US High Court Restores Treble Damages For Patent Infringement 26/07/2016 by Steven Seidenberg for Intellectual Property Watch 3 Comments Share this:Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Facebook (Opens in new window)Click to email this to a friend (Opens in new window)Click to print (Opens in new window) Steven Seidenberg is a freelance reporter and attorney who has been covering intellectual property developments in the US for more than 20 years. He is based in the greater New York City area and may be reached at firstname.lastname@example.org. Pulse Electronics was guilty of patent infringement. That had been decided long ago. The only remaining issue was how much Pulse must pay for its wrongdoing. The company could be liable for treble damages, provided its infringement was willful. Fortunately for Pulse, willful infringement was almost impossible to prove, thanks to a standard established by the Federal Circuit. Unfortunately for Pulse, its lawsuit reached the US Supreme Court. And in its recent ruling on the case, the high court threw out the Federal Circuit’s standard, making it far easier to prove willful infringement. The decision is likely to have an important impact on patent litigation, the courts, and companies doing business in the US. The Supreme Court’s decision returns US patent law to a standard created by Congress 180 years ago. The Patent Act of 1836 gave district courts the power to impose treble damages against those who infringed willfully, and those courts were given the discretion to decide when an infringement was so wanton or deliberate as to merit treble damages. The courts applied this rather vague standard until 2007, when the en banc Federal Circuit Court of Appeals decided In re Seagate Technology [pdf]. Seagate created a strict, two-part test for determining when an infringement was so willful that it could result in treble damages. First, a patentee had to prove, by clear and convincing evidence, that the infringement was “objectively” reckless – i.e., there was no “substantial question” about the validity or non-infringement of plaintiff’s patent. Because this first test views infringement “objectively,” the infringer’s state of mind is irrelevant. This test, therefore, might not be satisfied even when an infringer acted in full knowledge that it was committing infringement. So long as the infringer’s attorneys can cobble a colorable legal argument that the patent was invalid or not infringed, that will suffice to disprove objective recklessness – even if this legal argument was only created during the infringement litigation, long after the infringing actions had occurred. If a patentee managed to prove the infringer was objectively reckless, the patentee had then to confront the second test mandated by Seagate: proving the infringer’s guilty state of mind. The patentee had to show clear and convincing evidence either that (a) the infringer knew it was committing infringement or (b) the infringer should have known it was committing infringement because the infringement was so obvious. This placed an extremely heavy evidentiary burden on patentees, which could rarely be satisfied. Even if a patentee managed to passed both tests, enhanced damages were not guaranteed. Such damages were given only at the discretion of the district court. As if all that were not enough, Seagate added one last roadblock to treble damages: The ruling made it easy to reverse an enhanced damage award on appeal. Objective recklessness would be reviewed de novo, giving no deference to the district court’s findings. The infringer’s state of mind would be reviewed for “substantial evidence,” which gave little deference to the district court. Only the final decision to award enhanced damages would be reviewed under the usual abuse-of-discretion standard (i.e., the district court’s decision would be upheld unless the district court had abused its discretion). Not surprisingly, few patentees were able to obtain enhanced damages under Seagate. The threat of treble damages no longer served to discourage deliberate infringement. What a Court May Do On 13 June, the Supreme Court unanimously rejected the Seagate standard. Halo Electronics v. Pulse Electronics [pdf] held that Seagate’s requirements for enhanced damages were not consistent with Section 284 of the US Patent Act, which authorizes enhanced damages against infringers. The relevant portion of the statue states merely that a district “court may increase the damages up to three times the amount found or assessed” [emphasis added]. The statute means what it says, the Supreme Court held. Enhanced damages can be awarded at district courts’ discretion. Seagate’s strict two-part test “is unduly rigid, and it impermissibly encumbers the statutory grant of discretion to district courts,” the high court concluded. The Supreme Court emphasized that, pursuant to pre-Seagate jurisprudence, district courts do not have unfettered discretion to award enhanced damages. “[S]uch punishment should generally be reserved for egregious cases typified by willful misconduct,” the Supreme Court stated. No Bright Lines The decision was not a surprise. It followed two Supreme Court trends that began over a decade ago. First, the Supreme Court has repeatedly and regularly rejected rigid rules established by the Federal Circuit, insisting on more vague and nuanced interpretations of the law. “The Supreme Court does not like bright line rules, while the Federal Circuit does. If the Supreme Court has the opportunity to overturn a bright line rule, the court will do that,” said W. Edward Ramage, a partner in the Baker Donelson law firm. For instance, Ramage noted, the Supreme Court’s 2010 decision in Bilski v. Kappos [pdf] rejected the Federal Circuit’s rigid rule that a process is patent eligible only if it satisfies the “machine-or-transformation test.” That test, according to the high court, can help decide if a process is patent-eligible, but it is not the sole test for patent-eligibility. Similarly, the Supreme Court’s 2014 decision in Octane Fitness v. Icon Health & Fitness [pdf] rejected the Federal Circuit’s tough and rigid standards for awarding attorneys’ fees in patent infringement suits. District courts have discretion to issue such awards in “exceptional cases,” the high court held. Halo also fits with a second trend in Supreme Court patent decisions: rejecting the Federal Circuit’s creation of special rules for patents or patent litigation. In its 2006 decision in eBay v. MercExchange [pdf], for instance, the high court rejected a Federal Circuit standard which made it uniquely easy for patentees to obtain injunctions against alleged infringers. The Supreme Court held that, in order to obtain an injunction against infringers, patentees must satisfy the same legal standards as other civil litigants. Octane Fitness, too, fits this trend, throwing out the Federal Circuit’s special rules for attorneys’ fee awards in patent suits. The requirements for attorneys’ fee awards are the same in patent suits as in other civil suits, the high court declared. Halo, thus, “is part of a bigger trend of killing off patent exceptionalism, which I think drove the Supreme Court decision in this case,” said Ramage. New Balance of Power Although Halo was not surprising, it seems likely to have an important impact on patent litigation. It revives the possibility of treble damages, thus shifting the balance of power when patentees sue alleged infringers. “It will change the valuation of cases,” said Prof. Bernard Chao, who teaches patent law at the University of Denver. “If there is a risk of a high reward [because of treble damages], this increases the pressure on defendants to settle and to settle for a higher amount.” The decision also shifts the balance of power between district courts and the Federal Circuit (often known as the country’s “patent court”). By making it easier for district courts to award treble damages and harder for the Federal Circuit to overturn these awards, Halo strengthens the power of district courts and reins in the Federal Circuit. “Halo is really an empowering decision for district courts,” said Natalie Bennet, a partner in the law firm of McDermott Will & Emery. This new power worries some patent experts, because district courts will vary in their willingness to grant treble damages – thus increasing the uncertainty of patent litigation. This unpredictable risk of treble damages “could have a really chilling effect on innovation,” warned Chao. “It may encourage companies developing new products to stay further away from existing patents, in order to avoid the risk of infringement.” There’s another downside to granting district courts so much discretion over enhanced damages. This concern centers on one district court, which has an outsized influence on patent suits. “Fifty percent of patent cases are filed in the Eastern District of Texas, and that district court appears to be fairly patentee-friendly,” said Chao. “I’m a bit uncomfortable in giving such discretion [over enhanced damages] to a court that has been favoring patentees, at least procedurally.” Share this:Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Facebook (Opens in new window)Click to email this to a friend (Opens in new window)Click to print (Opens in new window) Related Steven Seidenberg may be reached at email@example.com."US High Court Restores Treble Damages For Patent Infringement" by Intellectual Property Watch is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.