Pre-Suit Opinion of Counsel/PTAB Challenge Critical to Avoiding Enhanced Damages
Section 284 of the Patent Act provides that, upon a finding of patent infringement, courts “may increase the damages up to three times the amount found or assessed.” Up until this past Monday, the Federal Circuit’s en banc decision in In re Seagate Technology, LLC controlled this determination, requiring patentees to show that an accused infringer’s actions were both objectively and subjectively reckless—both by clear and convincing evidence.
Needless to say, patentees rarely met these exacting burdens of proof.
In most cases, accused infringers would raise ex post infringement defenses that raised “a substantial question as to the validity or non-infringement of the patent” to negate a finding of objective recklessness. In other words, even if the infringer was unaware of the colorable defense when infringement began, Seagate’s-objective prong could provide a get-out-of-jail free card if a colorable defense was later developed during trial. The ability to wait for a lawsuit was an especially cost effective tool for in-house counsel that hoped to avoid costly, proactive strategies such as procuring an opinion of counsel, or openly challenging the patent on at the PTAB. That is, pre-suit, smoking gun evidence of infringement was readily negated by a proficient trial defense.
The game has now changed—significantly—with the Supreme Court’s decision this week in Halo Elecs. v. Pulse Elecs (here)
In the much anticipated decision, the Supreme Court abrogated the Federal Circuit’s two-part test under Seagate for determining whether damages for patent infringement may be trebled from that assessed by the jury. Now, the decision to award enhanced damages is left to the discretion of the district court.
Rather than focus on objective recklessness, the Court’s decision instructs the lower courts to look for culpable conduct, which “is generally measured against the knowledge of the actor at the time of the challenged conduct.” This is because enhanced damages are “designed as a ‘punitive’ or ‘vindictive’ sanction for egregious infringement behavior.” Most importantly, this showing is now based on the much more liberal, preponderance of the evidence standard.
The Court’s decision in Halo makes clear that an accused infringer’s pre-suit conduct is now of primary importance. And while there is no affirmative obligation on the part of an accused infringer to obtain—or later present to the jury—an opinion of counsel regarding invalidity and/or non-infringement to combat an allegation of enhanced damages, such opinions take on heightened importance after Halo. Opinions are often preferred for nuisance matters as opinions are typically a fraction of the cost of a PTAB proceeding. For larger liability disputes, PTAB petitions might be prepared, pre-suit, for filing should litigation ensue. In this way, the petition can demonstrate both pre-suit, and post-suit reasonableness.
As noted above, the existence of a colorable defense at trial will no longer insulate against a finding of enhanced damages, at least as it pertains to pre-suit conduct. Thus, for any alleged culpable conduct occurring pre-suit, an accused infringer may be wise to have a competent opinion of counsel at the ready. Alternatively, the "opinion" may take the form of a "pocket IPR" for use once litigation ensues to establish the reasonableness of its actions in the face of the patentee’s infringement allegations.