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

In Halo Electronics, Inc. v. Pulse Electronics, Inc., the U.S. 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 (or decline to 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​. By abandoning the Seagate Test, the Court has broadened the standard to an inquiry centering on whether the circumstances of a particular case represent an "egregious" example of misconduct that goes "beyond typical infringement." The new standard emphasizes the subjective state of mind of the accused willful infringer at the time of infringement, removing an objective threshold that had made the issue more amenable to summary judgment during litigation.

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." In Aro Man​ufacturing Co. v. Convertible Top Replacement Co.​, the Supreme Court described § 284 as providing that "punitive or 'increased' damages" could be recovered "in a case of willful or bad-faith infringement."

Shortly after the creation of the Federal Circuit, the court fashioned a standard for willful infringement: "[w]here ... a potential infringer has actual notice of another's patent rights, he has an affirmative duty to exercise due care to determine whether or not he is infringing." Underwater Devices Inc. v. Morrison-Knudsen Co. Over time, this duty of due care standard focused on the egregiousness of the defendant's conduct based on all the facts and circumstances, such as in Read Corp. v. Portec, Inc.

In applying this "totality of circumstances" test, certain factors were developed to help guide courts: (1) whether the infringer deliberately copied the ideas or design of another; (2) whether the infringer, when he knew of the other's patent protection, investigated the scope of the patent and formed a good-faith belief that it was invalid or that it was not infringed; (3) the infringer's behavior as a party to the litigation; (4) defendant's size and financial condition; (5) closeness of the case; (6) duration of defendant's misconduct; (7) remedial action by the defendant; (8) defendant's motivation for harm; and (9) whether defendant attempted to conceal its misconduct.

In 2007's Seagate decision, the en banc Federal Circuit rejected the duty of care standard articulated in Underwater Devices, adopting instead a two-part test that focused on "objective recklessness." The first step of the Seagate Test was entirely objective the 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." The Federal Circuit later held that this first step was a question of law for the court. See Bard Peripheral Vascular, Inc. v. W.L. Gore & Associates, Inc. Second, if the first part of the test was satisfied, the patentee was required to demonstrate, also by clear and convincing evidence, that the objectively high likelihood of infringement "was either known or so obvious that it should have been known to the accused infringer." The Seagate Test generally made it more difficult for patentees to prevail on a claim of willful infringement. Accused infringers could often avoid facing a willfulness claim before trial by pointing the judge to reasonable defenses regarding noninfringement or invalidity. Even if those defenses were ultimately unsuccessful, courts often found them to negate any "objectively high likelihood... [of] infringement of a valid patent."

New Standard for Enhanced Damages Announced in Halo v. Pulse

In June of this year, the Supreme Court rejected the Seagate Test in Halo Electronics, Inc. v. Pulse Electronics, Inc., describing it as an "unduly rigid" test that "encumbers the statutory grant of discretion to district courts." The Court noted that the "principal problem" was that the test "requires a finding of objective recklessness in every case" and that such a threshold excludes from punishment many of the "most culpable offenders," who may have acted without regard to whether reasonable defenses could later be raised.

In a broadening of the standard for enhanced damages, the Court explained that "the pertinent language of § 284 contains no explicit limit or condition on when enhanced damages are appropriate" and 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." In exercising this discretion, courts are to "take into account the particular circumstances of each case." The ultimate question for courts is whether the facts of a particular case represent an "egregious" example of "misconduct" that goes "beyond typical infringement." Given the vagueness of this new standard, perhaps courts will look for guidance in the factors used in the totality of circumstances test before Seagate. Because of the breadth of the standard and the wide variety of potential factual scenarios, the law concerning which types of behavior are sufficiently egregious to support an award of enhanced damages will likely be slow to develop.

Questions Arising from the Halo Decision

The Court's emphasis on the "particular circumstances" of the case suggests that there are factual issues to resolve before the court exercises its discretion to award enhanced damages. However, the Court did not make clear who would be the arbiter of the facts in determining whether the infringement is sufficiently "egregious" or "willful" to permit the court to exercise its discretion under § 284. That task remained for the Federal Circuit, which in WBIP, LLC v. Kohler Co. recently resolved the issue in favor of sending at least the underlying facts to the jury: "[w]e do not interpret Halo as changing the established law that the factual components of the willfulness question should be resolved by the jury." A purely factual finding of willfulness by the jury, however, somewhat divorces the concept of willfulness from the ultimate determination of statutorily prescribed enhanced damages by the court.

With the question of willfulness treated as a factual inquiry determined at least partly by the jury, accused infringers face the danger of substantial prejudice not just on the issue of willfulness, but also concerning infringement, invalidity, and damages. Willfulness evidence at trial often focuses on characterizing the accused infringer as a "bad actor" in the eyes of the jury, and the resulting mindset may sometimes poison the minds of the jury against the accused infringer regarding unrelated issues. Seagate's objective prong often allowed accused infringers to keep such evidence from the jury entirely. Doing so under Halo appears significantly more difficult, requiring a showing of no willfulness that satisfies the summary judgment standard: that no genuine issues of material facts exist, and that the accused infringer is entitled to judgment on willfulness as a matter of law. See, e.g., TransData, Inc. v. Centerpoint Energy Houston Elec. LLC et al (vacating summary judgment of no willfulness, in light of Halo, since it was based on lack of objective recklessness). In order to avoid such prejudice, some courts may choose to bifurcate willfulness such that it is tried after a jury has reached a verdict on liability. See Peter S. Menell et al., Patent Case Management Judicial Guide, UC Berkeley (July 29, 2015).

Other Impacts on Patent Litigation Moving Forward

One essential consequence of Halo's broader standard is a greater likelihood of enhanced damages being awarded against an accused willful infringer. This possibility may change a defendant's strategy in negotiating settlements. Without the threshold requirement of "objective recklessness," which has allowed courts to grant summary judgment earlier in litigation, defendants may be more reluctant to risk the issue – and the evidence that goes with it – going to the jury. Hence, settlements may be reached earlier and/or increase under a greater threat of enhanced damages.

The new standard also might result in an increased reliance on opinion of counsel letters. Prior to Seagate, under the duty of due care standard, accused willful infringers commonly asserted an advice of counsel defense. See Underwater Devices ("Such an affirmative duty includes, inter alia, the duty to seek and obtain competent legal advice from counsel before the initiation of any possible infringing activity."). Under this defense, the accused willful infringer attempted to establish that its continued activities were reasonable due to reliance on advice of counsel – typically concluding that the patent is invalid, unenforceable, and/or not infringed. In 2004, because of concerns regarding waiver of privilege when disclosing opinion of counsel, the Federal Circuit held in Knorr-Bremse Systeme Fuer Nutzfahrzeuge GmbH v. Dana Corporation that an accused infringer's failure to obtain legal advice does not give rise to an adverse inference with respect to willfulness. Congress later codified this holding in 35 U.S.C. § 298. But now that the Supreme Courthas abrogated the objective standard set in Seagate, courts will be focused more on the subjective state of mind of the accused infringer. Thus, it may often be advisable to obtain an exculpatory opinion of counsel, even though failure to obtain such an opinion cannot be used against the accused infringer.

In sum, the effects of the Halo decision will be borne out as more courts and litigants wrestle with these issues. Given the generalized nature of the new standard and the breadth of potential factual scenarios, it will take time for courts to provide more guidance as to what behavior is sufficiently egregious to give rise to willfulness. Until such time, the less predictable possibility of enhanced damages will loom as a threat during litigation and affect parties' strategies.

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
25 Oct 2017, Conference, California, United States

CALOBA is excited to bring you our General Counsel (GC) roundtable event. Our distinguished panel of top legal counsel will share their experiences at the helm of some of the top technology companies.

30 Oct 2017, Seminar, California, United States

This program will address some of the hottest legal and policy topics that online platforms have brought to the fore: free speech, hate speech, fake news, privacy and surveillance, artificial intelligence, augmented reality, changing notions of “ownership” of information and software-enabled consumer products, and the perennial issue of copyright.

8 Nov 2017, Conference, California, United States

Fenwick & West is proud to be participating in PLI’s 49th Annual Institute on Securities Regulation scheduled for November 8-10, 2017 at The Roosevelt Hotel in New York City. The Institute is considered the premier conference, as well as one of the longest running, in the securities law field.

 
In association with
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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.