IP Law Daily Issue of enhanced damages remanded in light of Halo ruling
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Wednesday, September 21, 2016

Issue of enhanced damages remanded in light of Halo ruling

By Jody Coultas, J.D.

The U.S. Court of Appeals for the Federal Circuit vacated a district court’s holding that ION Geophysical Corp. did not willfully infringe WesterGeco LLC’s patents because the lower court’s ruling was based on a test for enhanced damages vacated by the Supreme Court. The case was remanded for further consideration of enhanced damages (WesternGeco LLC v. ION Geophysical Corp., September 21, 2016, Dyk, T.).

WesternGeco alleged that ION infringed U.S. Patent Nos. 6,691,038, 7,080,607, 7,162,967, and 7,293,520. A jury found infringement and no invalidity as to all asserted claims and awarded WesternGeco $93.4 million in lost profits and a reasonable royalty of $12.5 million. The jury also found that ION’s infringement had been subjectively reckless under the "subjective" prong of the then-prevailing two-part test.

ION appealed the award of lost profits, and WesternGeco appealed a refusal to award enhanced damages. The Federal Circuit affirmed the liability judgment, upheld the award of reasonable royalty damages, and reversed a $93.4 million award for lost-profit damages.

WesternGeco filed a motion to enforce the award of royalty damages, two sureties filed a motion to discharge their supersedeas bond for the lost profits award that was reversed by the Federal Circuit, and ION filed a motion to stay the payment of royalty damages (pending the resolution of a collateral inter partes review before the PTAB), or in the alternative, to receive relief from judgment under Rule 60(b)(6) of the Federal Rules of Civil Procedure.

Thereafter, WesternGeco petitioned the U.S. Supreme Court for a writ of certiorari to review the Federal Circuit’s reversal of lost profit damages. In addition, the PTAB found that all but one claim of three patents were invalid. The Supreme Court granted certiorari and remanded the case for further consideration in light of Halo Elecs., Inc. v. Pulse Elecs., Inc., 579 U.S., 136 S. Ct. 1923 (2016).

Because Halo only dealt with the question of enhanced damages for patent infringement under 35 U.S.C. § 284, the court reinstated its earlier opinion except for the section on enhanced damages.

Before Halo, the two-part test used by courts to determine enhanced damages required a patentee to prove both an objective and a subjective prong. Halo overturned that test as unduly rigid, and impermissibly cumbersome of the statutory grant of discretion to the district courts. The Supreme Court noted that subjective willfulness of an infringer, intentional or knowing, may warrant enhanced damages, without regard to whether the infringement was objectively reckless. Under the new guidelines, where willfulness is established, the question of enhanced damages must be left to the district court’s discretion. In determining whether to award enhanced damages, district courts should exercise their discretion, taking into account the circumstances of each case and all relevant factors.

Because the district court’s determination of no willful infringement by ION was based on the overturned two-part test, the court vacated the ruling and remanded the case. The jury was instructed on the two-part test for subjective willfulness. Therefore, the district court must review the sufficiency of the evidence supporting subjective willfulness as a predicate to any award of enhanced damages in light of the ruling in Halo. If the jury’s finding of willful infringement is sustained, the district court must determine whether enhanced damages should be awarded. Specifically, whether ION’s infringement constituted an "egregious case[] of misconduct beyond typical infringement" meriting enhanced damages and, if so, the appropriate extent of the enhancement.

Dissenting opinion. Judge Wallach dissented in part from the majority’s ruling reinstating the remaining aspects of the earlier opinion. The now-reinstated opinion left unaddressed: When a patent holder successfully demonstrates infringement under U.S. law and foreign lost profits, what degree of connection must exist between the two before the foreign activity may be used to measure the plaintiff’s damages? The majority considered the foreign lost profits in this case to relate solely to foreign use and to be wholly disconnected from the infringement found by the jury. This unduly rigid rule, according to Judge Wallach, barring the district court from considering foreign lost profits even when those lost profits bear a sufficient relationship to domestic infringement improperly cabins this discretion, encourages market inefficiency, and threatens to deprive plaintiffs of deserved compensation in appropriate cases.

In reinstating the earlier decision, Judge Wallach argued, the majority expresses no concern for the consequences that may result from that decision. So long as there is a sufficient connection between the infringement and the foreign activity, plaintiffs who successfully establish infringement under United States law should be able to rely on foreign activities to measure those damages adequate to "return the patent owner to the financial position he would have occupied but for the infringement," according to Judge Wallach.

The cases are Nos. 2013-1527, 2014-1121, 2014-1526, and 2014-1528.

Attorneys: Gregg F. Locascio (Kirkland & Ellis LLP) for WesternGeco L.L.C. David J. Healey (Fish & Richardson, PC) for ION Geophysical Corporation.

Companies: WesternGeco LLC; ION Geophysical Corp.

MainStory: TopStory Patent FedCirNews

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