Willfulness and Liability, Separate But Equal?

Damages Determination and Jury Trial

The Federal Circuit began its analysis with the final judgment rule, which dictates that appeals can be taken only from a final decision of a district court ' meaning litigation on the merits has ended and all that remains for the district court is to execute the judgment. Id. However, Section 1292(c)(2) provides an exception for patent cases whereby appeals may be made “from a judgment in a civil action for patent infringement which would otherwise be appealable to [the Federal Circuit] and is final except for an accounting .” Id. (emphasis in original). The issues, thus, turned on the meaning of “accounting.”

Specifically, the Federal Circuit was faced with whether an accounting includes both a determination of damages and a trial on damages. Based on statutory interpretation of the patent laws and historical case law, the Federal Circuit concluded that an “accounting” for the purposes of Section 1292(c)(2) encompasses the determination of an infringer's profits and a patentee's damages, including lost profits and a reasonable royalty. Id. at *2-6.

The Federal Circuit also found that an accounting can be a trial on damages, and is not limited to a special master's determination of damages. Id. at *6. The majority based its finding on four points:

1. In 1948, Congress amended the interlocutory appeal statute by substituting the phrase “civil actions” for “suit[s] in equity,” which expanded jurisdiction over interlocutory appeals from cases in equity to “civil actions for patent infringement which are final except for accounting,” and brought the statute into essentially its current form. Id. at *7 (quoting H.R. Rep. 308, 80th Cong., 1st Sess. (1948)). The court determined that the term “accounting” in Section 1292 identifies the nature of the issue being adjudicated, rather than the adjudicator (as is the dissent's view), and that the statute makes no distinction between a jury trial and other means of determining damages. Id.
2. The issues decided in historical accountings are the same as those decided today by a jury ' lost profits or a reasonable royalty. Id. at *6, 8.
3. Judicial economy supports granting interlocutory appeals from liability determinations prior to an accounting because “'the whole expense of the accounting is wasted' when an appellate court reverses on liability after an accounting.” Id. at *9.
4. The Federal Circuit found that stare decisis favors its holding because the Federal Circuit has “long recognized that an 'accounting' within the context of '1292(c)(2) includes a trial on damages.” Id.

Willfulness Issues

The Federal Circuit also held that it has jurisdiction to hear appeals from liability determinations while willfulness issues remain outstanding. Id. at *10. In support, the Federal Circuit cited to pre-1927 cases where accountings included determinations of willfulness by the special master. Id. at *11. The Federal Circuit further found that the practice of a number of federal courts determining willfulness as part of an accounting, both prior to and after 1927, confirm its holding and noted that Bosch was unable to point to anything in Section 1292(c)(2) or its legislative history that would indicate that Congress “intended to disturb the practice of determining willfulness as part of an accounting.” Id. at *11-12.

Additionally, while the Federal Circuit confirmed that district courts have the authority to bifurcate willfulness and damages issues from liability issues, it noted that neither the issue of bifurcation nor any Seventh Amendment concern (as raised by the dissent) was before it. Id . at *10.

Judges Moore and Reyna, writing separately, concurred with the majority's holding that the Federal Circuit has jurisdiction over appeals from determinations of liability where a determination of damages remains outstanding. However, they dissented with respect to the determination that the Federal Circuit has jurisdiction where willfulness issues remain undecided. Id. at *13, 16. Judge Moore opined that willfulness determinations, which require consideration of the state of mind of the accused infringer and the reasonableness of the defenses the accused infringer presents, are not within the meaning of “accounting.” Id. at *14-15. Rather, an “accounting” should be limited to numerical calculations. Id.

Judge Reyna articulated similar reasoning and set forth three reasons why a willfulness determination should not be brought under the definition of an “accounting”:

1. The plain language of Section 1292(c)(2) should be construed narrowly and it does not unambiguously express Congress' intent to exclude willfulness from the rule of finality. Id. at *16-17.
2. The plain meaning of “accounting” bears no nexus to willfulness. Willfulness is related to liability, not damages. Id. at *16, 17-21.
3. Congress's purpose in avoiding piecemeal litigation will be frustrated by forcing litigants to appeal “virtually identical sets of facts and issues twice.” Id. at *16, 21.

Judge O'Malley, joined by Judge Wallach, dissented, focusing on the scope of the exception to the rule of finality and taking issue with the majority's broad definition of “accounting” under Section 1292(c)(2). In the dissent's view, the proper issue is not whether an “accounting” as of 1927 permits consideration of an infringer's profits or allows calculations of a patentee's damages, but rather, whether the accounting procedure contemplated by '1292(c)(2) encompasses a jury trial on such questions. Id. at *26. Disagreeing with the majority's four points, Judge O'Malley concluded that it does not encompass a jury trial, because an accounting before a special master is not a substitute for a jury trial on damages, which is a right preserved by the Seventh Amendment. Id. at *29-30.

On the issue of willfulness, the dissent raised similar concerns. The dissent framed the question not as whether willfulness was ever considered by special masters in an accounting, but rather “whether a finding of willfulness is an 'accounting' under ' 1292(c)(2).” Id. at *35. Concluding it is not, the dissent pointed out that willfulness findings were made by a court, not the special master, and such findings were not numbers-related. Id. at *36-37. The dissent also noted that the majority's holding as to willfulness leads to inefficiencies and calls Seventh Amendment concerns into question. Id. at *37-38.

Practice Implications

Although the Federal Circuit's decision as to damages is unsurprising, its decision as to willfulness is unexpected. Bosch will, no doubt, bolster the filing of motions to bifurcate trials on damages and willfulness from liability. The bifurcation of liability and damages trials may result in some significant front-end cost-savings for litigants, particularly if a court stays discovery on damages. Moreover, bifurcation will likely impact the frequency and expediency of settlements, as the losing party in the liability phase may choose to settle rather than invest in an interlocutory appeal. However, as separate juries will be tasked with making decisions in the same case, litigants may wind up duplicating the presentation of evidence and recalling witnesses for a subsequent damages trial. As the dissent observed, litigants will be forced “to try and appeal virtually identical sets of facts and issues twice.” Id. at *21, *37. Such repeat proceedings will likely increase the ultimate cost of the litigation.

Angie M. Hankins is a partner and Vivian Luo is an associate in the Intellectual Property Practice Group of Stroock & Stroock & Lavan LLP's New York Office. The opinions expressed herein are their own and not necessarily those of the firm or any of its clients.

The Court of Appeals for the Federal Circuit, sitting'en banc, recently held in Robert Bosch, LLC v. Pylon Mfg. Corp., __ F.3d __ , Case Nos. 2011-1363, 2011-1364, 2013 WL 2664281, at *13 (Fed. Cir. June 14, 2013) that the court has jurisdiction under 28 U.S.C. '1292(c)(2) to hear appeals from patent infringement liability determinations prior to a trial on damages and while willfulness issues remain outstanding. This article summarizes Bosch and highlights the practical implications of the Federal Circuit's decision.

In Bosch, the parties brought claims and counterclaims for patent infringement. Id. at *1. Prior to trial, the defendant moved to bifurcate the issues of liability and damages. The District Court for the District of Delaware granted the motion and stayed discovery on damages and willfulness, which it deemed a damages issue. Id. After a jury trial and entry of judgment on liability, the parties appealed. Id. The plaintiff filed a motion to dismiss the appeals, which was denied, and sought reconsideration of its motion, which was also denied. Id. The Federal Circuit sua sponte granted a rehearing en banc to consider whether the court has jurisdiction under Section 1292(c)(2) over appeals from liability determinations prior to a trial on damages and willfulness determinations. Id.

At oral argument, Bosch argued that an “accounting” under Section 1292(c)(2) “is limited to an accounting of an infringer's profits and cannot include a determination of damages” because “historically an accounting included only the ascertainment of an infringer's profits.” Id . at *2. Bosch also argued that “whatever an accounting is, it cannot be a trial on damages” because “an accounting was a proceeding before a special master ' available only in courts of equity,” which excludes modern jury trials because “juries do not sit in equity.” Id. at *6. Thus, “an accounting must be limited to a special master's determination of damages.” Id. In contrast, Pylon argued that “an accounting included a trial on damages, including the determination of willfulness.” Id. at *2.

Damages Determination and Jury Trial

The Federal Circuit began its analysis with the final judgment rule, which dictates that appeals can be taken only from a final decision of a district court ' meaning litigation on the merits has ended and all that remains for the district court is to execute the judgment. Id. However, Section 1292(c)(2) provides an exception for patent cases whereby appeals may be made “from a judgment in a civil action for patent infringement which would otherwise be appealable to [the Federal Circuit] and is final except for an accounting .” Id. (emphasis in original). The issues, thus, turned on the meaning of “accounting.”

Specifically, the Federal Circuit was faced with whether an accounting includes both a determination of damages and a trial on damages. Based on statutory interpretation of the patent laws and historical case law, the Federal Circuit concluded that an “accounting” for the purposes of Section 1292(c)(2) encompasses the determination of an infringer's profits and a patentee's damages, including lost profits and a reasonable royalty. Id. at *2-6.

The Federal Circuit also found that an accounting can be a trial on damages, and is not limited to a special master's determination of damages. Id. at *6. The majority based its finding on four points:

1. In 1948, Congress amended the interlocutory appeal statute by substituting the phrase “civil actions” for “suit[s] in equity,” which expanded jurisdiction over interlocutory appeals from cases in equity to “civil actions for patent infringement which are final except for accounting,” and brought the statute into essentially its current form. Id. at *7 (quoting H.R. Rep. 308, 80th Cong., 1st Sess. (1948)). The court determined that the term “accounting” in Section 1292 identifies the nature of the issue being adjudicated, rather than the adjudicator (as is the dissent's view), and that the statute makes no distinction between a jury trial and other means of determining damages. Id.
2. The issues decided in historical accountings are the same as those decided today by a jury ' lost profits or a reasonable royalty. Id. at *6, 8.
3. Judicial economy supports granting interlocutory appeals from liability determinations prior to an accounting because “'the whole expense of the accounting is wasted' when an appellate court reverses on liability after an accounting.” Id. at *9.
4. The Federal Circuit found that stare decisis favors its holding because the Federal Circuit has “long recognized that an 'accounting' within the context of '1292(c)(2) includes a trial on damages.” Id.

Willfulness Issues

The Federal Circuit also held that it has jurisdiction to hear appeals from liability determinations while willfulness issues remain outstanding. Id. at *10. In support, the Federal Circuit cited to pre-1927 cases where accountings included determinations of willfulness by the special master. Id. at *11. The Federal Circuit further found that the practice of a number of federal courts determining willfulness as part of an accounting, both prior to and after 1927, confirm its holding and noted that Bosch was unable to point to anything in Section 1292(c)(2) or its legislative history that would indicate that Congress “intended to disturb the practice of determining willfulness as part of an accounting.” Id. at *11-12.

Additionally, while the Federal Circuit confirmed that district courts have the authority to bifurcate willfulness and damages issues from liability issues, it noted that neither the issue of bifurcation nor any Seventh Amendment concern (as raised by the dissent) was before it. Id . at *10.

Judges Moore and Reyna, writing separately, concurred with the majority's holding that the Federal Circuit has jurisdiction over appeals from determinations of liability where a determination of damages remains outstanding. However, they dissented with respect to the determination that the Federal Circuit has jurisdiction where willfulness issues remain undecided. Id. at *13, 16. Judge Moore opined that willfulness determinations, which require consideration of the state of mind of the accused infringer and the reasonableness of the defenses the accused infringer presents, are not within the meaning of “accounting.” Id. at *14-15. Rather, an “accounting” should be limited to numerical calculations. Id.

Judge Reyna articulated similar reasoning and set forth three reasons why a willfulness determination should not be brought under the definition of an “accounting”:

1. The plain language of Section 1292(c)(2) should be construed narrowly and it does not unambiguously express Congress' intent to exclude willfulness from the rule of finality. Id. at *16-17.
2. The plain meaning of “accounting” bears no nexus to willfulness. Willfulness is related to liability, not damages. Id. at *16, 17-21.
3. Congress's purpose in avoiding piecemeal litigation will be frustrated by forcing litigants to appeal “virtually identical sets of facts and issues twice.” Id. at *16, 21.

Judge O'Malley, joined by Judge Wallach, dissented, focusing on the scope of the exception to the rule of finality and taking issue with the majority's broad definition of “accounting” under Section 1292(c)(2). In the dissent's view, the proper issue is not whether an “accounting” as of 1927 permits consideration of an infringer's profits or allows calculations of a patentee's damages, but rather, whether the accounting procedure contemplated by '1292(c)(2) encompasses a jury trial on such questions. Id. at *26. Disagreeing with the majority's four points, Judge O'Malley concluded that it does not encompass a jury trial, because an accounting before a special master is not a substitute for a jury trial on damages, which is a right preserved by the Seventh Amendment. Id. at *29-30.

On the issue of willfulness, the dissent raised similar concerns. The dissent framed the question not as whether willfulness was ever considered by special masters in an accounting, but rather “whether a finding of willfulness is an 'accounting' under ' 1292(c)(2).” Id. at *35. Concluding it is not, the dissent pointed out that willfulness findings were made by a court, not the special master, and such findings were not numbers-related. Id. at *36-37. The dissent also noted that the majority's holding as to willfulness leads to inefficiencies and calls Seventh Amendment concerns into question. Id. at *37-38.

Practice Implications

Although the Federal Circuit's decision as to damages is unsurprising, its decision as to willfulness is unexpected. Bosch will, no doubt, bolster the filing of motions to bifurcate trials on damages and willfulness from liability. The bifurcation of liability and damages trials may result in some significant front-end cost-savings for litigants, particularly if a court stays discovery on damages. Moreover, bifurcation will likely impact the frequency and expediency of settlements, as the losing party in the liability phase may choose to settle rather than invest in an interlocutory appeal. However, as separate juries will be tasked with making decisions in the same case, litigants may wind up duplicating the presentation of evidence and recalling witnesses for a subsequent damages trial. As the dissent observed, litigants will be forced “to try and appeal virtually identical sets of facts and issues twice.” Id. at *21, *37. Such repeat proceedings will likely increase the ultimate cost of the litigation.

Angie M. Hankins is a partner and Vivian Luo is an associate in the Intellectual Property Practice Group of Stroock & Stroock & Lavan LLP's New York Office. The opinions expressed herein are their own and not necessarily those of the firm or any of its clients.