1. Serving the
Creative and Legal Communities
Roy P. Issac, Ph.D., J.D
AIPLA Mid-Winter Institute
27 January, 2016
Company and Attorney Liability: Attorney
Fee Shifts and Enhanced Damages
1 © AIPLA 2015

2. This presentation is intended for educational
purposes only. It is not intended to convey legal
advice pertaining to any particular situation and is
not a substitute for legal advice.
Disclaimer
2 © AIPLA 2015

3. 35 U.S.C. § 284 (Damages)
Stryker v. Zimmer and Halo v. Pulse (Cert. granted)
…the court may increase the damages up to three times the
amount found or assessed…
35 U.S.C. § 285 (Attorney Fees)
Octane Fitness v. Icon Health (Sup. Ct. 2014)
The court in exceptional cases may award reasonable attorney
fees to the prevailing party.
3 © AIPLA 2015

4. • Octane Fitness overturned Federal Circuit’s test from
Brooks Furniture for attorney fee awards.
Section 285 authorizes district courts to award attorney’s fees
to prevailing parties in “exceptional cases.”
The Federal Circuit interpreted “exceptional cases” as ones
involving:
Material inappropriate conduct (sanctions) or
Objectively baseless, and brought in bad faith (sham)
The Federal Circuit also required evidence to establish facts
relating to exceptionality under clear and convincing standard.
4 © AIPLA 2015

5. Octane argued that ICON's infringement action was objectively
baseless.
The district court had rejected ICON's arguments relating to the
construction of certain means-plus-function claim limitations and
infringement of Octane's accused elliptical machines as frivolous.
Octane asserted that ICON's allegations were "unreasonable and
unsupportable" because the court's noninfringement
determination "should have been a foregone conclusion to
anyone who visually inspected its machines."
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Octane Fitness (Supreme Court)
© AIPLA 2015

6. Octane also argued that ICON's case was brought in
subjective bad faith:
(i) an email exchange between two ICON sales executives
suggesting that the litigation was undertaken as a matter of
commercial strategy; and
(ii) ICON is a larger company that never commercialized its
'710 patent.
6 © AIPLA 2015

7. In Octane Fitness, the Supreme Court held that within the
context of § 285 "an 'exceptional' case is simply one that stands
out from others with respect to the substantive strength of a
party's litigating position (considering both the governing law
and the facts of the case) or the unreasonable manner in which
the case was litigated."
“A case presenting either subjective bad faith or exceptionally
meritless claims may sufficiently set itself apart from mine-run
cases to warrant a fee award.“
The exceptional nature of the case must be established by a
preponderance of the evidence through a case-by-case analysis
of the totality of the circumstances.
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Octane Fitness v. ICON Health
© AIPLA 2015

8. • Overall, the change in the standard is expected to
increase the number of attorney fee awards to
prevailing parties.
8 © AIPLA 2015

9. "The absence of a pre-filing analysis, when combined with Icon's
exceptionally weak litigation position, leads to the inference that the
pre-filing investigation resulted in a conclusion that probable success
on the merits was remote.” (Dist. Ct. 2015)
ICON’s emails reflect improper motivation:
"We are suing Octane. Not only are we coming out with a great
product to go after them, but throwing a lawsuit on top of that."
"ICON Health & Fitness does not mess around with this. They are
going to end up paying royalty plus compensation. Funny thing is —
this patent is over 10 years old!"
"Yes. Old patent we had for a long time that was sitting on the shelf.
They are just looking for royalties."
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Octane Fitness on Remand
© AIPLA 2015

10. (1) Establishing that the plaintiff failed to conduct an adequate pre-filing
investigation or to exercise due diligence before filing suit (Yufa v. TSI
Inc. (N.D. Cal. 2014))
(2) Showing that the plaintiff should have known its claim was meritless
and/or lacked substantive strength (Yufa v. TSI Inc.)
(3) Showing that the plaintiff initiated litigation to extract settlements
from defendants who want to avoid costly litigation (Summit Data Sys.,
LLC v. EMC Corp.(D. Del. 2014)
(4) showing a party proceeded in bad faith (Pure Fishing, Inc. v. Normark
Corp.,(Fed. Cir., 2015)
(5) litigation misconduct (Logic Devices, Inc. v. Apple Inc. (N.D. Cal. 2014)
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Ways to establish “exceptionality”
© AIPLA 2015

11. District courts may determine whether a case is 'exceptional' in
the case-by-case exercise of their discretion, considering the
totality of the circumstances
Although Octane Fitness lowered the bar for an exceptional
case finding, it did not eliminate it. (Veracode v. Appthority,
Inc. Dist. Mass.)
11 © AIPLA 2015

12. Octane Fitness v. ICON Health:
About $1.4 million attorney fees and $200,000 in additional fees
awarded.
Bayer CropScience AG v. Dow Agrosciences LLC, (Dist. Del.,
2015):
About $6 million awarded to Dow.
Advanced Video Techs. LLC v. HTC Corp. (S.D.N.Y. 2015)
Fees awarded; exact amount unknown.
River Light V, L.P. v. Lin & J Int'l, Inc. (S.D.N.Y. 2015)
About $2.3 million awarded.
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Examples of Fee Awards Post Octane Fitness
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13. Boys v. Monster Energy Co. (S.D.N.Y. 2015)
Beastie Boys were awarded about $700,000.
Skyline Steel v. Pilepro(S.D.N.Y. 2015)
About $100,000 awarded.
Lumen View Technology v. Findthebest.com, (S.D.N.Y. 2014)
About $300,000 awarded.
Cognex v. & Microscan (S.D.N.Y. 2014)
Fees awarded.
13 © AIPLA 2015

14. 35 U.S.C. § 284 (Damages)
Stryker v. Zimmer and Halo v. Pulse (Cert. granted)
…the court may increase the damages up to three times the
amount found or assessed…
Enhanced damages require a finding of “willful infringement.”
Issues being considered by the Supreme Court:
Federal Circuit test from In re Seagate
Burden of proof: Clear and convincing or
preponderance of evidence
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Enhanced Damages
© AIPLA 2015

15. Enhanced damages under Section 284 are available if the court
determines that a patent infringement was willful.
However, the trial court has discretion in awarding them.
The potential for enhanced damages discourages infringement
by significantly increasing potential liability.
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Willful Infringement
© AIPLA 2015

16. The Federal Circuit’s en banc decision in In re Seagate sets out
the test for determining willful infringement.
“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.”
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In re Seagate
© AIPLA 2015

17. Two-step analysis under Seagate:
Patent infringer took its wrongful actions despite an objectively
high likelihood that its actions constituted infringement of a
valid patent.
The objectively-defined risk was subjectively known or should
have been known to the infringer.
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18. Note that the standard for proving patent infringement is
preponderance of evidence. The affirmative defenses of
invalidity and unenforceability must be proved under the clear
and convincing standards.
The Federal Circuit in In re Seagate required willful
infringement to be proved under the clear and convincing
standard.
The Supreme Court in Halo and Stryker cases will consider
whether a heightened burden of proof is required for awarding
enhanced damages.
18 © AIPLA 2015

19. Patents directed to medical devices that deliver pressurized
irrigation for medical therapies.
District Court:
“In essence, Zimmer handed the independent contractor a copy
of Stryker's product and said, ‘Make one for us.’ Under those
conditions, it is not surprising that the finished Zimmer product
turned out to look and function like Stryker's product.
Nevertheless, Zimmer got its product to market quickly and in
direct competition with Stryker.”
“[Zimmer] did not seek advice of outside patent counsel to
assess the potential for infringement of Stryker's patents, or to
opine on the validity of Stryker's patents.”
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Stryker v. Zimmer
© AIPLA 2015

20. Federal Circuit:
Two step analysis: Step 1 (Objective Analysis): First the
patentee (Stryker) has to show that the infringer acted despite
an objectively high likelihood that its actions constituted
infringement of a valid patent.
Step 2 (Subjective Analysis): The objectively-defined risk was
either known or so obvious that it should have been known to
the accused infringer.
The first step is not met since Zimmer presented reasonable
defenses to asserted claims.
“Zimmer’s defenses to the infringement of each patent claim
that Stryker asserted were not objectively unreasonable, and,
therefore, it did not act recklessly.”
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21. Patents related to surface mount electronic packages
containing transformers for mounting on a printed circuit board
inside electronic devices such as computers and internet
routers.
The president of Pulse contacted a Pulse engineer, who spent
about two hours reviewing the Halo patents and concluded that
they were invalid in view of prior Pulse products.
Pulse did not seek an opinion of counsel on the validity of the
Halo patents at that time and continued to sell its surface
mount electronic package products.
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Halo v. Pulse
© AIPLA 2015

22. No willful infringement;
“The obviousness defense that Pulse presented at trial was not
objectively baseless.”
Halo argued that Pulse did not actually rely on any invalidity
defense pre-suit when selling the accused products because
Pulse’s obviousness defense was developed after the lawsuit
was filed in 2007.
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Halo v. Pulse
© AIPLA 2015

23. The net effect of the two step analysis is that it is very difficult
to prove willful infringement.
If the Supreme Court provides an analysis that is similar to the
fee-shifting issue, a “totality of circumstances” test may be
adopted.
23 © AIPLA 2015

24. (1) whether the infringer deliberately copied the ideas or design
of another;
(2) whether the infringer, when he knew of the other’s patent,
investigated the patent and formed a good faith belief that it
was invalid or that it was not infringed;
(3) the infringer’s behavior in the litigation;
(4) the infringer’s size and financial condition;
(5) the closeness of the case;
(6) the duration of the misconduct;
(7) the remedial action by the infringer;
(8) the infringer’s motivation for harm; and
(9) whether the infringer attempted to conceal its misconduct.
Read Corp. v. Portec, Inc., 970 F.2d 816 (Fed. Cir. 1992)
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ReadFactors: AGuidetoAvoidWillful Infringement
© AIPLA 2015

25. The Supreme Court can increase the likelihood of enhanced
damage awards by lowering the burden or proof to
“preponderance of evidence” standard, and/or providing a
more flexible approach to finding “willful infringement.”
The change in fee-shift standard post-Octane Fitness has
already increased the number of fee awards.
The changes increases liabilities for companies from
potential award of treble damages and attorney fee-shifts.
25 © AIPLA 2015