SCOTUS Increases Judges' Discretion to Enhance Damages for Willful Patent Infringement

On Monday, the U.S. Supreme Court empowered federal judges with greater discretion to award enhanced damages against a willful patent infringer. Halo Electronics, Inc. v. Pulse Electronics, Inc., No. 14-1513 (U.S., June 13, 2016).

The New Standard: Prior to Monday’s decision, the legal standard for awarding enhanced damages for willful infringement required clear and convincing evidence that the defendant’s behavior was “objectively reckless.” See In re Seagate Tech., LLC, 497 F.3d 1360, 1371 (Fed. Cir. 2007) (en banc). Now, the district court has discretion to award willfulness damages under Section 284 of the patent laws if a preponderance of the evidence shows that the infringer acted with subjective intent or knowledge that it was infringing a valid patent, whether or not the infringer’s acts were objectively reckless.

The principal purpose of this change, according to the unanimous Court, is to prevent a “wanton and malicious pirate” from escaping enhanced damages merely by mustering a reasonable defense once sued. “Under that standard, someone who plunders a patent—infringing it without any reason to suppose his conduct is arguably defensible—can nevertheless escape any comeuppance under § 284 solely on the strength of his attorney’s ingenuity.” The new standard aims to close that loophole by providing federal district courts ample discretion to consider the individual circumstances of each case and to multiply damages up to three times against a willful infringer.

Practical Implications: The outcome in Halo is a significant win for patent owners. A business that receives a patent demand letter yet continues with its normal business activities may, on that evidence alone, be found to have acted in willful disregard of the patent and be subject to treble damages. In responding to a demand letter, it is now all the more important to consider course adjustments based on advice from counsel.

Recent legal developments have enhanced the array of options, which may include:

• obtaining a timely written opinion of counsel as to noninfringement or invalidity to insulate against willfulness damages;
• invoking new state laws that prohibit patent demands made in bad faith;
• making use of new avenues for overturning patents in the U.S. Patent & Trademark Office; or
• relying on new restrictions on patentable subject matter to invalidate patents relating to computer processes and business methods.

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