Shortly before Christmas, the Federal Circuit handed down a 48-page opinion in i4i Ltd. Partnership v. Microsoft Corp., No. 2009-1504, 2009 WL 4911950 (Fed. Cir. Dec. 22, 2009). The opinion is remarkable on several fronts. First, it affirms a finding of infringement and a limited permanent injunction against certain versions of a widely popular software product, Microsoft’s Word. Second, the Federal Circuit handled the appeal with unusual promptness. The district court entered its order disposing of the post-trial motions and ordering the permanent injunction on August 11, 2009.1 After granting a stay of the injunction during the pendency of the appeal on September 3, 2009, the Federal Circuit heard oral argument on the appeal in late September, and rendered its opinion on December 22, 2009; just over four months from the district court’s entry of final judgment. Lastly, the opinion presents important lessons in the procedure of litigating patent cases that litigators ignore at their peril.

a) Failure to Move for JMOL

The most notable procedural lesson from i4i concerns the need to ensure that counsel properly moves for a judgment as a matter of law (JMOL) on all issues for which it may later hope to challenge on appeal the sufficiency of the opponent’s evidence. To have the right to challenge on appeal the legal sufficiency of the evidence supporting a jury’s verdict, the appealing party must have first made a proper pre-verdict JMOL motion under Rule 50(a) of the Federal Rules of Civil Procedure.2 Second, the party must have also properly renewed its JMOL motion under Rule 50(b) after the entry of the jury’s verdict.3 A failure to make either motion will preclude a party from challenging the jury’s verdict based on a lack of a sufficient evidentiary basis.4 In two instances, the accused infringer painfully learned this lesson in i4i.

In the appeal, Microsoft sought to challenge the jury’s general verdict that the asserted claims of the patent were not proven invalid. Microsoft attempted to argue that the claims were obvious over a combination of prior art references. During the trial, however, Microsoft’s counsel, while making a pre-verdict JMOL motion on the issue of anticipation based on a first prior art reference, never made a JMOL motion on the issue of obviousness based on the combination of prior art references it contended on appeal invalidated the claims. The Federal Circuit held that Microsoft’s failure to move for a JMOL on the issue of obviousness precluded the court from reviewing the sufficiency of the factual evidence supporting the jury’s verdict that Microsoft had failed to prove the prior art invalidated the asserted claims. The Federal Circuit succinctly explained “Microsoft has waived its right to challenge the factual findings underlying the jury’s implicit obviousness verdict because it did not file a pre-verdict JMOL on obviousness for the Rita, DeRose and Kugimiya references. … Accordingly, we do not consider whether the evidence presented at trial was legally sufficient to support the jury’s verdict.” Id. at *8.

Barred from reviewing the sufficiency of the evidence, the Federal Circuit explained that it could only review whether, in view of the jury’s presumed factual findings, the district court’s legal conclusion that the claims were not obvious was correct. Id. The court further found that Microsoft’s challenge focused on several underlying disputed factual questions such as whether the prior art disclosed all of the claim limitations, what was the scope of the prior art, and whether a person of ordinary skill would have been motivated to combine the prior art to arrive at the claimed invention. As these were all questions of fact, and the Federal Circuit had to “view the evidence in the light most favorable to the verdict,” it held that “all of these questions must be resolved against Microsoft, and in favor of i4i.” Id. Consequently, the Federal Circuit affirmed the judgment that the claims were not proven invalid.

On the damage phase of the case, the jury awarded reasonable royalty damages of approximately $ 200 million. In the appeal, Microsoft sought to challenge the reasonableness of the damage award arguing that the royalty rate offered by the patentee’s damages expert was not reasonable. The Federal Circuit instructed that “[a]sking whether a damages award is ‘reasonable,’ ‘grossly excessive or monstrous,’ ‘based only on speculation or guesswork,’ or ‘clearly not supported by the evidence,’ are simply different ways of asking whether the jury’s award is supported by the evidence.” Id. at *18. Because Microsoft had not made a pre-verdict JMOL motion on the issue of damages, the Federal Circuit held that it could not reach the question of whether sufficient evidence supported the jury’s damage award. Id. The court further noted that “[h]ad Microsoft filed a pre-verdict JMOL, it is true that the outcome might have been different.” Id. at *19. Instead, the Federal Circuit held that “[w]e must affirm unless the appellant clearly shows there was no evidence to support the jury’s verdict. … On appeal, the question is not whether we would have awarded the same amount of damages if we were the jury, but rather whether there is evidence to support what the jury decided.” Id. Because there was at least some evidence in the trial record to support the amount of the jury’s award, the Federal Circuit concluded that “[u]nder this highly deferential standard, we cannot say that Microsoft is entitled to a new trial on damages.” Id.

b) Invalidity Proof Burden When Prior Art Not Considered by the PTO

Microsoft also argued that since the Patent Office had not considered during prosecution the prior art Microsoft asserted rendered the claims obvious, Microsoft should only have to prove invalidity by the preponderance of the evidence standard, rather than by a standard of clear and convincing evidence. The Federal Circuit summarily rejected this argument, stating that KSR “did not change the burden of proving invalidity by clear and convincing evidence.”5 Id. at *9. The Federal Circuit’s response is not surprising. It seems likely that Microsoft raised the argument to preserve the right to appeal this issue to the Supreme Court should it opt to pursue a further appeal.

c) Opinions of Counsel and Enhancing Damages for Willful Infringement

The jury also found that Microsoft willfully infringed the patent. Examining the Read factors,6 the district court enhanced the damage award by 40%.7 The district court found that Microsoft’s failure to investigate the patent’s scope and form a good faith belief of its invalidity or non-infringement, i.e., Microsoft’s failure to obtain an opinion of counsel, before continuing with its accused activity, was one of the factors that supported enhancing the damage award. Although Seagate held that an accused infringer has no affirmative duty to obtain an opinion of counsel under penalty of automatically being found to have willfully infringed the patent,8 the Federal Circuit held in i4i that the district court did not abuse its discretion in relying on Microsoft’s failure to obtain an opinion of counsel as a factor that supported enhancing the damages. Id at *20. The Federal Circuit instructed that after a finding of willful infringement is made under Seagate, the district court must determine whether to enhance the damage award by applying the Read factors, and not reapply the willfulness standard set forth in Seagate. Id. (“the standard for deciding whether-and by how much-to enhance damages is set forth in Read, not Seagate”). The Federal Circuit concluded that “[u]nder the Read factors, the district court properly considered Microsoft’s size and financial condition, as well as whether Microsoft investigated the scope of the patent.” Id.

Consequently, while the failure to obtain an opinion of counsel will not necessarily result in a finding of willful infringement under Seagate, if a jury finds willful infringement based on Seagate’s objective recklessness standard, the district court can then take into consideration the accused infringer’s failure to have obtained an opinion of counsel as a factor to support enhancing damages. Conversely, if the accused infringer had obtained a competent opinion of counsel, a district court should be able to consider that opinion of counsel, under the Read factors, to support a refusal to enhance damages even though the jury found willful infringement under Seagate.9 i4i may prompt corporate counsel to re-evaluate their policy on whether to obtain opinion of counsel upon learning of a potentially relevant patent.10

d) Litigation Defenses and Willfulness

In the September 2009 issue of Patent Happenings, I noted that Judge Davis made a controversial ruling in the i4i case that Microsoft could not rely on defenses it developed during the course of the litigation to show there was no objectively high risk of infringement under Seagate’s standard for proving willful infringement if those defenses would not have occurred to a reasonable person when the infringement first began.11 Since then three district court judges, including one from the Eastern District of Texas, have subsequently refused to follow the position that defenses developed only during litigation may not be considered in assessing whether there was an objectively high risk of infringement.12

Unfortunately, in the appeal to the Federal Circuit, Microsoft opted not to challenge the jury’s finding of willful infringement, the sufficiency of the evidence supporting the jury’s verdict, or the instructions given to the jury on the issue of willful infringement. Id. at *19. Microsoft only challenged the district court’s enhancement of the damages, but not the jury’s underlying finding of willful infringement. Hence, we are left with an enhancement of damages that has been affirmed by the Federal Circuit, but based in part on a questionable ruling excluding some litigation defenses, which ruling the Federal Circuit did not review. Future litigants should take note of this unusual procedural posture when considering the precedential nature, if any, of Judge Davis’s ruling applying a temporal restriction on litigation defenses that may be relied on in defending against a charge of willful infringement.

Footnotes:

1. i4i Ltd. Partnership v. Microsoft Corp., No. 6:07CV113, 2009 WL 2449024 (E.D. Tex. Aug. 11, 2009).

2. See generally, Robert A. Matthews, Jr., Annotated Patent Digest § 43:8 Standards Applicable to a Motion for a JMOL [hereinafter APD].

3. See generally, APD § 43:11 — Renewed Motion Must Have Support in Original Motion. Effective Dec. 1, 2009, Rule 50(b) was amended to set a 28-day deadline for filing renewed JMOL motions.

4. See generally, APD § 43:10 Failure to Move for a JMOL at the Close of the Evidence.

5. See generally, APD § 15:42 Burden When Prior Art Not Considered by PTO.

6. Read Corp. v. Portec, Inc., 970 F.2d 816, 827 (Fed. Cir. 1992); see generally, APD § 31:26 Factors Relevant in Evaluating if Infringement is Willful.

7. Enhancing damages for willful infringement involves a two-step process. First, the fact-finder must determine if the infringement was willful. Thereafter, the district court exercises its discretion and determines to what extent, if any, it will enhance the damage award due to the willful nature of the infringement. See generally, APD § 31:16 Two-Step Process on Whether to Award Enhanced Damages.

8. In re Seagate Technology, 497 F.3d 1360, 1371 (Fed. Cir. 2007) (en banc) (“[T]here is no affirmative obligation to obtain opinion of counsel.”); see generally, APD § 31:48 Duty to Obtain Legal Advice; see also APD § 31:22 “Objective Recklessness” Standard of Seagate.

9. Cf. Electro Scientific Industries, Inc. v. General Scanning, Inc., 247 F.3d 1341, 1353 (Fed. Cir. 2001) (“Although substantial evidence supports the jury verdict of willfulness, the district court retained authority to reweigh the competency of General Scanning’s opinion of counsel and General Scanning’s reliance on that opinion. A jury verdict of willfulness simply does not bar a district court from determining the egregiousness of a willful infringer’s conduct.” – affirming district court’s denial of enhanced damages where accused infringer had obtained a written and oral opinion of counsel that infringed patent was invalid). See also § 31:11 Limitations on District Court’s Reweighing of Evidence.

10. In considering whether to seek an opinion of counsel, corporate counsel should also keep in mind the Federal Circuit’s opinion in Broadcom Corp. v. Qualcomm, Inc., 543 F.3d 683, 698-700 (Fed. Cir. 2008), where it held that an accused infringer’s failure to obtain an opinion of counsel may be used as circumstantial evidence to prove the intent element of inducing infringement. See Patent Happenings, Sept. 2008, at pp. 1-2; see also APD § 10:49 Applicability of Opinion of Counsel to Knowledge Requirement.

11. Patent Happenings, Sept. 2009, at pp 1-5. See generally, APD § 31:40 Litigation Defenses and Good Faith and Substantial Challenges to the Patent.

12. OPTi Inc. v. Apple, Inc., 2009 WL 4727912, *2-*3 (E.D. Tex. Dec. 3, 2009) (Everingham, M.J.) (rejecting patentee’s contention that only pre-litigation defenses could be relied on by an accused infringer to defend against the charge of willful infringement); Henrob Ltd. v. Bollhoff Systemtechnick GMBH & Co., 2009 WL 4042627, *3-*5 (E.D. Mich. Nov. 19, 2009) (expressly refusing to follow i4i and temporally limit the litigation defenses that would be considered on the issue of willful infringement); Uniloc USA, Inc. v. Microsoft Corp., 640 F. Supp.2d 150, 177 n.33 (D.R.I. Sept. 29, 2009) (same).

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