On June 13, 2016 Chief Justice Roberts delivered a unanimous decision of the Supreme Court in the case of Halo v. Pulse on the question of when enhanced damages can be awarded for patent infringement. This decision reversed an earlier decision of the Federal Circuit. Justice Breyer authored a concurring opinion.

The decision seems likely to make it easier to obtain an award of enhanced damages than before, although whether it will have as dramatic effect as the Supreme Court’s decision a couple of years ago in Octane Fitness v. Icon Fitness on awards of attorney fees remains to be seen.

It will be recalled that in In re Seagate Technology, the Federal Circuit set the standard for an award of enhanced damages under 25 USC 284 (which provides that the court “may” increase a damage award up to three times the compensatory amount in the case of patent infringement) if the infringement was willful in that the infringer had been “objectively reckless”. Noting that this term needed definition, the Federal Circuit based its opinion on Restatement of Torts §500 and set out the following two-pronged test:

  1. To establish willful infringement, a patentee must show by clear and convincing evidence that the infringer acted despite an objectively high likelihood that his actions constituted infringement of a valid patent. The state of mind of the accused is not relevant to this objective inquiry.
  2. If this threshold objective standard is satisfied, the patentee must also demonstrate that this objectively defined risk (determined by the record developed in the infringement proceeding) was either known or so obvious that it should have been known to the accused infringer.

In its decision, the Supreme Court first emphasized that use of the word “may” in 35 USC 284 indicated that the award of increased damages was a matter for application of discretion and so should not be subject to a rigid formula. Referring to it decision in Octane Fitness, LLC v. ICON Health & Fitness, Inc., the Court stated:

  • Although there is “no precise rule or formula” for awarding damages under §284, a district court’s “discretion should be exercised in light of the considerations” underlying the grant of that discretion…Here, 180 years of enhanced damage awards under the Patent Act establish that they are not to be meted out in a typical infringement case, but are instead designed as a sanction for egregious infringement behavior.”

The Supreme Court further noted:

  • By requiring an objective recklessness finding in every case, the Seagate test excludes from discretionary punishment many of the most culpable offenders, including the “wanton and malicious pirate” who intentionally infringes a patent with no doubts about its validity or any notion of a defense and for no purpose other than to steal the patentee’s business. Under Seagate, a district court may not even consider enhanced damages for such a pirate, unless the court first determines that his infringement was “objectively” reckless. A patent infringer’s subjective willfulness, whether intentional or knowing, may warrant enhanced damages, without regard to whether his infringement was objectively reckless. The Seagate test further errs by making dispositive the ability of the infringer to muster a reasonable defense at trial, even if he did not act on the basis of that defense or was even aware of it. Culpability, however, is generally measured against the actor’s knowledge at the time of the challenged conduct.

In summary, §284 allows district courts to punish the full range of culpable behavior. In so doing, they should take into account the particular circumstances of each case and reserve punishment for egregious cases typified by willful misconduct.

On the question of the burden of proof, the Supreme Court noted:

  • Seagate’s requirement that recklessness be proved by clear and convincing evidence is also inconsistent with §284. Once again, Octane Fitness is instructive. There, a clear and convincing standard for awards of attorney’s fees was rejected because the statute at issue supplied no basis for imposing a heightened standard. Here, too, §284 imposes no specific evidentiary burden, much less such a high one. The fact that Congress erected a higher standard of proof elsewhere in the Patent Act but not in §284, is telling. “Patent infringement litigation has always been governed by a preponderance of the evidence standard. Enhanced damages are no exception.”

SCOTUS: Patent infringement always governed by preponderance standard. Enhanced damages no…

The Supreme Court likewise rejected the Federal Circuit’s tripartite appellate review framework. Because §284 “commits the determination” of enhanced damages are appropriate to the district court’s discretion, “that decision is to be reviewed on appeal for abuse of discretion.”

Justice Breyer’s concurrence, in which he was joined by Justices Kennedy and Alito, expressed concern that the decision might be seen as facilitating the actions of patent trolls.  He aimed to make clear that the decision did not mean:

  1. That enhanced damages were available whenever the defendant knew of the patent in question but only in egregious cases;
  2. The decision did not change the rule that it was not essential to obtain counsel’s opinion to avoid a finding of willful infringement; and
  3. Courts should not use the possibility of enhanced damages to serve to compensate patentees for infringement-related costs or litigation expenses.

Read more about Halo v. Pulse and Octane Fitness, LLC v. ICON Health & Fitness, Inc here