Supreme Court Makes it Easier to Obtain Treble Damages in Patent Cases

The Supreme Court recently ruled that to obtain an award of treble damages in patent litigation, the Patent Act,  35 U.S. C. §284, requires that the trial court determine the knowledge of the actor at the time of infringement in order to determine assessment of attorneys fees and proof of the degree of culpability need not be established with the higher, clear and convincing evidentiary standard, but need only be proven by a preponderance of evidence.  The Halo Electronics Inc. v. Pulse Electronics Inc., Case No. 14-1513 ( S. Ct. June 13, 2016) (Available Here) overturned the decade-long requirement of  “objectively high likelihood that its actions constituted infringement” and the clear and convincing evidentiary standard set by the Court of Appeals for the Federal Circuit (the appeals court that hears all patent appeals from the trial courts).  See In re Seagate Technology, LLC, 497 F. 3d 1360 (2007) (en banc).

The Patent Act provides that, in a case of infringement, courts “may increase the damages up to three times the amount found or assessed.” In In re Seagate Technology, LLC, the Federal Circuit adopted a two-part test.  Under Seagate, a patent owner was required to 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.” Id., at 1371. Second, the patentee was required to 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.”

In the case at bar, after one of its engineers concluded that Halo’s patents were invalid, Pulse continued to sell the allegedly infringing products.  In 2007, Halo sued Pulse.  The jury found that Pulse had infringed Halo’s patents, and that there was a high probability Pulse acted willfully. The District Court, however, declined to award enhanced damages under §284, after determining that Pulse had at trial presented a defense that “was not objectively baseless, or a ‘sham.”‘ See, for example, Bard, 682 F. 3d, at 1007.  The Federal Circuit affirmed.  

In a second case combined with Halo, the jury found that Zimmer had willfully infringed Stryker’s patents and awarded Stryker $70 million in lost profits. The District Court added $6.1 million in supplemental damages and then trebled the total sum under §284, resulting in an award of over $228 million.  Specifically, the District Court noted, the jury had heard testimony that Zimmer had “all-but instructed its design team to copy Stryker’s products.”

Applying de novo review, the Federal Circuit concluded that enhanced damages were not available because Zimmer had asserted “reasonable defenses.”

“Awards of enhanced damages under the Patent Act over the past 180 years establish that they 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. The sort of conduct warranting enhanced damages has been variously described in our cases as willful, wanton, malicious, bad-faith, deliberate, consciously wrongful, flagrant, or – indeed – characteristic of a pirate.”

“But culpability is generally measured against the knowledge of the actor at the time of the challenged conduct. See generally Restatement (Second) of Torts §SA (1965) (‘intent’ denotes state of mind in which ‘the actor desires to cause consequences of his act’ or ‘believes’ them to be ‘substantially certain to result from it’); W. Keeton, D. Dobbs, R. Keeton, & D. Owen, Prosser and Keeton on Law of Torts §34, p. 212 (5th ed. 1984) (describing willful, wanton, and reckless as ‘’look[ing] to the actor’s real or supposed state of mind’); see also Kolstad v. American Dental Assn., 527 U. S. 526, 538 (1999) (‘Most often … eligibility for punitive awards is characterized in terms of a defendant’s motive or intent’).  In Safeco Ins. Co. of America v. Burr, 551 U.S. 47 (2007), we stated that a person is reckless if he acts ‘knowing or having reason to know of facts which would lead a reasonable man to realize’ his actions are unreasonably risky.”

The Supreme Court stated that the Seagate test is inconsistent with §284 because the test required clear and convincing evidence to prove recklessness.

The same conclusion follows naturally from the holding in Halo.  “Section 284 gives district courts discretion in meting out enhanced damages. It ‘commits the determination’ whether enhanced damages are appropriate ‘to the discretion of the district court’ and ‘that decision is to be reviewed on appeal for abuse of discretion.’”  

The defendant infringers worried that the ready availability of such damages will embolden ”trolls.” Trolls, in the patois of the patent community, are entities that hold patents for the primary purpose of enforcing them against alleged infringers, often exacting outsized licensing fees on threat of litigation.  The Court took the position that Congress should address the troll issue and not the courts.

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