Patents - October 06, 2016

Supreme Court overrules Seagate Test for awarding enhanced damages

The Supreme Court reversed the United States Court of Appeals for the Federal Circuit on the issue of when to award enhanced damages in patent infringement cases. Halo Electronics, Inc. v. Pulse Electronics, Inc., ___ U.S. ___, 136 S. Ct. 1923, 195 L. Ed. 2d 278, 118 U.S.P.Q. 2d (BNA) 1761 (No. 14-1513, June 13, 2016).

This decision concerns two patent infringement cases that were linked for argument on February 23, 2016. The Federal Circuit affirmed the district court’s decision to not grant enhanced damages in Halo Electronics, Inc. v. Pulse Electronics, Inc. and vacated the district court’s decision to award enhanced damages in Stryker Corp. v. Zimmer, Inc. The oral argument audio is available here.

Chief Justice Roberts wrote for a unanimous Court.

The Court’s opinion began with a survey of the history of enhanced damages in patent infringement cases from as far back as 1793. The Court then provided a description of the test of the United States Court of Appeals for the Federal Circuit for deciding when a district court may enhance damages under 35 U.S.C. § 284 (“the court may increase the damages up to three times the amount found or assessed”). This test is known by the name of the Federal Circuit case in which it was established, to wit: In re Seagate Technology, LLC, 497 F.3d 1360 (2007) (en banc).

The Seagate test has two parts: the patent owner must first show by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent and second, the patent owner must demonstrate, 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.” Furthermore, an award of enhanced damages is subject to trifurcated appellate review: the result of the first step is reviewed de novo, the result of the second step is reviewed for substantial evidence, and the ultimate decision to award enhanced damages is reviewed for abuse of discretion.

The Court pointed out that “[e]nhanced damages are as old as U. S. patent law” and held that the Seagate test is not consistent with 35 U.S.C. § 284 because it is “unduly rigid, and it impermissibly encumbers the statutory grant of discretion to district courts,” and “can have the effect of insulating some of the worst patent infringers from any liability for enhanced damages” because it “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 a defense—for no purpose other than to steal the patentee’s business.” Thus, ”[u]nder Seagate, a district court may not even consider enhanced damages for such a pirate, unless the court first determines that his infringement was “objectively” reckless. In the context of such deliberate wrongdoing, however, it is not clear why an independent showing of objective recklessness—by clear and convincing evidence, no less—should be a prerequisite to enhanced damages.”

The Court referred to its decision in Octane Fitness, LLC v. Icon Health & Fitness, Inc., 572 U.S. ___, 134 S. Ct. 1749, 1755, 188 L. Ed. 2d 816 (2014), in which the Court “rejected a [similar two-part] test [for deciding whether to award attorney’s fees] on the ground that a case presenting ‘subjective bad faith’ alone could ‘sufficiently set itself apart from mine-run cases to warrant a fee award.”