On June 13, 2016, the Supreme Court of the United States issued its unanimous opinion in Halo Electronics, Inc. v. Pulse Electronics, Inc., clarifying that district courts have broad discretion in deciding whether to award enhanced damages in patent cases and vacating the rigid test previously used by the Federal Circuit.
The Prior Federal Circuit Test
Section 284 of the Patent Act provides that, in a case for patent infringement, a district court "may increase the damages up to three times the amount found or assessed." Previously, the Federal Circuit employed a two-part test for determining whether a district court could increase damages: (i) first, a patent owner needed 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"; and (ii) second, demonstrate by 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."1 The Federal Circuit reviewed district court decisions awarding enhanced damages under a trifurcated procedure whereby portions of a district court’s determination were reviewed de novo and for substantial evidence, while the determination as a whole was reviewed for abuse of discretion.
The Supreme Court Rejects the Federal Circuit's Test
The Supreme Court rejected these rigid requirements as being overly restrictive and inconsistent with the language of Section 284. Going forward, objective recklessness is no longer a threshold requirement for a district court to award enhanced damages. District courts may award enhanced damages in any egregious case where an infringer acts with culpable behavior, as a punitive or vindictive sanction. This clarification will empower district courts to award enhanced damages in cases where an infringer acts egregiously, without needing to consider whether the infringer acted in an objectively unreasonable manner. This allows a district court to focus on an infringer's subjective intentions, without being limited by whether the conduct was objectively unreasonable. For example, enhanced damages can be awarded against a copycat infringer who deliberately duplicated a patented product without having a reasonable doubt as to the patent's validity or another viable defense, irrespective of whether the infringer's conduct was objectively unreasonable.
Decreased Burden of Proof
The Supreme Court further held that a patentee must merely demonstrate that enhanced damages are justified by a preponderance of the evidence (i.e., "more likely than not") rather than by the heightened "clear and convincing evidence" standard previously used by the Federal Circuit.
Standard for Appellate Review is Abuse of Discretion
Finally, the Supreme Court held that all aspects of a district court's decision to award enhanced damages are to be reviewed only for an abuse of discretion. This deferential standard recognizes that district courts have significant discretion in determining whether enhanced damages are warranted.
What Does this Mean For Me?
This decision gives district courts increased flexibility in choosing to award enhanced damages based on a defendant's conduct, and may result in a greater number of enhanced damages decisions being left undisturbed on appeal. This will make your presentation and related evidence regarding willful infringement more important at the district court level. This can have significant impacts at all stages of litigation.
First, if you are a patentee currently engaged in patent infringement litigation, you should evaluate whether the defendant's conduct merits an award of increased damages under the broader standard adopted by the Supreme Court. Similarly, if you are a defendant in a patent infringement suit, you should determine whether you are at risk of having enhanced damages assessed against you.
Second, if you have an appeal pending, you may want to contemplate supplemental briefing if the decision at the district court was decided in your favor.
Finally, for companies currently engaged in patent litigation, you may want to reconsider the value of a non-infringement opinion of counsel, given the reduced threshold and wider discretion in awarding enhanced damages. Going forward, district courts may give more weight to subjective factors (including whether a defendant sought and obtained a validity or non-infringement opinion from counsel) in deciding whether to award enhanced damages.