The Supreme Court Relaxes The Standard For Increased Patent Damages

Through its recent decision in Halo Elecs., Inc. v. Pulse Elecs., Inc.[1], the Supreme Court discarded the mechanical two-part test governing enhanced damages fashioned by the Federal Circuit in Seagate, and gave district courts broad discretion to decide when to award enhanced damages in cases involving willful patent infringement. The Supreme Court also held that enhanced damages do not need to be proven by clear and convincing evidence, but only by a preponderance of the evidence. While this will make it easier for plaintiffs to obtain enhanced patent damages involving willful patent infringement, the high court made it clear that enhanced damages should still be reserved for cases involving egregious infringement behavior.

By way of background, § 284 of the Patent Act provides that, in a case of patent infringement, courts “may increase the damages up to three times the amount found or assessed.” 35 U.S.C. § 284. In 2007, the Federal Circuit decided In re Seagate Tech., LLC, 497 F.3d 1360 (2007) (en banc), where it held that enhanced patent damages could only be awarded in cases involving “willful” infringement. The Federal Circuit then announced a two-part test to establish such willfulness. First, a patentee was required 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, without regard to the state of mind of the accused infringer. Second, after establishing objective recklessness, a patentee was required to show – again 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.

According to the Supreme Court, the principal problem with Seagate’s two-part test was that it required a finding of objective recklessness in every case. This, in turn, allowed third parties to deliberately copy patented inventions, and still avoid having to pay enhanced patent damages, if they hired attorneys clever enough to come up with some reasonable (even though unsuccessful) defense at the infringement trial.

The Supreme Court further criticized the Seagate test since it required clear and convincing evidence, which is a requirement that is not found in § 284. This is consistent with the Supreme Court’s decision in Octane Fitness, where the high court rejected a heightened standard of proof for awards of attorney’s fees under § 285 since that section, like § 284, does not impose any specific evidentiary burden, must less a high one.[2]

Justices Stephen Breyer, Anthony Kennedy, and Samuel Alito went further in a concurring opinion, reiterating the importance of limiting enhanced patent damages under § 284 to only exceptional cases involving truly egregious misconduct. Specifically, according to the concurring opinion authored by Justice Breyer, it would be improper for a court to award enhanced damages simply because the evidence shows that the infringer knew about the patent and nothing more. Justice Breyer also reiterated that the failure of an infringer to obtain the advice of counsel may not be used to prove that the accused infringer willfully infringed. It was further noted that enhanced damages may not serve to compensate patentees for infringement-related costs or litigation expenses because other parts of the Patent Act provides for those costs and expenses.

[1] No. 14-1513 (U.S. June 13, 2016).

[2] Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749 (2014).