Although under the Patent Act, “a court may increase the damages [for patent infringement] up to three times,” 35 U.S.C. § 284, enhanced damages awards are infrequent. For nearly a decade, the Federal Circuit’s en banc decision in In re Seagate, has required that a finding of willful infringement to support enhanced damages be gauged through the dual-lens of objective recklessness and subjective knowledge. Thus, since 2007, to recover enhanced damages “a patentee must show by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent”—a finding that would not be supported if the infringer raised a “substantial question” as to patent validity or noninfringement—and must additionally show that the “objectively-defined risk [of infringement] was either known or so obvious that it should have been known to the accused infringer.” In re Seagate Tech., LLC, 497 F.3d 1360, 1371 (Fed. Cir. 2007). Further, under In re Seagate, on appeal there is triparte review: objective recklessness is reviewed de novo, subjective knowledge is reviewed for substantial evidence, and the decision regarding the award of enhanced damages is reviewed for an abuse of discretion.
Addressing the enhanced damages issue in its June 13, 2016 decision in Halo Elecs., Inc. v. Pulse Elecs., Inc., the Supreme Court has unanimously eviscerated the Seagate test, finding it “unduly rigid” and an “impermissibl[e] encumber[ance] [on] the statutory grant of discretion to district courts.” No. 14-1513, 2016 WL 3221515, at *8 (U.S. June 13, 2016).
The case came before the Supreme Court on separate petitions from Halo Electronics (“Halo”) and Stryker Corporation and Stryker Sales Corp. (“Stryker”). Both Halo (an electronic components supplier) and Stryker (a medical device manufacturer) prevailed in their respective patent infringement suits. The district court, however, declined to award enhanced damages to Halo, while Stryker won a jury verdict of $70 million, which the district court trebled. The Federal Circuit upheld the decision to withhold enhanced damages from Halo but overturned the decision awarding treble damages to Stryker. A petition for certiorari was filed and granted in both cases and the Seagate decision, the precedent guiding the outcome in both cases, took center stage.
According to the Court, considering the history of enhanced damages under the Patent Act, section 284 is appropriately and simply described as allowing “punitive or increased damages . . . in a case of willful or bad-faith infringement.” No. 14-1513, 2016 WL 3221515, at *4. The key fact is that section 284’s language “contains no explicit limit or condition” and, with its use of the word “may,” “clearly connotes discretion” granted to the district courts. Id. at *8. The Seagate test is problematic in that, with objective recklessness as gatekeeper, “many of the most culpable offenders” may be excluded from punishment. Also, although culpability is gauged by the degree of self-knowledge at the time of the challenged act, an infringer can nevertheless avoid the noose of enhanced damages by summoning a reasonable defense—even if the infringer was unaware of that defense at the pertinent time or did not set upon the challenged course of action on the basis of that defense.
Just as considerations of objective recklessness have no role in determining the availability of enhanced damages, there is also no basis for imposing the heightened, “clear and convincing evidence,” standard under section 284. Rather, the Court concludes that the preponderance of the evidence standard should govern the question of enhanced damages. Further, the Court does away with the appellate review framework that Seagate appended to enhanced damages decisions. Concluding that section 284 vests discretion in the district courts on the question of enhanced damages, the Court finds that those decisions are subject to review solely under the abuse of discretion standard.
While having considerably eased the plaintiff’s path to recovering enhanced damages, Halo emphasizes at length that enhanced damages are not for “garden-variety cases” but rather should generally be reserved for “egregious cases typified by willful misconduct.” No. 14-1513, 2016 WL 3221515, at *11, 15. The Court, however, also cautions against the thinking that “enhanced damages must follow a finding of egregiousness.” Rather, the district court is charged with proceeding on a case by case basis, giving due regard to the facts and circumstances in each case. No. 14-1513, 2016 WL 3221515, at *11.