Last Modified: 28 May 2013 15:38:48

Essential Patent Survey and Damage Enhancement

By Naoki Matsumoto (my resume, resume in Japanese, homepage (Japanese))
This document Japanese version Survey Process (Japanese and English) in Excel Format Same in HTML Format

1. Summary

Patent survey should be valuable to avoid infringement, and this point is really important in the issues regarding liability of damages for the infringement.

It is not impossible to imagine that patent survey may increase the possibility of enhanced damages. However, under the current case law, in only the case of a reckless action enhanced damages may be imposed, and such possibility is very small. Consequently, this should not be taken so important. Though there is a certain risk by jury trial, patent survey should not be regarded harmful.

Moreover, as an external independent survey organization (hereinafter referred to as Survey Organization) conducts survey, there is no necessity to know about the patents that Survey Organization takes up and concludes non-infringement. If worrying about the possibility of generation of enhanced damages afterword (while the possibility is quite small from the beginning), this process is certainly meaningful to avoid it.

2. The Process of the Survey

Hearing the amended proposal by Hinoki-Tsurumi on the process of patent survey, I grasped the essential points of it as follows:

* Setting up an Expert Group (EG) composed of engineers and IPR experts out of ITU-T. Further the EG entrusts survey to an external independent survey organization.
* Survey Organization shall survey essential patents of third parties, and inform EG of the name and contact address of the right holder of possible to be essential patents.
* In the case of getting unsuccessful result in spite of requiring a license declaration of the patent holder for, the EG shall entrust judgment of essential patents to an external independent organization (hereinafter referred to as Essentiality Judgment Organization) after excluding the patents supposed obviously not to be essential.
* Amend the original application document to avoid infringement of those patents judged as essential.

3. Problems (Possibility of Damage Enhancement after Access to Essential Patents)

In survey of essential patents, access to much patent information would be inevitable. As to the essential patents on which the declaration (license) or avoidance of infringement is actually got in such process, there is no problem. In the cases of unsuccessful avoidance or not being regarded as essential one even it is found in access at survey, there is a possibility to be charged with infringement as a result afterward. These are problematic examples. In such cases, there is anxiety that the fact of access to the patent in the process of survey may cause the enhanced damages on the contrary.

There can be 4 cases if trying to assume the problematic scenes:

a. Among the patents that Survey Organization recognizes them as irrelevant in their original survey, a patent is judged afterward as being infringed,
b. Similar situation happens as to the a patent that EG recognizes obviously irrelevant in spite of being reported by Survey Organization,
c. Similar situation happens though Essentiality Judgment Organization being entrusted judgment by the EG judges the issue not to be essential,
d. Though it should have been designed around, it results as unsuccessful.

In these cases a possibility of infringement problem exists because the original application document shall be established without offering of a declaration by the patent right holder or without avoidance (supposing the judgment at this stage wrong), or because the suspicion of infringement occurs as a result of unsuccessful avoidance.

In this case, it is the essential concern that the fact of accessing preliminary to the patent may cause higher possibility of the enhanced damages on the contrary.

4. Influence of Recent CAFC Judgment (In Re Seagate)

The purpose of the enhanced damages is basically to promote respect for the patent rights. The CAFC itself held that they deals with willfulness aiming deterrent against infringement as an illegal action, adding to sufficient recovery (Rite-hite Co. v. Kelley Co. (Fed.Cir. 1987)).

In such meaning, patent survey in standardization should not be blamed in any case, because patent survey is conducted for avoiding infringement. Further, recent precedents, including the Seagate case, have a tendency to limit the possibility of damage enhancement. Therefore, under the present circumstance it is not necessary to worry about damage enhancement excessively.

In the past, the suspect of infringement has been supposed to have an affirmative duty in the case of discovering the essential patent based on Underwater case (Underwater Devices Inc. v. Morrison-Knudsen Co., 717 F2d 1380 (Fed.Cir. 1983)) (cf. "Tripled damages and discovery in patent law of the United States" written by the author).

The precedent held that a suspect has "he has an affirmative duty to exercise due care to determine whether or not he is infringing" and "[s]uch an affirmative duty includes, inter alia, the duty to seek and obtain competent legal advice from counsel before the initiation of any possible infringing activity." As a result, such procedure has been diffused, namely to obtain a written statement of attorney opinion if discovering a relevant patent right and judging no infringement about it after survey and consideration.

There was an opinion that not conducting a patent survey should be better attaching great importance to the precedent. Because the affirmative duty in the case of Underwater stands on the assumption of discovering the relevant patents. Of course, even if it is reasonable in the aspect of the possibility of damage enhancement, it is obvious that not conducting a patent survey may result problem in reality. Considering investment for business not conducting a patent survey should not be reasonable for there is a possibility of injunction in the case of infringement.

However, considering enhanced damages only, it is the fact that the logic in which not conducting patent survey should be better existed. While recent judgment of Seagate case (In Re Seagate Technology, LLC (Fed. Cir. 2007)) changed the precedent expressly. The affirmative duty is denied and an intentional infringement with the enhanced damages is limited only to the case of reckless infringement similar to the other legal field. It held as follows:

Accordingly, 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. ... The state of mind of the accused infringer is not relevant to this objective inquiry. If this threshold objective standard is satisfied, 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.

"[H]igh likelihood that its actions constituted infringement of a valid patent" is the content of objective recklessness, and additionally only in the case in which the defendant should have known it, there is a possibility of enhancement.

5. Necessary Actions after Fact Discover

The possibility of enhancement is much reduced by the Seagate judgment even in the case of knowing the essential patents. Therefore it can be said that under the current situation, discovery in the patent survey should not be regarded as a serious problem. Further, a patent survey is useful action for respect of patent right, in this meaning it can be understood that the approval of it should be worthy of the purpose of the judgment.

In Seagate judgment the purpose of enhanced damages was not specified obviously, however, it refers to a judgment of the Supreme Court regarding punitive damages as a ground, it should be construed that the judgment found purpose of avoiding an infringement.

(In the supplemental opinion of Judge Gajarsa it was emphasized that enhancement should be done solely for sufficient recovery. However, only Judge Newman joined this opinion.)

However, some say that it is not so conclusive (e.g. Foley & Lardner LLP, In re Seagate Technology, LLC).

In the Seagate case, the appeal court decision was rendered to deal with discovery scope (i.e., a judgment after interim appeal), and the part of substantive findings limiting the damage enhancement was stated as its precondition; thus, strictly speaking it is an obiter dictum. In such situation, such holding is merely an abstractive argument, and some observe that the practices of the lower court has not changed largely.

Even after the Seagate decision, only in rare cases, damage enhancement is denied by summary judgment, and many cases go to the trial (See additional explanation in g7h below). This means that, if a case is tried by jury, the jury makes this decision, and so some risk may exist and to deal with it may be heavy burden in cost etc. at all.

Further, it is not necessarily clear how to deal with in the case of notice of a relevant patent. While the affirmative duty is certainly denied and thus excessive anxiety is not necessary, it does not state how we should do to make sure of no enhancement.

In this regard, we should pay attention to the fact that Seagate judgment made it easier to disclose a legal advice by an attorney with limiting the range of waiving privilege (cf. William L. LaFuze and Michael A. Valek, Litigating Willful Infringement in the Post-Seagate World). To rely upon a legal opinion by an attorney to avoid damage enhancement, the privilege should be waived. The point is the effective range of this waiver; while it was clear that the correspondence of similar contents shall be regarded inside of the effective range of the waiver, the limit was uncertain. It is inconvenient if all the communications even with the trial attorney shall be disclosed. According to the Seagate judgment, it was held that it is possible to limit the range of waiver narrowly to only the communication before the suit. It can be said that this point is the clear holding, even if it may be thought that emphasizing this point comes from business mind of an attorney who is entrusted to make a opinion.

If it is decided no infringement as stated above, it is necessary to prepare making it possible to prove afterward that it is decided through sufficient consideration for reducing the risk of damage enhancement. It is the important holding of Seagate judgment to make it easier to waive privilege at this proof. So it became easier to adopt a means avoiding enhancement with obtaining previously a written statement of expert opinion because it was clarified that presenting a written statement of expert opinion as an evidence while keeping confidentiality in the communication with the attorney of the trial. In such situation the previous action to obtain a written statement of expert opinion is worthy to do.

6. Risk in Each Case

If building up an argument of recklessness in each case of above a-d, for the purpose of risk analysis, it would be as follows:

In case of "a" and "c," the external organization didn't judge it obstacle or judged it no problem. There can be two kinds of arguments of recklessness in this situation.

The first possibility is to argue recklessness of judgment of the external organization. In this argument it is assumed that recklessness of the external organization is deemed to be equal to the recklessness of the defendant itself for the defendant entrusted the judgment to the organization. While it is subtle that the assumption is appropriate or not, if not to be deemed equal an act to entrust has an advantage, and if being deemed equal it is the same to the case the defendant itself judged so.

The second possibility is to argue that to entrust the judgment to the external organization is by itself reckless. It can be supposed we can refute the latter argument if the organization is convincible as an competent organization.

In the case of "b," the defendant was informed of essentiality by the external organization and the defendant itself did not accept the judgment of the organization to make unsuccessful result. In this case judgment of the defendant is the point.

In the case of "d," it was judged that avoidance was necessary at the judgment of indispensableness and then tried it however it resulted as a failure. Either in this case the judgment about the manner of avoidance shall be argued.

Anyway, by Seagate judgment, enhancement is limited to the case of reckless judgment, in other word in the case of practicing the invention in spite of high likelyhood of infringement. It is hardly possible to be charged of recklessness in such meaning if only taking careful and conservative judging manner. If considering possible risk, it may be a case in which design around is technologically difficult and settlement with insufficient avoidance is taken. At such judgment of avoidance, a careful consideration is necessary.

7. Argument regarding Recklessness and Jury Trial

As above discussion according to the present Seagate judgment "objectively high likelihood" is required for enhancement. This should mean, in the case in which non-infringement is arguable the enhanced damages should not be fined in spite of infringement as a mistaken result. If having careful consideration, enhancement will never happen. In the case of above section "6" the conclusion is similar under the present case law enhanced damages should not apply if careful judgment is done.

However, a problem may exist in the case of an infringement trial by jury, because typically the jury renders a verdict on this point also. But even in a jury trial it is not necessary to make jury understand. If there is no possibility to satisfy this strict requirement it shall be possible for a judge to exclude it from the subject to jury judgment regarding it as a summary judgment, however such case is a few (Roderick R. McKelvie, Ashley Miller, translated by Takanori Abe gOne year after Seagate judgment). In a case where jury trial is demanded, as it is risky in a sense for a judge to render a summary judgment, it is supposed such summary judgment is hardly done.

A judgment by jury may often be done not with enough understanding of the case even in cases where infringement is found. In such situation, there may be a tendency that a consideration if the infringement is subtle or not is not done, and willful is spontaneously found as a result so long as infringement is found. It was just the case that I experienced in Sega case in Los Angeles in 1991, and it can be construed so because there have been a certain number of precedents to find willful infringement as jury judgments even after Seagate judgment.

This point is a risk.

The possibility of enhanced damages in such situation depends upon the fact of discovery of the patent, however, to deem the risk increases because of a conduct of patent survey should not be reasonable. Also in the case that the patent itself is not discovered because of no survey, the argument that leaving it without survey is just reckless can exist according to the situation.

In the case law after Seagate judgment, it may not be proper to enhance damages in such manner, however it is not proper after all that a jury judges it excessively as willful infringement in such meaning. As a matter of fact, the possibility of being found it infringement accompanied with survey by judgment of jury is undeniable however it is not deemed to make the situation worse specially.

8. Importance of Actions to Avoid Infringement including Patent Survey

As above stated under the present precedents, it can't be always denied the possibility of being required enhanced damages due to the access to the patent at survey, however it doesn't mean the necessity of an excessive concern.

The other hand, the case of no patent survey makes more serious problem. It must be recognized, before concerning about enhanced damages, that it means to submit to the risk of an infringement or hold-up problem in this case. This is much serious as an actual problem. The advantages of dealing effectively with the patent being recognized obstacle must be understood; designing around and obtaining a declaration (license) etc. would be available.

Further, in the case of no patent survey there is a possibility of being charged enhanced damages for the reason of forbearance itself. This is the argument that practice without patent survey is by itself reckless. In this argument, recklessness means to commit an infringing activity in spite of an objectively high likelihood, according to the decision of Seagate judgment, and as written above as a jury doesn't necessarily grasp the technology enough, it may occasionally happen that the jury finds simultaneously the high likelihood when an infringement is found as a result. In such case even enhanced damages is apt to be found.

9. Limited Effectiveness of Name Only Procedure

According to the explanation of the scheme, at the early stage it is only the name being informed by an external organization. It is understandable that the survey may be remote by this limitation, however in the argument of enhanced damages the effect of it is still questionable.

It is difficult to assume the case being imposed enhanced damages while having been informed of only the name. In the case of above 3-a, even the name is not be informed (as a matter of fact if careful survey is conducted in a sense it is hard to think the patent which is rejected from the objects at this stage causes enhanced damages. If in the case which is regarded as this situation apparently, it should still be said that even access was not done).

In the case of gb,h this is the judgment with relevant information obtained by EG, after failure to obtain the declaration by the right holder in spite of effort. In this case what is known is not only the name. It is deemed that to limit the information intentionally for only the name has little relation with enhanced damages.

However, it is understandable in the aspect of "labor-saving." As it is enough if a declaration document can be obtained, to get unnecessary information and consider it preliminary is obviously useless.

10. Possible Liability of SDO

While it is a different problem than willful infringement, if a problem of infringement occurs and relevant cost accrues in an implementer in spite of conducted patent survey, an argument of responsibility of the Standard Developing Organization (SDO) may possibly happen. To avoid such situation, contractual preparation is necessary. It means to enter into a contract which provides for a disclaimer defining that the SDO does not guarantee . It is also important to understand properly such intent. Additionally, at the SDO side, it is necessary and important to practice survey and judgment as explained to the member implementers.

Further, a possibility may be concerned that a corporation from which EG members come is charged with a responsibility. However, unless doing reckless judgment, any responsibility should never be assumed by EG members themselves. It is very difficult to imagine to tie a corporation from which the EG members come to the EG members themselves regarding a responsibility.


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