Supreme Court Upends Law of Treble Damages in Patent Cases
On June 13, 2016, the United States Supreme Court dealt the Federal Circuit another reversal on an issue of law fundamental to patent infringement litigation. Prior to the Court's decision in Halo Electronics, Inc. v. Pulse Electronics, Inc., No. 14-1513 (which was consolidated for decision with Stryker Corp. v. Zimmer, Inc., No. 14-1520), the Federal Circuit had required a finding of willful infringement as a prerequisite to ordering enhanced damages under 35 U.S.C. § 284, which provides that courts in infringement cases "may increase the damages up to three times the amount found or assessed." Further, the Federal Circuit, in In re Seagate Technology, LLC, 497 F.3d 1360, 1371 (Fed. Cir. 2007) (en banc), had established a two-part test for determining the presence of willful infringement before a court could exercise its discretion to award enhanced damages, first asking whether the adjudged infringer's litigating positions were objectively reckless. Only if they were reckless was a court to then ask whether the infringement was subjectively willful.
The Halo decision ended this regime, which in some form or another had governed patent-infringement litigation since the creation of the Federal Circuit. Writing for a unanimous Court, Chief Justice Roberts said that the Seagate standard was not consistent with the statute—it is "unduly rigid, and it impermissibly encumbers the statutory grant of discretion to district courts." In a paragraph summarizing the proper approach going forward, the Court wrote:
Section 284 allows district courts to punish the full range of culpable behavior. Yet none of this is to say that enhanced damages must follow a finding of egregious misconduct. As with any exercise of discretion, courts should continue to take into account the particular circumstances of each case in deciding whether to award damages, and in what amount. Section 284 permits district courts to exercise their discretion in a manner free from the inelastic constraints of the Seagate test. Consistent with nearly two centuries of enhanced damages under patent law, however, such punishment should generally be reserved for egregious cases typified by willful misconduct.
The Court likewise rejected the Federal Circuit's scheme of "trifurcated appellate review," under which it reviewed (i) the "objective recklessness" prong de novo; (ii) the subjective knowledge prong for substantial evidence; and (iii) the ultimate enhancement award for abuse of discretion, replacing it with a simple abuse-of-discretion standard. The Supreme Court also rejected the Federal Circuit's view that such determinations should be made by a clear-and-convincing-evidence standard, finding nothing in the statute or in historical practice that would support a heightened standard of proof. Hereafter, enhanced damages are no exception to the general rule that patent infringement cases are governed by a preponderance-of-the-evidence standard.
What does this mean? For one, when compared to the Court's recent decisions, it is a rare Supreme Court ruling in favor of patent rights, making it now at least somewhat easier to make out a case for enhanced damages than it was before. At the same time, though, it continues a trend of recent Supreme Court decisions that reject the notion that patent litigation is somehow exceptional and entitled to apply different rules. The Court's Halo opinion thus brings enhanced damages for patent infringement more in line with the traditional approach to punitive damages in the mine run of civil cases.
In the end, the standard of evidentiary proof may be lighter (preponderance of versus clear-and-convincing evidence), and the standard of appellate review may be less searching (abuse of discretion versus the former tripartite approach), but the results may not vary nearly as much. As the Chief Justice emphasized, "discretion is not whim," and punitive awards are still to be reviewed, even under a discretionary standard, in a manner designed to "limi[t] the award of enhanced damages to egregious cases of misconduct beyond typical infringement."
Left unsaid in the opinion is what role—if any—the jury will play in future litigation. Under the former Seagate regime, juries typically decided at least the subjective willfulness prong of the inquiry. Now that willfulness is no longer a prerequisite for an award of enhanced damages, it is an open question whether there is anything for a jury to decide with respect to enhancement under Section 284. This may be the first new frontier for litigation under the new Halo regime.
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