The Seagate Standard Has Run Aground – Can It Be Salvaged? | December 2011

by Sean M. Murray
This article was originally published in Law360. Download PDF

For years after the Federal Circuit set forth a new two-pronged standard for willful infringement in In re Seagate Technology,[1] it has been far from clear how the standard should be applied at trial. Among the murky issues swirling in these turbid waters are critical questions such as whether the jury can hear evidence of all the accused infringer’s defenses, even purely legal defenses that are tried to the judge, and what it means to say that the standard’s subjective prong is satisfied if the defendant at the time of the infringement knew or should have known about an objective risk defined afterwards at trial.

In its recent decision in Powell v. Home Depot USA Inc.,[2] the Federal Circuit attempted to clarify its willfulness jurisprudence. Alas, the effort was hardly a smashing success. Powell produced not clarity but a willfulness regime that is needlessly complex and, what is worse, that cannot be trusted to reliably identify the sort of conduct that should be sanctioned as willful.

The Seagate standard can still be salvaged, but at least two changes must be made. First, the jury should no longer play any role in deciding the objective prong of the willfulness standard. Rather, the judge should be charged with considering all of the liability issues in the case, including the factual issues tried to the jury, and determining whether the defendant was objectively reckless in engaging in the challenged conduct.

Second, in deciding the standard’s subjective prong, the jury should not be asked to determine what “objectively defined risk” was established at trial or whether the accused infringer was aware of the “objectively defined risk.” Rather, the jury should simply decide whether the defendant likely knew or believed that there was a high risk that it was infringing a valid patent.

Powell Only Exacerbates Seagate’s Flaws

Seagate requires a plaintiff alleging willful infringement (1) to prove by clear and convincing evidence that the accused infringer was objectively reckless, i.e., that it acted despite an objectively high likelihood that it was infringing a valid patent claim, and (2) to prove that “this objectively-defined risk (determined by the record developed in the infringement proceeding) was either known or so obvious that it should have been known to the accused infringer.”[3] In Powell, the Federal Circuit adopted a multiple-step procedure for applying this two-pronged standard.

First, the judge determines whether the defendant’s legal defenses preclude a finding of objective recklessness.[4] If they do not, then the jury considers the accused infringer’s factual defenses and decides whether the accused infringer was objectively reckless.[5]

If the jury finds that the objective prong has been satisfied, it then proceeds to decide the subjective prong.[6] Finally, if the court rules on any legal defenses after a jury verdict of willfulness, the judge may revisit the objective prong of the Seagate standard in the course of addressing a renewed motion for judgment as a matter of law.[7]

While it may be unfair to call the Powell procedure byzantine and unworkable, it is certainly needlessly complex. More importantly, the procedure suffers from a fundamental flaw that could lead to erroneous findings of objective recklessness. In many cases, the application of the Powell procedure would mean that no single decision maker would consider the totality of the accused infringer’s defenses — legal and factual — in deciding whether there was an objectively high likelihood that the accused infringer’s conduct infringed a valid patent claim.

But to fairly assess whether the accused infringer acted despite an objectively high likelihood of patent liability, it is surely necessary to look at all of the relevant defenses. This is especially true where legal and factual defenses are interrelated, e.g., where the accused infringer asserts a narrow claim construction that would establish noninfringement as a matter of law as well as an anticipation argument that would be materially strengthened by a broader claim construction. To look at only half of the picture would necessarily make the accused infringer appear less responsible or more reckless that it really was. This seems patently unjust.

Some might object that the judge should not decide what weight to accord factual defenses that are tried to the jury, such as noninfringement defenses. The Powell court insisted that “while the jury is in a position to consider how the infringement case weighed in the objective prong analysis, on other components — such as claim construction — the objective prong question [is] properly considered by the court.”[8] But the trial judge who sat through all of the evidence presented to the jury is surely in an excellent position to assess the merit of the accused infringer’s factual defenses.

Nor should the Seventh Amendment be considered an impediment. The jury would still decide the merits of the accused infringer’s factual defenses and, at the end of the day, it is the judge who decides whether to award augmented damages for willfulness.

Moreover, nothing prevents the judge from deciding the objective prong after the jury’s verdict. The verdict is a de facto judgment on the strength of the accused infringer’s factual defenses, and the court could and should take this into account when deciding the objective prong. This procedure is problematic only if one insists that the objective prong be decided before the subjective prong so that the jury, in deciding the subjective prong, can consider the “objectively defined risk” of patent liability. However, as discussed below, the jury’s subjective analysis should be decoupled from the objective analysis performed at the time of trial.

Decoupling The Objective And Subjective Prongs Of The Willfulness Standard

Infelicitous language in Seagate suggests that the jury, in evaluating an accused infringer’s subjective bad faith, must consider whether the objective risk of patent liability as defined by the evidence presented at trial was known or should have been known to the accused infringer. Specifically, the Federal Circuit stated that “the patentee must also demonstrate that this objectively-defined risk (determined by the record developed in the infringement proceeding) was either known or so obvious that it should have been known to the accused infringer.”[9]

But it makes little sense to require the jury to determine whether the accused infringer at the time of infringement knew about an “objectively defined risk” that was only defined afterward, at the time of trial. The jury’s task appears almost nonsensical when one considers that Seagate defines the risk in terms of the record created at trial, but the trial record is itself the product of a whole host of evidentiary rulings by the district court. Should the jury’s determination of subjective bad faith really turn, for example, on the fact that certain evidence was excluded because an attorney inadvertently missed a pretrial deadline?

Rather than focusing on the objective merits of the defenses and evidence presented at trial, the subjective prong of the Seagate standard should focus on whether the accused infringer has acted badly. The point and purpose of the willfulness doctrine is to distinguish those accused infringers who are merely guilty of a strict liability offense from those who have acted badly by flouting another’s patent rights. The most damning criticism of the current willfulness standard is that it fails to reliably draw this distinction.

Because the current standard’s subjective prong ignores considerations that are not determined to be objectively meritorious during the infringement suit, but which could have actually and reasonably influenced the accused infringer, the jury’s subjective analysis will often be predicated on an incomplete picture of the mind of the accused infringer.

It is very possible for a party to rely in good faith on a defense that is dismissed on its merits prior to trial, that is tried to the court, or that is otherwise not presented to the jury. For example, the businesspeople at a company may believe they do not infringe because their design is the same as the design of a prior art product.

Alternatively, they could reasonably believe that their device falls outside the scope of straightforward claim language whose meaning is widely understood in the field. If the accused infringer truly believed in such defenses, it would, of course, be highly relevant to the issue of subjective bad faith, even if those defenses were dismissed on summary judgment or during the claim construction process. But under the current willfulness regime, a jury charged with deciding the accused infringer’s state of mind might never hear about the considerations that really drove the accused infringer’s conduct.

For the jury to determine the state of the accused infringer’s mind when it engaged in the challenged conduct, the jury must be allowed to hear the accused infringer’s story about what it knew and what it reasonably believed. The patentee can always rebut this story with evidence that the accused infringer really knew or should have known that there was a high risk of patent liability.

This rebuttal could include evidence that the accused infringer’s defenses were weak because the court dismissed them, as well as evidence that no reasonable business person in the accused infringer’s position would have concluded that the risk of patent liability was low. Armed with all the information, the jury could then make the necessary credibility determinations and reach an informed conclusion about whether the accused infringer knew or should have known that it faced a high risk of patent liability.

Conclusion

There is an undeniable logic to the two-pronged standard for willful infringement. The subjective prong is the heart of the willfulness analysis. Its role is to distinguish innocent infringers from those who have acted badly, i.e., those who proceeded with the challenged conduct in the face of information that would have alerted a reasonable person that there was a high risk of infringing another’s valid patent rights.

The objective prong is the safety check. It ensures that the stigma and potentially heavy penalties associated with willful infringement do not fall on an infringer who establishes that patent liability is an objectively close question.

There is also a logical way to apply the two-pronged willfulness standard. Because the state of the accused infringer’s mind is a quintessentially historical fact that relates to the time of infringement, the jury should find this fact without being constrained by which defenses are presented at trial or by anything else that occurred after the relevant time period.

Then, if the jury returns a verdict of subjective bad faith, the judge should determine whether there was an objectively high likelihood of patent liability in light of all the defenses raised by the accused infringer. Such a procedure would not only be far simpler than the one described in Powell, it also would be far more effective at reliably determining what conduct should be punished as willful infringement. It may not be enough to plug every leak in the willfulness ship, but it would go a long way toward setting her on the right course.

[1] In re Seagate Technology, 497 F.3d 1360 (Fed. Cir. 2007) (en banc).

[2] Powell v. Home Depot USA Inc., 2011 WL 5519820 (Fed. Cir. Nov. 14, 2011).

[3] Seagate, 497 F.3d at 1371.

[4] Powell, 2011 at *10 n. 1.

[5] Id.

[6] Seagate, 497 F.3d at 1371.

[7] Powell, 2011 at *10 n. 2.

[8] Id. at *10.

[9] Seagate, 497 F.3d at 1371.