More Enhanced Damages on the Way?

By: Andreas Baltatzis & Emily A. Curtis  |   July 5, 2016

Following 2014 opinions changing the standards for attorneys’ fees in patent cases, the Supreme Court lowered the standard for awarding treble damages in patent infringement cases. See Halo Electronics, Inc. v. Pulse Electronics, Inc., Nos. 14-1513 and 14-1520 (S.Ct. June 13, 2016). This decision will affect more than the final award given in a suit. Parties may adjust prelitigation strategies to conform to new standards that need to be met to avoid additional damages in an infringement suit.

In Halo, the Supreme Court overturned the enhanced damages standard applied since In re Seagate, 497 F.3d 1360 (2007) (en banc). Halo, slip op. at 1-2. The relevant statute, 35 U.S.C. §284, states that “the court may increase the damages up to three times the amount found or assessed.” Under Seagate, the Federal Circuit applied a two-part test to determine whether to award enhanced damages in patent infringement cases. Halo Electronics, slip op. at 1. The test required “clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent” and “that the risk of infringement was either known or so obvious that it should have been known to the accused infringer.” Id. slip op. at 1-2 (internal quotes omitted). 

Relying on the historical awarding of enhanced damages and the lack of a statutory standard to apply, the Supreme Court found the Federal Circuit’s test too rigid. See id. “Enhanced damages are as old as U.S. patent law.” Id., slip op. at 2. Although treble damages were initially mandatory for an infringer, Congress made such awards discretionary in the Patent Act of 1836. Id., slip op. at 2. The Court long held that enhanced damages were meant  to be vindictive or punitive. Id., slip op. at 3. Prior to Seagate, enhanced  damages were awarded “where the infringer acted deliberately or willfully, but not where the infringement was not wanton and deliberate or conscious and deliberate.” Id. (internal quotes and citations omitted). According to the Supreme Court, the legislative and judicial history before Seagate do not require the strict standard put in place by the Seagate test. See id.

Further, the use of “may” in §284 connotes discretion for the courts to determine when damages should be enhanced. See id., slip op. at 8. “In a system of laws discretion is rarely without limits, even when the statute does not specify any limits upon the district courts’ discretion.” Id. (internal quotes omitted). The Seagate test is too narrow to reflect this discretion afforded the district courts. Id., slip op. at 9. Objective recklessness, a requirement overcome by defendants with a reasonable defense at trial, is not required to award a plaintiff enhanced damages. See id., slip op. at 9-10. The Seagate test allowed a defendant to avoid a willfulness finding by having a defense at trial, even where no defense was thought of prior to the infringement. Id., slip op. at 10. “Under that standard, someone who plunders a patent – infringing it without any reason to suppose his conduct is arguably defensible – can nevertheless escape any comeuppance under §284 solely on the strength of his attorney’s ingenuity.” Id. “[C]ulpability is generally measured against the knowledge of the actor at the time of the challenged conduct.” Id.

The discretion allowed by §284 gives the district court latitude to determine whether enhanced damages should be awarded, rather than abiding to a strict test. Id., slip op. at 11. The degree of culpable behavior and appropriate damages is up to the district court. See id. District courts should instead consider the particular facts and circumstances of the case being decided. Id. The courts have a history of discretion in awarding enhanced damages, which should be reviewed for an abuse of discretion. Id., slip op. at 13.

The Court also took issue with the evidentiary standard applied by Seagate. Id., slip op. at 12. The statutes does not specify an evidentiary burden; however, the Federal Circuit required clear and convincing evidence for each part of the Seagate test. Id. The Supreme Court followed the 2014 decision in Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S.Ct. 1749 (2014) and reiterated that “patent-infringement litigation has always been governed by a preponderance of the evidence standard.” Halo Electronics, slip op. at 12 (internal quotes omitted). Thus, enhanced damages are also determined based on preponderance of the evidence. Id. Justice Breyer, joined by Justices Kennedy and Alito, filed a concurrence to express limits in §284. Id.

The Supreme Court’s decision means that defendants may need to show more evidence at trial to avoid an enhanced damages award. Plaintiffs have a lower bar to receive these damages, which means that defendants will need to do more to avoid them than was required under Seagate. Prelitigation strategy, including invalidity and noninfringement opinions, is likely to increase in use as defendants argue for the judge’s discretion. Under Halo, defendants cannot rely on a reasonable defense at trial to avoid enhanced damages. Instead defendants should proactively consider the patent landscape and prepare defenses once knowing of a problematic patent. Since, the District Courts will have the discretion to award enhanced damages to plaintiffs where an infringer acted without a reasonable defense, taking action early will become more important in presenting evidence against enhanced damages.