Federal Circuit Clarifies the Willful Infringement Standard and Provides Insights on Conduct That is Exceptional in SRI v. Cisco

The Federal Circuit in SRI Int’l, Inc. v. Cisco Sys., Inc., No. 20-1685, slip op. (Fed. Cir. Sep. 28, 2021) addressed the standards for willful infringement and enhanced damages, and provided insights on litigation tactics that could lead to an award of attorney fees.

This litigation commenced when SRI filed suit claiming that products sold by Cisco infringed certain patents.¹ After trial, the jury found that Cisco infringed and that the infringement was willful.² Thereafter, Cisco moved for judgment as a matter law (JMOL) of no willful infringement, and SRI moved for enhanced damages and attorney fees.³ The district court found substantial evidence supported the jury’s finding of willfulness, specifically that certain Cisco employees did not read the asserted patents until their depositions, that Cisco designed the accused products in an infringing manner, and that Cisco directed its customers to use those products in an infringing manner.⁴ In addition, the court awarded attorney fees and costs because “Cisco pursued litigation about as aggressively as the court [had] seen in its judicial experience.”⁵ The court also took into account the jury’s willful infringement finding in awarding these fees.⁶ Lastly, the court granted enhanced damages, doubling the $23 million in compensatory damages awarded by the jury, noting that this was appropriate in light of the circumstances in the case, including Cisco’s aggressive litigation conduct.⁷

In an earlier appeal, Cisco challenged the district court’s JMOL denial of no willful infringement and grant of attorney fees and enhanced damages.⁸ The Federal Circuit held that the jury’s verdict of willful infringement occurring before the notice date, i.e., the date Cisco first knew of SRI’s patents, was not supported by substantial evidence.⁹ Support for the jury’s finding of willfulness after the notice date, however, still needed to be determined.¹⁰ Thus, the Court vacated and remanded the case to the district court to determine whether the jury’s finding of willful infringement after the notice date was supported by substantial evidence.¹¹ Because attorney fees and enhanced damages were predicated on a finding of willful infringement, the Court vacated the orders on these findings.¹²

On remand, based on a more stringent standard for willfulness that the district court thought that the Federal Circuit had required, the court found that substantial evidence did not support the jury’s finding of willfulness after the notice date.¹³ With regard to attorney fees, the court noted that even though it partially relied on the willfulness finding in awarding those fees, there was nonetheless sufficient reason to maintain those fees.¹⁴ SRI appealed the willfulness decision and Cisco cross-appealed the award of attorney fees.¹⁵

The Panel addressed the district court’s reading of an earlier Federal Circuit opinion in the matter “to require a more stringent standard for willful infringement than [the court’s] cases suggest.”¹⁶ The Panel explained that the earlier opinion remanding the question of enhanced damages to the district court suggested that “wanton, malicious, and bad-faith” conduct was required for willful infringement, but stated that this suggestion was not intended to create a heightened standard for finding willfulness.¹⁷ Rather, that language was taken from the Supreme Court’s Halo decision, and “refers to ‘conduct warranting enhanced damages,’ not conduct warranting a finding of willfulness.”¹⁸ The Panel clarified that the standard for willfulness under Halo requires “a jury to find no more than a deliberate or intentional infringement.”¹⁹

Under this standard, the Panel decided that substantial evidence supported the jury’s willful infringement verdict.²⁰ The Panel noted that Cisco’s anticipation assertions were based on a prior art reference that was twice considered and rejected by the PTO.²¹ Moreover, Cisco’s expert had not even seen the PTO’s prior analysis of this reference before opining that the reference anticipated the asserted claims.²² As to one product, Cisco’s noninfringement argument at trial appeared to contradict the district court’s claim construction.²³ With regards to the second product, Cisco’s noninfringement argument at trial was directly contradicted by internal Cisco documents identified by SRI.²⁴ In addition, Cisco’s own expert witness gave testimony that supported the existence of this contradiction.²⁵ The Panel also noted that the jury’s finding that Cisco induced infringement of the asserted claims was not challenged on appeal.²⁶ This led the Panel to “presume that the jury found that Cisco knew of the patent, took action to encourage its customers to infringe, and knew that its customers’ actions (if taken) would infringe.”²⁷ While the Panel noted that induced infringement findings do not compel a finding of willfulness, such unchallenged findings can support a jury’s willfulness finding.²⁸

The Panel next considered the issue of whether to reinstate the enhanced damages award. First, the Panel explained that “an award of enhanced damages does not necessarily flow from a willfulness finding.”²⁹ In this case, however, the Panel could “discern no clearly erroneous factual findings, erroneous conclusions of law, or a clear error of judgment amounting to an abuse of discretion.”³⁰ Rather, the Panel explained that the district court appropriately considered and applied the Read factors in awarding enhanced damages.³¹ In doing so, the district court found that enhanced damages were appropriate “given Cisco’s litigation conduct, its status as the world’s largest networking company, its apparent disdain for SRI and its business model, and the fact that Cisco lost on all issues during summary judgment and trial, despite its formidable efforts to the contrary.”³²

In sum, the Panel reversed the district court’s JMOL of no willful infringement, reinstated the jury’s willful infringement verdict, and reinstated the district court’s enhanced damages award.³³

Cisco cross-appealed the district court’s grant of attorney fees to SRI.³⁴ The Panel could not see any error, however, in the district court’s determination that this case was exceptional.³⁵ The Panel noted the district court’s prior findings that “Cisco’s litigation strategies … created a substantial amount of work for both SRI and the court, much of which work was needlessly repetitive or irrelevant or frivolous.”³⁶ This included “maintaining nineteen invalidity theories until the eve of trial but ultimately presenting only two at trial, presenting weak non-infringement theories that were contrary to the district court’s claim construction ruling and Cisco’s own internal documents, exhaustive summary judgment and sanction efforts, over-designation of deposition testimony for trial, and asserting ‘every line of defense post-trial.’”³⁷ Thus, the Panel affirmed the district court’s award of attorney fees.³⁸

This decision provides clarifications on the Federal Circuit’s willful infringement and enhanced damages law, and offers guidance for practitioners litigating these issues.

Additionally, as seen in the analysis of the circumstances that existed in this case, the decision provides an example of litigation conduct that may lead to an exceptional case determination resulting in the award of attorney’s fees.