Federal Circuit Establishes New Rule for Proving Willful Infringement: Bard Peripheral Vascular, Inc. v. W.L. Gore & Associates, Inc.

by Quinn Emanuel Urquhart & Sullivan, LLP
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In a decision with significant implications for patent cases involving willful infringement, the Federal Circuit recently held that the threshold determination of objective recklessness under the Seagate standard for willful infringement is a question of law to be decided by the trial court and subject to de novo review. Bard Peripheral Vascular, Inc. v. W.L. Gore & Assocs., Inc., 682 F.3d 1003, 1006-07 (Fed. Cir. 2012). While the ultimate determination of willful infringement had long been considered a question of fact to be decided by the fact finder and subject to the clearly erroneous standard of review, the Federal Circuit had not previously addressed the standards that apply to the threshold determination of objective recklessness. Id. at 1006.

Under the patent laws, if a patentee is able to prove that its patent was willfully infringed, it is entitled to enhanced damages, up to three times compensatory damages. Id. at 1005. In Seagate, the Federal Circuit, sitting en banc, overruled its prior standard for willful infringement, which was “more akin to negligence” than recklessness. In re Seagate Tech., LLC, 497 F.3d 1360, 1371 (Fed. Cir. 2007) (en banc). The court set forth a new two-pronged standard for proving willful infringement. Id. First, the patentee must prove by clear and convincing evidence that the alleged infringer acted despite “an objectively high likelihood that its actions constituted infringement of a valid patent.” Id. Second, the patentee must then prove that this objectively high risk was “either known or so obvious that it should have been known” to the alleged infringer. Id. Subsequently, the Federal Circuit ruled that the first prong of this standard is generally not met where the alleged infringer relies on a reasonable defense. Spine Solutions, Inc. v. Medtronic Sofamor Danek USA, Inc., 620 F.3d 1305, 1319 (Fed. Cir. 2010).

The Federal Circuit’s recent decision in Bard v. Gore was the latest development in a long-running patent suit. On March 28, 2003, Bard filed suit against Gore in the District of Arizona, alleging infringement of U.S. Patent No. 6,436,135. Bard Peripheral Vascular, Inc. v. W.L. Gore & Assocs., Inc., 670 F.3d 1171, 1177 (Fed. Cir. 2012). The technology at issue involved prosthetic vascular grafts that are fabricated from highly-expanded polytetrafluoroethylene, and that are used to bypass or replace blood vessels to assure adequate and balanced blood flow to particular body parts. Id. at 1175.

Following a 17-day trial, on December 11, 2007, the jury found that the ’135 patent was valid and willfully infringed by Gore. Id. at 1177. The jury awarded Bard lost profits of over $102 million and reasonable royalties of over $83 million. Id. at 1178. Based on the jury’s finding of willful infringement, the court awarded Bard enhanced damages of over $371 million, two times the compensatory damages awarded by the jury. Id. The court also awarded Bard attorneys’ fees and non-taxable costs of $19 million and an ongoing royalty with a range of rates between 12.5% and 20% for Gore’s various types of infringing grafts. Id. At the end of the case, the court described it as “the most complicated case this court has presided over.” Id.

On appeal, the Federal Circuit initially affirmed the judgment of validity and willful infringement, as well as the district court’s award of enhanced damages, attorneys’ fees and costs, and an ongoing royalty. Id. at 1193. Gore timely filed a petition for rehearing and rehearing en banc. Bard, 2012 WL 2149495, at 1005. On June 14, 2012, the Federal Circuit granted the petition for rehearing en banc and returned the case to the original panel for reconsideration of the standard of review for willful infringement. Id.

In an opinion authored by Judge Garza and joined by Judge Linn, the panel revisited this issue. Id. As an initial matter, the court reviewed Supreme Court and Federal Circuit precedent and recognized that the simple statement that the ultimate determination of willful infringement is a question of fact oversimplifies the issue. Id. at 1006. For example, in an earlier opinion, the Federal Circuit had recognized that the issue is more complex, and held that the threshold determination whether an alleged infringer relied on a reasonable defense is a matter for the jury when the resolution of the defense is a question of fact, but that determination is a matter for the trial court when the resolution of the defense is a question of law. Id. While the second prong of the Seagate test, like the ultimate determination of willful infringement, may have been a question of fact, the issue in Bard was whether the determination of the first prong is a question of law, a question of fact, or a mixed question of law and fact. Id. That threshold question would determine which judicial actor would decide the issue at the trial court level, and what standard of review would apply to that determination on appeal.

Recognizing that the characterization of an issue as one of these types of questions is sometimes a matter of allocation and administration, as much as a matter of analysis, the Federal Circuit concluded that the trial court was better positioned than the jury to make the threshold determination of objective recklessness, including whether the alleged infringer relied on a reasonable defense. Id. The Federal Circuit therefore held that the threshold determination is a question of law, which is decided by the judge and subject to de novo review. Id. at 1006-07. The Federal Circuit noted that its holding was consistent with similar holdings in parallel areas of law, including Federal Circuit precedent on the standard for proving objectively baseless claims for purposes of obtaining enhanced damages and attorneys’ fees, and Supreme Court precedent on the standard for proving objectively baseless litigation for purposes of establishing the “sham litigation” exception to antitrust immunity for bringing patent and other lawsuits. Id. at 1007-08.

With respect to the application of this new rule, the Federal Circuit explained that where the threshold determination of objective recklessness is dependent on purely legal questions such as claim construction, the determination should be made by the trial court. Id. at 1007-08. The Federal Circuit further explained that where the threshold determination is based on fact questions such as anticipation or on legal questions dependent on underlying fact questions such as obviousness, the ultimate determination should still be made by the court, although the underlying fact questions may be sent to the jury. Id.

In light of its clarification of the proper procedure for determining willful infringement, the Federal Circuit vacated the trial court’s prior ruling and remanded the case for further proceedings consistent with the Federal Circuit’s opinion. Id. at 1008-09. The trial court was directed to determine whether the defenses relied upon by Gore were reasonable. Id. at 1008. In her separate opinion, Judge Newman concurred with the decision to vacate the prior determination, but dissented from the decision to remand the case on the ground that it was apparent from the record that the finding of willful infringement was not supportable. Id. at 1009.

The Federal Circuit’s decision in Bard raises a number of interesting questions. First, what effect will the decision have on the likelihood of proving willful infringement by shifting the decision maker from the jury to the judge and the standard of review from clearly erroneous to de novo? The decision may increase the consistency and predictability of willful infringement determinations, to the extent that the Federal Circuit will now review every determination de novo. The decision may also heighten the difficulty of proving willful infringement, to the extent a judge may apply the clear and convincing evidence standard more strictly than a jury. Second, what procedure will the courts use to make the threshold determination of objective recklessness? In a case where the threshold determination is dependent on underlying questions of law, such as the reasonableness of a defense based on claim construction, a court could make its determination of objective recklessness at a pre-trial hearing similar to a Markman hearing. In contrast, in a case where the threshold determination is dependent on underlying questions of fact, such as the reasonableness of a defense based on anticipation or obviousness, a court could wait to make its determination of objective reasonableness until after a jury determines the underlying questions of fact. The answers to these questions and the implications of this decision will become more evident once the lower courts have had the opportunity to develop a sufficient record in applying this new rule.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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