U.S. Supreme Court Relaxes Standard for Awarding Enhanced Damages for Patent Infringement

Summary

In a unanimous decision yesterday, the Supreme Court eliminated the requirement that patentees must show that an infringer was objectively reckless in order to obtain enhanced patent damages. The decision returned to the district courts the discretion to award enhanced damages in egregious cases and elevated the infringer’s subjective intent as the focus of the analysis. The Court also lowered the standard of proof for a patentee to show willfulness.

Background of the Case

In October 2015, the Supreme Court granted certiorari in a pair of consolidated cases, Halo Electronics v. Pulse Electronics and Stryker Corp. v. Zimmer, Inc. The question presented in both cases was the standard for awarding enhanced damages under 35 U.S.C. § 284, and in particular, the viability of the two-part test adopted by the Court of Appeals for the Federal Circuit in In re Seagate Technology, LLC. Section 284 provides that, after damages have been determined, the court “may increase the damages up to three times the amount found or assessed.” In Seagate, the Federal Circuit adopted a two-part test for determining whether damages may be increased pursuant to Section 284. First, the patent owner had to “show by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent.” Second, the patentee had to show clear and convincing evidence that the risk of infringement “was either known or so obvious that it should have been known to the accused infringer.”

Decision

The Supreme Court rejected the Seagate two-part test as unduly rigid and inconsistent with the discretion afforded district court judges under Section 284. The Court reasoned that the pertinent language of Section 284 contains no explicit limit or condition on when enhanced damages are appropriate and that the word “may” connotes discretion. The Court also recognized that the district court’s discretion should be exercised in light of nearly two centuries of experience with the Patent Act in which enhanced damages are awarded only in egregious cases.

The Court was particularly troubled by the Seagate test because it would exonerate a deliberate infringement so long as the infringer was later able to present a non-frivolous defense at trial. The Court held that district courts should consider the particular circumstances of each case and reserve enhanced damages for egregious cases typified by willful misconduct.

The Court also rejected Seagate’s requirement that entitlement to enhanced damages must be proven by clear and convincing evidence. The Court explained that the preponderance of the evidence standard normally governs patent cases and enhanced damages are no exception.

Observations

The Halo decision returns the law to its pre-2007 state, but with a lower standard of proof. By no longer requiring the patentee to show the infringer acted with an “objectively high likelihood” of liability, the courts will once again focus on the intent of the infringer at the time of the initial infringement. Because the infringer’s intent is often highly factual in nature, infringers will have a more difficult hurdle to eliminate willfulness allegations before trial.

Now that the infringer’s subjective intent is the focal point of whether to find willfulness, accused infringers should ensure they have a good-faith basis to make or sell a product, especially if they are aware of allegations that they infringe a patent. As such, alleged infringers may wish to obtain the assistance of patent counsel early in the design and development process. In the event infringement is found, infringers will often have to fend off charges of willfulness. While Justice Breyer’s concurring opinion emphasized that the recent amendments to the Patent Act make clear that opinions of counsel are not required to avoid willful infringement, it noted that such advice could be helpful.

Conversely, a patent owner wanting enhanced damages may wish to notify infringers of the patent and of the acts of infringement. Such notice would prevent alleged infringers from claiming ignorance of the patent, thus requiring them to develop a good-faith basis to make and sell the accused product.