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Halo Electronics, Inc. v. Pulse Electronics, Inc.

United States District Court, D. Nevada

September 6, 2017

HALO ELECTRONICS, INC, Plaintiff,
v.
PULSE ELECTRONICS, INC., and PULSE ELECTRONICS, CORP., Defendants.

          ORDER DENYING PLAINTIFF'S MOTION FOR ENHANCED DAMAGES (ECF 608, 614, 621, 629, 630, 631)

          ANDREW P. GORDON, UNITED STATES DISTRICT JUDGE

         Plaintiff Halo Electronics, Inc. patented a new design for transformers used in consumer devices like laptops. Halo's design solved a problem that had plagued electronics manufactures for some time: transformers often cracked or warped when exposed to high temperatures. Halo's invention solved this problem by designing transformers that expand to better handle the heat.

         Halo discovered that a much larger electronics manufacturer, defendant Pulse Electronics, Inc., was producing transformers incorporating features suspiciously similar to Halo's patented designs, so Halo sued Pulse for patent infringement. A jury found that Pulse had indeed infringed and awarded Halo $1.5 million. After trial, Halo asked the court to enhance its damages, claiming that Pulse infringed intentionally. But that request was denied because, at the time, enhanced patent damages required a finding that a defendant was both subjectively and objectively reckless. And Pulse had raised several reasonable defenses against Halo's claims.

         Halo appealed the denial of its request for enhanced damages all the way to the Supreme Court of the United States. The High Court decided to change the standard for awarding enhanced damages in patent cases. The Court explained that the ability to enhance patent damages was meant to be a flexible tool committed to the discretion of trial courts, and that there was no basis to narrow courts' discretion by requiring a finding of both objective and subjective recklessness. The Court concluded that from now on, trial courts will have discretion to decide whether to award enhanced damages based on the totality of the circumstances, without the limitation of making objective and subjective findings. The Court then remanded this case for further proceedings under this new standard.

         Considering all of the evidence in the record, I find that enhanced damages are not warranted here. Enhanced damages remain an exceptional tool meant to punish patent “pirates”-companies that intentionally infringe with no regard for a plaintiff's rights.[1] The record reveals that Pulse is no pirate. Its defense strategies were questionable, which is reflected in the jury's verdict against it. But Pulse offers ample evidence that: (1) when it learned of Halo's patent Pulse investigated whether its products infringed, (2) Pulse pursued non-frivolous defenses at trial, and (3) Pulse had a basis to subjectively believe it was not infringing Halo's patent throughout this litigation and prior. I thus deny Halo's motion for enhanced damages.

         I. BACKGROUND

         A. Halo designs and patents a new electronics component and Pulse apparently copies it

         Halo's design solved the heat sensitivity problem with existing transformers by creating an open transformer design that could expand in response to heat. A Pulse engineer became aware of Halo's patent in 1998 and, shortly after, Pulse began selling transformers that appeared to incorporate Halo's design.

         Pulse is a much bigger company than Halo, which allowed Pulse to leverage the new technology quicker. Pulse incorporated the new transformer technology into its products. In 2002, Halo began contacting companies that were incorporating this expansion technology, proposing that they pay Halo for a license. Halo sent Pulse two letters asking that Pulse pay for a license to use Halo's technology, but Pulse never responded. Nowhere in these letters did Halo every say that Pulse was infringing.

         B. Pulse continues to sell products that incorporate Halo's design

         Pulse offers evidence that it continued selling products that incorporated Halo's design because, after researching Halo's patent, Pulse concluded that either Halo's patents were invalid or that Pulse's products did not infringe. Pulse's investigation included having one of its engineers analyze Halo's patent and commissioning two opinion letters, both of which concluded that either Halo's patent was invalid or that Pulse's products did not infringe it.

         C. Halo sues Pulse for patent infringement and wins, but the court declines to award enhanced damages to Halo

         Halo brought this action against Pulse for patent infringement in 2007. Pulse responded with (1) a countersuit asserting that Halo infringed two of Pulse's patents, and (2) an action before the Patent and Trademark Office (“PTO”) to challenge the validity of Halo's patents. Both efforts failed, with Pulse's patents ruled non-infringed and the PTO upholding the validity of Halo's patents.

         Halo then proceeded to trial on its claims.[2] The jury found that (1) Pulse directly infringed Halo's patents and induced its customers to infringe, (2) Pulse's infringement was highly likely to have been willful, and (3) Halo's patents were valid.[3] Halo was awarded $1.5 million in damages.[4]

         After trial, the court set aside the jury's willfulness finding. Applying the then-existing standard of In re Seagate Technology, LLC, the court concluded that Pulse had “presented enough evidence of obviousness” so that its defense was not objectively baseless, which precluded an award of enhanced damages.[5] The court explained that Pulse offered evidence at trial, including an infringement “expert's testimony that the prior art disclosed each element of the asserted patent claims, that it would have been obvious and predictable to combine and modify the prior art references to create the asserted patent claims, and that there were differences between the prior art before the PTO and the prior art Pulse introduced at trial.”[6] Pulse also presented evidence “that the commercial success of the patented design was tied to litigation-driven licenses, that there was only a single instance of skepticism by one of Halo's potential customers, and that Pulse already had solved the problem of cracking due to exposure to high heat years before the Halo invention.”[7] The court thus concluded that Pulse did not ignore an objectively high likelihood that it was infringing, as the then-controlling caselaw required.[8]

         The Federal Circuit affirmed, agreeing with the district court that “Pulse did raise a substantial question as to the obviousness of the Halo patents.”[9] The court reasoned that “Pulse presented evidence that the prior art disclosed each element of the asserted claims, that it would have been predictable to combine and modify the prior art to create the claimed electronic packages, and that there were differences between the prior art considered by the PTO and the prior art introduced at trial.”[10]

         C. The U.S. Supreme Court changes the standard for enhanced damages and this case is remanded to apply the new standard

          The Supreme Court eventually vacated the district court and Federal Circuit's decisions, abrogating the then-existing standard for enhanced damages.[11] Under the prior Seagate test, a court could award enhanced damages for willful infringement only if it found that an infringer was both objectively and subjectively reckless.[12] The Supreme Court explained that this two prong test unduly prevented a trial court from awarding enhanced damages against a “wanton and malicious pirate who intentionally infringes another's patent.”[13] “The existence of such a defense insulates the infringer from enhanced damages, even if he did not act on the basis of the defense or was even aware of it. Under that standard, someone who plunders a patent-infringing it without any reason to suppose his conduct is arguably defensible-can nevertheless escape any comeuppance . . . solely on the strength of his attorney's ingenuity.”[14]

         In short, the Supreme Court concluded that trial courts should have wider discretion to consider whether willfulness damages are appropriate on a case-by-case basis, considering the totality of the circumstances.[15] The Court remanded to the Federal Circuit to consider whether, with now-wider discretion, enhanced damages are appropriate in this case.

         The Federal Circuit, in turn, remanded so that this court could make the enhanced-damages determination in the first instance. The panel explained that this court was to apply the new, less-restrictive standard for awarding enhanced damages.[16] It also noted that “the jury's unchallenged subjective willfulness finding [w]as one factor” that should be considered, as well as “what Pulse knew or had reason to know at the time of the infringement of the Halo patents.”[17]But the court emphasized that these were but two facts that should be considered, and that, ultimately, whether enhanced damages are appropriate in this case is a matter committed to this court's discretion.[18]

         II. ANALYSIS

         Halo presents three arguments: (1) Pulse cannot rely on two opinion letters to argue against enhanced damages because it never produced these letters at trial; (2) based on the record, Pulse's conduct was so malicious that it deserves to have enhanced damages levied against it; and (3) Halo is also entitled to attorney's fees.

         A. Whether Pulse can rely on its two opinion letters

         In responding to Halo's motion for enhanced damages, Pulse relies, in part, on two opinion letters it obtained in 1999 and 2003-during the time that it was infringing Halo's patent. These opinion letters concluded that Pulse's products did not infringe Halo's patent and that Halo's patent was invalid. They are thus powerful evidence that Pulse was not intentionally infringing Halo's patent.

         Pulse notified Halo about these opinion letters early in the case, but Pulse did not disclose their contents because they were privileged and not yet relevant. Halo argues that Pulse's failure to fully disclose the contents of these opinions means that I may not consider them now.

         In deciding whether to award enhanced damages, I must consider the totality of the circumstances to determine whether it is appropriate to punish Pulse for egregious conduct. The Supreme Court and Federal Circuit both instructed that I consider all the circumstances; they said nothing about restricting my review to the evidence produced at trial. And Halo offers no authority suggesting that I am confined to evidence produced in discovery or at trial when making this determination. Indeed, Pulse was not required to prove anything about its subjective beliefs before, so it makes sense that it waited until now to produce these opinions in their entirety.

         Halo also argues that a scheduling order entered in this case required that any discovery “supporting an advice of counsel defense” was required to be produced long ago.[19] But Pulse is not relying on an advice of counsel defense to a willfulness finding; it is offering the opinion letters for the post-trial purposes of Halo's request for enhanced damages.

         Halo finally argues the opinion letters should be stricken because they are irrelevant, but the cases it relies on miss the mark. Those cases concern whether opinion letters were properly submitted to the jury, not whether they were properly considered by a judge at the enhanced-damages stage.[20] For example, Halo contends that the opinion letters are irrelevant because there is not enough evidence that Pulse relied on them, citing to Harris Corp v. Ericsson. But the panel in that case held that the jury's willfulness finding was sufficiently supported by evidence, not that a judge was barred from considering the opinion letters at the enhanced-damages phase.[21]Indeed, the panel emphasized that if it were “sitting as triers of fact, [it] might not have come to the same conclusion” as the jury.[22]

         Even if I could not consider the contents of these opinions, I could certainly consider the fact that Pulse obtained them and knew of them (because that, at least, was disclosed to Halo since the beginning of this case). And even if that is all I could consider, I would reach the same conclusion. I thus deny Halo's motion to strike.

         B. Whether Pulse's conduct is so malicious that I should award ...


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