February 27-28, 2017 Goodbye Seagate , Hello Halo : Effects of the Evolving Willfulness Standard on Life Science Patent Filings Yelee Y. Kim Donna M. Meuth Partner Associate General Counsel Arent Fox LLP Intellectual Property Eisai Inc. #ACIFDA
Topics 1.What was law before Halo ? 2.What changed with Halo ? 3.Development of best internal practices to minimize risk of willfulness 2 #ACIFDA
35 U.S.C. §284 • Upon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court. • When the damages are not found by a jury, the court shall assess them. In either event the court may increase the damages up to three times the amount found or assessed. Increased damages under this paragraph shall not apply to provisional rights under section 154(d). • The court may receive expert testimony as an aid to the determination of damages or of what royalty would be reasonable under the circumstances. 3 #ACIFDA
In re Seagate Technology (Fed. Cir. 2007) • Removal of affirmative duty of care • Two-prong test: • 1 st part: Objective recklessness • Infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent • No regard to the subjective state of mind of the accused infringer • 2 nd part: Subjective knowledge of infringement risk • The objectively defined risk was either known or so obvious that it should have been known to the accused infringer 4 #ACIFDA
In re Seagate Technology (Fed. Cir. 2007) • Both prongs needed to be met • Clear and convincing evidence • Usual scenario • Objectively reasonable defense to infringement was fulfilled even if accuser was unaware of that defense at the time • Record developed during litigation 5 #ACIFDA
Halo Electronics v. Pulse Electronics (U.S. 2016) • Halo rejects Seagate ’s Test • “The principal problem with Seagate ’s two -part test is that it requires a finding of objective recklessness in every case before district courts may award enhanced damages.” • “Such a threshold requirement excludes from discretionary punishment many of the most culpable offenders, such as the ‘wanton and malicious pirate’ who intentionally infringes another’s patent – with no doubts about its validity of any notion of a defense – for no purpose other than to steal the patentee’s business.” 6 #ACIFDA
Halo Electronics v. Pulse Electronics (U.S. 2016) • What changed? • No more “objective recklessness requirement” • No “clear and convincing standard” • Now preponderance of the evidence • Appellate review of enhanced damages: abuse of discretion 7 #ACIFDA
Post- Halo Standard • Subjective willfulness determined • Knowledge of infringer measured at time of infringement • Subjective willfulness alone can support award of enhanced damages • Proof that the defendant acted despite a risk of infringement that was either known or so obvious that it should have been known to the accused infringer 8 #ACIFDA
Post- Halo Standard • If willfulness is established, the question of enhanced damages is left to district court’s discretion • Objective reasonableness of accused infringer’s positions can be relevant for the district court when exercising its discretion 9 #ACIFDA
Post- Halo: WBIP v. Kohler (Fed. Cir. 2016) • WBIP, LLC v. Kohler Co. (829 F.3d 1317): CAFC affirms district court’s enhanced damages • Defendant had pre-suit knowledge of patents in suit • Products were marked • Defendant and plaintiff were only two companies in the market • Defendant received inquiry regarding its knowledge of plaintiff’s patents • CAFC determined no abuse of discretion by district court in enhancing damages by 50% 10 #ACIFDA
Development of best internal practices to minimize risk of willfulness 11 #ACIFDA
Role of Patent Counsel • Seeking advice of counsel not required to avoid enhanced damages, but may demonstrate the reasonableness of the accused infringer’s actions. • Request for advice, and the attorney’s response, will help the court analyze the "particular circumstances of the case" and the reasonableness of moving forward. • Counsel to help corporate decision-makers assess the relative risk. • Assess the scope of, and how a court is likely to construe patent claims. • Help avoid potential disputes. • Business leaders can rely on the advice offered by the attorney to support their decisions. • This may hold true, even if the patent analyzed —contrary to the attorney’s advice — is found infringed and not invalid during litigation. 12 #ACIFDA
Avoiding Willfulness – Patent Clearance Search • Search patents in the relevant field, determine how closely they relate to the technology under consideration, and consider whether any change in strategy should be made in view of the results. • Full opinion of counsel may not be necessary for each patent that search reveals. • Knowing what patents others hold that relate to technology can help the business decide whether to pursue an opportunity, to modify its product/process, to seek a license, or to invest elsewhere. • By engaging in a patent-clearance analysis, the business can demonstrate that it took steps to avoid potential infringement, thereby reducing the likelihood of enhanced damages. 13 #ACIFDA
Avoiding Willfulness – Patent Clearance Search (cont.) • Evidence of a request for an attorney’s advice, and the advice received, will help an accused infringer explain its actions during future litigation — which may take place years later. • If a company relies on the advice, it will benefit from being able to demonstrate that it sought the advice, that it provided its counsel with all relevant information, and that the advice received was competent. • Collecting this information and saving it for future use will serve a client well. • A formal letter from counsel setting forth the advice given, as well as the bases for the analysis, should help bolster the company’s decision to proceed. 14 #ACIFDA
Avoiding Willfulness – Patent Clearance Search (cont.) • § 298 of the Patent Act provides that the "failure of an infringer to obtain the advice of counsel … may not be used to prove that the accused infringer willfully infringed." • "it may well be expensive to obtain an opinion of counsel." • Circumstances in which a business owner, scientist, engineer, or technician might determine that a product does not infringe a particular patent without such action being "wanton" or "reckless." • " Congress has … left it to the potential infringer to decide whether to consult counsel." • Balance costs and effort required to obtain legal advice versus the risk presented by the patent. • Greater potential of enhanced damages under Halo may change the balance. 15 #ACIFDA
Avoiding Willfulness – Post Grant Patent Challenges • Filing an IPR or PGR may relatively quickly eliminate some or all of the problematic patent claims. • Petitioners have been generally successful in post-grant patentability challenges. • While most PTAB petitions filed to date have challenged patents already in litigation, this may change. • Expect more PTAB petitions for patents not yet asserted in court to avoid threat of enhanced damages. 16 #ACIFDA
Avoiding Willfulness – Post Grant Patent Challenges (cont.) • Draft, but delay filing, a petition for review. • Provide a robust analysis of the scope and patentability of the patent claims. • May augment or, in some circumstances, replace an opinion of counsel. • Unfiled petition may be used as leverage in licensing or settlement negotiations . 17 #ACIFDA
Avoiding Willfulness – Post Grant Patent Challenges (cont.) • Advantages of PTAB proceeding over an opinion. • Provides more certainty; PTAB will decide whether to institute review within six months of receiving the petition, and it will issue a final written decision 12 months later. • Party seeking review will know whether the challenged patent claims are patentable within a relatively short time. • PTAB proceeding uses BRI and lower burden of proof as compared to district court standards that would employ in opinion. • Disadvantage of PTAB proceeding over an opinion • If PTAB denies petition, is there an alternative defense? • Unpatentability on basis can’t raise before PTAB? • Non-infringement? 18 #ACIFDA
Accused Infringer Beware – Willful Infringement/Enhanced Damages Claim More Likely • Accused infringer cannot rely solely on the presence of objectively reasonable defenses in the litigation to defeat a patent owner’s willful infringement claim. • If the patent owner can show that the accused infringer had knowledge at the time of the challenged conduct, the court can still find willful infringement even if the infringer’s defenses at trial are objectively reasonable. • Willfulness decision likely now made by juries, not judges. 19 #ACIFDA
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