The U.S. Supreme Court heard oral arguments last week in a pair of cases, Halo Electronics, Inc. v. Pulse Electronics, Inc. and Stryker Corporation v. Zimmer, relating to the proper standard to be applied in deciding whether to award enhanced damages for willful patent infringement. The questions posed by the justices suggested that the current standard will be replaced.
The current test for the award of enhanced damages is a judicial construct. The patent statute authorizes awards of up to three times the amount of actual damages, but is silent as to what conditions, if any, must be met to receive such an award:
Upon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court.
When the damages are not found by a jury, the court shall assess them. In either event, the court may increase the damages up to three times the amount found or assessed. Increased damages under this paragraph shall not apply to provisional rights under section 154(d) .
The court may receive expert testimony as an aid to the determination of damages or of what royalty would be reasonable under the circumstances.
Despite the absence of any criteria or preconditions in the statute, courts have long limited enhanced damages awards to cases involving “willful” infringement. In the 1980s, following a period of widespread disregard for the patent rights of others, the requisite showing of willfulness was allowed to be established by a failure to affirmatively exercise due care in avoiding infringement. A reasonable belief in non-infringement or invalidity – a question of fact reviewed under the substantial evidence standard of review – was sufficient to establish due care. In 2007, the Federal Circuit’s Seagate decision constrained the necessary level of disregard to objective recklessness rather than mere negligence. The two-part test imposed by Seagate required both proof "that the infringer acted despite an objectively high likelihood that its actions constituted the infringement of a valid patent." If this objective threshold was satisfied, the patentee must then prove “subjective recklessness,” and proof that the accused infringer either knew or should have known of that risk. Under this test, clear and convincing evidence is required and review of awards on appeal is conducted de novo, rather than for abuse of discretion.
In Halo/Stryker, the Court is being asked to relax the Seagate test. Proof of objectively reckless infringement, the Justices were told, is practically impossible, since “a patent lawyer can virtually always come up with some non-frivolous defense in litigation.” Through the Solicitor, the Patent Office supported the notion that the current test is too rigid, allowing egregious infringers to avoid the consequences of infringement. The clear and convincing standard of proof and de novo review on appeal were also argued to be inappropriate.
In 2014, the Supreme Court overturned the Federal Circuit on similar issues relating to awards of attorney fees for an “exceptional” case. In Octane Fitness, the standard for awarding attorney fees was changed from a showing of one of inequitable conduct, independently sanctionable litigation misconduct or objectively baseless litigation positions to a simple showing of either the substantive merits of the position litigated or unreasonable litigation. As the same time, in Highmark, the standard for review was dropped from de novo to review for abuse of discretion.
Since eBay v. MercExchange, the Supreme Court has regularly reversed the Federal Circuit on patent remedy issues – and appears poised to do so again.