“Patent reform issues are back in action again at the U.S. Supreme Court,” writes Shook, Hardy & Bacon Seattle Managing Partner Bart Eppenauer in an Inside Counsel article about two challenges to the Federal Circuit’s standard for enhanced patent infringement damages under 35 U.S.C. §284, which allows courts to treble damages but does not limit these increases to situations involving an exceptional case, egregious or reckless conduct, bad faith, or willful infringement.
The Federal Circuit, however, has consistently ruled that “an award of increased damages requires a finding of willful, wanton or bad faith infringement.” To this end, the court articulated in In re Seagate Technology, 497 F .3d 1360 (Fed. Cir. 2007) a two-part test for awarding increased damages that requires a plaintiff to (i) “show by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent,” and (ii) “demonstrate that this objectively defined risk…was either known or so obvious that it should have been known to the accused infringer.” Eppenauer notes that before Seagate, “willful infringement allegations became routine in almost every case, and caused massive problems with attorney-client privilege issues, not to mention wasteful and unnecessary discovery expense.”
Consolidating petitions in Halo Electronics, Inc. v. Pulse Electronics, Inc. and Stryker Corp. v. Zimmer, Inc. that claim this two-pronged test is too inflexible, the U.S. Supreme Court agreed to review the Federal Circuit requirements in light of an earlier decision rejecting a purportedly similar framework for imposing attorney’s fees. With a change to the law “likely,” Eppenauer anticipates that the high court, at minimum, “will relax the current standard and grant more discretion to district courts,” but warns that abandoning the Federal Court’s objective/subjective standard could lead to litigation abuse.
“Since the Seagate decision, we have seen a dramatic reduction of both willful infringement allegations at the outset, and the ultimate award of increased damages,” notes Eppenauer. “No longer are companies required to spend thousands or sometimes millions of dollars annually for attorney opinions every time a patent is somehow made known or discovered. Now companies of all sizes need not fear a possible hit of triple damages, and feel less constrained in reviewing competitor patents in efforts to design-around and avoid infringement, which can lead to further innovation.”
Prior to Seagate, as Chief Patent Counsel at Microsoft Corp., I witnessed firsthand the spurious willful infringement assertions that all too often provided plaintiffs unfair leverage with a threat of triple damages. The Federal Circuit decisions prior to Seagate regrettably imposed an affirmative duty of due care on a defendant to obtain an exculpatory opinion of counsel after learning about a patent. Consequently, in the decade or more leading up to Seagate, willful infringement allegations became routine in almost every case, and caused massive problems with attorney-client privilege issues, not to mention wasteful and unnecessary discovery expense.