Supreme Court Ruling Loosens Standard for Awarding Enhanced Damages

Yesterday, the U.S. Supreme Court issued a decision in the case of Halo Electronics, Inc. v. Pulse Electronics, Inc., once again changing patent law by loosening the standard by which district courts may award enhanced damages under 35 U.S.C. § 284. In so doing, the Court discarded the two-part test set forth by the Court of Appeals for the Federal Circuit in In re Seagate Technology, LLC, 497 F.3d 1360 (Fed. Cir. 2007). The so-called Seagate test first requires that the patentee show by clear and convincing evidence that an infringer’s actions were objectively unreasonable. If this burden is met, the patentee must then prove that the infringer subjectively knew or should have known that its actions risked infringing a valid patent. If a patent holder is able to meet both prongs of the test, any enhancement of damages is subject to the discretion of the district court. Appellate review of such determinations involves a tripartite standard, in which the determination of objective recklessness is reviewed de novo, the determination of subjective knowledge is reviewed for substantial evidence, and any award of enhanced damages is reviewed for abuse of discretion.

While acknowledging that the Seagate test “reflects, in many respects, a sound recognition that enhanced damages are generally appropriate under § 284 only in egregious cases,” the Court found that the test’s objective prong placed too narrow a restriction on district courts’ discretion, and “excludes from discretionary punishment many of the most culpable offenders, such as the ‘wanton and malicious pirate’ who intentionally infringes another’s patent – with no doubts about its validity or any notion of defense – for no purpose other than to steal the patentee’s business.” The Court did not offer a replacement standard, however.  Instead, it indicated only that the “subjective willfulness of a patent infringer, intentional or knowing, may warrant enhanced damages, without regard to whether his infringement was objectively reckless.” In addition, the Court rejected the clear and convincing evidence standard in favor of the more lenient preponderance of the evidence standard used to determine infringement in the first instance. Upon such a showing, it is now left to the district court’s discretion whether or not to enhance damages, and the district court’s exercise of discretion will be reviewed for abuse of discretion, which is the most lenient standard of review.

While yesterday’s decision does not set forth any bright line rules to assist district courts or litigants to determine whether enhanced damages are appropriate in particular cases, the Court did imply that enhanced damages “should generally be reserved for egregious cases typified by willful misconduct.” And, rather than deciding the propriety of enhanced damages in the cases before it, the Court simply remanded the cases to the lower court with the advice that “sound legal principles…channel the exercise of discretion, limiting the award of enhanced damages to egregious cases of misconduct beyond typical infringement.” It will thus be left to future cases to determine how much of an impact yesterday’s decision will have on the award of enhanced damages in patent cases.

Maximizing the protection and value of intellectual property assets is often the cornerstone of a business's success and even survival. In this blog, Nutter's Intellectual Property attorneys provide news updates and practical tips in patent portfolio development, IP litigation, trademarks, copyrights, trade secrets and licensing.

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