In Halo Electronics, Inc. v. Pulse Electronics, Inc.,
579 U.S. ___ (2016), the Supreme Court unanimously lowered the bar
for recovering up to treble damages for patent infringement.
Rejecting the "inelastic constraints" of In re
Seagate Tech., LLC, 497 F.3d 1360 (Fed. Cir. 2007) (en
banc), as inconsistent with the controlling statutory
language, under which courts simply "may increase the damages
up to three times the amount found or assessed," 35 U.S.C.
284, the Court made enhanced damages more readily recoverable in
patent cases by giving district courts discretion to award enhanced
damages in "egregious cases of misconduct beyond typical
infringement." It also held that enhanced awards will now
require proof only by a preponderance of the evidence and be
reviewable only for abuse of discretion.
Writing for the Court, Chief Justice Roberts traced the history of
enhanced damages, which are "as old as U.S. patent law."
Halo, 579 U.S. at __ (slip op. at 2–6). Noting the
punitive purpose of enhanced damages, the Court observed, "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."
Id. at 8. In 2007, however, the Federal Circuit's
decision in Seagate altered the framework for enhanced
damages by requiring a patentee to prove, by no less than clear and
convincing evidence, that (1) the infringer acted despite an
objectively high likelihood that its actions constituted
infringement of a valid patent, and (2) the risk of infringement
was either known or so obvious that it should have been known to
the infringer. An award of enhanced damages was reviewable by the
Federal Circuit under multiple standards, depending on the bases
for decision. Under Seagate, many infringers avoided
enhanced damages by presenting "reasonable" infringement
defenses that were neither successful at trial nor considered at
the time of infringement. See id. at 10.
Continuing a modern trend, the Supreme Court in Halo
rejected the Federal Circuit's Seagate decision for
interjecting an "unduly rigid" test and
"impermissibly encumber[ing] the statutory grant of discretion
to district courts." Id. at 9. See Octane
Fitness, LLC v. ICON Health & Fitness, Inc., 572 U.S. ___
(2014) (rejecting rigid test for awarding attorneys' fees);
Nautilus, Inc. v. Biosig Instruments, Inc., 134 S. Ct.
2120 (2014) (rejecting rigid test for indefiniteness); KSR
Int'l Co. v. Teleflex Inc., 550 U.S. 398 (2007) (rejecting
rigid test for obviousness). While approving Seagate's
attempt to limit enhanced damages to egregious cases, the Court
concluded the test was too narrow, "insulating some of the
worst patent infringers from any liability for enhanced
damages." Halo, 579 U.S. at __ (slip op. at 9). The
Court concluded district courts must instead "take into
account the particular circumstances of each case" and be
"guided by the sound legal principles developed over nearly
two centuries of application and interpretation of the Patent
Act." Id. at 11, 15. The Court added, however, that
enhanced damages "should generally be reserved for egregious
cases typified by willful misconduct," id. at 11, a
point on which Justice Breyer, joined by Justices Kennedy and
Alito, wrote separately for emphasis. The concurrence stressed that
the role of enhanced damages should be limited so as not to deter
lawful activity that furthers the "Progress of Science and
useful Arts." Id. at 1–5 (Breyer, J.,
concurring) (citing U.S. Const., Art. I, § 8, cl. 8).
Relying largely on the text of § 284, but also finding
instructive its recent decisions in Octane Fitness and Highmark
Inc. v. Allcare Health Mgmt. System, Inc., 572 U.S. ___
(2014), the Court also held enhanced damages need be supported only
by a preponderance of the evidence and such decisions are
reviewable for abuse of discretion only. Significantly, the Court
observed that "culpability is generally measured against the
knowledge of the actor at the time of the challenged conduct,"
Halo, 579 U.S. at __ (slip op. at 10), thus perhaps
dampening future attempts by some patentees to attack litigation
conduct.
The Court rejected arguments that the America Invents Act, which
provides that "'[t]he failure of an infringer to obtain
the advice of counsel' or 'the failure of the infringer to
present such evidence to the court or jury may not be used to prove
that the accused infringer willfully infringed,'"
id. at 14 (quoting 35 U.S.C. 298), somehow endorsed
Seagate. Considering the same statute, Justice Breyer
emphasized that "egregious misconduct" must be the
relevant touchstone so that accused infringers are not
unnecessarily incentivized to obtain opinions of counsel.
Id. at 1, 2 (Breyer, J., concurring). Justice Breyer
continued, however: "I do not say that a lawyer's informed
opinion would be unhelpful. To the contrary, consulting counsel may
help draw the line between infringing and noninfringing uses."
Id. at 3.
As for the petitioners in Halo itself, the Court vacated
the two decisions on appeal (one in which the Federal Circuit had
vacated an enhanced damages award and the other in which a district
court had declined to make such an award) and remanded for further
consideration whether to award enhanced damages. Though it should
now be easier for patent owners to win enhanced damages,
how easy it will be remains to be seen. Indeed, notwithstanding the
Court's having upended an en banc Federal Circuit
decision that had been cited by courts more than 2,500 times in
fewer than 10 years, only time will reveal the full aura of
Halo. In the meantime, because invalidity and
noninfringement opinions obtained at or before the time of the
alleged infringement may be admissible to avoid findings of
willfulness, the Court's decision is likely to increase
reliance on such opinions, notwithstanding that the absence of such
opinions may not be cited.
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