June 15, 2016
Supreme Court Overrules Seagate Test for Enhanced Damages Under the Patent Act
In today’s Halo Elecs. v. Pulse Elecs. decision, the Supreme Court unanimously rejected the Federal Circuit’s Seagate standard for awarding enhanced damages against a patent infringer under 35 U.S.C. § 284. The Seagate standard required clear and convincing evidence of both objective recklessness and subjective recklessness. In Halo, the Supreme Court eased the burden on patentees, replacing the Seagate test with a discretionary test analogous to that articulated in Octane Fitness and lowering the standard to preponderance of the evidence.
The Court explained: “Awards of enhanced damages under the Patent Act over the past 180 years establish that they 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. The sort of conduct warranting enhanced damages has been variously described in our cases as willful, wanton, malicious, bad-faith, deliberate, consciously wrongful, flagrant, or—indeed—characteristic of a pirate.” Slip op. at 8. The Court determined the Seagate test was unduly rigid in effecting these principles, principally because Seagate’s objective recklessness prong makes “dispositive the ability of the infringer to muster a reasonable (even though unsuccessful) defense at the infringement trial. The existence of such a defense insulates the infringer from enhanced damages, even if he did not act on the bases of the defense or was even aware of it.” Slip op. at 10. Because “culpability is generally measured against the knowledge of the actor at the time of the challenged conduct,” the Court determined Seagate was too restrictive.
Instead, the Court determined the proper test for enhanced damages is a discretionary test following the principles articulated in Octane Fitness, though with the warning that “[c]onsistent with nearly two centuries of enhanced damages under patent law, however, such punishment should generally be reserved for egregious cases typified by willful misconduct.” Slip op. at 11. Also consistent with Octane Fitness, the Court lowered the evidentiary standard to preponderance of the evidence. Slip op. at 12.
Justice Breyer, joined by Justices Kennedy and Alito, concurred, noting 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,” (slip op., concurrence at 1); that the Court’s decision does not weaken 35 U.S.C. § 298, which directs that the failure of an infringer to obtain an opinion of counsel may not be used to prove that the accused infringer willfully infringed; and that enhanced damages may not be used to compensate a patentee.