Beware Ye Willful and Wanton Pirates

By Matt Lubozynski

On Monday, the United States Supreme Court, in a unanimous ruling, “eschew[ed] any rigid formula for awarding enhanced damages under § 284,” abandoned the prior “unduly rigid” Seagate test laid out by the Federal Circuit, and instead left the award of enhanced damages simply to the discretion of the district court.  Halo Electronics, Inc. v. Pulse Electronics, Inc., No. 14-1513, slip. op. at 12 (June 13, 2016).  This decision should serve to make it much easier, although not automatic, for a patentee to receive enhanced damages after a finding of infringement.

Under 35 U.S.C. § 284, a court “may increase the damages up to three times the amount found or assessed.”  The Federal Circuit, in a prior ruling, had adopted a two-part test to allow for the award of such damages.  This test, known as the Seagate test, required first, proof by “clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent.”  Id. at 5 (citation omitted).  The state of mind of the accused infringer was not taken into account at this step, and further, this objective recklessness could not be found if the accused infringer came up with a “substantial question as to the validity or noninfringement of the patent” during the infringement action itself.  Id. (citation and punctuation omitted).  If this objective recklessness were established, then “a patentee must show – again by clear and convincing evidence- that the risk of infringement was either known or so obvious that it should have been known to the accused infringer.”  Id. (citation and punctuation omitted).  If, and only if, both of these are satisfied, could a court then decide whether to actually award enhanced damages.  Id.

As stated above, the Supreme Court found this test far too rigid.  It particularly had issue with the first part of the test, the objective recklessness step, as it seemed to provide an out for a “wanton and malicious pirate” “who intentionally infringes another’s patent – with no doubts about its validity or any notion of a defense – for no purpose other than to steal the patentee’s business.”  This was especially true with respect to allowing defenses during the infringement trial to immunize such wanton and malicious behavior.  Id. at 9, 10.  The Supreme Court made clear that “[t]he subjective willfulness of a patent infringer, intentional or knowing, may warrant enhanced damages, without regard to whether his infringement was objectively reckless.”  Id. at 10.

The Supreme Court also took issue with the high burden of proof, clear and convincing evidence, under both prongs of the Seagate test.  Id. at 12.  The Court noted that § 284 does not impose a “specific evidentiary burden, much less a high one[,] the fact that Congress expressly erected a higher standard of proof elsewhere in the Patent Act, see 35 U.S.C. § 273(b), but not in § 284, is telling[,] patent-infringement litigation has always been governed by a preponderance of the evidence standard[, and e]nhanced damages are no exception.”  Id. at 12 (citations and punctuation omitted).  Therefore, it left the decision solely to the discretion of the district court under a preponderance of the evidence standard.  See id. at 8-9.

Further, the old Seagate test required a “trifurcated appellate review.”  Id. at 5.  The objective recklessness portion required a de novo review; the subjective inquiry, a substantial evidence review; and whether to award enhanced damages, abuse of discretion.  Id. at 5-6.  The Supreme Court abandoned this trifurcated review, and merely made appellate review of enhanced damages an abuse of discretion standard.  Id. at 12-13.

It is important to note, that although it will now be “easier” to get enhanced damages in a patent infringement action, than it was under the Seagate regime, enhanced damages are by no means automatic.  The Supreme Court made this clear throughout the opinion and stated that enhanced damages “are not to be meted out in a typical infringement case, but are instead designed as a ‘punitive’ or ‘vindictive’ sanction for egregious infringement behavior.”  Id. at 8.  See also id. at 11 (“such punishment should generally be reserved for egregious cases typified by willful misconduct.”).  The Court went on to describe what such behavior would entail, such as “willful, wanton, malicious, bad-faith, deliberate, consciously wrongful, flagrant, or-indeed- characteristic of a pirate.”  Id. (emphasis added).  The Supreme Court instructed district courts “to be guided by the sound legal principles developed over nearly two centuries of application and interpretation of the Patent Act [as t]hose principles channel the exercise of discretion, limiting the award of enhanced damages to egregious cases of misconduct beyond typical infringement.”  Id. at 15 (citation and internal punctuation omitted).

As a result of this decision, all “pirates” should be aware that where they previously had a good chance of escaping enhanced damages in patent infringement action under Seagate, they could now be on the hook for enhanced damages.

Leave a reply. Please note that although this blog may be helpful in informing clients and others who have an interest in information privacy and security, it is not intended to be legal advice. The information on this blog also should not be relied upon to form an attorney-client relationship.

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