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U.S. Supreme Court: New Lesser Standard for Enhanced Patent Damages

Posted on Jun 14, 2016 in Blog

In a unanimous decision issued on June 13, 2016, the U.S. Supreme Court, in Halo Electronics, Inc. v. Pulse Electronics, Inc., 579 U.S. __ (June 13, 2016), rejected the Federal Circuit’s nine-year-old strict test for awarding enhanced damages for patent infringement, thereby making it easier for patent holders to win increased damages in court for egregious acts of infringement.

Federal law allows trial judges to award “enhanced damages” of up to three times the amount of actual damages in a patent infringement lawsuit. However, in its 2007 decision, In re Seagate Technology, LLC, 497 F.3d 1360 (Fed. Cir. 2007), the Federal Circuit, the court to which all trial court patent cases are appealed, imposed a difficult standard for winning enhanced damages, even when there was intentional infringement. The new Supreme Court decision provides for substantial discretion by judges to determine whether enhanced damages are appropriate. However, the Supreme Court stated that such damages are only appropriate for “egregious cases typified by willful misconduct,” not in “garden variety cases.”

The 2007 Federal Circuit’s Seagate decision held that enhanced damages could only be awarded if two conditions were met. First, the patent owner must show objective recklessness, i.e., the patent owner must have shown by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement. Second, the patent owner must demonstrate “subjective knowledge,” i.e., the patent owner must show by clear and convincing evidence that the risk of infringement was either known or so obvious that it should have been known.

Chief Justice Roberts wrote that the Seagate test is “unduly rigid, and … impermissibly encumbers” the discretion of district courts. Justice Roberts wrote that “[b]y requiring an objective recklessness finding in every case, the Seagate test excludes from discretionary punishment many of the most culpable offenders, including the ‘wanton and malicious pirate’ who intentionally infringes a patent – with no doubts about its validity or notion of a defense – for no purpose other than to steal the patentee’s business.”

Under the new Halo v. Pulse standard, a patent infringer’s subjective willfulness may warrant enhanced damages without regard to whether his infringement was intentional or reckless. The Supreme Court also lowered the standard of proof, stating enhanced damages need only be proven by a preponderance of the evidence (i.e., more likely than not), not clear and convincing evidence, as previously held by the Federal Circuit.

– by Gary Greene

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