Supreme Court Loosens Test for Enhanced Patent Damages

by LeClairRyan
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The U.S. Supreme Court recently issued a decision in the companion cases Halo Electronics, Inc. v. Pulse Electronics, Inc. and Stryker Corp. v. Zimmer Inc., altering the analysis for when patent damages can be increased up to three times the amount found or assessed for willful infringement. Specifically, the Supreme Court:

  • Overruled the Federal Circuit’s prior test established in In re Seagate Technology, LLC for awarding enhanced damages for willful infringement of a patent
  • Decreased the burden for proving entitlement to enhanced damages
  • Made the appellate standard of review more deferential

These changes will increase the application of enhanced damages in patent litigation and will require greater care to be exercised when there is knowledge of potential patent infringement.

Prior to Seagate, the Federal Circuit imposed an affirmative duty on an accused infringer to exercise care, including seeking opinion of counsel, prior to making the potentially infringing product in order to avoid a finding of willfulness. In Seagate, the Federal Circuit set forth a test for willfulness that required objective recklessness on the part of the accused infringer. This test effectively eliminated the duty of a potential infringer to obtain written opinion of counsel to protect against an enhanced damage award.

The Supreme Court overturned Seagate, holding that the test established therein is inconsistent with the discretionary authority granted for awarding enhanced damages under the Patent Act. Although the Supreme Court rejected the Seagate test as too rigid and impermissibly encumbering on the discretion afforded to district courts in punishing egregious cases of willful patent infringement, the Supreme Court still acknowledged that many aspects of the Seagate test reflect the sound principle that enhanced damages should only be available in egregious cases.

In this decision, the Supreme Court found the objective recklessness requirement of the Seagate test could serve to insulate some of the worst patent infringers. In particular, the Supreme Court noted the objective recklessness standard would not be satisfied in cases where, during the proceedings, the accused infringer raises a substantial question of validity with regard to the patent-in-suit. Such a substantial question of validity would serve to preclude enhanced damages, whether or not the infringer acted on the basis of that defense or was even aware of the defense prior to committing the accused acts of infringement.

Objective Recklessness Requirement Eliminated

Although the Supreme Court overruled the Seagate test, unfortunately the court did not announce a new standard for the enhanced damages analysis. Instead, district courts must now evaluate the particular circumstances of each case to determine whether to impose enhanced damages. The Supreme Court noted that subjective willfulness on the part of the accused infringer may alone warrant enhanced damages, without regard to whether the infringement was objectively reckless. Further, culpability for enhanced damages is to be measured at the time of the challenged conduct, not after the fact during trial. The elimination of the objective recklessness requirement effectively lowers the standard for obtaining enhanced damages.

The Supreme Court also found that the heightened proof standard of clear and convincing evidence as previously applied by the Federal Circuit is inappropriate. Thus, the lower preponderance of the evidence burden is to be applied to the enhanced damages determination.

Finally, the Supreme Court made the Federal Circuit’s standard of review for enhanced damages determinations more deferential. The Supreme Court held that the abuse of discretion standard alone should be applied to enhanced damages decisions and that the Federal Circuit should review the district court’s exercise of discretion in light of the precedent defining the egregious circumstances where enhanced damages should be applied.

Going forward, these aspects of the Supreme Court’s decision clearly open the possibility of more enhanced damages awards. Additionally, ex post facto issues of validity raised in defense to patent infringement at trial will no longer be sufficient to avoid an enhanced damages sanction for patent infringement. Further, subjective willfulness alone on the part of the infringer may result in treble damages.

While the Supreme Court’s decision does not restore the affirmative duty of care established prior to Seagate, a party will need to develop and document reasonable bases for invalidity and/or non-infringement at the time it learns that it might infringe a patent to avoid the implication of subjective willfulness. LeClairRyan’s patent attorneys are available to assist in developing strategies to minimize risks of running afoul of the new enhanced damages standards and will continue to monitor the application of this decision in the district courts and the Federal Circuit.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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