• U.S. Supreme Court Provides Patentees an Easier Path to Increased Patent Damages
  • August 11, 2016 | Author: Janet B. Linn
  • Law Firm: Bleakley Platt & Schmidt LLP - White Plains Office
  • In its recent decision in Halo Electronics, Inc. v. Pulse Electronics, Inc., 579 U.S. --- (June 13, 2016), the United States Supreme Court made it easier for a prevailing patentee to recover additional damages in a patent infringement action. After Halo, a patentee need only show that the infringer acted in bad faith to request an award up to three times his actual damages. Under prior law, proof of willful infringement alone was not sufficient; the willful infringer offering a reasonable argument of patent invalidity or non-infringement, albeit one developed during litigation, could avoid liability for anything beyond the patentee’s actual compensatory damages.

    Key points:
    • The Supreme Court replaced the Federal Circuit’s stringent two part test for recovery of increased damages with a more relaxed standard focusing on the bad faith of the infringer.
    • The Supreme Court also lowered the patentee’s burden of proof and made the trial court’s damage award more difficult to overturn on appeal.
    • If the patentee proves an infringer’s conduct was egregious, the trial court can increase the patentee’s damages. The court can award up to three times the patentee’s actual damages (lost profits or a reasonable royalty).
    • An “egregious” infringer is one that acted willfully and in bad faith.
    • The patentee need only prove the infringer’s subjective bad faith by the lower preponderance of the evidence standard.
    • Objective arguments about patent invalidity and non-infringement will no longer allow the willful infringer to block an award of additional damages
    • The trial court has broad discretion as to when to increase the damage award, and the amount to award, against the egregious infringer.
    • The trial court’s decision on damages will only be reversed on appeal if the court abused its discretion, making it more difficult to vacate the award than under the prior standard of review.
    The Law of Willful Infringement

    The damage statute before the Court simply states that the court “may increase damages up to three times the amount found or assessed.” 35 U.S.C. § 284. Courts have long limited such “treble damages” awards to cases of willful infringement. However, exactly what is required to demonstrate willful infringement has varied over the years. At one point to avoid a willfulness finding, an infringer with notice of the patent needed counsel’s opinion of patent invalidity or non-infringement before beginning infringing activity. Congress definitively eliminated the need for an opinion of counsel in the recent patent reform statute, the America Invents Act,P.L.112-29. See 35 U.S.C. § 298.

    The Heavy Burden Needed to Recover Additional Damages Under Prior Case Law

    Several years ago, the special patent appeals court, the Federal Circuit, adopted a rule in In re Seagate Technology, LLC, 497 F.3d 1360 (Fed. Cir. 2007), requiring the patentee to establish that the infringer’s conduct was both objectively and subjectively reckless to recover additional damages.[1] The infringer would not be found “objectively reckless” if he presented a reasonable argument of patent invalidity or non-infringement, even though the infringer was unaware of that argument before the litigation. Evidence of the infringer’s state of mind was excluded unless the patentee met its burden on the objective prong. Moreover, until the patentee proved both the infringer’s objective and subjective recklessness by clear and convincing evidence, the Court could not consider increasing the damage award.

    The Supreme Court Finds That Attorney Ingenuity Should Not Relieve The Willful Infringer

    In a unanimous opinion, the Supreme Court in Halo rejected the stringent Seagate rule as contrary to the broad language of the damage statute. Instead, the Supreme Court left to the trial court’s discretion when to increase damages, as well as the amount to award. The infringer’s subjective bad faith alone may be the basis for additional damages, and objective arguments about patent validity and infringement will not protect the willful infringer. Although there is no rule or formula, the Court held such damages are reserved for “egregious cases of willful infringement,” conduct that is “willful, wanton, malicious, bad-faith, deliberate, consciously wrongful, flagrant, or - indeed ­- characteristic of a pirate.” As the Court explained, “someone who plunders a patent” should not “escape... any comeuppance under Section 284 solely on the strength of his attorney’s ingenuity.” The trial court’s determination will only be reversed for abuse of discretion.

    The Concurring Justices’ Concern

    The concurring Justices expressed concern that the looser standard would give some companies more leverage to extort money from innocent businesses. The Justices stressed that additional damages should only be awarded in cases of egregious misconduct.

    Future Litigation Will Focus on the Infringer’s State of Mind

    As the concurrence noted, patentees now have greater leverage against the deliberate infringer acting in bad faith. Applying the prior standard, a defendant could knock out an enhanced damages claim by an early motion showing a “substantial” question about the patent’s invalidity or the defendant’s non-infringement. After Halo, the focus is instead on the infringer’s state of mind, raising factual issues that generally cannot be determined until trial. This puts more pressure on a defendant to settle.

    The opinion gives litigants and courts little guidance beyond that there must “generally” be “egregious misconduct”; future case law will have to develop the factors warranting a particular award. The Halo decision makes clear, however, that a bad faith infringer may not “escape” increased damages because his litigation counsel devised a reasonable argument of patent invalidity or non-infringement during litigation.

    [1] The patentee needed to prove that “the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent” and the objectively defined risk “was either known or so obvious that it should have been known to the accused infringer.” 497 F.3d at 1371.