Big Molecule Watch
June 14, 2016

Halo Electronics, Inc. v. Pulse Electronics Inc.: the U.S. Supreme Court Establishes a New Framework for Awarding Enhanced Damages in Patent Suits.

Yesterday, the Supreme Court announced its decision in Halo Electronics, decision in Halo Electronics, Inc. v Pulse Electronics, Inc., in which the Court rejected the Federal Circuit’s Seagate test and established a new framework for imposing enhanced damages for patent infringement.  Under the new framework, district courts will have greater discretion to impose enhanced damages, and courts need not find that the infringement was objectively reckless in order to do so.

According to 35 U.S.C. § 284, after finding for the plaintiff in a patent infringement suit and assessing damages, a court “may increase the damages up to three times the amount found or assessed.” In the 2007 decision In re Seagate Technology, the Federal Circuit held that a plaintiff seeking enhanced damages under § 284 must show that the infringement was “willful.” The Federal Circuit also established a two-part test to establish willfulness. First, that “the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent,” i.e. the infringement was “objectively reckless.”  Second, that the risk of infringement was “either known [to the defendant] or so obvious that it should have been known.”

In yesterday’s decision, the Supreme Court rejected the Seagate test as too rigid. The Court observed that the use of the word “may” in the statute “clearly connotes discretion,” and thus “although there is no precise rule or formula for awarding damages under §284, a district court’s discretion should be exercised in light of the considerations underlying the grant of that discretion.” In particular, enhanced damages are designed as a “sanction for egregious infringement behavior.”

The Court found that the main problem with the Seagate test is that it requires a finding of objective recklessness for enhanced damages, regardless of the egregiousness of the defendant’s behavior. Therefore, under Seagate, a defendant who had deliberately infringed a patent could avoid enhanced damages if they could “muster” some reasonable defense during litigation, even if the defendant was not even aware of the defense at the time of the infringement. The Court concluded that the “subjective willfulness of a patent infringer… may warrant enhanced damages, without regard to whether his infringement was objectively reckless.”

The Supreme Court also rejected Federal Circuit precedent that recklessness must be proven by “clear and convincing evidence” rather than a “preponderance of the evidence,” a lower standard that applies to most issues in patent law.  Finally, the Court held that district court decisions regarding enhanced damages should be reviewed on appeal for abuse of discretion, rather than the multi-phase standard of review that the Federal Circuit had previously applied to decisions under Seagate.

Time will tell what impact Halo Electronics will have on awards of enhanced damages in patent infringement cases involving at-risk launches of biosimilar or generic drug products. One possible result of this decision is that it may increase the importance of opinions of counsel regarding non-infringement or patent invalidity prior to launch of the biosimilar or generic product.