United States: The District Court May Consider Objective Reasonableness Of The Infringement Defenses As Part Of The Evaluation Of The Totality Of The Circumstances When Deciding Whether To Exercise Its Discretion To Enhance Damages

On remand from the Supreme Court, the Federal Circuit vacated the judgment of the district court that defendant ION Geophysical Corporation (ION) does not willfully infringe the asserted patents of plaintiff WesternGeco L.L.C. and remanded for further consideration of enhanced damages under § 284. In the underlying district court proceeding in the Southern District of Texas, the jury found that WesternGeco's patents were valid and infringed by ION and awarded WesternGeco lost profits and reasonable royalties. The jury also found that ION's infringement met the "subjective" prong of the Seagate part test, which was in effect at that time. After trial, WesternGeco moved for enhanced damages, and ION moved for JMOL of no willful infringement.

The district court denied WesternGeco's motion because the "objective" prong of the Seagate test was not met based on the finding that ION's positions were reasonable and not objectively baseless, but the district court did not reach ION's JMOL to set aside the jury's finding of subjective recklessness. ION appealed to the Federal Circuit to reverse the district court's award of lost profits, and WesternGeco cross-appealed the district court's refusal to award enhanced damages. Originally, the Federal Circuit reversed the award of lost profits, holding that WesternGeco was not entitled to lost profits resulting from foreign uses of its patented invention, and it affirmed the district court's denial of WesternGeco's motion for enhanced damages, holding that the object prong of Seagate test was not met because ION's noninfringement and invalidity defenses were not objectively unreasonable. The Supreme Court granted WesternGeco's petition for certiorari in this case and remanded the case to the Federal Circuit for further consideration of the enhanced damages issue in light of Halo Electronics, Inc. v. Pulse Electronics, Inc., 579 U.S. __ (2016).

The Federal Circuit noted that the Supreme Court's decision in Halo overturned the Seagate test because it "is unduly rigid, and it impermissibly encumbers the statutory grant of discretion to the district courts," and the Court held that district court must have greater discretion in awarding damages in cases where the defendant's infringement was egregious. Halo, 136 S. Ct. at 1932, 1934. Although the Court rejected Seagate's strict requirement that a patentee prove the objective unreasonableness of an infringer's defenses, it did not disturb the substantive standard for the second prong of Seagate, subjective willfulness. In fact, Halo emphasizes that subjective willfulness alone, which can be established by 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," may be the basis for awarding enhanced damages. Id. at 1930. Once willfulness is established, the question of awarding enhanced damages is left to the district court's discretion. However, the Supreme Court noted that awards of enhanced damages are not to occur in a typical infringement case, "but are instead designed as a 'punitive' or 'vindictive' sanction for egregious infringement behavior." Id. at 1932. The Federal Circuit also noted that objective reasonableness may still be relevant for the district court to consider when exercising its discretion after Halo. When considering the relevant standard for the district court to exercise its discretion to enhance damages, the Halo court relied on Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749 (2014), which held that, when determining whether to award attorney's fees under § 284, a district court should look at the totality of the circumstances including objective unreasonableness. Id. at 1756. Therefore, the Federal Circuit held that "district courts should exercise their discretion, 'tak[ing] into account the particular circumstances of each case,' and consider all relevant factors in determining whether to award enhanced damages." WesternGeco L.L.C. v. Ion Geophysical Corp., No. 2014-1528, slip op. at 8-9 (Fed. Cir. Sep. 21, 2016) (quoting Halo, 126 S. Ct. at 1933-1934).

Based on its interpretation of Halo, the Federal Circuit vacated and remanded the district court's determination of no willful infringement because WesternGeco's failure to establish that ION's infringement defenses were objectively unreasonable no longer precludes a finding of willfulness. The Federal Circuit instructed the district court that it must consider two questions on remand: (1) when determining whether subjective willfulness exists, consider whether there is sufficient evidence to predicate any award of enhanced damages based on the preponderance of evidence standard set forth in Halo; and (2) if the jury's finding of willfulness is sustained, the district court should consider whether ION's infringement constituted and demonstrated a sufficiently egregious case of misconduct that would warrant enhanced damages under § 285.

WesternGeco L.L.C. v. Ion Geophysical Corp., No. 2014-1528 (Fed. Cir. Sep. 21, 2016).

Originally published 5 October 2016

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