On June 13, 2016, the Supreme Court in Halo1 unanimously eliminated the rigid two-part Seagate test and returned discretion to district courts to enhance damages under 35 U.S.C. § 284 for egregious cases of culpable infringement. This article reprises the Seagate and Halo decision, and discusses courts' post-Halo treatment of willful infringement and enhanced damages.

The Seagate Test

The damages statute, 35 U.S.C. § 284, provides that "the court may increase the damages up to three times the amount found or assessed." In Seagate,2 the Federal Circuit adopted a two-prong barrier for patentees to clear before a district court could exercise its enhancement discretion under Section 284. First, a patent owner must "show by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted an infringement of a valid patent." This first part of the test is not met if the infringer, during infringement proceedings, raises a substantial question as to the validity or non-infringement of the patent, regardless of whether the infringer's prior conduct was egregious (the so-called "after-arising defense"). Second, the patentee must demonstrate that the risk of infringement "is either known or so obvious that it should have been known to the accused infringer." On appeal, the Federal Circuit would review the first step of the test—objective recklessness—de novo; the second part—subjective knowledge—for substantial evidence; and the ultimate decision—whether to award enhanced damages—for abuse of discretion.

The Halo Decision

The Supreme Court held that the Seagate test was inconsistent with Section 284, primarily because the test requires a finding of objective recklessness in every case before district courts may award enhanced damages. This threshold requirement excludes from discretionary punishment many of the most culpable offenders, such as the "wanton and malicious pirate" who intentionally infringes another's valid patent for the sole purpose of stealing the patentee's business. The Supreme Court reasoned that enhanced damages had been left to the sound discretion of district courts for more than 180 years and had been generally reserved as a punitive punishment against the deliberate or willful infringer. Therefore, the Supreme Court held that Section 284 allows district courts to punish the full range of culpable behavior, except that "such punishment should generally be reserved for egregious cases typified by willful misconduct."

The Supreme Court additionally held that: (1) enhancement under Section 284 should be governed by a preponderance of the evidence standard, and (2) enhancement decisions should be reviewed on appeal for an abuse of discretion, rather than the tripartite framework developed by the Federal Circuit in Seagate.

Courts' Post-Halo Treatment of Willfulness and Damages Enhancement

Since Halo, the Federal Circuit and several district courts have addressed the issues of willful infringement and damages enhancement. While the caselaw is still developing, a few common threads have developed:

  • Willfulness is a question of fact that may now be decided in full by a jury;
  • Damages enhancement is left to the court's discretion; and
  • A finding of willful infringement does not necessitate enhancing damages.

The following are a handful of cases that illustrate these threads:

On remand from the Supreme Court, the Federal Circuit, in Halo, vacated the district court's determination of no willful infringement and unenhanced damages award because it applied the "unduly rigid" Seagate test.3 In the original proceeding, the jury found that Seagate's subjective prong was met, but the judge determined that the objective prong was not. Because the defendant did not challenge on appeal the subjective prong, and in light of the Supreme Court's Halo decision, the Federal Circuit "vacate[d] the district court's decision of no willful infringement," and "remand[ed] for the district court to exercise its discretion and to decide whether, taking into consideration the jury's unchallenged subjective willfulness finding as one factor in its analysis, an enhancement of the damages award is warranted."4

The Federal Circuit likewise, in Innovention Toys, found that a jury's prior finding by clear and convincing evidence that Seagate's subjective prong was met "is more demanding than needed" after Halo.5 Because "willful misconduct has already been established by a verdict that Halo does not warrant disturbing," the Federal Circuit "remand[ed] . . . for the district court to exercise its discretion to determine whether its discretion in accordance with Halo, including the emphasis on egregiousness."6

District courts have reached similar decisions.

Four days after Halo, Judge Huff of the Southern District of California addressed the question of Halo's impact of a pre-Halo jury verdict of willful infringement.7 The jury found, by clear and convincing evidence, that Seagate's subjective prong was met. (The jury, according to the court's instructions, did not address Seagate's objective prong.) In post-trial briefing, the defendant moved for a finding of no willful infringement, arguing that the jury's verdict is void and should be disregarded. Judge Huff disagreed, noting that "there is no language in Halo holding that a finding as to whether the infringement was willful must be made by the Court . . . [n]or . . . any language . . . that a jury may not make a finding as to subjective willfulness . . . [which] . . . [t]he Federal Circuit has historically held . . . is a question of fact."8

Judge Reindinger of the Western District of North Carolina, addressing Halo's impact on a jury's finding of Seagate's subjective prong, found that, "in Halo, the Supreme Court has overruled the objective prong of Seagate, leaving the issue of willfulness as solely a factual issue which can readily be addressed by the jury."9 Judge Reindinger determined that the jury's pre-Halo "finding standing alone is sufficient to support a finding of willfulness."10

Footnotes

1 Halo Elecs., Inc. v. Pulse Elecs., Inc., — U.S. —, 136 S.Ct. 1923 (2016). Halo was consolidated with Stryker Corp. v. Zimmer, Inc.

2 In re Seagate Tech., LLC, 497 F.3d 1360 (2007) (en banc).

3 Halo Elecs., Inc. v. Pulse Elecs., Inc., No. 2013-1472, — F.3d —, 2016 WL 4151239 (Fed. Cir. Aug. 5, 2016).

4 Id. at *10.

5 Innovention Toys, LLC v. MGA Entm't, Inc., No. 2014-1731, — F.3d —, 2016 WL 4151240, at *2 (Fed. Cir. Aug. 5, 2016).

6 Id.

7 Presidio Components, Inc. v. Am. Technical Ceramics Corp., No. 14-cv-02061-H-BGS, slip. op. at 24–28 (S.D. Cal. June 17, 2016).

8 Id. at 27.

9 Sociedad Espanola de Electromedicina Y Calidad, S.A. v. Blue Ridge X-Ray Co., No. 1:10-cv-00159-MR, 2016 WL 3661784, at *2 (W.D. N.C. July 8, 2016).

10 Id. at *2–3.

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