After several years of handing down perceived anti-patent rulings, yesterday in Halo Elecs. v. Pulse Elecs., the Supreme Court gave patent owners an extra weapon against infringers by making it easier to recover enhanced damages. Section 284 of the Patent Act states that courts “may increase the damages up to three times the amount found or assessed,” but leaves it to the court’s discretion to determine when increased damages are appropriate. In 2007, the Federal Circuit announced the two-part Seagate test for determining whether infringement was willful, and therefore warranted enhanced damages. Under the Seagate test, to prove willfulness the patentee must show that (1) the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent; and (2) if objective recklessness is shown, the risk of infringement was either known or so obvious that it should have been known to the accused infringer. Importantly, the accused infringer could avoid a finding of objective recklessness if, during the infringement proceedings, it raises a substantial question as to the validity or noninfringement of the patent.
The Supreme Court rejected this test as overly rigid and impermissibly limiting the discretion of district courts to award enhanced damages. In particular, the Court noted that the objective prong of the Seagate test actually insulates some of the worst patent infringers from enhanced damages. For example, an infringer who intentionally infringes another’s patent, with no doubts about its validity or any notion of a defense, would still avoid enhanced damages if during the infringement litigation the infringer could present a reasonable but unsuccessful defense. The Court noted that culpability is generally judged based on the knowledge of the actor at the time of the challenged conduct, rejecting the use of after-the-fact defenses to avoid a finding of willfulness. Thus, the district court has discretion to award enhanced damages, though the Court cautioned that such punishment should generally be reserved for egregious cases.
The Court also reversed two procedural aspects of the Federal Circuit’s standard for determining enhanced damages. First, the Court rejected the clear and convincing standard previously required to prove recklessness, and instead adopted a preponderance of the evidence standard. The Court noted that Section 284 is silent with respect to the required evidentiary burden, but because Congress expressly specified higher standards of proof elsewhere in the Patent Act, the lower preponderance standard should apply to Section 284, as it does nearly every other issue in patent litigation. Second, the Court rejected the Federal Circuit’s standard for reviewing district court decisions regarding enhanced damages. Under Seagate, the objective recklessness determination was reviewed de novo, the subjective knowledge prong was reviewed for substantial evidence, and the ultimate decision to award enhanced damages was reviewed for abuse of discretion. Given that the Court rejected the two-part Seagate test, the Court also rejected the tripartite review framework, and instead ruled that decisions on enhanced damages should be reviewed for abuse of discretion. While the Court’s decision certainly makes enhanced damages less difficult to obtain, it remains to be seen how frequently district courts will award them.