Halo: Changes Regarding Enhanced Damages

Executive Summary: The Patent Act authorizes the district court to enhance the damages award by up to three times when patent infringement is found to be willful. The Supreme Court’s decision in Halo lowered the legal threshold for willfulness thereby making it easier for patent owners to obtain an award for enhanced damages. To avoid an award of enhanced damages due to willful infringement, accused infringers should now give greater consideration to obtaining a non-infringement and/or invalidity decision relatively soon afterbeing accused of infringement.

Detailed Information: In Halo Electronics v. Pulse Electronics and Stryker v. Zimmer, 136 S. Ct. 1923 (2016), the Supreme Court confronted the existing legal standards for willful infringement.  The existing standard was set out in a scheme enumerated by the Federal Circuit in its decision of In Re Seagate Tech., LLC, 497 F.3d 1360 (Fed. Cir. 2007).  In Seagate, the Federal Circuit added the requirement that a patent owner was required to prove by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent (“objective prong”). In so doing, the Federal Circuit overruled its own decision in Underwater Devices, Inc. v. Morrison-Knudsen, 717 F.2d 1380, 1389-90 (Fed. Cir. 1983) which treated a willfulness finding akin to a finding of negligence.  As a result, the Seagate abandoned the “affirmative duty of due care” and reemphasized that there is no need for the accused infringer to seek an opinion of counsel.  Finally, the Seagate case kept in place the requirement for patent owners to prove that the risk of infringement was known or should have been known (“subjective prong”).

The Supreme Court in Halo determined that the scheme for finding willfulness enumerated in Seagate is unduly rigid.  The Court eliminated a patent owner’s need to establish recklessness, i.e., it eliminated the so-called objective prong.  The inquiry concerning willfulness, and hence enhanced damages, now singularly focuses on the accused infringer’s state of mind, i.e., the so-called subjective prong. More specifically, a finding of willfulness now turns on whether the risk of infringement was known or should have been known.  The Court also changed the standard of proof for the patent owner to establish willfulness from clear and convincing to a preponderance of the evidence.

The Court also noted that Section 284 of the Patent Act states that “the court may increase damages up to three times.”  The Court held that the words “the court may” means that Congress intended the willfulness determination to rest solely within the discretion of the district court, something the “objective prong” wrongly encumbers.  Hence, the Court eliminated in its entirety the “objective prong” of the willfulness inquiry that was set forth in the Federal Circuit’s Seagate decision.

In applying the discretion to award enhanced damages due to willful infringement, the Court noted that district courts are “to be guided by [the] sound legal principles” developed over nearly two centuries of application and interpretation of the Patent Act.  Those principles limit the award of enhanced damages to egregious cases of misconduct beyond typical infringement.  The Court did not define what constitutes “egregious [] beyond typical infringement.”  However, the Court did state that an opinion of independent counsel obtained at the time of trial is of little weight for purposes of avoiding a finding of willful infringement.  This naturally flows from the state of mind inquiry of the subjective prong.  That is, obtaining an opinion close to trial has little bearing on whether or not the infringer knew or should have known of the risk of infringement.

Until the case law better defines the distinction between “egregious” and “typical infringement,” accused infringers may be well-served by giving greater consideration to obtaining a non-infringement and/or invalidity opinion from independent counsel, but doing so relatively soon after being made aware of the risk of infringement, and certainly not close to the start of trial.