A cautionary tale on avoiding enhanced damages during patent infringement litigation

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A U.S. Federal Judge’s November decision ordering consumer chemical manufacturer Dr. Greens Inc. to pay nearly $900,000 in attorney fees to Spectrum Laboratories, adding to the $3 million in damages already awarded, offers a cautionary tale for businesses hoping to avoid similar worst-case scenarios during patent infringement litigation.

While it is traditionally rare for judges to tack on attorney fees in intellectual property cases, it has become more common ever since the Supreme Court’s 2016 Halo v. Pulse decision increased the potential for patent holders to be awarded enhanced damages in cases of intentional infringement.

Of the more than 4,000 motions asking for attorney fees in IP cases as of Dec. 12, 2016, only 33 percent were granted.

One of those 1,341 decisions was granted in March after a jury in San Diego returned a $856,173 verdict in favor of Spectrum Laboratories, the Cincinnati-based clients of McDonald Hopkins intellectual property attorneys David Cupar and Matt Cavanagh. Because the jury also found Spectrum’s competitor guilty of willfully infringing on its patent, Judge John A. Houston granted a motion to triple the damages and award both $325,000 in interest and nearly $900,000 in attorney fees. In doing so, he cited Dr. Greens’ intentional infringement, vexatious litigation conduct (extending the case and driving up legal fees) and attempts to conceal a prior infringing formula.

“The biggest lesson to be learned here is to just always be above board,” said Cavanagh.

The judge decided on the final figure for the attorney fees in November.

“You can never anticipate attorney fees because it is so outside the norm,” said Cupar.

Several facts aided Cupar and Cavanagh in winning their jury trial and subsequent motion for enhanced damages. It was actually Dr. Greens who had originally sued Spectrum in San Diego federal court in 2011 after Spectrum had inquired about patent infringement and sent several cease-and-desist warnings. Spectrum refused to back down after being sued, and instead counterclaimed for patent infringement. During the discovery phase, Cupar and Cavanagh detected that Dr. Greens had secretly changed its product’s formula just before suing Spectrum. While trying to hide the change, the company failed to save samples of its old formula.

“Fortunately, we had our own sample, and tests on that sample proved the infringement,” said Cupar.

The gamesmanship continued for nearly a decade with Judge Houston a firsthand witness.

“The record is replete with many pretrial disputes between the parties involving that Dr. Green’s charging decisions and delay and avoidance tactics to discovery production that increased litigation costs,” Judge Houston wrote in the November decision. He quoted Halo as determining the standard for willful misconduct, and ruled Dr. Greens’ tactics to be “egregious infringement behavior.”

“It certainly helped that the judge had been on this case from the beginning,” said Cupar. “He watched everything that had taken place for eight years.”

According to Cupar, staying above board and avoiding the risk of paying attorney fees requires more than simply knowing the law. It takes a deep understanding of the facts of a case to recognize potential blind spots – like those uncovered by Cupar and Cavanagh during discovery.

 “If there are a set of facts that could affect your case or a client’s situation negatively, you are better off understanding that upfront and dealing with it by raising it with the court first and explaining the situation,” said Cupar. “When an attorney or the parties themselves make statements that are literally the opposite of what happened, that is when you begin to get really outside the norm and you have the potential for having to pay attorney fees.

“But when you stay within bounds, there is still a place where there is room for argument. There are facts, and we might come to different conclusions based on facts. But, when someone makes statements that are so clearly outside the bounds, they lose any efficacy.”

Following the Supreme Court’s Halo ruling, the American Bar Association offered eight other tips to avoid enhanced damages along with six tips to obtain enhanced damages in George W. Jordan III’s March/April 2017 “Halo v. Pulse: A New Chapter for Enhanced Patent Damages.”

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