United States: Litigation Alert: Supreme Court Expands Discretion To Award Enhanced Damages For Patent Infringement And Eliminates The Federal Circuit's "Seagate Test"

This week in Halo Electronics, Inc. v. Pulse Electronics, Inc., the United States Supreme Court changed the law regarding when enhanced damages should be awarded in patent infringement cases, by eliminating the two-part test for determining whether a district court may increase damages pursuant to 35 U.S.C. § 284, as required by the 2007 en banc Federal Circuit Court of Appeals decision, In re Seagate Technology.

Brief History of Enhanced Damages

Enacted as part of the 1952 codification of the Patent Act, § 284 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. The Supreme Court described § 284 — consistent with the history of enhanced damages under the Patent Act — as providing that "punitive or 'increased' damages" could be recovered "in a case of willful or bad-faith infringement." Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U.S. 476, 508 (1964).

In 2007 the en banc Federal Circuit adopted a two-part test for a plaintiff seeking to show that infringement was "willful" under § 284, justifying enhanced damages. In re Seagate Technology, LLC, 497 F.3d 1360 (Fed. Cir. 2007) (en banc). First, a patent owner 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." Id. at 1371. The Federal Circuit later held that this first step in the test is a question of law for the court. See Bard Peripheral Vascular, Inc. v. W. L. Gore & Assoc., Inc., 682 F.3d 1003, 1007-1008 (Fed. Cir. 2012). Second, if the first part of the test was satisfied, the patentee was required to demonstrate, also 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." Id. Moreover, an award of enhanced damages was to be subjected to trifurcated appellate review. The first step of Seagate — objective recklessness — is reviewed de novo; the second — subjective knowledge — for substantial evidence; and the ultimate decision — whether to award enhanced damages — for abuse of discretion. See Bard, 682 F.3d at 1005-1008.

Factual Background of Halo v. Pulse and Stryker v. Zimmer

The Supreme Court granted certiorari on two cases in determining whether the Seagate test is consistent with § 284. In the first case, Halo had sent Pulse letters offering to license Halo's patents for electronic packages containing transformers designed to be mounted to the surface of circuit boards. After one of its engineers concluded that Halo's patents were invalid, Pulse continued to sell the allegedly infringing products. Halo sued Pulse for infringing its patents. The jury found that Pulse had infringed Halo's patents and had likely done so willfully. However, the district court declined to award enhanced damages under §284, after determining that Pulse had at trial presented a defense that "was not objectively baseless, or a 'sham.'" Bard, 682 F.3d at 1007. Thus, the court concluded that Halo had failed to show objective recklessness under the first step of Seagate. The Federal Circuit affirmed. 769 F.3d 1371 (Fed. Cir. 2014).

In the other matter, Stryker Corp. and Zimmer, Inc. were competitors in the market for orthopedic pulsed lavage devices. A pulsed lavage device is a combination spray gun and suction tube, used to clean tissue during surgery. In 2010, Stryker sued Zimmer for patent infringement. The jury found that Zimmer had willfully infringed Stryker's patents and awarded Stryker $70 million in lost profits. The district court added $6.1 million in supple­mental damages and then trebled the total sum under § 284, resulting in an award of over $228 million. The Federal Circuit affirmed the judgment of infringement but vacated the award of treble damages. 782 F.3d 649, 662 (Fed. Cir. 2015). Applying de novo review, the court concluded that enhanced damages were unavailable because Zimmer had asserted "reasonable defenses" at trial.

The Federal Circuit then considered whether to grant rehearing en banc to determine whether the Supreme Court's earlier decision in Octane Fitness, LLC v. ICON Health & Fitness, Inc. should affect the viability of the Seagate test. The Octane Court had replaced a similar two-part test for the award of attorney fees in "exceptional" patent cases with a more general standard based on the language of 35 U.S.C. § 285. The Federal Circuit declined to consider en banc whether to change the Seagate test, and the Supreme Court granted certiorari.

New Standard for Enhanced Damages Announced in Halo v. Pulse

The Supreme Court held that the test set forth in Seagate for enhanced damages is not consistent with § 284. The Court explained that the pertinent language of § 284 contains "no explicit limit or condition" on when enhanced damages are appropriate, and that the Court has emphasized that the "word 'may' clearly connotes discretion." Halo Elecs., Inc., v. Pulse Elecs., Inc., Nos. 14-1513, 14-1520, Slip Op. at 8 (June 13, 2016), 579 U.S. ___ (2016) (citing Martin v. Franklin Capital Corp., 546 U.S. 132, 136 (2005). The Court further noted that "although there is 'no precise rule or formula' for awarding damages under § 284, a district court's 'discretion should be exercised in light of the considerations' underlying the grant of that discretion." Slip Op. at 8. (citing Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749, 1756 (2014)).

The Court further found the Seagate test to be unduly rigid, impermissibly encumbering the statutory grant of discretion to district courts. Slip Op. at 9 (citing Octane Fitness, 134 S. Ct., at 1755. The principal problem was that the test requires a finding of objective recklessness in every case. By requiring a finding of objective recklessness, the Seagate test excluded from discretionary punishment many of the most culpable offenders, including the "wanton and malicious pirate" who intentionally infringes a patent — with no doubts about its validity or any notion of a defense — for no purpose other than to steal the patentee's business. Slip Op. at 9. (internal citation omitted).

The Halo Court stated that the Seagate test further aggravates the problem by making dispositive the ability of the infringer to muster a reasonable (even though unsuccessful) defense at the infringement trial. Under the Seagate standard, someone who infringes a patent without any reason to suppose his conduct is arguably defensible – could nevertheless escape any comeuppance under § 284 solely on the strength of the accused infringer's attorney's ingenuity in the resulting litigation. Id. The Court reasoned that culpability should instead be measured against the knowledge of the actor at the time of the challenged conduct. Id. at 10-11.

The Court further held that Seagate's requirement that recklessness be proved by clear and convincing evidence is inconsistent with § 284 since the provision "imposes no specific evidentiary burden, much less such a high one." Id. at 12. Instead, the Court held that the enhanced damages provisions of § 284 are governed by a "preponderance of the evidence standard" that governs patent litigation unless otherwise noted by Congress. Id.

Finally, after eschewing any rigid formula for awarding enhanced damages under § 284, the Court likewise rejected the Federal Circuit's tripartite framework for appellate review. Id. The Court held that since § 284 "commits the determination" whether enhanced damages are appropriate to the district court's discretion, "that decision is to be reviewed on appeal for abuse of discretion." Id. at 12-13.

In summary, Halo holds that § 284 "gives district courts the discretion to award enhanced damages against those guilty of patent infringement" and that in exercising that discretion, district courts are to be guided by the legal principles "developed over nearly two centuries of application and interpretation of the Patent Act." Such awards should be limited to "egregious cases of misconduct beyond typical infringement." Id. at 15.

In light of this opinion, the judgments of the Federal Circuit in both cases were vacated and remanded for proceedings consistent with the opinion.

Enhanced Damages Going Forward

The Halo decision replaces Seagate's bright-line test with a more generally stated standard. Under that standard, the question of enhanced damages will center on the specific facts of the specific case, as viewed in light of the discretion of the particular court before which the case is heard. The ultimate question is whether the facts of a particular case represent an "egregious" example of "misconduct" that goes "beyond typical infringement." Because of the breadth of the standard and the wide variety of potential factual scenarios, the law concerning what types of behavior are sufficiently egregious to support an award of enhanced damages will likely develop slowly.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
20 Sep 2018, Other, California, United States

CoinAlts is designed to bring together the thought leaders in the cryptocurrency investment space to discuss the investment, legal and operational is​sues for cryptocurrencies as a new asset class.

25 Sep 2018, Conference, California, United States

We're excited to introduce Women's IP Strategy, a 2-day conference that tackles both the IP, legal as well as broader career development obstacles, risks and rewards for women lawyers working in male-dominant industries.

2 Oct 2018, Webinar, California, United States

This CLE webinar will offer suggestions to litigators to help them comply with the new GDPR during e-discovery.

Similar Articles
Relevancy Powered by MondaqAI
Smith Gambrell & Russell LLP
Finnegan, Henderson, Farabow, Garrett & Dunner, LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Smith Gambrell & Russell LLP
Finnegan, Henderson, Farabow, Garrett & Dunner, LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions