Supreme Court Rejects Test For Enhanced Damages in Favor of Less Burdensome Test

Although Section 284 of the Patent Act provides that courts "may increase the damages up to three times the amount found or assessed," the Federal Circuit previously established a more burdensome test for proving enhanced damages. According to In re Seagate Technology, LLC, 497 F.3d 1360 (Fed. Cir. 2007), a patent owner was required to (1) "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 then (2) show that the risk of infringement "was either known or so obvious that it should have been known to the accused infringer" in order to capture enhanced damages. InHalo Electronics, Inc. v. Pulse Electronics, Inc. , et al., the Supreme Court has now determined that this two-part test is inconsistent with Section 284.

The Court's reasoning in rejecting the test largely focused on the "objective recklessness" prong of the test, as well as the requirement that such be proven by clear and convincing evidence. The Court noted that such stringent requirements may prevent the application of enhanced damages against those most deserving, and specifically pointed out that a less stringent "subjective willfulness" is likely more than enough to warrant enhanced damages. The Court also took umbrage with the fact that the test allowed for a reasonable defense against enhanced damages to be developed for trial, not prior to any infringing actions. In the end, the Supreme Court pointed to the nearly two centuries of enhanced damages cases as providing enough guidance outside of a stringent test.

With this decision, the Supreme Court has made recovering enhanced damages much easier. Conducting freedom to operate studies on future products and services to identify and work through potential patent risks continues to be an effective tool in guiding business decisions before introduction of such products and services. And while the legal opinions yielded by reason of such studies remained valuable evidence to rebut claims of willful infringement even under Seagate, the Supreme Court's new guidance on willful infringement once again highlights the importance of opinions of counsel in fighting willfulness.