In recent years, the Supreme Court has repeatedly rejected the Federal Circuit’s strict tests concerning monetary relief in patent cases in favor of more fluid standards that commit discretion to the district courts. In Octane Fitness, LLC v. ICON Health & Fitness, Inc. and Highmark Inc. v. Allcare Health Management Sys. Inc., for example, the Supreme Court rejected the Federal Circuit’s rigid test, lowered the standard of proof, and limited appellate review to abuse of discretion concerning attorneys’ fee awards. In Halo Electronics, Inc. v. Pulse Electronics, Inc. et al.,1 decided on June 13, 2016, this trend continues by relaxing the criteria for patentees to obtain enhanced damages for infringement. While enhanced damages remain the exception and not the rule, Halo increases the potential consequences of infringement, which is welcome news to patent holders.
Enhanced damages refers to the district court’s ability under 35 U.S.C. § 284 to “increase the damages up to three times the amount found or assessed.” In its 2013 decision, In re Seagate Technology, LLC,2 the Federal Circuit adopted a two-part test for awarding enhanced damages pursuant to § 284. First, the patent owner must show “that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent.”3 Second, the patentee must demonstrate that the risk of infringement “was either known or so obvious that it should have been known to the accused infringer.”4 Under Seagate, both the objective and subjective prongs must be proven by clear and convincing evidence, and a failure to satisfy either renders enhanced damages unavailable against even the most egregious intentional infringers. Notably, the Seagate test allows any reasonable defense to prevent an enhanced damages award – even if that defense was not relied upon when infringement began.
Not anymore. Relying on the plain text of the statute, the Supreme Court in Halo rejects Seagate’s two-part test in favor of referring the question of enhanced damages to the discretion of the district courts. In particular, the Supreme Court took issue with Seagate’s threshold objective recklessness requirement, which often “excludes from discretionary punishment many of the most culpable offenders, such as the ‘wanton and malicious pirate’ who intentionally infringes another’s patent” solely on the basis of their trial counsel’s after-the-fact “ingenuity” to mount a reasonable defense at trial.5 Rather than relying on such categorical exclusions, Halo requires the district courts “to take into account the particular circumstances of each case” when determining enhanced damages awards.6 Further assisting this exercise of discretion, Halo also relaxes the standard of proof from “clear and convincing” to “preponderance of the evidence” and subjects these determinations to appellate review under the more deferential “abuse of discretion” standard.7
Whether district courts will indeed exercise their discretion to issue more enhanced damages awards remains to be seen. As Halo repeatedly cautions, such an award should be reserved for only the most egregious cases.8 Nevertheless, this decision clears the path to more requests for enhanced damages that otherwise may not have survived summary judgment under the prior Seagate standard. In doing so, the Supreme Court has put more teeth into patent rights and increased the leverage for patent holders.