A recent decision in a patent infringement case from the Central District of California, Alfred E. Mann Foundation for Scientific Research v. Cochlear Corp. awarded enhanced damages for patent infringement, doubling a jury verdict of $130 Million. The case (which involved cochlear implant technology used for the hearing impaired) reads like a primer of what not to do as a defendant in a patent case.
While the court weighed a variety of factors to arrive at the decision to double the damages award, perhaps the most glaring was the defendant’s reaction after the jury verdict. Its Annual Report stated that the jury’s verdict “will not disrupt Cochlear’s business or customers in the United States.” Combined with the fact that the evidence indicated that the infringing products generated $1.8 billion in revenue (with gross profit margins of 75% to 92%), it was apparent that the defendant had not gotten the message.
The Alfred E. Mann case was heavily litigated: it was pending for seven years before the jury reached its verdict, then appealed to the Federal Circuit, and then sent back for additional procedures. The Patent Act provides that “the court may increase the damages up to three times the amount found or assessed.” 35 U.S.C. § 284. Once a party is found to have infringed willfully, courts consider a variety of factors set out in Read Corp. v. Portec, Inc., 970 F.2d 816 (Fed. Cir. 1992).
Some of them are obvious; deliberate copying of the patented technology (found in the Alfred E. Mann case) clearly weighs in favor of enhanced damages. But other factors found are not as obvious and should be taken into account when considering how to respond to a charge of patent infringement:
Cochlear had a non-infringing alternative but chose not to use because it was inferior and would require investment of additional resources to make it competitive. This lead the court to infer that Cochlear deliberately chose not to switch to the alternative so as not to give up market share or invest additional research resources.
Investigation of Patent
Cochlear claimed that after being accused of patent infringement, it had investigated the patent and concluded it was invalid. But its proofs on this were minimal, and the court noted that it was “disingenuous” to claim this when it had not even ordered the file wrapper on the patents until three years after it had first been accused.
In 2014 – after the patent at issue expired and after the jury’s verdict – Cochlear filed an ex parte petition for reexamination of the patent before the PTO, and then attempted to block plaintiff’s trial counsel from participating in the proceeding. This was after seven years of litigation, including trial, before the district court. The reexamination was a failure, as the PTO only confirmed the validity of the challenged claims of the patent-in-suit.
But that also provoked the district court. Cochlear had failed to explain why it waited seven years to file its petition at the PTO, and which simply raised the same arguments that had been considered at trial. The court concluded that the petition “did nothing more than distract and raise the costs for plaintiff to continue litigating this case.”
Disparity In Size
Cochlear is a multi-billion dollar for-profit company, the “market leader” in hearing implant technology. The plaintiff, on the other hand, “is a nonprofit medical research entity that generates income by licensing its advanced medical technologies to provide significant improvements to the health, security and quality of life for people suffering from debilitating medical conditions.” Not surprisingly, this disparity weighed in favor of enhanced damages.
The Alfred E. Mann case was hard fought, given the very large stakes and complex issues. But, at least in hindsight, one can discern a level of arrogance and disregard by Cochlear to the patent rights of the plaintiff, which lead it to disregard the assertion of patent rights, and provoked the district court to enhance the damages as a deterrent.
Another company in the same position might consider acting differently to at least minimize its exposure.