United States: Supreme Court Relaxes Standard For Willful Infringement – Higher Risk Of Enhanced Damage Awards May Require Clients To Reassess Strategies

Last Updated: June 22 2016
Article by John Halan

In a unanimous opinion, the U.S. Supreme Court rejected the prevailing Seagate test for finding willful infringement in patent cases – a finding for which a "court may increase the damages up to three times the amount found or assessed" pursuant to 35 U.S.C. §284. The Court found the Seagate test to be "unduly rigid" and "insulating some of the worst patent infringers from any liability for enhanced damages." In its place, the Court left the questions of willfulness and enhancement of damages largely to the discretion of the district court "in egregious cases." The decision is likely to make willfulness findings and enhanced damage awards more prevalent, and may have far-reaching implications for both patent owners and companies accused of patent infringement. Halo Electronics, Inc. v. Pulse Electronics, Inc., No. 14-1513 (U.S. June 13, 2016) (decided with Stryker Corp. v. Zimmer, Inc., No. 14–1520).

Background

Although direct patent infringement is a strict liability claim, patent owners frequently seek to establish that the infringement was "willful" in order to qualify for enhanced damage awards. In such cases, under 35 U.S.C. § 284, a "court may increase the damages up to three times the amount found or assessed."

In In re Seagate Technology, LLC, 497 F. 3d 1360 (Fed. Cir. 2007) (en banc), the U.S. Court of Appeals for the Federal Circuit raised the standard for determining whether patent infringement was willful by establishing an "objective recklessness" test. Under Seagate, a patent owner was required to prove by clear and convincing evidence both (1) that the defendant "acted despite an objectively high likelihood that its actions constituted infringement of a valid patent," without taking into consideration the defendant's actual state of mind; and (2) that the defendant either knew of the high likelihood of infringement or it was so obvious that the defendant should have known the risk. In applying this standard, district courts frequently looked to whether the defendant was able to muster a plausible litigation defense, even if the defense only emerged during litigation. The Seagate standard resulted in a significant decrease in willful infringement findings, with courts often granting partial summary judgment on the issue.

Seagate Standard Too "Rigid"

In the Halo decision written by Chief Justice John G. Roberts, Jr., the Supreme Court ruled that the Patent Act affords courts discretion to find willful conduct, without using the restrictive Seagate test. Section 284 states only that a court "may" award enhanced damages, using a word that "clearly connotes discretion." Slip op. at 8 (citation omitted).

The Court noted that although enhanced damage awards are discretionary, they must be consistent with a pattern laid out in over 180 years of case law under the Patent Act and earlier statutes. Based on that precedent, enhanced damages:

[A]re not to be meted out in a typical infringement case, but are instead designed as a "punitive" or "vindictive" sanction for egregious infringement behavior. The sort of conduct warranting enhanced damages has been variously described in our cases as willful, wanton, malicious, bad-faith, deliberate, consciously wrongful, flagrant, or—indeed—characteristic of a pirate.

Slip op. at 8. The Court cautioned that such awards "are generally reserved for egregious cases of culpable behavior." Id. at 9

The Court identified several flaws in the Seagate standard. First, the standard required courts to assess willfulness based on the plausibility of defenses unknown to a defendant at the time it made the decision to begin its infringing conduct. This ran afoul of the basic concept that willfulness should be related to the defendant's intent. In fact, the Court noted that under Seagate, an infringer could contrive a defense at trial that "insulates the infringer from enhanced damages, even if he did not act on the basis of the defense or was even aware of it" at the time infringement began. Slip op. at 10. In other words, "[u]nder that standard, someone who plunders a patent—infringing it without any reason to suppose his conduct is arguably defensible—can nevertheless escape any come-uppance under §284 solely on the strength of his attorney's ingenuity." Id.

In addition, the Court found no basis for Seagate's requirement that a patent owner prove willfulness by the heightened clear and convincing evidence standard of proof. As in last term's decision in Octane Fitness, LLC v. ICON Health & Fitness Inc., 572 U. S. ___ (2014) (considering the award of attorney fees in "exceptional" cases under 35 U.S.C. § 285), the Court concluded that the issue required only proof by a preponderance of the evidence – the same standard as for patent infringement determinations.

Finally, the Court followed Octane's companion case, Highmark Inc. v. Allcare Health Management System, Inc., 572 U. S. ___ (2014), in affording broad deference to a district court's decision whether to award enhanced damages. The Federal Circuit may upset an award under Section 284 only for an abuse of discretion.

The Court noted that the Patent Act requires a balance between the patent owner's ability to obtain redress for infringement, on the one hand, and the Act's promotion of innovation by imitation and refinement of technologies disclosed in patents, on the other. It rejected arguments that more enhanced damages awards would tilt the balance to disfavor innovation, concluding:

That balance can indeed be disrupted if enhanced damages are awarded in garden-variety cases. As we have explained, however, they should not be. The seriousness of respondents' policy concerns cannot justify imposing an artificial construct such as the Seagate test on the discretion conferred under §284.

Slip op. at 15.

Practical Significance: Patent Owners and Defendants Must Reassess Strategies

Patent owners and companies facing potential patent infringement claims alike should carefully consider how the Halo decision affects their pre-litigation strategies. The decision rejects outright Seagate's restrictive two-prong test for willfulness. Less clear, however, is the standard that will replace it. The decision notes that enhanced damages are available only for "egregious infringement behavior," "egregious cases of culpable behavior," or "egregious cases typified by willful misconduct." However, the decision leaves unresolved many important issues: What is the correct standard for determining if a defendant's conduct was sufficiently "egregious"? Is willfulness a jury issue, or is it to be determined by the judge? How do other factors, such as litigation misconduct, affect damage enhancement? See Read Corp. v. Portec, Inc., 970 F. 2d 816 (Fed. Cir. 1992) (listing factors to be considered in assessing enhanced damages for patent infringement). What considerations affect whether the district court should award treble damages, or some lesser enhancement?

However, because enhanced damages based on willful infringement will now be more likely than under the Seagate standard, clients should consider a number of practical issues.

First, the Halo Court explained that its decision did not contradict 35 U.S.C. §298, which provides that "[t]he failure of an infringer to obtain the advice of counsel" or "the failure of the infringer to present such advice to the court or jury, may not be used to prove that the accused infringer willfully infringed." However, given that willful infringement and enhanced damages findings should be more frequent under Halo, and in view of the Court's disapproval of defenses concocted at the time of trial, companies should revisit their policies regarding written non-infringement opinions of counsel. Companies may now seek to obtain such opinions more often, especially early on in the development or commercialization of a new technology.

Second, given the increased chances of willful infringement and enhanced damages findings, the settlement value of a patent infringement case may increase, especially where the accused infringer's behavior can be characterized as "egregious." This change may affect the timing of settlement discussions and the parties' negotiation strategies.

Third, the Halo decision will cause many patent owners to consider another factor when evaluating where to file an infringement lawsuit. More specifically, whether or not a particular forum is perceived to be more sympathetic to enhanced damage awards will now be a factor to be considered.

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
Similar Articles
Relevancy Powered by MondaqAI
Finnegan, Henderson, Farabow, Garrett & Dunner, LLP
Smith Gambrell & Russell LLP
Finnegan, Henderson, Farabow, Garrett & Dunner, LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Finnegan, Henderson, Farabow, Garrett & Dunner, LLP
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