In a unanimous opinion authored by Chief Justice John Roberts in Halo Electronics, Inc. v. Pulse Electronics, Inc. and Stryker Corp. v. Zimmer, Inc., the Supreme Court has changed the standard for proving willful infringement in patent cases. Asked whether the Federal Circuit’s two-prong test for willfulness from its 2007 Seagate decision was consistent with the text of 35 U.S.C. § 284, the Supreme Court said that it was not.
By rejecting the Seagate standard as “unduly rigid,” the Court on June 13, 2016 reinvigorated a district court’s discretion to enhance damages as a “punitive” sanction for “egregious infringement behavior.”
Subsequent lower-court cases will shape the metes and bounds of the new standard. But based solely on the Court’s opinion, three changes to the standard are apparent:
1) conduct giving rise to enhanced damages is “egregious” conduct, defined to include “willful, wanton, malicious, bad-faith, deliberate, consciously wrongful” or “flagrant” behavior – “garden variety” infringement, however, is not enough to warrant a finding
2) the “time of the challenged conduct” is more relevant than the time of litigation and
3) requisite proof is by a preponderance of the evidence, rather than by clear and convincing evidence.
Recognizing that enhanced damages are “as old as U.S. patent law,” the Court’s opinion traces their history from the Patent Act of 1793 through the 1952 enactment of §284, in which Congress “merely reorganiz[ed]” the language of the statutes to “clarify” them. Slip Op. at 2-4. Consistent with this history, the Supreme Court recognized that the “new” enhanced damages provision of the Patent Act, §284, provided for “punitive or increased damages” in a case of “willful or bad-faith infringement.” Id. (citing Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U.S. 476, 508 (1964)).
In rejecting the Seagate framework as “unduly rigid” and as an “impermissib[e] encumber[ance]” on the statutory grant of discretion, id. at 9, the Court explained that §284 (which states that a district court “may” treble damages) “contains no explicit limit or condition” and that the statute’s use of the word “may…clearly connotes discretion.” Id. at 7-8. Indeed, 180 years of precedent established that enhanced damages “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” which includes behavior that is “willful, wanton, malicious, bad-faith, deliberate, consciously wrongful, flagrant, or—indeed—characteristic of a pirate.” Id. at 8.
The Court’s “principal problem” with the Seagate standard was that it required finding objective recklessness in every case before the district court was permitted to award enhanced damages. Id. at 9. “Such a threshold requirement excludes from discretionary punishment many of the most culpable offenders, such as the ‘wanton and malicious pirate’ who intentionally infringes another’s patent − with no doubts about its validity or any notion of a defense − for no purpose other than to steal the patentee’s business.” Id.
Second, the Court ruled that the Seagate test “aggravates” a disconnect from §284 by “making dispositive the ability of the infringer to muster a reasonable (even though unsuccessful) defense at the infringement trial.” Id. at 10. However, this allows “someone who plunders a patent − infringing it without any reason to suppose his conduct is arguably defensible − [to] nevertheless escape any comeuppance under §284 solely on the strength of his attorney’s ingenuity.” Id. This conflicts with the maxim that culpability is “generally measured against the knowledge of the actor at the time of the challenged conduct.” Id. The Court found nothing in its precedents that suggested “facts that the defendant neither knew nor had reason to know at the time he acted” can absolve willfulness. Id. at 11.
The Court’s third issue with Seagate was that it required clear and convincing evidence to prove recklessness. Id. at 12. Like the Court held in Octane Fitness for awarding attorney’s fees in exceptional cases under §285, §284 “imposes no specific evidentiary burden, much less such a high one.” Id. The fact that Congress “expressly erected a higher standard of proof elsewhere in the Patent Act, but not in §284, is telling.” Id. As a result, “[e]nhanced damages are no exception” to the “preponderance of the evidence standard.” Id.
Responding to the argument that removing the Seagate standard will “embolden [patent] ‘trolls,’” the Court cautioned that enhanced damages are not to be awarded in “garden variety cases.” Id. at 14-15. However, the non-specific threat that so-called “patent trolls” will seek enhanced damages more often simply “cannot justify imposing an artificial construct such as the Seagate test on the discretion conferred under §284.” Id. at 15.
Thus, in applying their discretion to award enhanced damages, district courts are to be “guided” by the “nearly two centuries of application and interpretation of the Patent Act” which “limit[s] the award of enhanced damages to egregious cases of misconduct beyond typical infringement.” Id. at 15.
Learn more about the implications of this decision by contacting Andrew N. Stein or Stan Panikowski.