Viewpoint: Patent Disclosure Policy and Willful Infringement Doctrine

The basic outline of the willful infringement doctrine, as established by the Federal Circuit, is simple: once a party has actual notice of another's patent rights, the party has an affirmative duty to exercise due care to determine whether it infringes those rights, typically by seeking competent counsel. For example, in Underwater Devices v. Morrison-Knudsen Co., Inc., the court stated: 'Where, as here, a potential infringer has actual notice of another's patent rights, he has an affirmative duty to exercise due care to determine whether or not he is infringing.' 717 F.2d 1380, 1389 (Fed. Cir. 1983). 'Actual notice' has been given a broad meaning by the courts, and ranges from the offering of a license by the patentee (Ralston Purina Co. v. Far-Mar-Co, Inc., 772 F.2d 1570, 1577 (Fed. Cir. 1985)) to an alleged infringer's patent counsel reading of the patent in a publication (Stryker Corp. v. Intermedics Orthopedics, 96 F.3d 1409, 1415 (Fed. Cir. 1996)). A party that does not discharge this duty to determine whether it is infringing, or that discharges the duty in an insufficient way, runs the risk that if they are subsequently judged to have infringed the patent rights, the court may find such infringement to be 'willful.' If willful infringement is found, the court may, as a punitive measure, enhance the compensatory damages up to three times.

A Brief History

The doctrine, as we currently know it, was already well developed when the Federal Circuit was formed in 1983. In one of its earliest cases on the subject, the Federal Circuit adopted the general approach of the 10th Circuit, citing Milgo Electronic Corp. v. United Business Communications, Inc., 623 F.2d 645, 666 (10th Cir. 1980) to support the above-quoted statement from Underwater Devices, 717 F.2d at 1389. In fact, a review of pre-Federal Circuit case law appears to indicate that, at least as early as the late 19th century, there was already a well-developed doctrine of punitive damages enhancement for willful patent infringement that embraced core concepts similar to those in the Federal Circuit's approach. (eg, Morss v. Union Form Co., 39 F. 468 (C.C.D. Conn. 1889); Fox v. Knickerbocker Engraving Co., 158 F. 422 (S.D.N.Y. 1908); Van Kannel Revolving Door Co. v. Uhrich et al., 297 F. 363 (8th Cir. 1924); General Motors Corp. v. Dailey, 93 F.2d 938 (6th Cir. 1937).)

Actual Notice Required

A key feature of the willful infringement doctrine is that a party must first have actual notice of the patent rights before an affirmative duty to investigate possible infringement applies to the party. This has led to a policy, common to many companies, of deliberately avoiding the consultation of patent disclosures as part of the standard engineering or scientific development process. Consultation of patents is often undertaken only after careful cost/benefit analysis. This is because discharging the duty to investigate, once actual notice of patent rights occurs, may be a costly undertaking. On the other hand, failing to discharge the affirmative duty puts the company at risk for punitive damages should it subsequently become the subject of a lawsuit. Thus, the transaction cost for discharging the Federal Circuit's duty appears to be so onerous that many companies make the decision to simply forgo the information they might otherwise gain by consulting patent disclosures. Forgoing consultation of the USPTO patent database becomes particularly attractive where there are alternative sources of information, such as technical journals, that can be consulted with a low probability of putting the company on actual notice of patent rights.

Disincentive to Use Disclosures

As a general proposition, one should be concerned about any judicial approach that rewards ignorance of the law. While patents are not literally 'laws,' they have been meaningfully analogized to statutes, since they do represent government-sanctioned prohibitions. Laws are not merely rules for triggering punishment, but also serve an important pedagogical function in society. The typical approach of our legal system is not to excuse ignorance. This creates a positive incentive to actively seek out knowledge of the law and pursue a proactive avoidance policy. With respect to patents, there is the further priority of more broadly disseminating knowledge to enhance the process of innovation.

The Federal Circuit's line of willful infringement decisions seem to show little awareness of the effect their doctrine has upon the efficacy of the patent system as a channel of technological disclosure, despite the fact that a fundamental principle of the patent system is the quid pro quo granting of powerful exclusionary rights to an invention in exchange for public disclosure of it. The government confers these rights with the expectation that such disclosures will be read by others and will act to spur further innovation. Given this quid pro quo principle, one wonders why a party should consequently be subject to an additional duty simply because it has consulted a patent disclosure.

Without the fear of treble damages due to willful infringement, a potential infringer would have less to lose and more to gain by examining patent disclosures. There would still be risk in a company examining patents since, for example, records of such analysis might eventually be obtained by a patentee through discovery in litigation and used as evidence against the alleged infringer. However, the equities in favor of examining patent disclosures would be strengthened, since a party is subject to the same remedies regardless of whether it has actual notice. Other than evidentiary considerations, the form and thoroughness of a patent investigation would be at the discretion of the potential infringer, rather than the courts. Further, without fear of treble damages due to willful infringement, one could reasonably expect an increase in proactive patent avoidance policy, which would, in fact, tend to decrease the level of patent infringement while at the same time fulfilling the patent system's fundamental objective of providing technological and scientific disclosure.

Federal Circuit Unaware?

The authors of traditional case law seem to be unaware of the processes by which invention and technological innovation proceed. Typically, a basic part of innovation in a particular field is the regular, if not frequent, review of the literature of that area by its practitioners. Through such reading, the practitioner in a particular area of technology maintains and advances his or her knowledge of the field. Such knowledge often serves as a foundation upon which technological innovation is later based. The Federal Circuit, however, with its potential imposition of treble damages for willful infringement, has created strong disincentives for engineers or scientists to consult patents as part of their general readings.

One must wonder whether there can be any positive effects from the willful infringement doctrine that sufficiently offset the above-discussed substantial negatives. Powerful incentives already exist to discourage patent infringement, without the damage enhancement of willful infringement. The damage theories of reasonable royalty and lost profits often lead to assessments of extremely large monetary damages ' without any enhancement ' and injunctive relief is also available, which can completely shut down an infringing operation.

Furthermore, it seems unlikely that any party has significant incentive to obtain a patent because of the enhanced damages they might obtain should they bring suit. This is due to the application of the willful infringement doctrine by the courts being highly unpredictable and limited by the subjective behavior of each defendant. In the case of a jury trial, willfulness is a jury finding. Such a finding authorizes the judge to enhance damages, who then has discretion, considering all of the circumstances of the case, to award any level of enhancement, ranging from no enhancement up to the statutory maximum of trebling. Even for a party contemplating enforcement of a patent, where more facts regarding the defendant are known, the uncertainty of willful infringement damages causes them to be, at best, a minor factor in deciding whether to sue.

While there are additional 'bad' behaviors, beyond mere patent infringement, that the Federal Circuit claims to address with its willful infringement doctrine, such behaviors seem subject to powerful disincentives without damages enhancement. For example, the Federal Circuit has cited deliberate or intentional copying of an invention as a factor tending to support a level of willful infringement for which enhanced damages is appropriate. Stryker Corp., 93 F.3d at 1414. Presumably, however, deliberate copying of a patented invention already has strong evidentiary value against a defendant, making the patentee's case of proving infringement relatively fast and inexpensive to litigate. In addition, preliminary injunctive relief should be available in such clear-cut cases.

In all, compensatory damages and injunctive relief would seem to be sufficient remedies for patent infringement. By encouraging proactive patent avoidance policy, one can convincingly argue that elimination of willful infringement would promote both the policy of patent disclosure and protection of the patent holder. Disclosure policy is particularly important since the progress of science and engineering depends so heavily upon publicly accessible information. Given the long history of the development and enforcement of the willful infringement doctrine by the courts, however, it seems certain that an act of Congress will be necessary to curtail its use.

While the author recognizes others may have differing views, the objective of promoting scientific and engineering advancement is important enough to at least warrant debate on the issue. The author encourages those with differing or concurring views to contact him via e-mail.

Jonathan T. Kaplan, New York, is an intellectual property attorney with a specialty in computer technology.

It seems fair to say that a major goal of the patent system ' to be a channel of technological disclosure ' remains largely unfulfilled. Scientists and engineers seldom, if ever, consult patents in the course of their work. It is the technical and scientific journals that are consulted by practitioners of a particular field, and such journal articles ' while almost always containing numerous references to other such journal articles ' seldom make reference to a patent. This article considers whether the willful infringement doctrine (ie, the punitive enhancement of damages for willful infringement) is a significant cause of the relative unimportance of patent disclosures to the process of technological innovation. This article also asks whether two fundamental objectives of the patent system, disclosure of patents and protection of the patent holder, might not be better served by elimination of the doctrine. While it would seem quite reasonable to question the further perpetuation of the willful infringement doctrine, given its potential chilling effect on those seeking to consult patent disclosures, this question is rarely asked, if at all, presumably due to the doctrine's antiquity.

Patent infringement damages, generally, are addressed by 35 U.S.C. '284, which, in addition to providing compensation to the patentee, allows the courts to enhance damages by up to three times the initial compensatory amount. Section 284, which has existed in essentially its present form since 1952, is silent on the conditions under which such enhancement power is to be utilized. Over the last two decades, however, the Federal Circuit has established limits on the utilization of the enhancement provision, such that it may only be used when willful infringement has been found.

Federal Circuit Doctrine

The basic outline of the willful infringement doctrine, as established by the Federal Circuit, is simple: once a party has actual notice of another's patent rights, the party has an affirmative duty to exercise due care to determine whether it infringes those rights, typically by seeking competent counsel. For example, in Underwater Devices v. Morrison-Knudsen Co., Inc., the court stated: 'Where, as here, a potential infringer has actual notice of another's patent rights, he has an affirmative duty to exercise due care to determine whether or not he is infringing.' 717 F.2d 1380, 1389 (Fed. Cir. 1983). 'Actual notice' has been given a broad meaning by the courts, and ranges from the offering of a license by the patentee ( Ralston Purina Co. v. Far-Mar-Co, Inc. , 772 F.2d 1570, 1577 (Fed. Cir. 1985)) to an alleged infringer's patent counsel reading of the patent in a publication ( Stryker Corp. v. Intermedics Orthopedics , 96 F.3d 1409, 1415 (Fed. Cir. 1996)). A party that does not discharge this duty to determine whether it is infringing, or that discharges the duty in an insufficient way, runs the risk that if they are subsequently judged to have infringed the patent rights, the court may find such infringement to be 'willful.' If willful infringement is found, the court may, as a punitive measure, enhance the compensatory damages up to three times.

A Brief History

The doctrine, as we currently know it, was already well developed when the Federal Circuit was formed in 1983. In one of its earliest cases on the subject, the Federal Circuit adopted the general approach of the 10th Circuit, citing Milgo Electronic Corp. v. United Business Communications, Inc. , 623 F.2d 645, 666 (10th Cir. 1980) to support the above-quoted statement from Underwater Devices , 717 F.2d at 1389. In fact, a review of pre-Federal Circuit case law appears to indicate that, at least as early as the late 19th century, there was already a well-developed doctrine of punitive damages enhancement for willful patent infringement that embraced core concepts similar to those in the Federal Circuit's approach. ( eg, Morss v. Union Form Co. , 39 F. 468 (C.C.D. Conn. 1889); Fox v. Knickerbocker Engraving Co. , 158 F. 422 (S.D.N.Y. 1908); Van Kannel Revolving Door Co. v. Uhrich et al., 297 F. 363 (8th Cir. 1924); General Motors Corp. v. Dailey , 93 F.2d 938 (6th Cir. 1937).)

Actual Notice Required

A key feature of the willful infringement doctrine is that a party must first have actual notice of the patent rights before an affirmative duty to investigate possible infringement applies to the party. This has led to a policy, common to many companies, of deliberately avoiding the consultation of patent disclosures as part of the standard engineering or scientific development process. Consultation of patents is often undertaken only after careful cost/benefit analysis. This is because discharging the duty to investigate, once actual notice of patent rights occurs, may be a costly undertaking. On the other hand, failing to discharge the affirmative duty puts the company at risk for punitive damages should it subsequently become the subject of a lawsuit. Thus, the transaction cost for discharging the Federal Circuit's duty appears to be so onerous that many companies make the decision to simply forgo the information they might otherwise gain by consulting patent disclosures. Forgoing consultation of the USPTO patent database becomes particularly attractive where there are alternative sources of information, such as technical journals, that can be consulted with a low probability of putting the company on actual notice of patent rights.

Disincentive to Use Disclosures

As a general proposition, one should be concerned about any judicial approach that rewards ignorance of the law. While patents are not literally 'laws,' they have been meaningfully analogized to statutes, since they do represent government-sanctioned prohibitions. Laws are not merely rules for triggering punishment, but also serve an important pedagogical function in society. The typical approach of our legal system is not to excuse ignorance. This creates a positive incentive to actively seek out knowledge of the law and pursue a proactive avoidance policy. With respect to patents, there is the further priority of more broadly disseminating knowledge to enhance the process of innovation.

The Federal Circuit's line of willful infringement decisions seem to show little awareness of the effect their doctrine has upon the efficacy of the patent system as a channel of technological disclosure, despite the fact that a fundamental principle of the patent system is the quid pro quo granting of powerful exclusionary rights to an invention in exchange for public disclosure of it. The government confers these rights with the expectation that such disclosures will be read by others and will act to spur further innovation. Given this quid pro quo principle, one wonders why a party should consequently be subject to an additional duty simply because it has consulted a patent disclosure.

Without the fear of treble damages due to willful infringement, a potential infringer would have less to lose and more to gain by examining patent disclosures. There would still be risk in a company examining patents since, for example, records of such analysis might eventually be obtained by a patentee through discovery in litigation and used as evidence against the alleged infringer. However, the equities in favor of examining patent disclosures would be strengthened, since a party is subject to the same remedies regardless of whether it has actual notice. Other than evidentiary considerations, the form and thoroughness of a patent investigation would be at the discretion of the potential infringer, rather than the courts. Further, without fear of treble damages due to willful infringement, one could reasonably expect an increase in proactive patent avoidance policy, which would, in fact, tend to decrease the level of patent infringement while at the same time fulfilling the patent system's fundamental objective of providing technological and scientific disclosure.

Federal Circuit Unaware?

The authors of traditional case law seem to be unaware of the processes by which invention and technological innovation proceed. Typically, a basic part of innovation in a particular field is the regular, if not frequent, review of the literature of that area by its practitioners. Through such reading, the practitioner in a particular area of technology maintains and advances his or her knowledge of the field. Such knowledge often serves as a foundation upon which technological innovation is later based. The Federal Circuit, however, with its potential imposition of treble damages for willful infringement, has created strong disincentives for engineers or scientists to consult patents as part of their general readings.

One must wonder whether there can be any positive effects from the willful infringement doctrine that sufficiently offset the above-discussed substantial negatives. Powerful incentives already exist to discourage patent infringement, without the damage enhancement of willful infringement. The damage theories of reasonable royalty and lost profits often lead to assessments of extremely large monetary damages ' without any enhancement ' and injunctive relief is also available, which can completely shut down an infringing operation.

Furthermore, it seems unlikely that any party has significant incentive to obtain a patent because of the enhanced damages they might obtain should they bring suit. This is due to the application of the willful infringement doctrine by the courts being highly unpredictable and limited by the subjective behavior of each defendant. In the case of a jury trial, willfulness is a jury finding. Such a finding authorizes the judge to enhance damages, who then has discretion, considering all of the circumstances of the case, to award any level of enhancement, ranging from no enhancement up to the statutory maximum of trebling. Even for a party contemplating enforcement of a patent, where more facts regarding the defendant are known, the uncertainty of willful infringement damages causes them to be, at best, a minor factor in deciding whether to sue.

While there are additional 'bad' behaviors, beyond mere patent infringement, that the Federal Circuit claims to address with its willful infringement doctrine, such behaviors seem subject to powerful disincentives without damages enhancement. For example, the Federal Circuit has cited deliberate or intentional copying of an invention as a factor tending to support a level of willful infringement for which enhanced damages is appropriate. Stryker Corp., 93 F.3d at 1414. Presumably, however, deliberate copying of a patented invention already has strong evidentiary value against a defendant, making the patentee's case of proving infringement relatively fast and inexpensive to litigate. In addition, preliminary injunctive relief should be available in such clear-cut cases.

In all, compensatory damages and injunctive relief would seem to be sufficient remedies for patent infringement. By encouraging proactive patent avoidance policy, one can convincingly argue that elimination of willful infringement would promote both the policy of patent disclosure and protection of the patent holder. Disclosure policy is particularly important since the progress of science and engineering depends so heavily upon publicly accessible information. Given the long history of the development and enforcement of the willful infringement doctrine by the courts, however, it seems certain that an act of Congress will be necessary to curtail its use.

While the author recognizes others may have differing views, the objective of promoting scientific and engineering advancement is important enough to at least warrant debate on the issue. The author encourages those with differing or concurring views to contact him via e-mail.

Jonathan T. Kaplan, New York, is an intellectual property attorney with a specialty in computer technology.