United States: Renewed Emphasis On Opinions Of Counsel To Avoid ‘Willful' Patent Infringement Under Newly Relaxed Standard

In-house counsel and managers should give increased consideration to obtaining an opinion of counsel in light of the U.S. Supreme Court's unanimous decision in Halo Elecs., Inc. v. Pulse Elecs., Inc., Nos. 14-1513, 14-1520 (June 13, 2016), which rejected the Federal Circuit's rigid, two-part test ("Seagate test") for willful patent infringement under 35 U.S.C. § 284.

In its opinion, the Supreme Court eliminated the "objective recklessness" standard established by the Federal Circuit in In re Seagate Technology, LLC, 497 F. 3d 1360 (Fed. Cir. 2007)(en banc), holding that the analysis for enhanced damages (willfulness) should focus only on the subjective intent of the alleged infringer at the time of infringement.[1]

Background

Section 284 of the Patent Act provides that, in a case of patent infringement, district courts "may increase the damages [awarded to a patentee] up to three times the amount found or assessed."[2]

In Seagate, the Federal Circuit adopted a two-part test for deciding willfulness and recovering enhanced damages that required a patentee to establish by clear and convincing evidence that:

  • "the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent" (the objective recklessness component)[3] and
  • that the risk of infringement "was either known or so obvious that it should have been known to the accused infringer" (the subjective component)[4].

Under Federal Circuit precedent, an award of enhanced damages was subject to trifurcated appellate review: de novo for reviewing objective recklessness, substantial evidence for reviewing the subjective component and abuse of discretion for the ultimate decision of whether to enhance damages.[5]

The New Standard for Enhanced Damages

The Supreme Court found the Seagate test to be "unduly rigid," that it "encumbers the statutory grant of discretion to district courts," and is inconsistent with § 284.[6] The Court found that the objective recklessness prong of the Seagate test was unreasonable because a defense developed solely during litigation could insulate infringers from enhanced damages "even if he did not act on the basis of the defense or was even aware of it."[7]

Thus, eschewing the "inelastic restraints" of the Seagate test, the Court held that the proper test should instead focus on what the accused infringer knew at the time of infringement, and should not look to facts that the defendant neither knew nor had reason to know at the time of action.[8]

Importantly, the Supreme Court also lowered the burden of proof for establishing willfulness on the grounds that a patentee only needs to prove recklessness under a preponderance of the evidence standard.[9] The justices also rejected Seagate's three-prong framework for appellate review and held that enhanced damages awards should be reviewed on appeal for abuse of discretion.[10]

While the decision did not provide a test for the district courts to apply, the Court discussed factors lower courts may consider in reviewing the willfulness or recklessness of an infringer. For example, the accused infringer in Halo had merely relied on the opinion of one of its engineers regarding the validity of Halo's patents, and failed to get an opinion of counsel at the time of infringement, which implied willfulness.[11]

The concurring opinion further discussed opinions of counsel and provided that relying on a lawyer's informed opinion may be helpful in proving that infringement was not subjectively willful – "consulting counsel may help draw the line between infringing and noninfringing uses."[12] Hence, whether or not an accused infringer sought and received an opinion of counsel is likely to receive increased emphasis in the willfulness (and enhanced damages) analysis going forward.

Practice Tips

Opinions of counsel should be given increased consideration during product development and before commercializing products or processes – even though there is still no affirmative obligation to obtain an opinion of counsel – given the tenor of the Halo court's decision, its emphasis on the knowledge and state of mind of the accused infringer at the time of infringement, the lower burden of proof and the stricter standard for appellate review.

Footnotes

[1] Halo Elecs., slip op. at 9.

[2] 35 U.S.C. § 284.

[3] In re Seagate LLC, 497 F. 3d at 1371.

[4] Id.

[5] See Bard Peripheral Vascular, Inc. v. W. L. Gore & Assoc., Inc., 682 F. 3d 1003, 1005, 1008 (Fed. Cir. 2012).

[6] Halo Elecs., slip sp. at 9.

[7] Id. at 10-11.

[8] Id.

[9] Id. at 10.

[10] Id. at 12-14.

[11] Id. at 6.

[12] Concurring slip op. at 2-3.

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