Recent Developments in Willful Infringement and Enhanced Damages
In SRI Int’l, Inc. v. Cisco Sys., Inc.[1], the U.S. Court of Appeals for the Federal Circuit (“CAFC”) clarified that the standard for willful infringement is different from that for enhancement of damages. Specifically, a finding of willful infringement requires “no more than deliberate and intentional infringement,” whereas an enhanced damages award is reserved for more egregious conduct rising to “the level of wanton, malicious, and bad-faith behavior.” Thus, a finding of willful infringement does not necessarily warrant an award of enhanced damages.
This is the second appeal and the latest development in a nearly decade-long litigation between SRI International, Inc. (plaintiff-appellant) and Cisco Systems, Inc. (defendant-cross-appellant) involving a jury trial and multiple appeals from the U.S. District Court of Delaware to the CAFC. It began in 2013 when SRI filed suit against Cisco alleging infringement of certain claims of SRI’s patents relating to enterprise network surveillance. At trial, the jury found that Cisco willfully infringed the patents, and the district court awarded SRI enhanced – doubled in this case – damages, as well as attorney fees and costs.
Cisco appealed the district court’s judgment. In the first appeal, the CAFC vacated the district court’s judgment of willful infringement and remanded the case to the district court to determine whether the jury’s verdict of willful infringement was supported by substantial evidence. More specifically, the CAFC remanded on the issue of willful infringement because “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.”[1]
The CAFC also vacated the district court’s enhanced damages and attorney fees awards because they were at least partially based on the finding of willful infringement.
On remand, based on what seemed like a heightened requirement for willfulness, the district court determined that substantial evidence did not support the jury’s verdict of willful infringement. The district court nonetheless maintained the attorney fees award.
This time SRI appealed the district court’s “no willful infringement” judgment and Cisco cross-appealed the district court’s attorney fees award.
In the second appeal, the CAFC acknowledged that “the district court reasonably read our opinion [in the first appeal] to require a more stringent standard for willful infringement than our other cases suggest—conduct rising to ‘the level of wanton, malicious, and bad-faith behavior,’” but made clear that it was not actually the court’s intent to create a heightened standard for willful infringement. More specifically, the CAFC clarified that the language “wanton, malicious, and bad-faith behavior” refers to conduct warranting enhanced damages, not conduct warranting a finding of willful infringement, and that the proper test for willfulness is a less stringent standard requiring “no more than deliberate and intentional infringement.”
Under this proper willfulness standard, and in light of the jury’s findings that Cisco did not have any reasonable basis for invalidity or non-infringement (and in fact did not even challenge the jury’s findings on induced infringement), the CAFC concluded that substantial evidence provided support to reinstate the jury’s verdict of willful infringement.
The CAFC next turned to the district court’s original award of enhanced (doubled) damages. Under the Patent Statute, 35 U.S.C. § 284, enhanced damages up to three times the amount found or assessed may be awarded in the district court’s discretion in appropriate cases. However, “[c]onsistent with nearly two centuries of enhanced damages under patent law, . . . such punishment should generally be reserved for egregious cases typified by willful misconduct.”[2]
The CAFC clarified that while willful infringement is often a factor supporting an award of enhanced damages, an award of enhanced damages does not necessarily flow from every willfulness finding. Thus, the standards for finding willful infringement and awarding enhanced damages are not the same. The CAFC confirmed existing precedent that discretion is left to district courts to determine the appropriateness and extent of enhanced damages.
On this point, the Court of Appeals determined that the district court did not abuse its discretion in finding Cisco’s conduct egregious and doubling the compensatory damages awarded to SRI. In particular, the CAFC noted that the district court appropriately considered the factors laid out in Read Corp. v. Portec, Inc.,[3] including at least the infringer’s behavior as a party to the litigation, the infringer’s size and financial condition, the infringer’s motivation for harm, and the closeness of the case.
Because it was apparent that the only reason the district court did not reinstate enhanced damages on remand was that it found no support for the jury’s verdict of willful infringement, and the CAFC now having reinstated the jury’s willfulness verdict, the CAFC also reinstated the district court’s discretionary award of enhanced damages.
In addition to enhanced damages, the court may also award attorney fees to the prevailing party in “exceptional cases.”[4] An exceptional case is one that stands out from others with respect to the substantive strength of a party’s litigation position . . . or the unreasonable manner in which the case was litigated.[5] Cisco’s litigation conduct in SRI Int’l v. Cisco Systems, Inc. is an example of what amounts to an exceptional case warranting the award of attorney fees. As the district court put it, “Cisco’s entire case was weak, yet it pursued the case aggressively and in an unreasonable manner anyway.”
First, Cisco’s litigation strategies “created a substantial amount of work [. . .] much of which work was needlessly repetitive or irrelevant or frivolous.” Second, Cisco’s tactics were aggressive. Five of these tactics were noted: (1) maintaining nineteen invalidity defenses until the eve of trial even though it presented only two at trial; (2) presenting unreasonable non-infringement arguments contrary to the district court’s claim construction order and also contrary to Cisco’s own documents; (3) exhaustive summary judgment motions and sanction efforts before trial; (4) over-designation of deposition testimony for trial; and (5) asserting “every line of defense post-trial.” The CAFC found no abuse of discretion by the district court in finding that such conduct amounted to an “exceptional case,” and affirmed the district court’s award of attorney fees.
Cisco appealed the district court’s judgment. In the first appeal, the CAFC vacated the district court’s judgment of willful infringement and remanded the case to the district court to determine whether the jury’s verdict of willful infringement was supported by substantial evidence. More specifically, the CAFC remanded on the issue of willful infringement because “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.”[1]
The CAFC also vacated the district court’s enhanced damages and attorney fees awards because they were at least partially based on the finding of willful infringement.
On remand, based on what seemed like a heightened requirement for willfulness, the district court determined that substantial evidence did not support the jury’s verdict of willful infringement. The district court nonetheless maintained the attorney fees award.
This time SRI appealed the district court’s “no willful infringement” judgment and Cisco cross-appealed the district court’s attorney fees award.
In the second appeal, the CAFC acknowledged that “the district court reasonably read our opinion [in the first appeal] to require a more stringent standard for willful infringement than our other cases suggest—conduct rising to ‘the level of wanton, malicious, and bad-faith behavior,’” but made clear that it was not actually the court’s intent to create a heightened standard for willful infringement. More specifically, the CAFC clarified that the language “wanton, malicious, and bad-faith behavior” refers to conduct warranting enhanced damages, not conduct warranting a finding of willful infringement, and that the proper test for willfulness is a less stringent standard requiring “no more than deliberate and intentional infringement.”
Under this proper willfulness standard, and in light of the jury’s findings that Cisco did not have any reasonable basis for invalidity or non-infringement (and in fact did not even challenge the jury’s findings on induced infringement), the CAFC concluded that substantial evidence provided support to reinstate the jury’s verdict of willful infringement.
The CAFC next turned to the district court’s original award of enhanced (doubled) damages. Under the Patent Statute, 35 U.S.C. § 284, enhanced damages up to three times the amount found or assessed may be awarded in the district court’s discretion in appropriate cases. However, “[c]onsistent with nearly two centuries of enhanced damages under patent law, . . . such punishment should generally be reserved for egregious cases typified by willful misconduct.”[2]
The CAFC clarified that while willful infringement is often a factor supporting an award of enhanced damages, an award of enhanced damages does not necessarily flow from every willfulness finding. Thus, the standards for finding willful infringement and awarding enhanced damages are not the same. The CAFC confirmed existing precedent that discretion is left to district courts to determine the appropriateness and extent of enhanced damages.
On this point, the Court of Appeals determined that the district court did not abuse its discretion in finding Cisco’s conduct egregious and doubling the compensatory damages awarded to SRI. In particular, the CAFC noted that the district court appropriately considered the factors laid out in Read Corp. v. Portec, Inc.,[3] including at least the infringer’s behavior as a party to the litigation, the infringer’s size and financial condition, the infringer’s motivation for harm, and the closeness of the case.
Because it was apparent that the only reason the district court did not reinstate enhanced damages on remand was that it found no support for the jury’s verdict of willful infringement, and the CAFC now having reinstated the jury’s willfulness verdict, the CAFC also reinstated the district court’s discretionary award of enhanced damages.
In addition to enhanced damages, the court may also award attorney fees to the prevailing party in “exceptional cases.”[4] An exceptional case is one that stands out from others with respect to the substantive strength of a party’s litigation position . . . or the unreasonable manner in which the case was litigated.[5] Cisco’s litigation conduct in SRI Int’l v. Cisco Systems, Inc. is an example of what amounts to an exceptional case warranting the award of attorney fees. As the district court put it, “Cisco’s entire case was weak, yet it pursued the case aggressively and in an unreasonable manner anyway.”
First, Cisco’s litigation strategies “created a substantial amount of work [. . .] much of which work was needlessly repetitive or irrelevant or frivolous.” Second, Cisco’s tactics were aggressive. Five of these tactics were noted: (1) maintaining nineteen invalidity defenses until the eve of trial even though it presented only two at trial; (2) presenting unreasonable non-infringement arguments contrary to the district court’s claim construction order and also contrary to Cisco’s own documents; (3) exhaustive summary judgment motions and sanction efforts before trial; (4) over-designation of deposition testimony for trial; and (5) asserting “every line of defense post-trial.” The CAFC found no abuse of discretion by the district court in finding that such conduct amounted to an “exceptional case,” and affirmed the district court’s award of attorney fees.
In sum, willful infringement is proven by different evidence and standards than that required to show the “exceptional” nature of the case that will warrant an award of attorney fees. Nonetheless, it is still the case that many cases of proven willful infringement that result in awards of enhanced damages under Section 284 will also involve exceptional case rulings under Section 285 of the Patent Statute.
[1] SRI Int’l, Inc. v. Cisco Sys., Inc., 930 F.3d 1295, 1312 (Fed. Cir. 2019) (emphasis added)).
[2] Halo Elecs., Inc. v. Pulse Elecs., Inc., 579 U.S. 93, 136 S. Ct. 1923, 1933-34 (2016).
[3] 970 F.2d 816, 826-27 (Fed. Cir. 1992).
[4] 35 U.S.C. § 285.
[5] Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U.S. 545, 554 (2014).
[1] No. 2020-1685, ___ F.4th ___, 2021 WL 4434231 (Fed. Cir. Sept. 28, 2021).
