Sri International, Inc. v. Cisco Systems Inc.

• Court: Court of Appeals for the Federal Circuit
• Decided: September 28, 2021
• Docket: 20-1685
• Status: Published

Opinion

Case: 20-1685 Document: 48 Page: 1 Filed: 09/28/2021

United States Court of Appeals for the Federal Circuit ______________________

SRI INTERNATIONAL, INC., Plaintiff-Appellant

v.

CISCO SYSTEMS, INC., Defendant-Cross-Appellant ______________________

2020-1685, 2020-1704 ______________________

Appeals from the United States District Court for the District of Delaware in No. 1:13-cv-01534-RGA-SRF, Judge Richard G. Andrews. ______________________

Decided: September 28, 2021 ______________________

FRANK SCHERKENBACH, Fish & Richardson, PC, Bos- ton, MA, argued for plaintiff-appellant. Also represented by ROBERT COURTNEY, Minneapolis, MN; HOWARD G. POLLACK, Redwood City, CA; JOHN WINSTON THORNBURGH, San Diego, CA.

ANDREW J. DANFORD, Wilmer Cutler Pickering Hale and Dorr LLP, Boston, MA, argued for defendant-cross-ap- pellant. Also represented by ANNALEIGH E. CURTIS, LAUREN B. FLETCHER, WILLIAM F. LEE, LOUIS W. TOMPROS. ______________________ Case: 20-1685 Document: 48 Page: 2 Filed: 09/28/2021

Before LOURIE, O’MALLEY, and STOLL, Circuit Judges. STOLL, Circuit Judge. SRI International, Inc. appeals the United States Dis- trict Court for the District of Delaware’s denial of its mo- tion to reinstate the jury’s willfulness verdict and to reinstate the district court’s award of enhanced damages. Cisco Systems, Inc. cross-appeals the district court’s award of attorney fees and expenses. Because substantial evi- dence supports the jury’s finding of willful infringement, we reverse the district court’s denial of SRI’s motion to re- instate the willfulness verdict. Having restored the jury’s willfulness finding, we also restore the district court’s award of enhanced damages. Finally, we affirm the district court’s award of attorney fees. BACKGROUND This is the second appeal in this case. SRI filed suit in the District of Delaware alleging that Cisco infringed cer- tain claims of U.S. Patent Nos. 6,711,615 and 6,484,203 (the “asserted patents”). The ’615 patent is titled “Network Surveillance” and is a continuation of the ’203 patent, which is titled “Hierarchical Event Monitoring and Analy- sis.” A jury trial was held on validity, infringement, willful infringement, and damages. See SRI Int’l, Inc. v. Cisco Sys., Inc. (SRI I), 254 F. Supp. 3d 680 (D. Del. 2017). The jury found that the accused Cisco products infringed cer- tain claims of the asserted patents and awarded a 3.5% rea- sonable royalty for a total of $23,660,000 in compensatory damages. The jury also found that Cisco’s infringement was willful. After trial, Cisco moved for judgment as a matter of law (JMOL) of no willful infringement and SRI moved for at- torney fees and enhanced damages. Regarding the jury’s willfulness finding, the district court determined that sub- stantial evidence—including that certain Cisco employees did not read the asserted patents until their depositions, Case: 20-1685 Document: 48 Page: 3 Filed: 09/28/2021

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that Cisco designed the products in an infringing manner, and that Cisco instructed its customers to use those prod- ucts in an infringing manner—supported the jury’s willful- ness finding. Id. at 716–17. The district court also awarded SRI attorney fees and costs. Id. at 723. The district court noted that “Cisco pur- sued litigation about as aggressively as the court has seen in its judicial experience” and that this litigation strategy “created a substantial amount of work for both SRI and the court, much of which work was needlessly repetitive or ir- relevant or frivolous.” Id. at 722–23 (footnotes omitted). In awarding fees, the district court also took into account “the fact that the jury found that Cisco’s infringement was will- ful.” Id. at 723. With respect to enhancement of damages based on the jury’s willfulness finding, the district court doubled the damages award. Id. at 723–24. The district court ex- plained that enhancement was appropriate “given Cisco’s litigation conduct, its status as the world’s largest network- ing company, its apparent disdain for SRI and its business model, and the fact that Cisco lost on all issues during sum- mary judgment and trial, despite its formidable efforts to the contrary.” Id. at 723. Cisco appealed the district court’s denial of JMOL of no willful infringement and its grant of enhanced damages and attorney fees. We vacated and remanded on each of those issues. See SRI Int’l, Inc. v. Cisco Sys, Inc. (SRI II), 930 F.3d 1295, 1312 (Fed. Cir. 2019). First, we held that the jury’s verdict of willful infringement before May 8, 2012 was not supported by substantial evidence because it was undisputed that Cisco did not know of SRI’s patents until after that date. Id. at 1309–10. We stated that for the time period prior to May 8, 2012, “the record is insufficient to establish that Cisco’s conduct rose to the level of wanton, malicious, and bad-faith behavior required for willful in- fringement.” Id. at 1309. We also criticized the evidence Case: 20-1685 Document: 48 Page: 4 Filed: 09/28/2021

the district court identified as supporting the jury’s willful- ness verdict. For example, we explained that “it was unre- markable” that two Cisco employees identified in the appellate record merely as engineers did not review the pa- tents until their depositions. Id. We vacated the district court’s denial of JMOL of no willful infringement and re- manded the case to the district court to decide in the first instance whether the jury’s finding of willful infringement after May 8, 2012 (the date Cisco received notice) was sup- ported by substantial evidence. Id. We likewise vacated the district court’s enhanced damages award because it was predicated on the finding of willful infringement. In addition, we vacated the award of attorney fees because it was partly based on the finding of willful infringement. On remand, the district court reasonably read our opin- ion to require a more stringent standard for willful in- fringement than our other cases suggest—conduct rising to “the level of wanton, malicious, and bad-faith behavior.” SRI Int’l, Inc. v. Cisco Sys., Inc. (SRI III), Civil Action No. 13-1534-RGA, 2020 WL 1285915, at *1 (D. Del. Mar. 18, 2020). Based on this standard, the district court in SRI III held that substantial evidence did not support the jury verdict of willful infringement after May 8, 2012. The district court in SRI III also reviewed the jury in- structions on willful infringement, which neither party ever challenged on appeal. The instructions directed the jury to consider whether Cisco “acted despite a high likeli- hood that [its] actions infringed a valid and enforceable pa- tent.” Id. at *2. The jury was further instructed that, if it answered this question affirmatively, it should also deter- mine whether Cisco “actually knew or should have known that its actions constituted an unjustifiably high risk of in- fringement of a valid and enforceable patent.” Id. To de- termine whether Cisco had this state of mind, the jury was instructed to consider the following factors: Case: 20-1685 Document: 48 Page: 5 Filed: 09/28/2021

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One, whether or not defendant acted in accordance with the standards of commerce for its industry. Two, whether or not defendant intentionally copied a product of plaintiff’s that is covered by the pa- tents-in-suit. Three, whether or not there is a reasonable basis to believe that defendant did not infringe or had a rea- sonable defense to infringement. Four, whether or not defendant made a good-faith effort to avoid infringing the patents-in-suit, for ex- ample, whether defendant attempted to design around the patents-in-suit. And, five, whether or not defendant tried to cover up its infringement. Id. at *2–3. Regarding attorney fees, the district court noted that even though it removed the willfulness finding it had par- tially relied on in awarding fees, there was nevertheless sufficient reason to maintain the fees award. Id. at *4. It again found the case “exceptional” and accordingly granted the renewed motion for attorney fees and expenses. Id. at *5. SRI appeals the district court’s JMOL of no willful in- fringement and the denial of its motion to reinstate the jury’s willfulness verdict and to reinstate the district court’s award of enhanced damages. Cisco cross-appeals the district court’s award of attorney fees. We have juris- diction under 28 U.S.C. § 1295(a)(1). DISCUSSION We review a grant of JMOL of no willfulness under the same standard as the district court, for substantial evi- dence. Johns Hopkins Univ. v. CellPro, Inc., 152 F.3d 1342, 1354, 1363 (Fed. Cir. 1998); MobileMedia Ideas LLC Case: 20-1685 Document: 48 Page: 6 Filed: 09/28/2021

v. Apple Inc., 780 F.3d 1159, 1164 (Fed. Cir. 2015) (citing Pitts v. Delaware, 646 F.3d 151, 155 (3d Cir. 2011)). We review a district court’s decision regarding the amount of enhanced damages for an abuse of discretion. Halo Elecs., Inc. v. Pulse Elecs., Inc., 136 S. Ct. 1923, 1934 (2016). Like- wise, we review an award of attorney fees pursuant to 35 U.S.C. § 285 for an abuse of discretion. Highmark Inc. v. Allcare Health Mgmt. Sys., Inc., 572 U.S. 559, 564 (2014). I A In SRI II, we held that there was no willful infringe- ment as a matter of law before Cisco had notice on May 8, 2012. We did not decide whether substantial evidence sup- ported the jury verdict of willful infringement after May 8, 2012. Rather, we remanded for the district court to deter- mine this issue in the first instance. We now hold that that substantial evidence supports the jury’s finding of willful infringement after May 8, 2012. We do not disturb SRI II’s holding that there was no willful infringement before May 8, 2012. First, we presume, as we must, that consistent with the jury instructions, the jury found that Cisco had no reason- able basis to believe that it did not infringe or that it had a reasonable defense to infringement. 1 See SSL Servs., LLC

1 See jury instructions, supra. The jury was in- structed under the Seagate willful infringement standard, which required both (1) “clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent” and (2) that “this objectively-defined risk . . . was either known or so obvious that it should have been known.” In re Seagate Tech., LLC, 497 F.3d 1360, 1371 (Fed. Cir. 2007). Since that decision, the Supreme Court issued Halo Case: 20-1685 Document: 48 Page: 7 Filed: 09/28/2021

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v. Citrix Sys., Inc., 769 F.3d 1073, 1082 (Fed. Cir. 2014) (generally, “[w]e presume that the jury resolved the under- lying factual disputes in favor of the verdict and review those factual findings for substantial evidence” (citing Ki- netic Concepts, Inc. v. Smith & Nephew, Inc., 688 F.3d 1342, 1356–57 (Fed. Cir. 2012))). SRI presented evidence that Cisco’s invalidity defenses were unreasonable. Cisco’s only assertion of invalidity over the prior art was based on anticipation by a reference that was twice considered and twice rejected by the Patent Of- fice. See SRI I, 254 F. Supp. 3d at 722 n.52. SRI’s expert testified that this reference was lacking a key limitation of the claims—the requirement for multiple network moni- tors. Moreover, Cisco’s expert had not even seen (let alone distinguished) the Patent Office’s prior analysis rejecting this same prior art during the reexamination of the as- serted patents before that expert opined that this prior art anticipated the claims. SRI also presented evidence to the jury that Cisco did not have any reasonable basis for non-infringement. For example, as its only non-infringement argument for one of two sets of product groupings, Cisco maintained through- out trial that the claims required separate monitors, which its products did not have. Id. at 722. SRI countered that this non-infringement defense was untethered to the dis- trict court’s claim construction of a “network monitor,” which expressed no such requirement. See J.A. 22228 (Trial Tr. 1934:13–21) (stating that “during the entire time

Electronics, Inc. v. Pulse Electronics., Inc., 136 S. Ct. 1923 (2016), which rejected the objective recklessness require- ment. Because Halo did not disturb the substantive stand- ard for subjective willfulness, we have held that we may review the jury’s verdict for substantial evidence under that standard. See Arctic Cat Inc. v. Bombardier Recrea- tional Prods. Inc., 876 F.3d 1350, 1371 (Fed. Cir. 2017). Case: 20-1685 Document: 48 Page: 8 Filed: 09/28/2021

that Cisco was putting on its infringement case . . . you never once saw the Court’s construction of network monitor hit the screen, not once”). In SRI I, the district court noted this disconnect, explaining that although the court “had ex- plained that ‘[t]he claim language and the parties’ con- structions do not require that the “network monitor” and “hierarchical monitor” be separate structures’ [], Cisco maintained throughout trial that separate monitors were required.” 254 F. Supp. 3d at 722 (first alteration in origi- nal). Likewise, as its only non-infringement argument for the second set of product groupings, Cisco asserted that while the claims require that the products correlate events, its products process events one at a time, i.e., they do not correlate events. At trial, SRI presented directly contradic- tory evidence. For example, SRI identified an internal Cisco document that shows a “Meta Event Generator” plainly depicting a hierarchical arrangement of monitors correlating multiple events. J.A. 38708. Cisco’s own tech- nical witness similarly acknowledged that this “Meta Event Generator” functions to correlate events. J.A. 21813 (Trial Tr. 1519:3–5) (“Meta is specialized to combine events into a bigger event.”). Further combined with testimony from SRI’s expert that the accused products correlate events, Cisco-customer testimony that Cisco’s product cor- relates events, and third-party testing confirming the same, the jury had a reasonable basis to believe that Cisco did not have any reasonable defenses to infringement. In addition, the jury found that Cisco induced infringe- ment of the asserted claims, and Cisco does not challenge that finding on appeal. See SRI I, 254 F. Supp. 3d at 700. As explained in SRI I, the court instructed the jury that “Defendant is liable for active inducement only if plaintiff proves by a preponderance of the evidence” that, among other things, (1) “Defendant took some action intending to encourage or instruct its customers to perform acts that you, the jury, find would directly infringe”; and (2) Case: 20-1685 Document: 48 Page: 9 Filed: 09/28/2021

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“Defendant was aware of the asserted patents at the time of the alleged conduct and knew that its customer’s acts (if taken) would constitute infringement of an asserted pa- tent.” Id. at 719 (emphasis omitted). Based on these un- challenged jury instructions, we may presume that the jury found that Cisco knew of the patent, took action to encour- age its customers to infringe, and knew that its customers actions (if taken) would infringe. Such unchallenged find- ings may support a jury’s finding of willful infringement. To be clear, a finding of induced infringement does not compel a finding of willfulness. Indeed, the standard re- quired for willful infringement is different than that re- quired for induced infringement. Nonetheless, in this case, the jury’s unchallenged findings on induced infringement, when combined with Cisco’s lack of reasonable bases for its infringement and invalidity defenses, provide sufficient support for the jury’s finding of willful infringement for the period after May 8, 2012, when Cisco had notice of the pa- tent. Finally, we address the district court’s statement in SRI III that the Federal Circuit “made clear that the stand- ard for willfulness” applicable on remand is “whether ‘Cisco’s conduct rose to the level of wanton, malicious, and bad-faith behavior required for willful infringement.’” SRI III, 2020 WL 1285915, at *1 (quoting SRI II, 930 F.3d at 1309). The district court also noted that “the Court of Appeals is not entirely consistent in its use of adjectives to describe what is required for willfulness.” SRI III, 2020 WL 1285915, at *1 n.1. To eliminate the confusion created by our reference to the language “wanton, malicious, and bad-faith” in Halo, we clarify that it was not our intent to create a heightened requirement for willful infringement. Indeed, that sentence from Halo refers to “conduct war- ranting enhanced damages,” not conduct warranting a finding of willfulness. Halo, 136 S. Ct. at 1932 (“The sort of conduct warranting enhanced damages has been vari- ously described in our cases as willful, wanton, malicious, Case: 20-1685 Document: 48 Page: 10 Filed: 09/28/2021

bad-faith, deliberate, consciously wrongful, flagrant, or— indeed—characteristic of a pirate.”) As we said in Eko Brands, “[u]nder Halo, the concept of ‘willfulness’ requires a jury to find no more than deliberate or intentional in- fringement.” Eko Brands, LLC v. Adrian Rivera Maynez Enters., Inc., 946 F.3d 1367, 1378 (Fed. Cir. 2020) (citing Halo, 136 S. Ct. at 1933). Under the proper test for willfulness, and considering the presumed jury findings above, we conclude that sub- stantial evidence supports the jury’s willful infringement finding. We thus reverse the district court’s JMOL of no willful infringement and reinstate the jury verdict of will- ful infringement. B We next turn to SRI’s request to reinstate the award of enhanced damages. Although willfulness is a component of enhancement, “an award of enhanced damages does not necessarily flow from a willfulness finding.” Presidio Com- ponents, Inc. v. Am. Tech. Ceramics Corp., 875 F.3d 1369, 1382 (Fed. Cir. 2017) (first citing Halo, 136 S. Ct. at 1932; and then citing WBIP, LLC v. Kohler Co., 829 F.3d 1317, 1341 n.13 (Fed. Cir. 2016)). Discretion remains with the district court to determine whether the conduct is suffi- ciently egregious to warrant enhanced damages. WBIP, 829 F.3d at 1341 n.13; Halo, 136 S. Ct. at 1934 (“Sec- tion 284 gives district courts discretion in meting out en- hanced damages.”). We review the district court’s decision to award enhanced damages for an abuse of discretion. Halo, 136 S. Ct. at 1934. Thus, a decision of enhancement cannot stand if “it was based on a clear error of fact, an error of law, or a manifest error of judgment.” Va. Panel Corp. v. MAC Panel Co., 133 F.3d 860, 867 (Fed. Cir. 1997) (quoting Nat’l Presto Indus., Inc. v. W. Bend Co., 76 F.3d 1185, 1193 (Fed. Cir. 1996)); see Halo, 136 S. Ct. at 1934 (“That standard allows for review of district court decisions informed by ‘the considerations we have identified.’” Case: 20-1685 Document: 48 Page: 11 Filed: 09/28/2021

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(quoting Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U.S. 545, 554 (2014))). In this case, the district court in SRI I awarded double damages. The district court explained that enhanced dam- ages were appropriate “given Cisco’s litigation conduct, its status as the world’s largest networking company, its ap- parent 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.” SRI I, 254 F. Supp. 3d at 723–24. In doing so, the district court appropriately considered the factors laid out in Read Corp. v. Portec, Inc., including at least “the infringer’s behavior as a party to the litigation,” the infringer’s “size and finan- cial condition,” the infringer’s “motivation for harm,” and the “[c]loseness of the case.” 970 F.2d 816, 826–27 (Fed. Cir. 1992), abrogated in part on other grounds by Markman v. Westview Instruments, Inc., 517 U.S. 370, 116 (1996); see SRI I, 254 F. Supp. 3d. at 721. We discern no clearly erroneous factual findings, erroneous conclusions of law, or a clear error of judgment amounting to an abuse of discretion. We also conclude that vacating and remanding for the district court to decide the issue anew would serve little purpose given that the district court in SRI I already properly considered this issue. 2

2 It may seem inappropriate to reinstate the en- hancement award in SRI I when we held in SRI II that the willfulness finding should have been limited to willfulness after May 8, 2012. But neither party makes this argument and for good reason. The parties informed this court for the first time in this appeal that the district court’s award of double damages in SRI I applied only to damages for in- fringing activity after notice was given to Cisco, i.e., after May 8, 2012. The jury did not award any pre-notice dam- ages to SRI because it was only instructed to award dam- ages after May 8, 2012. Case: 20-1685 Document: 48 Page: 12 Filed: 09/28/2021

We are unpersuaded by Cisco’s arguments that SRI for- feited its right to enhanced damages by failing to challenge the district court’s assessment of enhancement in SRI III. Notably, the district court in SRI III did not conduct an analysis of enhancement because it entered JMOL of no willful infringement. Though the court stated that it “will deny the motion to amend the willfulness judgment and award enhanced damages,” that sentence must be read in context of the entire opinion. SRI III, 2020 WL 1285915, at *4. The district court began its analysis by pointing to what it believed was the standard for willfulness. Id. at *1. It then conducted its assessment of willfulness, repeatedly mentioning the jury’s willfulness verdict and SRI’s argu- ments with regard to willfulness; not once did the district court discuss enhancement in this assessment. Only after determining that substantial evidence did not support the jury verdict of willful infringement did the district court also, without analysis, deny enhanced damages. It is thus clear to us that the district court in SRI III denied the mo- tion to reinstate the award of enhanced damages only be- cause it denied the motion to reinstate the jury’s willfulness finding. Because we reinstate the jury’s will- fulness verdict, we likewise restore the district court’s award of double damages in SRI I. II We next turn to Cisco’s cross-appeal challenging the district court’s grant of SRI’s motion for attorney fees. Un- der 35 U.S.C. § 285, a “court in exceptional cases may award reasonable attorney fees to the prevailing party.” An “exceptional” case is “one that stands out from others with respect to the substantive strength of a party’s litigat- ing position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.” Octane Fitness, 572 U.S. at 554. We review a district court’s grant or denial of attorney fees for an abuse of discretion. See Highmark, 572 U.S. at 564; Bayer CropScience AG v. Dow AgroSciences LLC, 851 F.3d Case: 20-1685 Document: 48 Page: 13 Filed: 09/28/2021

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1302, 1306 (Fed. Cir. 2017). A district court abuses its dis- cretion when it “base[s] its ruling on an erroneous view of the law or on a clearly erroneous assessment of the evi- dence.” Rothschild Connected Devices Innovations, LLC v. Guardian Prot. Servs., Inc., 858 F.3d 1383, 1387 (Fed. Cir. 2017) (alteration in original) (quoting Highmark, 572 U.S. at 563 n.2). As we explained in SRI II, we see no error in the dis- trict court’s determination that this was an exceptional case. 930 F.3d at 1310–11. The district court’s initial find- ings remain persuasive: There can be no doubt from even a cursory review of the record that Cisco pursued litigation about as aggressively as the court has seen in its judicial ex- perience. While defending a client aggressively is understandable, if not laudable, in the case at bar, Cisco crossed the line in several regards. SRI I, 254 F. Supp. 3d at 722. Moreover, the district court’s initial decision explained that “Cisco’s litigation strate- gies . . . created a substantial amount of work for both SRI and the court, much of which work was needlessly repeti- tive or irrelevant or frivolous.” Id. at 723 (footnotes omit- ted). Indeed, the district court conducted a thorough inventory of Cisco’s aggressive tactics, including maintain- ing 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 dis- trict court’s claim construction ruling and Cisco’s own in- ternal documents, exhaustive summary judgment and sanction efforts, over-designation of deposition testimony for trial, and asserting “every line of defense post-trial.” Id. at 722–23. We nonetheless vacated because the district court relied in part on the fact that the jury found that Cisco’s infringement was willful in its determination to award attorney fees. Case: 20-1685 Document: 48 Page: 14 Filed: 09/28/2021

Here, the district court reconsidered attorney fees in the absence of a willfulness finding, and again found this case to be “exceptional,” justifying a full award of attorney fees. SRI III, 2020 WL 1285915, at *4–5. Upon reconsid- eration, the district court explained that “Cisco’s entire case was weak, yet it pursued the case aggressively and in an unreasonable manner anyway.” Id. at *5. We see no abuse of discretion by the district court in this regard and affirm its award of attorney fees. CONCLUSION We have considered the parties’ remaining arguments and find them unpersuasive. For the foregoing reasons, we affirm the district court’s grant of attorney fees, reverse the district court’s JMOL of no willful infringement, reinstate the jury’s finding of willfulness, and reinstate the award of enhanced damages. AFFIRMED-IN-PART AND REVERSED-IN-PART COSTS

No costs.