In a unanimous decision, on June 13, 2016, the U.S. Supreme Court rejected the CAFC Seagate “objective recklessness” standard and appeal criteria. As is its habit, the Supreme Court has thus taken away relatively clear guidelines and left practitioners with little guidance. District courts are given wide latitude to award treble damages in their discretion when there is “egregious” infringement behavior, and appeals are to review for abuse of discretion. While not requiring attorney opinions to avoid willfulness, defendants are at risk if they don’t at least have attorney analysis and document reasons for non-infringement or invalidity.
Seagate guidance rejected
The Court attacked every aspect of the 2007 Seagate decision. The Court rejected the Seagate two-part test of (1) showing “that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent” (objective recklessness) and (2) that the risk of infringement “was either known or so obvious that it should have been known to the accused infringer” (subjective knowledge). The Court rejected the Seagate requirement that both aspects of the test be shown by clear and convincing evidence. The Court rejected the trifurcated review standard of Seagate, that (1) the first part of the test, objective recklessness, be reviewed de novo; the second, subjective knowledge, be reviewed for substantial evidence; and the ultimate decision on enhanced damages be reviewed for abuse of discretion. The Court rejected the post-Seagate CAFC Bard Peripheral decision that allowed a defense raised at trial to show no objective recklessness. The Court also rejected the argument that the America Invents Act (AIA) ratified the Seagate test.
Halo guidance (or lack thereof)
Instead, the Court said damages can be awarded in the district court’s discretion for egregious conduct, and appeal is based solely on abuse of discretion. While mentioning “egregious” multiple times, the Court also suggested that “the full range of culpable behavior,” not just egregious behavior, could be punished. The Court emphasized that it is the defendant’s knowledge and behavior at the time of infringement, not at trial, that governs. While the Court acknowledged the explicit AIA provision that the lack of an opinion of counsel is not evidence of willfulness (codifying Knorr-Bremse), the Court said a defendant must evaluate the risk.
The Court actually ruled on two cases, the other being Stryker v. Zimmer. The Court didn’t address the merits, and simply remanded both for decisions consistent with the Court’s ruling. The Court didn’t address what constitutes notice, but noted that two infringement letters were sent in Halo, and that there was evidence that Stryker copied Zimmer’s products.
Practice tips
While the Halo decision doesn’t mean companies need to return to the practice of getting legal opinions for infringement allegations, it does mean companies should consider getting legal advice and documenting reasons for believing there is no infringement or invalidity. A short memo explaining what element of the claim is missing from the product, or identification of prior art that invalidates with a brief explanation, may suffice. Such a legal analysis should be considered if (1) the demand is high or (2) the amount of time between notice and likely settlement is long. In many cases, the legal analysis will be straightforward and not require a large expense. If it is not straightforward, that suggests that it is worth spending more on the legal analysis.
