E-Commerce Law Week, Issue 471

Federal Circuit Raises Bar for Enhanced Damages in Patent Infringement Cases

A recent en banc ruling by the United States Court of Appeals for the Federal Circuit will make it more difficult for companies to collect enhanced damages for patent infringement.  Enhanced damages in patent cases require a showing of willful infringement.  In In Re Seagate Technology, LLC, the Federal Circuit overturned a prior decision that had defined the standard for finding willfulness.  Henceforth, the court held, "proof of willful infringement permitting enhanced damages requires at least a showing of objective recklessness."  This new "objective recklessness" test replaces the old standard, which required a showing simply that the defendant had failed to "exercise due care" to determine if a product was infringing.  By making it more difficult for patent holders to win enhanced damages, the court's ruling should also reduce the leverage patent holders have in negotiations with alleged infringers and licensees.  The decision thus adds a heavy dose of salt to patent holders' wounds caused by the Supreme Court's decision last year in eBay, Inc. v. MercExchange, LLC, which made it more difficult for patentees to obtain a permanent injunction against infringement.

Seventh Circuit Bars Class Action for Recovery of Breach Response Expenses

The plaintiffs' bar has again failed to cash in on a data breach.  In Pisciotta v. Old National Bancorp, the Seventh Circuit affirmed a ruling that Indiana law does not permit recovery of credit monitoring expenses stemming from a 2005 breach of servers holding personal information of customers and potential customers of Old National Bancorp.  Although the court described the breach as "sophisticated, intentional and malicious," it found that the plaintiffs could not make out a negligence or implied-breach-of-contract claim because they had not shown an "existing compensable injury and consequent damages" but rather were seeking only to be "reimbursed for their efforts to guard against some future, anticipated harm."  This conclusion is consistent with the rulings of several district courts.  The Seventh Circuit also held, though, that misuse of personal data is not required to establish standing, and that the risk of future harm is enough to avoid dismissal on standing grounds.  That holding could make data breach litigation more costly for companies.  Moreover, other states' common law could still be given a more expansive interpretation.  This area remains very much in flux, and thus bears watching by companies that might be vulnerable to data breaches (which, of course, is every company).

Another Court Rules that Companies Can Recover Lost Profits Under CFAA

Employers often use the Computer Fraud and Abuse Act (CFAA) to go after former employees who have made off with sensitive company information.  But the statute's many interrelated provisions have caused significant confusion in the courts.  In Frees, Inc., v. McMillian, a federal court in Louisiana addressed two perennial questions:  what counts as a "loss" for the purposes of establishing jurisdiction under the CFAA, and what losses are recoverable under the Act?  The court found that "[t]he cost of hiring an expert to investigate ... computer damage is clearly a 'reasonable cost' sufficient to constitute 'loss' under the CFAA."  More controversially, the court also held that lost profits are among the "compensable damages" that plaintiffs may recover under the Act.  While this case is clearly a win for employers, they should note that the circuits remain split over the question of whether lost revenues are compensable under the CFAA.

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