Amicus Curiae Brief — Halo Elecs., Inc. v. Pulse Elecs., Inc., 136 S. Ct. 356 (2015) (No. 14-1513)

Supreme Court brief2015

Ask Donna

What actually matters in this document.

Text

Nos. 14-1513, 14-1520

Supreme Court of the United States

HALO ELECTRONICS, INC.,

Petitioner,

Uv.

PULSE ELECTRONICS, INC., PULSE ELECTRONICS

CORPORATION,

Respondents.

On Writs of Certiorari to the

United States Court of Appeals

for the Federal Circuit

BRIEF OF NOKIA TECHNOLOGIES OY AND

NOKIA USA INC. AS AMICI CURIAE IN

SUPPORT OF PETITIONERS

JOHN D. HAYNES

Counsel of Record

LINDSEY YEARGIN

ALSTON & BIRD LLP

1201 W. Peachtree St.

Atlanta, GA 30309

Tel. (404) 881-7000

john.haynes@alston.com

Counsel for Amici Curiae

December 16, 2015

II.

TABLE OF CONTENTS

AN AWARD OF ENHANCED DAMAGES

UNDER § 284 SHOULD NOT REQUIRE

A FINDING OF WILLFULNESS

The Statutory Language of § 284

Does Not Contain a Willfulness

The Federal Circuit's Grafting of a

Willfulness Requirement onto § 284 is

Contrary to the Legislative History of

the Statute and Ignores the

Compensatory Aspect of Enhanced

ITI chcsedliaicesntenucinpbintnenadiedibambentsannedinds

THE FEDERAL CIRCUIT’S OVERLY

RIGID TEST IS INAPPROPRIATE

EVEN WHEN WILLFULNESS IS AT

This Court’s Rejection of the Federal

Circuit’s Unduly Rigid Test for Fee-

Shifting Under § 285 Favors

Rejection of the Federal Circuit's

Equally Rigid Test Under § 284.............

Cee eee eee eee ee eee

TPP RRR RRR ER RE EERE EEE ERE RE RE REESE

B. The Federal Circuit’s Willfulness Test

Encourages Free-Riding by Infringers

and Discourages Innovation ..................- 18

Ill. THE FEDERAL CIRCUIT

IMPROPERLY REQUIRES PATENT

OWNERS TO ESTABLISH THEIR

ENTITLEMENT TO ENHANCED

DAMAGES BY CLEAR AND

CONVINCING EVIDENCE ................::0c0000 24

A. The High Standard of Proof Creates

an Unreasonable Burden for a Patent

Owner to Obtain Enhanced Damages.... 24

B. This Court’s Octane Fitness Decision

Confirms that a Heightened Standard

of Proof Is Not Required to Award

Enhanced Damages......................cseeee00002 25

IV. ENHANCED DAMAGES

DETERMINATIONS SHOULD BE

REVIEWED WITH DEFERENCE TO

ee ee icnettenstatntartccsceninnesccnnceee 27

CONCLUSION 0oeccseccsecsscssssesssecsescsscssesssessesesseesseensees 28

LiL

TABL A RITIES

Page(s)

CASES

Apple Inc. v. Motorola, Inc.,

757 F.3d 1286 (Fed. Cir. 2014)................. 10, 12, 21

Bard Peripheral Vascular, Inc. v. W.L.

Gore & Assocs., Inc.,

682 F.3d 1003 (Fed. Cir. 2012)............0000000002. 17, 25

Brooks Furniture Mfg., Inc. v. Dutailier

Int1, Inc.,

393 F.3d 1378 (Fed. Cir. 2005)..............00.00000. 14, 16

Datascape Corp. v. SMEC, Inc.,

879 F.2d 820 (Fed. Cir. 1989)....................00000000 19

eBay Inc. v. MercExchange, L.L.C.,

I aici 12

Gen. Motors Corp. v. Devex Corp.,

I an nae 7

Grogan v. Garner,

in celaanioomenions 23

Halo Elecs., Inc. v. Pulse Elecs., Inc.,

769 F.3d 1371 (Fed. Cir. 2014)................. 15, 16, 18

Herman & MacLean v. Huddleston,

EE 23, 24

Highmark Inc. v. Allcare Health

Management System, Inc.,

134 S. Ct. 1744, 1748-49 (2014) ............. eee 5, 26

iLOR, LLC v. Google, Inc.,

631 F.3d 1372 (Fed. Cir. 2011)....................... 16, 17

In re Seagate Tech., LLC,

497 F.3d 1360 (Fed. Cir. 2007)..................... passim

King Instruments Corp. v. Perego,

65 F.3d 941 (Fed. Cir. 1995)...............ccccccccorseceees 10

Octane Fitness, LLC v. ICON Health &

Fitness, Inc.,

SE SII iio niticraritttcninetaateiimnanemiennel passim

Professional Real Estate Investors, Inc.

v. Columbia Pictures Industries, Inc.,

RE ah Se 15

Resagnet.com, Inc. v. Lansa, Inc.,

533 F. Supp. 2d 397 (S.D.N.Y. 2008).................. 18

Rite-Hite Corp. v. Kelley Co.,

819 F.2d 1120 (Fed. Cir. 1987)...................000. 10, 19

Smith v. Wade,

i aera 25

Stickle v. Heublein,

716 F.2d 1550 (Fed. Cir. 1983)...................ssesees 10

TE-TA-MA Truth Foundation-Family of

URI, Inc. v. World Church of the

Creator,

Se ae a, SOD decitrernetensicniteicitinnmntennnie 7

TGIP, Inc. v. AT&T Corp.,

527 F. Supp. 2d 561 (E.D. Tex. 2007)................. 18

STATUTES

| EEE emer rm oi 24

STIRS err inraee wes ee Semone mee 7

NTT sich ceinialliieenatalaiahicainnill passim

EA Lose eee TE passim

Patent Act of 1793, ch. 11, § 5, 1 Stat.

ETT eee 8

Patent Act of 1836, ch. 357, § 14, 5 Stat.

CEE Eee ae le Se eo eer 8

I lems 9

OTHER AUTHORITIES

James Ryan, A Short History of Patent

Remedies 6 CYBARIS AN INTELL.

PROP. L. REV. 150, 182-83 (2015) ........................ 17

Justin P. Huddleson, Objectively

Reckless: A Semi-Empirical

Evaluation of In re Seagate, 15

B.U.J. Sct. & TECH. L. 102, 134

Sen. John Ruggles, S. Report

Accompanying Senate Bill No. 239.................-.-++. 9

]

INTEREST OF THE AMICI CURIAE!

Amici curiae are Nokia Technologies Oy and

Nokia USA Inc. (collectively, “Nokia”). Nokia is a

global leader and innovator in the

telecommunications equipment and _ services

industry. The Nokia group of companies have

cumulatively invested over $70 billion in research

and development relating to mobile communications.

As a result of this substantial commitment, Nokia

currently owns more than 10,000 patent families,

including a large number of standard-essential

patents. Nokia continues to invest heavily in

research and development and to license and expand

its industry-leading patent portfolio. For example,

Nokia continues to develop and license innovations

that are powering the next revolution in computing

and mobility: the “programmable world” where

intelligent connections bring millions of everyday

objects online. This work includes a team of experts

in areas including digital healthcare, digital

multimedia, imaging and_ sensing, wireless

1 Pursuant to Supreme Court Rule 37.6, counsel for amici curiae

state that no counsel for a party authored this brief in whole or

in part, or made a monetary contribution intended to fund the

preparation or submission of this brief, and no other person

other than amici curiae, its members, or its counsel made such

a contribution. Pursuant to Supreme Court Rule 37.3, counsel

for amici curiae represent that all parties have consented to the

filing of this brief. Halo Electronics, Inc., Pulse Electronics,

Inc., and Stryker Corp. filed notices of their consent to the filing

of all amicus curiae briefs in support of either party or of

neither party, and Zimmer, Inc. gave written consent to counsel

for amici curiae to file this amici curiae brief.

connectivity and power management, advanced

materials, and others.

Nokia and its parent company have been

involved in numerous patent cases in U.S. district

courts, both as a plaintiff and a defendant, including

cases where enhanced damages under 35 U.S.C. §

284 were sought by or against Nokia. Nokia is a

significant patent owner that might seek such

enhanced damages for certain kinds of patent

infringement in U.S. district courts.

Nokia’s interest in this case is to advocate for

the appropriate statement and application of legal

standards governing enhanced damages under 35

U.S.C. § 284, and to ensure that those standards

balance the interests of patent holders and those of

users of patented technology. Companies like Nokia

must be assured that their past, present, and future

substantial research and development efforts are

protectable under the U.S. patent regime and that,

upon an appropriate request and showing, they are

able to receive proper remediation and adequate

compensation, including recovery of enhanced

damages in appropriate’ circumstances, for

unauthorized uses of their patented technologies.

Although Nokia does not take any ultimate position

on the facts of this specific case, Nokia supports

Petitioner’s position that this Court should reject the

Federal Circuit’s overly rigid test governing an

award of enhanced damages under 35 U.S.C. § 284

and provide guidance that ensures a flexible

approach to awarding enhanced damages in

appropriate cases.

SUMMARY OF ARGUMENT

The Federal Circuit has abrogated the plain

meaning of 35 U.S.C. § 284 in four ways. Section 284

of the Patent Act grants to trial courts the discretion

to award enhanced damages in patent cases. 35

U.S.C. § 284. Despite the plain discretionary

language of the statute, the Federal Circuit has (i)

injected a willfulness requirement into language

silent about willfulness, (ii) imposed an overly rigid

two-part test for satisfying that willfulness

requirement, (iii) required plaintiffs to meet an

unreasonably high clear and convincing burden of

proof under its manufactured test, and (iv)

established de novo review of the district court’s

decision regarding whether that burden was

satisfied. Each of these requirements conflicts with

the plain language of the statute and recent guidance

from the Supreme Court. They also make it

unreasonably difficult for patent owners to obtain

enhanced damages in appropriate cases, thus

encouraging continued infringement and

discouraging further investment in innovation.

An award of enhanced damages under § 284

should not require a finding of willfulness, even

though such a finding could certainly be sufficient to

support such an award. There is nothing in the

language of the statute that supports a willfulness

requirement, and the legislative history of the

statute supports the conclusion that no such

requirement was necessary for an enhancement

award in a given case. Additionally, the Federal

Circuit’s grafting of a willfulness requirement onto §

284 ignores the compensatory aspect of enhanced

damages. Courts should have discretion to award

enhanced damages when appropriate under the

particular facts of a given case, even when no willful

infringement is found.

Moreover, even in cases where willfulness is

present, the Federal Circuit’s overly rigid two-part

test for proving such willfulness should be rejected.

The Federal Circuit’s overly rigid standard for

awarding enhanced damages ignores the permissive

language of the statute and improperly excludes

circumstances where an enhanced fee award may be

appropriate. This Court recently recognized — in the

context of attorney fees awards under section 285 of

the Patent Act — that such rigid tests are not

warranted and improperly limit the exercise of the

district court’s discretion. Octane Fitness, LLC uv.

ICON Health & Fitness, Inc., 134 S. Ct. 1749, 1755-

56. This Court’s reasoning in Octane Fitness is

equally applicable in the context of enhanced

damages awards, and a similar approach should be

applied. Requiring a similar approach to enhanced

damages under § 284 as that applied to fee shifting

under § 285 properly balances the interests of patent

holders against those of accused infringers to ensure

that patent holders are properly compensated. This

approach further ensures that improper conduct,

such as copying, reverse hold-up or holding out in

licensing discussions, bad faith, and/or other dilatory

negotiation tactics, is both deterred and remediated

when the facts of a given case warrant an award of

enhanced damages.

The Federal Circuit also improperly requires a

patent owner to establish its entitlement to enhanced

damages under § 284 by clear and convincing

evidence. This high standard of proof places an

unreasonable burden on a patent owner to obtain

enhanced damages. It also directly contradicts this

Court’s reasoning in Octane Fitness, which held that

such a high standard of proof should not apply to

discretionary damages awards. Id.

Finally, the Federal Circuit’s current practice

of reviewing enhanced damages determinations de

novo is contrary to this Court’s decision in Highmark

Inc. v. Alleare Health Management System, Inc., in

which the Court held that awards of attorney fees

under § 285 should be reviewed for abuse of

discretion. 134 S. Ct. 1744, 1748-49 (2014). As the

district court is in the best position to determine

whether an award of enhanced damages is

appropriate under the particular facts of each case,

deference should be given to the district court's

conclusions when reviewing such decisions.

The appropriate standards governing

enhanced damages awards are of utmost importance

to the patent community. This Court should

therefore reevaluate the current judicially-created

standard for an award of enhanced damages under §

284 in order to correct each of the four errors present

in the Federal Circuit’s jurisprudence. The current

approach lacks support in the statute, conflicts with

the guidance of this Court, and is out of line with

important policy considerations.

ARGUMENT

I. AN AWARD OF ENHANCED DAMAGES

UNDER § 284 SHOULD NOT REQUIRE A

FINDING OF WILLFULNESS

A. The Statutory Language of § 284 Does

Not Contain a Willfulness Requirement

Section 284 of the Patent Act states that “the

court may increase the damages up to three times

the amount found or assessed.” 35 U.S.C. § 284.

This language places no limits on the factual

circumstances under which the district court may

exercise its discretion. The statute does not require

any subjective inquiry into the mind of the accused

infringer, nor does it identify any specific criteria

that must be met before the district court may

exercise its discretion to award enhanced damages.

Despite the broad discretion afforded by § 284, the

Federal Circuit has held that increased damages are

only available when a defendant is guilty of willful

infringement. See In re Seagate Tech., LLC, 497 F.3d

1360, 1368 (Fed. Cir. 2007). This added requirement

of willfulness is an error that must be corrected.

When grafting a willfulness requirement onto

§ 284, the Federal Circuit sought guidance from the

enhanced damages provision in copyright law. See

id. at 1370. Although copyright law may provide

guidance in certain circumstances, the Federal

Circuit’s reliance on copyright law in this context

was improper. Unlike § 284 of the Patent Act, in the

willfulness requirement for a finding of enhanced

damages. 17 U.S.C. § 504(c)(2) (“In a case where the

the court finds, that infringement was committed

willfully, the court in its discretion may increase the

award of statutory damages....”). The glaring

absence of such a requirement in the Patent Act

suggests that Congress did not intend for there to be

such a requirement. See Seagate, 497 F.3d at 1381-

82 (Gajarsa, J., concurring). Clear statements from

Congress should exist before placing limits on

recovery for patent infringement. See Gen. Motors

Corp. v. Devex Corp., 461 U.S. 648, 653 (1983)

(“When Congress wished to limit an element of

recovery in a patent infringement action, it said so

explicitly.”). Conversely, statutes lacking clear

statements generally have been interpreted as giving

courts broad equitable discretion to award enhanced

damages. See, e.g., TE-TA-MA Truth Foundation-

Family of URI, Inc. v. World Church of the Creator,

392 F.3d 248, 261 (7th Cir. 2004) (“The broad

discretion accorded a district court under §

1117(a)...is inconsistent with an interpretation that

restricts a prevailing plaintiff to recovery of fees only

in cases of willful infringement.”). Given the broad

language of § 284 and the omission of any willfulness

requirement, the decision regarding whether to

award enhanced damages should be left to the

discretion of the court upon consideration of the

totality of the circumstances, and not limited to

particular circumstances involving willful

infringement.

B. The Federal Circuit’s Grafting of a

Willfulness Requirement onto § 284 is

Contrary to the Legislative History of

the Statute and Ignores the

Compensatory Aspect of Enhanced

Damages

When the Federal Circuit first set forth its

current willfulness standard, two Federal Circuit

judges advocated for the removal of any such

willfulness requirement from § 284. Seagate, 497

F.3d at 1376-84 (Gajarsa, J., concurring). As Judges

Gajarsa and Newman set forth in their concurring

opinion, the judicially manufactured willfulness

requirement finds no support in the legislative

history, ignores the compensatory function of

enhanced damages, and improperly limits judicial

discretion.

In Zimmer, Inc.’s response to the petition for

certiorari in the consolidated case Stryker, Inc. v.

Zimmer, Inc., it states that enhanced damages were

first introduced by the Patent Act of 1836. (Zimmer,

Inc.’s Brief in Opposition (“Zimmer’s Response”) at

16). This is not correct. The Patent Act of 1793 not

only included an enhanced damages provision, but it

also mandated that such damages be awarded in

each case of infringement. Patent Act of 1793, ch. 11,

§ 5, 1 Stat. 318, 322 (repealed 1836). The Patent Act

of 1836 removed this mandatory requirement and

instead granted courts the discretion to award

enhanced damages “according to the circumstances of

the case.” Patent Act of 1836, ch. 357, § 14, 5 Stat.

117, 123. Zimmer asserts that the enhanced

damages provision set forth in the 1836 Patent Act

“required a showing of willful and wanton

infringement.” (Zimmer Response at 16). To the

contrary, as explained by Judge Gajarsa in his

Seagate concurrence, “[njothing in the phrase

‘according to the circumstances of the case’ [in the

1836 Act] implies that the district court’s discretion

to award enhanced damages is contingent upon a

finding of willfulness.” Seagate, 497 F.3d at 1377

(Gajarsa, J., concurring). Moreover, a patent law

textbook written while the 1836 Patent Act was in

effect stated that “[i]ncreased damages may properly

be awarded by a court, where it is necessary to award

them in order to prevent a defendant infringer from

profiting from his own wrong, whether that wrong

was intentional or was unwitting.” ALBERT H.

WALKER, TEXT-BOOK OF THE PATENT LAWS OF THE

UNITED STATES OF AMERICA 423 (2d ed. 1889). The

purpose of the 1836 statute was to provide discretion

to the courts to enhance patent damages, even in

cases where no willful infringement occurred. The

enhanced damages provision of the Patent Act has

not substantively changed since the 1836 Act and

has never included any willfulness requirement.

Requiring willfulnmess for an award of

enhanced damages under § 284 also ignores the

compensatory aspect of enhanced damages awards.

As originally drafted, discretionary enhanced

damages were designed, at least in part, to ensure

that the patent owner was properly and adequately

compensated for infringement. See Sen. John

Ruggles, S. Report Accompanying Senate Bill No.

239, at 6 (Apr. 28, 1836) (recognizing that one

problem to be addressed by the 1836 Patent Act was

the fact that pre-1836 patent law “offerfed] an

inadequate remedy for the [infringement] injury’).

And the Federal Circuit has recognized that

enhanced damages may be necessary in appropriate

cases to properly compensate a patent owner. See,

e.g., King Instruments Corp. v. Perego, 65 F.3d 941,

951 n. 6 (Fed. Cir. 1995) (“Such discretionary

increases may be appropriate where plaintiffs cannot

prove direct and foreseeable damages in the form of

lost profits.”); Rite-Hite Corp. v. Kelley Co., 819 F.2d

1120, 1126 (Fed. Cir. 1987) (“Whether or not

willfulness is found, the court has authority to

consider the degree of culpability of the tortfeasor.

The measure of damages...provides an opportunity

for the trial court to balance equitable concerns as it

determines whether and how to recompense the

successful litigant.”); Stickle v. Heublein, 716 F.2d

1550, 1563 (Fed. Cir. 1983) (“[T]he trial court may

award an amount of damages greater than a

reasonable royalty so that the award is adequate to

compensate for the infringement.”); Apple Inc. v.

Motorola, Inc., 757 F.3d 1286, 1342 (Fed. Cir. 2014)

(Prost, J., concurring) (“[Wje have previously

acknowledged that a trial court may award an

amount of damages greater than a reasonable royalty

if necessary to compensate for the infringement.”)

(internal citation omitted) (emphasis in original).

As emphasized by Judge Gajarsa’s Seagate

concurrence, “actual damages provable at law—

though not ‘inadequate’ in the equitable sense—could

nevertheless be less than sufficient to compensate

the patentee. In such a case, a discretionary

enhancement of damages would be appropriate for

entirely remedial reasons, irrespective of the

defendant’s state of mind.” Seagate, 497 F.3d at

1378 (Gajarsa, J., concurring). Flexibility in

awarding enhanced damages is necessary because

the facts of each case vary, and courts should have

discretion to award enhanced damages when

appropriate under the particular facts of the case.

Judge Garjarsa explained that situations in which an

award of enhanced damages may be necessary to

adequately compensate a patent owner, irrespective

of a willfulness finding, could include, for example,

those where a defendant’s sales data is lost prior to

discovery or where a court determines that enhanced

damages are more appropriate than injunctive relief.

Id.

Another example where an award of

enhanced damages may be appropriate without a

finding of willfulness is in cases involving standard-

essential patents. When a patent is declared

essential to an industry standard, the patent owner

is often obligated to license the patent on fair,

reasonable, and non-discriminatory (“FRAND”)

terms. When a patent owner has expressed a

willingness to license its patent on FRAND terms, an

infringing implementer may believe that the patent

owner has limited its available remedies for

unauthorized use and, as a result, may engage in

reverse hold-up or dilatory hold-out tactics in order

to reduce any payments, delay making them, or

outright avoid paying for a license. Infringing

implementers may be incentivized to engage in

dilatory tactics because they believe that any

royalties awarded in a patent case would be

effectively capped at FRAND rates. The FRAND

commitment, therefore, may work to provide an

incentive for the infringing implementer to continue

infringement without payment of compensation for

as long as possible in order to gain all of the benefits

of postponed cash outlays or other value transfers.

District courts should have the discretion to award

enhanced damages under § 284 in these kinds of

situations in order to fully compensate patent owners

and deter such harmful reverse hold-up and hold-out

tactics. See, e.g. Apple, 757 F.3d at 1342 (Prost, J.,

concurring) (“[I]f a trial court believes that an

infringer previously engaged in bad faith

negotiations, it is entitled to increase the damages to

account for any harm to the patentee as a result of

that behavior.”).

In their responses to the petitions for certiorari

in the consolidated cases, Zimmer and Pulse

Electronics place a lot of emphasis on the historical

practice of awarding enhanced damages upon a

finding of willfulness. (Zimmer Response at 16-18;

Pulse Electronics’ Brief in Opposition to Petition for

a Writ of Certiorari (“Pulse Response”) at 19).

However, this historical practice does not justify a

general rule requiring willfulness as a prerequisite

for such awards. Cf. eBay Inc. v. MercExchange,

L.L.C., 547 U.S. 388, 395 (2006) (observing that the

historical practice of granting injunctions in the vast

majority of patent cases “does not entitle a patentee

to a permanent injunction or justify a general rule

that such injunctions should issue”). Because willful

infringement was the most common reason for a

court to award enhanced damages, the case law

quickly began to focus on that issue to the exclusion

of other circumstances that may have warranted

exercise of the district court’s discretion.

The Federal Circuit’s grafting of a willfulness

requirement onto § 284 is contrary to the statute’s

legislative history, ignores the compensatory aspect

of enhanced damages, and improperly eliminates the

discretion granted to the district court. This Court

should therefore remove the willfulness requirement

from the standard for awarding enhanced damages

and institute a more discretionary approach.

Il. THE FEDERAL CIRCUIT'S OVERLY RIGID

TEST IS INAPPROPRIATE EVEN WHEN

WILLFULNESS IS AT ISSUE

Although willfulness should not be a necessary

predicate to an award of enhanced damages,

evidence of willful infringement could certainly be

sufficient to support such an award. But even when

willfulness is at issue, the Federal Circuit’s overly

rigid two-part test for determining whether willful

infringement has occurred should be rejected. Under

the first prong of the current test, a patent owner

“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.” Jd. at 1371. If this threshold objective

standard is satisfied, the patent owner must then

prove that the objectively-defined risk “was either

known or so obvious that it should have been known

to the accused infringer.” Jd. This test improperly

shifts the focus of the inquiry to an infringer’s post-

suit activities and fails to account for pre-suit

conduct that may warrant an award of enhanced

damages in appropriate situations. Section 284 is

not so limited. This Court should remove this test

and replace it with a standard that allows the

district court to consider the totality of the

circumstances, including an infringer’s pre-suit

activities.

A. This Court’s Rejection of the Federal

Circuit’s Unduly Rigid Test for Fee-

Shifting Under § 285 Favors Rejection of

the Federal Circuit’s Equally Rigid Test

Under § 284

This Court recently rejected the Federal

Circuit’s overly rigid test for awarding attorney fees

‘under § 285 of the Patent Act. As discussed below,

the reasoning applied by the Court under § 285

applies with equal force to § 284.

Section 285 states that “(t]he court in

exceptional cases may award reasonable attorney

fees to the prevailing party.” 35 U.S.C. § 285. The

Federal Circuit previously required a showing that a

case either involved “material inappropriate conduct”

or was both “objectively baseless” and “brought in

subjective bad faith” in order to award attorney fees.

Brooks Furniture Mfg., Inc. v. Dutailier Int'l, Inc.,

393 F.3d 1378, 1382 (Fed. Cir. 2005). This Court

struck down that test as “unduly rigid,” finding that

the test “impermissibly encumber[ed] the statutory

grant of discretion to district courts.” Octane Fitness,

LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749,

1756 (2014). The Court also noted that the Federal

Circuit’s requirement that “a district court must

determine both that the litigation is objectively

baseless and that the plaintiff brought it in

subjective bad faith” was too restrictive. Jd. at 1757.

The Court held instead that either objectively

baseless litigation or a plaintiff's subjective bad faith

may independently warrant a fee award. Id. The

Court held that the proper test for determining

whether fee-shifting is appropriate is the

consideration of the totality of the circumstances on a

case-by-case basis. Jd. at 1756. Thus, even though §

285 is limited to “exceptional cases,” the Court left

the determination of whether fee-shifting is

appropriate to the discretion of the district court by

allowing the district court to consider the totality of

the circumstances.

Zimmer and Pulse Electronics argue that

Octane Fitness should not influence this Court’s

decision regarding the enhanced damages standard

because there is no mention in Octane Fitness of §

284. (Zimmer Response at 19; Pulse Response at 15).

For multiple reasons, this Court’s reasoning in

Octane Fitness applies with equal, or even greater,

force to awards of increased damages under § 284.

First, the Federal Circuit’s current test for enhanced

damages, like its old test for fee-shifting, was

predicated on this Court’s decision in Professional

Real Estate Investors, Inc. v. Columbia Pictures

Industries, Inc., 508 U.S. 49 (1993) (PRE). See Halo

Elecs., Inc. v. Pulse Elecs., Inc., 769 F.3d 1371, 1384

(Fed. Cir. 2014) (O’Malley, J., concurring). In PRE,

this Court established a two-part objective/subjective

test to determine whether litigation is “sham”

litigation, so as to nullify the immunity from

antitrust liability generally enjoyed by litigants. 508

U.S. at 60-61. Prior to this Court’s decision in

Octane Fitness, the Federal Circuit had imported the

standard set forth in PRE into § 285 as well. See

Octane Fitness, 134 S. Ct. at 1756. In Octane Fitness,

this Court held that the Federal Circuit’s

interpretation of PRE was wrong, noting that “the

PRE standard finds no roots in the text of § 285.” Id.

at 1756-57. This Court should similarly reject the

Federal Circuit’s reliance on PRE to construct an

overly rigid test for awarding enhanced damages

under § 284. “Just as ‘the PRE standard finds no

roots in the text of § 285,’ there is nothing in the text

of § 284 that justifies the use of the PRE narrow

standard.” Halo Elecs., 769 F.3d at 1384 (O’Malley,

J., concurring) (quoting Octane Fitness, 134 S. Ct. at

1757).

Second, Section 284 provides even greater

discretion to the district court than does Section 285:

a district court “may increase the damages up to

three times the amount found or assessed.” 35

U.S.C. § 284. There is no requirement that enhanced

damages be awarded only in “exceptional cases,” as

there is for an award of attorney fees under § 285.

See id. Like the test for § 285 rejected by this Court,

the current Federal Circuit test for § 284

“superimposes an _ inflexible framework onto

statutory text that is inherently flexible.” Octane

Fitness, 134 S. Ct. at 1756.

Third, the objective/subjective test used by the

Federal Circuit to determine whether to award

enhanced damages is nearly identical to the § 285

test rejected by this Court in Octane Fitness, despite

that section having a more restrictive “exceptional

case” requirement. See iLOR, LLC v. Google, Inc.,

631 F.3d 1372, 1377 (Fed. Cir. 2011) (“The objective

baselessness standard for enhanced damages and

attorney fees...under Brooks Furniture is identical to

the objective recklessness standard for enhanced

damages and attorney fees against an accused

infringer for § 284 willful infringement actions.”).

This Court should overturn the § 284 test for the

same reasons it rejected the § 285 test because, “[i]f

‘objective recklessness’ is a harsh standard for

attorney fees, then it is a necessary conclusion that it

is too harsh a standard for enhanced damages.”

James Ryan, A Short History of Patent Remedies, 6

CYBARIS AN INTELL. PRoP. L. REV. 150, 182-83 (2015).

Finally, courts have historically treated the

award of enhanced damages under § 284 and the

award of attorney fees under § 285 similarly, often

citing precedent concerning one section in the

application of the other. See, e.g., iLOR, 631 F.3d at

1377; Bard Peripheral Vascular, Inc. v. W.L. Gore &

Assocs., Inc., 682 F.3d 1003, 1007 (Fed. Cir. 2012). It

therefore follows logically that this Court should

, apply its reasoning in Octane Fitness to the standard

for awarding enhanced damages under § 284.

In arguing that Octane Fitness should not

apply to the § 284 standard, Zimmer and Pulse

Electronics assert that § 285 is compensatory, while

§ 284 is punitive. (Zimmer Response at 19; Pulse

Response at 14). As discussed above, however,

although one purpose of § 284 may be to punish

infringers in appropriate’cases, awarding enhanced

damages has historically also had a compensatory

purpose in certain cases. See supra Sec. I1.B. It is

clear that, contrary to Zimmer and Pulse Electronics’

assertions, §§ 284 and 285, and the tests used by the

Federal Circuit to apply them, are very similar and

should be given the same treatment by this Court.

Despite the similarities between § 284 and

§ 285 and the tests constructed by the Federal

Circuit to apply those statutes, the Federal Circuit

has to date persisted in applying an overly rigid

standard to § 284, even after this Court rejected the

basis for that standard in Octane Fitness. This Court

should reconcile these tests and preserve flexibility

and discretion in awarding damages under § 284 as

the Court has done for § 285.

B. The Federal Circuit’s Willfulness Test

Encourages Free-Riding by Infringers

and Discourages Innovation

When applying the Federal Circuit’s current

strict two-part willfulness test, courts have mainly

focused on the merits of a defendant’s post-litigation

defenses, rather than on a defendant’s pre-suit

actions. See, e.g., Halo Elecs., 769 F.3d at 1382-83.

District courts have increasingly held that a close

call on infringement or the existence of a substantial

invalidity defense precludes a finding of willfulness.

See, e.g., Resqnet.com, Inc. v. Lansa, Inc., 533 F.

Supp. 2d 397, 420 (S.D.N.Y. 2008); TGIP, Inc. v.

AT&T Corp., 527 F. Supp. 2d 561, 579 (E.D. Tex.

2007).

Under the Federal Circuit's willfulness

standard, no matter how unreasonable, reckless, or

intentional an infringer’s actions are pre-suit, willful

infringers can attempt to avoid the consequences of

their actions by simply putting forth a non-frivolous

post-suit defense. This does not make sense from a

policy perspective. Courts should focus on the

totality of the circumstances, including pre-suit

factors, such as the facts known to the accused

infringer at the time the accused infringer learned of

the patent and proceeded with actions relevant to

infringement. For example, if a party during

negotiations is put on notice that it is infringing a

number of patents necessary to practice a particular

standard and that party then engages in a pattern of

hold-out and other delay tactics designed to permit

continued infringement and free-riding, such conduct

should properly be considered in a_ willfulness

determination. Only by looking at all of the relevant

evidence can the trier of fact decide whether the

accused infringer committed willful infringement. As

the Federal Circuit previously recognized, the mere

fact that an infringer is able to come up with some

plausible defenses at trial should not negate the

infringers earlier unreasonable, bad faith, or

reckless actions. See Datascape Corp. v. SMEC, Inc.,

879 F.2d 820, 829 n. 8 (Fed. Cir. 1989) (“[Defendants]

will not be permitted to be saved from their flagrant

disregard for the patent laws by the fortuity that

when the patent in issue was closely scrutinized in

this lawsuit, a close question of obviousness was

presented.”) (internal citation omitted).

Awarding enhanced damages for willful

infringement punishes culpable behavior and deters

potential infringers from engaging in such behavior.

See Rite-Hite, 819 F.2d at 1126 (“The role of a finding

of ‘willfulness’ in the law of infringement is partly

as...an economic deterrent to the tort of infringement

— and partly as a basis for making economically

whole one who has been wronged.”). The Federal

Circuit’s current rigid willfulness standard fails to

accomplish these important objectives. Under the

current standard, even an _ infringer who

intentionally chose to infringe a patent, believing

fully that the act was infringement, and that was

later judged to be infringing, could still successfully

avoid enhanced damages by concocting, post-suit, a

non-frivolous (but ultimately incorrect) defense. This

result encourages infringers to disregard known

patent rights of innovators because there is little

chance that doing so will result in greater penalty.

With a lower threat of being punished, efficient

infringement becomes a rational business model, and

companies may choose to take the lower risk of

willfully infringing a patent to obtain the benefit of

free-riding on others’ innovation. The willfulness

inquiry as a factor in an enhanced damages analysis

serves to deter unreasonable behavior, such as

knowing infringement and holding out, and the

determination of whether enhanced damages are

appropriate should enable that goal to be fulfilled.

The Federal Circuit’s overly rigid test does not do so.

The current willfulness standard is equally

problematic with regard to standard-essential

patents, such as patents essential to cellular

telecommunications standards. After a patent is

declared essential to an industry standard, if a

company decides to implement the standard and is

on notice of another’s essential patent, that

implementer should take steps to either timely

obtain a license and pay appropriate royalties or take

all necessary steps to reasonably determine that a

license is not needed. However, as discussed above,

the implementer has little incentive to timely enter

into a license and begin making appropriate

payments if it believes that it will at most have to

pay FRAND terms for such a license at the end of the

day, even if it engages in unreasonable conduct in

negotiations, such as reverse hold-up or hold-out

tactics to avoid paying appropriate compensation. If

the implementer chooses to ignore the patent rights

of others and refuses to timely enter into a license, it

is free-riding on the intellectual property rights of

others. The availability of enhanced damages may

provide a needed deterrent against such reverse

hold-up and hold-out tactics, and resulting free-

riding, because the infringing implementer could face

much higher damages awards in appropriate cases

where its conduct so warrants. See Apple, 757 F.3d

at 1342 (Prost, J., concurring). The Federal Circuit’s

rigid test, however, removes much of the teeth from

this deterrent, and, as a result, users of essential

patented technology are incentivized to continue

holding out and free-riding as long as possible

because, under the current regime, the risk of

enhanced damages is mitigated by the possibility

that post-suit rationalizations will avoid enhanced

damages. Without a meaningful deterrent, there is

little risk in this approach and much to gain from

continued use of technology without paying for it.

See Justin P. Huddleson, Objectively Reckless: A

Semi-Empirical Evaluation of In re Seagate, 15

B.U.J. Sci. & TECH. L. 102, 134 (2009) (“[I]t is likely

that companies will be more willing to infringe a

patent, preferring to take their chances that the

court will strike down the patent or that the benefits

of marketing the pirated invention during the

duration of the lawsuit will be worth more than

damages. With a lower threat of being punished,

combined with inaccurate royalty or lost profit

determinations, efficient infringement becomes a

rational business model.”) (internal quotations

omitted).

The Federal Circuit’s overly rigid test also

discourages patent owners from investing in new

innovations. If patent owners are unlikely to get

enhanced damages in appropriate cases, including

those involving willful infringement, some patent

owners may choose not to pursue every violation.

Additionally, the increased costs of proving

willfulness, combined with the potential for

insufficient compensation, greatly decreases

incentives for patenting, thus discouraging continued

investment in innovation.

The incentive for an inventor to patent and

disclose an invention is only as strong as the

property rights of a patent. “The strength of this

property right is crucial to foster innovation that

would not occur except for the prospect of a patent

because companies can expect increased profits from

investments in research and _ development.”

Huddleson, supra. The ability to deter unreasonable

behaviors, including willful infringement, is part of a

patent’s value. The current willfulness standard set

forth in Seagate weakens the property rights of a

patent by effectively permitting, perhaps even

encouraging, willful infringement. This Court should

thus set forth a more flexible, discretionary

willfulness standard that is consistent with the

discretion afforded by § 284.

Ill. THE FEDERAL CIRCUIT IMPROPERLY

REQUIRES PATENT OWNERS TO

ESTABLISH THEIR ENTITLEMENT TO

ENHANCED DAMAGES BY CLEAR AND

CONVINCING EVIDENCE

A. The High Standard of Proof Creates an

Unreasonable Burden for a Patent

Owner to Obtain Enhanced Damages

The Federal Circuit’s overly rigid test also

applies an inappropriate burden of proof by requiring

that willfulmess be established by clear and

convincing evidence. See Seagate, 497 F.3d at 1371.

The statute contains no such requirement, and the

heightened standard imposed by the Federal Circuit

undermines the purpose behind it.

When discussing Congress’s silence regarding

a standard of proof in a statute, this Court has noted

that “[t]his silence is inconsistent with the view that

Congress intended to require a special, heightened

standard of proof.” Grogan v. Garner, 498 U.S. 279,

286 (1991). Here, Congress’s silence in the

legislative history and text of § 284 suggests that a

court’s discretion to increase a damage award should

not be constrained by a requirement of proof higher

than a preponderance of the evidence.

As this Court has_ recognized, a

“preponderance-of-the-evidence standard allows both

parties to share the risk of error in roughly equal

fashion,” whereas “[a]ny other standard expresses a

preference for one side’s interests.” Herman &

MacLean v. Huddleston, 459 U.S. 375, 390 (1983)

(internal quotations omitted). The issue of whether

to award enhanced damages only arises if the fact-

finder has already determined that the defendant

has actually infringed a valid and enforceable patent.

See Seagate, 497 F.3d at 1368. In such cases, the

patent owner and the infringer should equally share

the risk of an incorrect factual resolution in an

enhanced damages determination. Factual issues in

an enhanced damages determination § should

therefore be resolved under a preponderance of the

evidence standard.

Finally, it is worth noting that this Court has

held that a preponderance of the evidence standard

sufficed for recovery under the antitrust laws. See

Herman & McLean, 459 U.S. at 390. This is

significant because a successful antitrust plaintiff

automatically recovers treble damages. 15 U.S.C. §

15(a). This demonstrates that heightened burdens of

proof are not required for treble damages awards,

and there is no reason to impose such a heightened

standard on § 284. This Court should clarify the

appropriate burden of proof for enhanced damages.

B. This Court’s Octane Fitness Decision

Confirms that a Heightened Standard of

Proof Is Not Required to Award

Enhanced Damages

In Octane Fitness, this Court rejected the

Federal Circuit’s requirement that patent owners

establish their entitlement to fees under § 285 by

clear and convincing evidence, noting that “patent-

infringement litigation has always been governed by

a preponderance of the evidence standard.” Octane

Fitness, 134 S. Ct. at 1758. The Court noted that

“nothing in § 285 demands such a high standard of

proof.” Jd. Instead, “Section 285 demands a simple

discretionary inquiry.” Id. Like § 285, § 284

contains no language that justifies a higher standard

of proof. Section 284 allows enhanced damages at

the discretion of the district court, and the award of

such damages should also be subject to the lesser

preponderance of the evidence standard governing

infringement damages.

Zimmer and Pulse Electronics’ argument that

Octane Fitness should not be applied to § 284 based

on the punitive nature of enhanced damages is again

without merit in the context of the standard of proof

used in enhanced damages analyses. The Supreme

Court has expressly rejected the notion that punitive

damages require a higher burden of proof, stating

that “[t]here has never been any general common-law

rule that the threshold for punitive damages must

always be higher than that for compensatory

liability.” Smith v. Wade, 461 U.S. 30, 53 (1983).

This Court should remove the heightened burden the

Federal Circuit has imposed on patent owners to

establish enhanced damages under § 284.

IV. ENHANCED DAMAGES

DETERMINATIONS SHOULD BE

REVIEWED WITH DEFERENCE TO THE

FACTFINDER

The Federal Circuit currently engages in de

novo review of district courts’ enhanced damages

determinations. See Bard, 682 F.3d at 1007. This

standard of review is contrary to this Court's

precedent and should be corrected.

In Highmark Inc. v. Allcare Health

Management System, Inc., this Court held that,

because the determination of whether to award

attorney fees under § 285 is left to the discretion of

the district court, those determinations should be

reviewed using an abuse-of-discretion standard. 134

S. Ct. 1744, 1748-49 (2014). The Court emphasized

that “the district court is better positioned to decide

whether a case is exceptional.” Jd. at 1748 (internal

quotations omitted).

As discussed above, § 284 leaves the

determination of whether to award enhanced

damages to the discretion of district courts. See

supra, Sec. 1. This Court’s reasoning in Highmark

squarely applies to an award of enhanced damages

under § 284. As with awards of attorney fees, the

district court is better positioned to determine when

an award of enhanced damages is appropriate

“because it lives with the case over a prolonged

period of time.” Highmark, 134 S. Ct. at 1748.

Accordingly, for the same reasons it applied an

abuse-of-discretion standard of review to awards of

attorney fees under § 285, this Court should apply

the same standard to awards of enhanced damages

under § 284.

Zimmer argues that the reasoning set forth in

Highmark should not alter the standard of review for

enhanced damages determinations because

Highmark’s holding was predicated on the revised

standard for awarding attorney fees set forth in

Octane Fitness. (Zimmer Response at 20-21). As

thoroughly argued in this brief, however, the

standard for awarding enhanced damages should

also be revised by this Court to be more flexible, in

line with the revised test for attorney fees set forth in

Octane Fitness. Once this standard is properly

revised, the reasoning set forth in Highmark will

apply with even greater force to the standard of

review for enhanced damages determinations. This

Court should therefore require the Federal Circuit to

review such determinations using an abuse-of-

discretion standard.

CONCLUSION

For the reasons set forth above, the Court

should remove the willfulness requirement from the

standard for awarding enhanced damages and

require a more discretionary approach consistent

with the statute. The Court should further hold that

the standard of proof for awards of enhanced

damages should be a preponderance-of-the-evidence

and that such awards should be reviewed only for

abuse of discretion.

Respectfully submitted,