The Patent Act provides that, in a case of infringement, courts “may increase the damages up to three times the amount found or assessed.” Previously, in order to recover enhanced damages under the Patent Act, a patent owner had to show two things: (1) the infringer acted with objective recklessness and (2) the risk of infringement was either known or should have been known to the accused infringer. Both of these elements had to be shown by the relatively high standard of “clear and convincing” evidence.
The Supreme Court’s recent decision in Halo Electronics, Inc v. Pulse Electronics, Inc. drastically changed the standard for enhanced damages and made it easier for patent owners to obtain an enhanced damages award. The Court eliminated the objective recklessness prong and lowered the standard of proof from “clear and convincing evidence” to “preponderance of the evidence.” The Court also adopted an abuse of discretion standard for appellate courts reviewing a district court’s decision to grant enhanced damages.
Previously, patent owners struggled to obtain enhanced damages even when they could establish that the infringer acted with bad faith. Infringers were able to avoid enhanced damages by making a reasonable defense at trial. Thus, the ability of a patent owner to obtain enhanced damages sometimes depended more on the ingenuity of the defendant’s attorney than the defendant’s culpability at the time of the challenged conduct. By eliminating the objective recklessness prong, the Supreme Court refocused the analysis on the defendant’s knowledge at the time of the infringing conduct.
The Court’s new contemporaneous focus will likely influence the prelitigation conduct of patent owners and accused infringers. Demand letters informing accused infringers of their infringement and relevant patents will likely become more common place. Opinion letters will also likely take on an increased significance for accused infringers. Not all instances will warrant a full-blown infringement and validity analysis but, under the new standard, accusations of patent infringement should be given prompt, thorough, and carefully documented consideration.