Supreme Court Overrules Federal Circuit, Holding that Seagate is Inappropriate for Enhanced Damages Determination | Practical Law

Supreme Court Overrules Federal Circuit, Holding that Seagate is Inappropriate for Enhanced Damages Determination | Practical Law

In Halo Electronics, Inc. v. Pulse Electronics, Inc., the US Supreme Court ruled that enhanced damages for willful patent infringement should be based on the particular circumstances of each case and the court's discretion, overturning the Federal Circuit's test from In re Seagate Technology, LLC.

Supreme Court Overrules Federal Circuit, Holding that Seagate is Inappropriate for Enhanced Damages Determination

by Practical Law Intellectual Property & Technology
Published on 13 Jun 2016 • USA (National/Federal)
In Halo Electronics, Inc. v. Pulse Electronics, Inc., the US Supreme Court ruled that enhanced damages for willful patent infringement should be based on the particular circumstances of each case and the court's discretion, overturning the Federal Circuit's test from In re Seagate Technology, LLC.
On June 13, 2016, in Halo Electronics, Inc. v. Pulse Electronics, Inc., the US Supreme Court vacated the US Court of Appeals for the Federal Circuit's ruling in In re Seagate Technology, LLC concerning enhanced damages for willful patent infringement holding that this determination should be made in the court's discretion based on the particular circumstances of the case limited to egregious misconduct beyond typical infringement (No. 14-1513 (2016)).
Previously, the Federal Circuit had held in In re Seagate Technology, LLC that enhanced damages awards should be based on a two-prong test inquiring whether:
  • The infringer acted despite an objectively high likelihood that its actions were infringing.
  • The risk of infringement was known or so obvious that it should have been known to the accused infringer.
(497 F.3d 1360, 1371 (Fed. Cir. 2007)).
Under Seagate, the enhanced damages award was also subject to a three-part appellate review where the Federal Circuit reviewed:
  • The objective recklessness prong de novo.
  • The subjective knowledge prong for substantial evidence.
  • The ultimate decision for abuse of discretion.
In Halo Electronics, the Supreme Court ruled that the Seagate test is not consistent with 35 U.S.C. § 284 and that courts should have greater discretion in granting enhanced damages based on the circumstances of each individual case. Specifically, the Supreme Court determined that:
  • Section 284 does not contain explicit conditions for an enhanced damages award.
  • The Seagate test is:
    • unduly rigid;
    • restricts the district court's discretion as allowed by the statute; and
    • by requiring an objective recklessness finding in every case, excludes some of the worst willful patent infringers from discretionary punishment.
  • The clear and convincing evidence standard for proving recklessness is inconsistent with the statute since:
    • the statute does not impose any specific evidentiary burden; and
    • the standard of proof in patent infringement litigation is governed by the preponderance of the evidence standard.
  • Appellate review should be based on the abuse of discretion standard rather than the Federal Circuit's three-part appellate review standard.
The Supreme Court was concerned that if the infringer could put forth a reasonable litigation defense, the infringer would not be punished even if it copied the patent, noting that culpability should be determined at the time of the challenged conduct. The Supreme Court accordingly vacated the decision and remanded the case to the Federal Circuit.