Judge Gilstrap recently entered Final Judgment that included a 20% enhancement of damages based on a Jury Verdict that LG willfully infringed two patents that patent owner Core Wireless alleged to be essential to certain cellular standards.  This appears to be the first case of a court enhancing damages based on willful infringement of a standard essential patent.  Recall that Judge Gilstrap previously denied LG’s pre-trial motion to preclude finding willful infringement of an alleged standard essential patent, but indicated that he might consider LG’s policy arguments if he were to consider enhancing damages if the jury found that LG willfully infringed the patents (see our Sep. 7, 2016 post).

Judge Gilstrap has now ruled that he will enhance damages following the jury verdict that LG willfully infringed the patent, and he did so sua sponte, meaning that he enhanced damages without the patent owner filing a post-trial motion seeking such enhancement or the parties briefing same.  Judge Gilstrap has since stayed execution of the judgment while the parties file post-trial motions, which motions most likely will address the issue of willful infringement and enhanced damages.

Judge Gilstrap’s decision to enhance damages  was due to LG’s negotiation conduct and apparently weak infringement/validity defenses, which led him to conclude that “LG’s decision to terminate negotiations and continue operations without a license was driven by its resistance to being the first in the industry to take a license, and not by the merits or strength of its non-infringement and invalidity defenses.”

Background

Core Wireless asserted that LG infringed two patents that Core Wireless alleged to cover certain cellular standards.  LG denied that the patents were essential to the standard or infringed.  Prior to the lawsuit, the parties had licensing negotiations where Core Wireless presented detailed infringement contentions, and LG responded with non-infringement positions.  The negotiations included at least seven meetings in Seoul, Korea where LG was located.

Core Wireless filed the instant lawsuit, which led to a jury trial this past September to determine liability, including damages and whether any infringement was willful.  The jury returned a verdict finding that (1) LG infringed both patents; (2) the patents were not invalid; (3) LG willfully infringed both patents; and (4) $2.28 Million “would reasonably compensate Core Wireless” as a “Running Royalty” for infringement up to the date of trial.

Because the trial transcripts currently are not publicly available, it is not clear how the jury was instructed to determine willful infringement or a reasonable royalty.  The parties’ pre-trial brief included proposed jury instructions showing their disagreement on those issues; both parties apparently agreed that damages should comprise a FRAND-based royalty.  We may revisit these issues if more information becomes available through either public transcripts of the trial proceedings or the parties’ post-trial briefing.

Decision

Judge Gilstrap considered his discretion to award a range of enhanced damages under Section 284 based on the degree of the willful infringer’s culpability:

  • “treble damages … to penalize the most egregious conduct”
  • “less significant enhancement … for less egregious (though still culpable) conduct”
  • no enhancement “where the degree of culpability is de minimis”

Judge Gilstrap then assessed LG’s culpability based on the merits of LG’s defenses and LG’s conduct during the parties’ license negotiations.

First, Judge Gilstrap indicated that LG may have made a weak case of non-infringement or invalidity, stating:

It is undisputed that LG had detailed knowledge of the patents-in-suit long before the filing of this lawsuit.  Throughout the course of the licensing negotiations Core Wireless provided LG with claim charts that set forth detailed infringement contentions.  Core Wireless specifically demonstrated how LG infringes Claim 21 of the ‘850 Patent–a claim that the jury unanimously determined to be infringed by LG.  The mere fact that LG was able to muster a non-infringement position during negotiations and at trial does not necessarily insulate it from enhanced damages.  Moreover, its invalidity defense, which was asserted at trial but rejected by the jury, is belied by the admission of LG’s corporate representative … who testified at his deposition that after thorough review of the patents-in-suit he concluded that the patents are novel and non-obvious.

Second, Judge Gilstrap indicated that LG’s conduct in negotiations was not in good faith, including a final meeting where Core Wireless traveled to LG only to be provided a one-page terse statement that LG preferred litigation over being the first cell phone manufacturer to license the patents-in-suit:

Finally, the Court makes note of with the manner in which LG abruptly terminated licensing negotiations.  After a long series of meetings between the parties, including seven meetings in Seoul, Korea, LG invited the Core Wireless representatives to Korea one last time and indicated that it would be making a monetary offer for a license.  Rather than make an offer or engage in serious, good faith negotiations, LG delivered a terse one-page presentation stating that a lawsuit at that time between the parties was “preferable” to a license, and that LG would prefer to wait until another major cell phone manufacturer licensed the portfolio, at which point LG intended to be “a follower” in the established royalty scheme.  This should have been done by email.  LG’s conduct in making Core Wireless send representatives to Korea to be handed a one-page document like this is clearly within the totality of the circumstances which the Court should properly consider.

Judge Gilstrap, therefore, concluded that “LG’s decision to terminate negotiations and continue operations without a license was driven by its resistance to being the first in the industry to take a license, and not by the merits or strength of its non-infringement and invalidity defenses.”  Accordingly, he awarded enhanced damages of $456,000, which is 20% of the $2.28 Million royalty verdict.

Whether and to what extent Judge Gilstrap’s ruling will stand is not clear.  The parties will now have post-trial briefing, which will provide LG an opportunity to argue the strength of its liability defenses as well as the appropriateness of its licensing negotiation conduct.  LG also may have some equitable defenses to raise that were not tried to the jury, but are to be decided by Judge Gilstrap.