EKO Brands, LLC v. Adrian Rivera Maynez Enters., Inc.

Citation: 325 F. Supp. 3d 1116Docket: CASE NO. 2:15-cv-00522-JPD

Court: District Court, W.D. Washington; July 13, 2018; Federal District Court

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The jury trial concluded on June 8, 2018, with a unanimous verdict awarding Eko Brands, LLC $192,801 for infringement of U.S. Patent No. 8,707,855. However, the jury found in favor of Adrian Rivera Maynez Enterprises, Inc. on the issue of willfulness and determined that certain claims of U.S. Patent No. 8,720,320 would have been obvious to a person skilled in the art. Following the trial, Eko filed multiple motions: (1) for judgment as a matter of law or a new trial on willfulness and enhanced damages, (2) for attorneys' fees and costs, and (3) for permanent injunctive relief.

The court denied Eko’s request for judgment as a matter of law regarding willfulness, as no prior motion under Rule 50(a) was made during the trial, thus barring consideration of Rule 50(b). However, Eko's motion for a new trial under Rule 59 was not precluded. The court acknowledged its broad discretion in granting new trials, emphasizing that it can only do so if convinced a mistake was made following a thorough respect for the jury's findings. Eko contended that Jury Instruction 40 misrepresented the burden of proof for willfulness based on recent Supreme Court precedent, suggesting that a correctly instructed jury would have decided differently. The court granted Eko's motion for permanent injunctive relief, while partially granting and denying the motions for interest and attorneys' fees.

Eko's primary concern pertains to the language in Jury Instruction 40 regarding willful infringement, specifically the phrases that characterize it as "especially worthy of punishment" reserved for "egregious behavior." Eko contends that these statements misdirected the jury to make legal determinations about enhanced damages and exceptional cases instead of focusing solely on the factual question of willfulness. Notably, Eko's proposed instruction, based on NPJI 4.1, included similar language, as did ARM's proposed instruction. The original form of Jury Instruction 40 stated that for the case at hand, the jury must assume direct infringement of the Eko 855 patent and assess whether the infringement was willful. Willfulness was defined as requiring Eko to prove it was more likely than not that the infringement was egregious, with specific factors to consider, including intentional copying, belief in non-infringement, good-faith efforts to avoid infringement, and attempts to conceal infringement.

On the day the jury instructions were to be read, Eko objected to the phrasing regarding "the most egregious behavior." The Court permitted both parties to submit briefs on the objection, leading to an amendment that softened the language to simply state that willful infringement is reserved for egregious behavior. The jury was instructed accordingly.

The Court noted that if the amended instruction was improper based on the recent Halo decision, it would not be a harmless error. This is particularly relevant as ARM continued its infringing actions well after acknowledging infringement and only recently began efforts to design around the patent. During jury deliberations, the jury indicated they had reached a consensus on all issues except willfulness and expressed strong opinions on both sides, feeling that further deliberation would not lead to unanimity.

The jury's deadlock was resolved only after the Court directed them to review the willfulness instruction, leading to the denial of Eko's motion for a new trial. Eko failed to provide any legal authority to challenge the validity of National Patent Jury Instruction No. 4.1 post-Halo, and substantial evidence supported the jury's verdict, particularly Mr. Rivera's belief in his non-infringing defense. The Court noted that if the willfulness instruction was indeed flawed in conflating willfulness with the enhancement of damages, such an error would be significant. 

Eko's request for enhanced damages was denied, as the jury found ARM's infringement was not willful. The Court cited the Halo decision, emphasizing that enhanced damages are typically reserved for egregious conduct, and noted it would have considered Eko’s request had the jury determined willfulness. The litigation was characterized as "scorched-earth," with extensive procedural history, including reexaminations and multiple appeals. While the Court acknowledged the parties' professionalism in trial management, it observed that the litigation's overall conduct was problematic, with indications that ARM would persist in its infringement regardless of court outcomes. The credibility of Mr. Rivera and Mr. Ditta was significantly undermined as they denied knowledge of Eko's patent and licensing offer, despite clear evidence of their receipt of such notifications, rendering their testimonies false.

Defendants' conduct necessitated half of the trial to assess the obviousness of Claims 8 and 20 of the Rivera '320 patent, which was deemed a charade. The jury credited Mr. Rivera's belief in ARM's vindication on appeal, leading to a finding of non-willfulness, supported by substantial evidence. Consequently, Eko's motion for enhanced damages was denied. Eko sought pre-judgment and post-judgment interest on the damages award at a compounded rate of 6.75%. The court granted Eko's motion in part, denying prejudgment interest on the jury's damages but awarding post-judgment interest from the original judgment date at the federal rate. The court previously ordered prejudgment interest on attorneys' fees at 12% per annum per Washington State law. Eko also requested attorneys' fees, with the Patent Act allowing such awards in exceptional cases. The U.S. Supreme Court's Octane Fitness decision clarified that courts should evaluate fee requests based on the totality of circumstances, focusing on the strength of a party's position and the manner of litigation.

The Court emphasized the importance of equitable discretion in determining fee entitlement, rejecting a rigid rule and instead referencing factors such as frivolousness, motivation, objective unreasonableness, and the need for compensation and deterrence. The burden of proof for fee entitlement is established as "preponderance of the evidence." The Court concluded that this case does not qualify as "exceptional" enough to justify an award of attorney's fees for the entire litigation, noting that Eko did not prevail on all claims against ARM. Although the jury awarded damages for ARM's infringement of Eko's patent, the amount was significantly lower than the expert's testimony suggested, and the jury found ARM's infringement was not willful.

The Court distinguished the issues of damages and willfulness from the validity of Claims 8 and 19 of the Rivera '320 patent, which were found to be dependent on other claims that were ruled invalid by the International Trade Commission (ITC) and affirmed by the Court of Appeals for the Federal Circuit (CAFC). The ITC had invalidated claims 5-7, 18, and 20 due to lack of written description, and the CAFC deemed it unnecessary to address anticipation because of this invalidation. At pretrial, the Court questioned the necessity of trying the issue of obviousness for Claims 8 and 19, given that their independent claims were invalid. Eko had defaulted in the ITC proceedings by not participating, as it wished to avoid costs associated with the litigation, which restricted its manufacturing practices. ARM later withdrew Claims 8 and 19 from the ITC proceedings.

Claims 5-7, 18, and 20 of the Rivera '320 patent were invalidated by the ITC due to lack of written description and anticipation, a decision upheld by the CAFC regarding the written description. Claims 8 and 19 were not included in this ruling as they had been withdrawn, thus the ITC exclusion bar for these claims remains effective despite the invalidation of their independent claims. During the pretrial conference, Eko's counsel sought to lift the exclusion order on Claims 8 and 19, but ARM refused to agree to a stipulation on the obviousness of these claims or a covenant not to sue, necessitating a trial to declare them invalid on obviousness grounds.

ARM argued that previous findings about factual questions regarding obviousness and invalidity precluded summary judgment and that its defense was not unreasonable. However, it became clear during the trial that ARM was not genuinely defending the obviousness claims, with the Court characterizing ARM's actions as a strategy to prolong the ITC preclusion order, thereby hindering Eko's manufacturing options. ARM insisted that factual issues should be decided by a jury, despite acknowledging that the final decision on obviousness was a legal matter, and contributed little to the preparation of a special verdict form. In closing arguments, ARM downplayed the significance of the invalidity issue, dedicating minimal time to it, which reflected a lack of seriousness in its defense. This approach consumed considerable resources from both the Court and Eko, as well as the jurors’ time, for an issue that ARM had deemed relatively trivial.

After the verdict, ARM declined the Court's invitation to make further submissions on the issue of obviousness before judgment. The Court determined that ARM's actions regarding Claims 8 and 19 were not made in good faith and were an attempt to delay the ITC preclusion order against Eko. Consequently, the Court found this situation exceptional enough to award Eko half of the attorneys' fees incurred during the trial week and all expert fees related to the invalidity of ARM's '320 patent claims. Specifically, Eko is awarded $21,005.50 in attorneys' fees (half of the fees for Mr. Lowe and Mr. Billick) and $42,087.50 for Dr. Howle's expert fees, totaling $63,093.00.

Eko also moved for a permanent injunction against ARM's patent infringement, while ARM suggested negotiating an ongoing royalty rate instead. To secure the injunction, Eko needed to demonstrate four factors: irreparable injury, inadequacy of legal remedies, a favorable balance of hardships, and public interest served by the injunction. The Court found that Eko proved all four factors, thereby granting its request for injunctive relief. The irreparable harm requirement necessitates a causal link between the infringement and the claimed harm, which can be established through evidence showing that a patented feature influences consumer purchasing decisions or significantly enhances product desirability.

The patentee is not required to prove that the patented feature is the sole reason for consumer demand, but must demonstrate some connection between the patented feature and demand for the infringing product. Eko's invention, featuring dual outlet probe receptacles, was shown to significantly drive consumer demand, as evidenced by its market success, including being the top new grocery item on Amazon in 2011 and a finalist in housewares design awards in 2012. Eko faces irreparable harm due to ARM’s infringement, as they are direct competitors and Eko has lost sales to ARM. ARM's ongoing litigation threats and its denigration of Eko's patent value further exacerbate this harm. The Federal Circuit acknowledges that direct competition indicates the potential for irreparable harm, particularly where a patentee is forced to compete against infringing products. ARM's continued infringement for over three years, despite having non-infringing alternatives, suggests that the Eko '855 patent holds significant value. Eko contends that monetary damages are insufficient to address the irreparable losses incurred, including lost market share, brand reputation, customer base, and resources for future innovation, thus supporting the need for an injunction.

Eko's licensing efforts for the '855 patent, including a license offer to ARM, indicate that monetary damages are insufficient to remedy the harm Eko has experienced. ARM's proposal to calculate damages through ongoing royalties based on post-trial sales is deemed inadequate by the Court due to unresolved valuation disputes regarding the patent. The Court views ARM's suggestion to negotiate a monetary resolution over four months as disingenuous, noting ARM's delay in developing a non-infringing filter and asserting that ARM has little incentive to negotiate if an injunction is denied. The Court finds no adequate alternative remedies due to ARM's litigation history and substantial evidence of harm to Eko from ARM's infringement.

Regarding the balance of hardships, ARM claims it would lose 120,000 units if an injunction is enforced, arguing that the hardship to Eko from a temporary royalty is minimal. The Court rejects this argument, pointing out that ARM could pursue a limited license and hold inventory during appeals or settlement. ARM's three-and-a-half-year history of infringement casts doubt on its claims of hardship. The Court concludes that an injunction would not threaten ARM's business significantly and emphasizes that Eko has suffered business declines partly due to ARM's infringement. Therefore, the balance of hardships strongly favors granting Eko injunctive relief to uphold its patent rights.

An injunction is deemed necessary due to ARM's prolonged infringement of the Eko '855 patent and its aggressive litigation tactics over three and a half years. ARM has viable non-infringing alternatives, and rewarding its behavior would not serve public interest. The court emphasizes that patent laws exist to incentivize innovation by granting exclusion rights, thus supporting Eko's request for a permanent injunction, which is granted. 

The court also ruled on several motions: Eko’s request for judgment as a matter of law or a new trial regarding willfulness and enhanced damages is denied; part of Eko’s motion for pre- and post-judgment interest is granted; part of Eko’s motion for attorneys' fees and costs is granted; and the motion for permanent injunctive relief is granted. 

Regarding the jury instructions on willfulness, the court noted that neither party objected to the language during an informal conference, and Eko’s request to add a factor to the willfulness instruction was recorded but did not alter the outcome. Eko's claims based on post-trial declarations were not considered since they were not presented during the trial. Ultimately, the court found that ARM failed to demonstrate non-obviousness and engaged in a detrimental litigation strategy against Eko.

The case involved two main issues: the determination of damages for ARM's infringement of the DeMiglio '855 patent and the willfulness of that infringement, as well as the obviousness of claims 8 and 19 of the Rivera '320 patent. Testimony revealed that Eko's design allowed users to utilize their own brewing materials, increased the volume capacity for brewing, reduced clogging compared to competitors' capsules, simplified usage, and eliminated the need for disposable paper filters. During the trial, a demonstration by defendant's consultant, Dino Ditta, showed that inserting Eko's reusable filter incorrectly could damage it; however, this demonstration was deemed irrelevant as users can always misuse products. The Court and jury found this demonstration unimpressive. The parties are instructed to confer regarding settlement for sales from June 1, 2018, to the date of the injunction and must report their progress within three weeks. If no agreement is reached, the Court will establish a method to determine the owed amount.