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Article: Enhanced Patent Damages in the Wake of Halo May Not Be So Easy to Come By

Business Litigation Reports

Background
Last year, in Halo Electronics, Inc. v. Pulse Electronics, Inc., 136 S. Ct. 1923 (2016), the Supreme Court weighed in on the question of enhanced damages in patent cases and rejected the then-existing Federal Circuit test finding that it was at odds with Congressionally-enacted patent law. The decision sparked countless headlines predicting that patent owners would soon cash in under Halo’s “relaxed” standard. Recent cases interpreting Halo, however, suggest a different conclusion.

Prior to Halo, the Federal Circuit established the standard for enhanced damages under section 284 of the Patent Act in In re Seagate Technologies, LLC., 497 F.3d 1360, 1371 (Fed. Cir. 2007). Seagate created a two-part test requiring a patent holder to show by clear and convincing evidence (1) “that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent,” (i.e., “objective recklessness”) and (2) that this risk of infringement “was either known or so obvious that it should have been known to the accused infringer.” Id. at 1371.

Halo rejected the Seagate test finding that it was directly at odds with the plain language of section 284. In particular, that section provides only that courts “may increase the damages up to three times the amount found or assessed”; it does not set forth any criteria for increasing such damages. 35 U.S.C. § 284. As a result, the Court reasoned that a finding of recklessness was not a prerequisite to awarding enhanced damages because section 284 contains no such requirement. Halo, 136 S. Ct. at 1932. Because “‘the word ‘may’ [in section 284] clearly connotes discretion’” (id. at 1931), the Supreme Court held that “[d]istrict courts enjoy discretion in deciding whether to award enhanced damages, and in what amount.” Id. at 1932. Nonetheless, the Court made clear that it was not relaxing the standard for enhanced damages; instead, the Court rejected Seagate’s “unduly rigid” and “inelastic constraints” in favor of providing trial courts with greater flexibility. Id. at 1932-34. Such flexibility was intended to permit district courts to assess enhanced damages against more culpable infringers, not less culpable ones. See id. at 1932.

Post-Halo Cases
Although less than one year old, Halo has already been extensively cited in more than 60 published and unpublished decisions and in nearly 200 treatises and published articles.

While much of the initial reaction to the Supreme Court’s Halo decision wondered whether increased flexibility might lead to a dramatic increase in enhanced damage awards, so far this has not been borne out. Instead, courts appear to be exercising their discretion cautiously and granting enhanced damages only in instances where infringement is, as the Supreme Court put it, “willful, wanton, malicious, [in] bad-faith, deliberate, consciously wrongful, flagrant, or—indeed—characteristic of a pirate.” Halo, 136 S. Ct. at 1932-34.

For example, many courts have used their discretion to deny enhanced damages even after a jury finding of willful infringement. For example, in Trustees of Boston University v. Everlight Electronics Co., the court held that a finding of willful infringement did not require an award of enhanced damages where: “the defendants did not deliberately copy the ’738 Patent, did not try to conceal the chips found to be infringing, did reasonably investigate the scope of the patent, and did form a good faith belief that their products did not infringe based on their view of the proper claim construction.” No. 12-11935-PBS, 2016 WL 3976617, at *3-4 (D. Mass. July 22, 2016).

Similarly, in Sociedad Espanola de Electromedicina y Calidad, S.A. v. Blue Ridge X-Ray Co., Inc., the court denied a motion for enhanced damages even after the jury found willful infringement, because “the jury’s finding of willful infringement . . . does not mandate that damages be enhanced, much less mandate treble damages.” No. 1:10-CV-00159-MR, 2016 WL 7473422, at *7 (W.D.N.C. Dec. 28, 2016). The court went on to state that “the touchstone for awarding enhanced damages after Halo is egregiousness” and the defendants engaged in no such conduct: “the Defendants presented evidence that they conducted a reasonable investigation of [the plaintiff’s] patent claims and made a good faith determination that the patent was not infringed by their activities and that the patent was likely invalid.” Id. at *7-8; see also XY, LLC v. Trans Ova Genetics, LC, No. 13-CV-0876-WJM-NYW, 2016 WL 6664619, at *3-4 (D. Colo. Nov. 10, 2016). Likewise, in Presidio Components, Inc. v. American Technical Ceramics Corp., the court noted that “Halo . . . held an award of enhanced damages need not follow a finding of willful infringement” and denied the plaintiff’s motion for enhanced damages because the action was nothing more than “a ‘garden-variety’ hard-fought patent infringement action between two competitors.” No. 14-CV-02061-H-BGS, 2016 WL 4377096, at *20-21 (S.D. Cal. Aug. 17, 2016).

Other courts have exercised their discretion to deny enhanced damages in cases where infringement was not willful. For example, in Radware, Ltd. v. F5 Networks, Inc., the court denied enhanced damages after finding that the defendant (1) never copied the plaintiff’s patented technology, (2) never intended to harm the plaintiff, (3) took appropriate remedial actions, and (4) did not engage in misconduct during litigation. No. 5:13-CV-02024-RMW, 2016 WL 4427490, at *5-8 (N.D. Cal. Aug. 22, 2016). Likewise, in Adrea, LLC v. Barnes & Noble, Inc., the court denied enhanced damages after finding “no evidence that [the defendant] deliberately copied the ’703 Patent,” and noting that the plaintiff never alleged that the defendant “sought to cover up or conceal its infringement.” No. 13 CIV. 4137(JSR), 2017 WL 44954, at *7 (S.D.N.Y. Jan. 3, 2017).

Still other courts have exercised their discretion to grant enhanced damages, but only in cases of willful infringement. For instance, in Imperium IP Holdings (Cayman), Ltd. v. Samsung Electronics Co., the court awarded enhanced damages after finding that the defendants intentionally copied the patented invention: “[d]efendants . . . sought information on how [the patent holder] made its camera”; “[the defendant] asked specifically about anti-flicker and flash technology, requested source code, and, in regard to higher megapixel cameras, control registers, signals, and the circuitry for the interface.” No. CV 4:14-CV-371, 2016 WL 4480542, at *6 (E.D. Tex. Aug. 24, 2016); see also Arctic Cat Inc. v. Bombardier Recreational Prod., Inc., No. 14-CV-62369, 2016 WL 4249951, at *9 (S.D. Fla. July 27, 2016) (stating that “[the defendant] is the wanton infringer that the Supreme Court [in Halo] sought to punish” because it willfully infringed the plaintiff’s patent, never sought to acquire a license, and hired an agent to surreptitiously buy the plaintiff’s patents without disclosing itself as the intended buyer); Dominion Res. Inc. v. Alstom Grid, Inc., No. CV 15-224, 2016 WL 5674713, at *18 (E.D. Pa. Oct. 3, 2016) (stating that the defendant “willfully and egregiously induced [a third party’s] infringement”).

In sum, although Halo contains language that gives courts more flexibility in assessing enhanced damages under section 284, removing the “unduly rigid” framework of Seagate, courts so far appear to have proceeded cautiously, and in many cases have not granted enhanced damages except where the infringement was particularly egregious. It appears that the initial concern that Halo would unleash a wave of decisions granting enhanced damages has not come to pass, although time will tell what the true impact of Halo will be.