HALO TEST FOR PROVING ENHANCED DAMAGES FOR WILLFUL PATENT INFRINGEMENT

Recently in the case Halo Electronics Inc. v. Pulse Electronics Inc., 136 U.S. 1923 (2016), the U.S. Supreme Court lowered the standard and changed the test for proving entitlement to enhanced damages for willful patent infringement. In doing so the U.S. Supreme Court rejected the Federal Circuit’s Seagate test as inconsistent with the relevant patent damages statute, 35 U.S.C. § 284.  This article discusses the previous standard and test for enhanced damages and subsequent changes due to the Halo Electronics case.

The Seagate test stems from the case In re Seagate Technology, LLC, 497 F.3d 1360 (Fed. Cir. 2007).  In In re Seagate, the Federal Circuit found that for an accused infringer’s actions to constitute willful patent infringement, a patentee must prove by clear and convincing evidence that:  1) “the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent”; and 2) “that this objectively-defined risk . . . was either known or so obvious that it should have been known to the accused infringer”. In re Seagate, 497 F.3d at 1371.

The U.S. Supreme Court cited several reasons for rejecting the Seagate test. First, the U.S. Supreme Court found that the pertinent language of § 284 contains no explicit limit or condition on when enhanced damages are appropriate, and “the word ‘may’ in the language of § 284 clearly connotes discretion.” Id. at 1931.  The U.S. Supreme Court also found that the Seagate test is “unduly rigid, and … impermissibly encumbers the statutory grant of discretion to district courts.” Id. at 1932.  Second, the U.S. Supreme Court found that the Seagate test’s objective recklessness requirement may exclude even the most culpable offenders. Id.  For example, under Seagate a reasonable defense to infringement (even if the defense is unsuccessful) could insulate an infringer from enhanced damages, even if he did not act on the basis of the defense or was even aware of it. Id. at 1933.  Third, the U.S. Supreme Court found that the Seagate test’s requirement that recklessness be proved by clear and convincing evidence is also inconsistent with § 284.  § 284 poses no specific burden much less such a high standard.

Now, based upon Halo Electronics, the new test for proving enhanced damages for willful patent infringement is “a patent infringer’s subjective willfulness, whether intentional or knowing” “without regard to whether his infringement was objectively reckless.”  Id. at 1926 (emphasis added).  Furthermore, the test for enhanced damages will be measured by a preponderance of the evidence standard. Id. at 1934.

However, the U.S. Supreme Court noted 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 behavior. The sort of conduct warranting enhanced damages has been variously described . . . as willful, wanton, malicious, bad-faith, deliberate, consciously wrongful, flagrant, or—indeed—characteristic of a pirate.” Id. at 1932.  Justice Breyer in his concurring opinion also pointed out that “the Court’s references to ‘willful misconduct’ do not mean that a court may award enhanced damages simply because the evidence shows that the infringer knew about the patent and nothing more.” Id. at 1936 (Breyer, J., concurring).

The effects of Halo Electronics will come to light over time.  That being said, it appears that at least for now entitlement to enhanced damages is not automatic after a finding of willful infringement. See, e.g., WesternGeco L.L.C. v. ION Geophysical Corp., No. 2013-1527, 2016 WL 5112047, at *5 (Fed. Cir. Sept. 21, 2016); see also Arctic Cat Inc. v. Bombardier Recreational Prod., Inc., No. 14-CV-62369, 2016 WL 4249951, at *6 (S.D. Fla. July 27, 2016).  At least one court, after the trier of fact found willful infringement, has used the Read factors to analyze if an infringer should be subject to enhanced damages for willful infringement.  See, e.g., Arctic Cat Inc., 2016 WL 4249951, at *6 (citing Read Corp. v. Portec Inc., 970 F.2d 816, 826-27 (Fed.Cir.1992)).  The Read facts are a non-exhaustive list and include (1) whether the infringer deliberately copied the ideas or design of another; (2) whether the infringer, when he knew of the other’s patent protection, investigated the scope of the patent and formed a good-faith belief that it was invalid or that it was not infringed; (3) the infringer’s behavior as a party to the litigation; (4) the defendant’s size and financial condition; (5) closeness of the case; (6) duration of defendant’s misconduct; (7) remedial action by the defendant; (8) defendant’s motivation for harm; and (9) whether defendant attempted to conceal its misconduct. Read Corp., 970 F.2d at 826-27.   Ultimately, however, the decision of entitlement to enhanced damages hinges on “the egregiousness of the defendant’s conduct based on all the facts and circumstances.” Arctic Cat Inc. v. Bombardier Recreational Prod., Inc., No. 14-CV-62369, 2016 WL 4249951, at *6 (S.D. Fla. July 27, 2016) (citing Read 970 F.2d at 826-27).

The patent attorneys at The Plus IP Firm, PLLC advice to businesses facing patent litigation issues.  The patent attorneys at The Plus IP Firm, PLLC focus on a pragmatic approach and assist clients in evaluating their business options.  To schedule a free consultation, click HERE.  For more information about Derek Fahey, this article’s author, click HERE.

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