of succeeding against a subsequent willfulness finding.  See also, e.g., Halo Elecs., Inc. v. Pulse Elecs., Inc., 769 F.3d 1371 (Fed. Cir. 2014) (affirming a finding of no willfulness, where "[t]he record shows that although Pulse was ultimately unsuccessful in challenging the validity of the Halo patents, Pulse did raise a substantial question as to the obviousness of the Halo patents."); Spine Solutions, Inc. v. Medtronic Safamor Danek USA, Inc., 620 F.3d 1305, 1319 (Fed. Cir. 2010) (holding that “Medtronic was not objectively reckless in relying on” its nonobviousness defense, even though that defense was unsuccessful, and thus was not a willful infringer, and stating that the “‘objective’ prong of Seagate tends not to be met where an accused infringer relies on a reasonable defense to a charge of infringement”); but see Powell v. Home Depot, Inc., 663 F.3d 1221, 1237 (Fed. Cir. 2011) (affirming a finding of willfulness, notwithstanding the district court’s denial of the plaintiff’s motion for a preliminary injunction, and its rejection of the defendant’s inequitable conduct defense based only on the balance of equities).  Second, a question that Stryker does not address is whether the Federal Circuit’s willfulness framework still makes sense in the wake of Octane Fitness, LLC v. Icon Health & Fitness, Inc., 134 S. Ct. 1749 (2014), and Highmark Inc. v. Allcare Health Mgt. Sys., 134 S. Ct. 1744 (2014), the Supreme Court’s opinions earlier this year on awards of attorneys’ fees in “exceptional cases” (see my post, here).  As Jason Rantanen has noted (see here) in his post on Judge O'Malley's recent concurring opinion in Halo Electronics, over the years the Federal Circuit has come to link the standards for willfulness and for “exceptional case.”  However, now that the “exceptional case” standard has changed, does it still make sense to premise a finding of willful infringement on proof, by clear and convincing evidence and subject to de novo review on appeal, of objective baselessness?  Whatever the right answer is, the Federal Circuit isn’t taking up these questions just yet, though it’s clear that at some point it will have to do so.  

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