On Monday, June 13, 2016, the US Supreme Court overturned the Federal Circuit Court of Appeals' standard for awarding enhanced patent infringement damages under 35 USC Section 284. Chief Justice John G. Roberts wrote the court's unanimous decision.
Under Section 284, a court may award enhanced damages for patent infringement in the amount up to three times the actual damages. However, Section 284 does not provide explicit guidance regarding how and when a court should exercise its discretion to award enhanced patent infringement damages. The standard used by the Federal Circuit allowed for enhanced damages only upon a showing, by clear and convincing evidence, (1) of "objective recklessness" by the infringer and (2) that the risk of infringement "was either known or so obvious that it should have been known to the accused infringer." Application of that standard essentially eliminated enhanced damages in patent infringement cases.
Although Chief Justice Roberts wrote that enhanced damages should not be awarded in "garden variety cases," he stated the Federal Circuit's test "excludes from discretionary punishment many of the most culpable offenders" and "unduly confines the ability of district courts" to award enhanced damages in particularly egregious cases of willful infringement. Roberts further criticized the Federal Circuit's test, noting "someone who plunders a patent--infringing it without any reason to suppose his conduct is arguably defensible--can nevertheless escape any come-uppance under 284 solely on the strength of his attorney's ingenuity."
The Supreme Court did not replace the Federal Circuit's test with another test or specific standard for enhanced patent infringement damages. Thus, district court's are now left to exercise their discretion in determining whether a patent infringement defendant's conduct rises to the level of egregiousness warranting additional penalties above and beyond actual damages. The Supreme Court also disposed of the Federal Circuit's "clear and convincing" evidentiary burden, in favor of the lower "preponderance of the evidence" standard, and further replaced the Federal Circuit's tripartite framework for appellate review with the abuse of discretion standard.
Why You Should Care: Most commentators believe the Supreme Court's decision will certainly make it easier for patentees to obtain enhanced damages awards. Thus, more than ever, companies should strongly consider the importance of obtaining invalidity and/or non-infringement opinion letters when facing the possibility of a competitor asserting a claim of patent infringement.
Given the relaxed standard for enhanced patent infringement damages, patentees will likely enjoy greater leverage during patent litigation settlement negotiations, provided they can articulate a reasonable enhanced damages argument.
The cases are Halo Electronics Inc. v. Pulse Electronics Inc. and Stryker Corp. v. Zimmer Inc.
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