Halo Electronics v. Pulse Electronics was decided by the Supreme Court on June 13, 2016 on appeal from the District of Nevada. There, a jury found that defendant Pulse had infringed plaintiff Halo’s patent, and that the infringement was probably willful. Applying the then-standard Seagate, the district court declined to enhance damages under § 284, after determining that Pulse presented a defense that was not objectively baseless or a sham. The Federal Circuit affirmed, and Halo appealed the refusal to enhance damages.
The Supreme Court vacated the Federal Circuit judgments on willfulness, and remanded.
The Supreme Court first laid out the law: the district court may, in its discretion, enhance damages (up to three times) in “egregious cases of culpable behavior” (ie, “willful, wanton, malicious, bad-faith, deliberate, consciously wrongful, flagrant” conduct).
The Federal Circuit’s 2007 Seagate decision concerned willfulness. To show willfulness under that test, the patentee must first show objective recklessness, that is, that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent. Under this first step of Seagate, a substantial question as to the validity or noninfringement of the patent, raised during infringement proceedings, was sufficient to obviate a finding of willfulness. Second, the patentee must show that the risk of infringement was either known or so obvious that it should have been known to the accused infringement. Only after a showing of both steps by clear and convincing evidence, can the district court, under Seagate, enhance damages. And an appellate court was to review the first step (objective recklessness) de novo, the second step (subjective knowledge) for substantial evidence, and the ultimate decision (whether to award enhanced damages) for abuse of discretion.
The Supreme Court found the Seagate test “unduly rigid,” such that the test insulated “some of the worst patent infringers from any liability for enhanced damages.” Analogizing to Octane Fitness (in which the Supreme Court rejected objective baselessness as an element for finding exceptionanlity under § 285), the Supreme Court rejected the objective recklessness prong of Seagate. Under Halo‘s new test, the “subjective willfulness of a patent infringer, intentional or knowing, may (not must) warrant enhanced damages, without regard to whether his infringement was objectively reckless.”(parenthesis added).
The Supreme Court further held that the existence of a reasonable defense by the accused infringer at trial does not insulate a defender from enhanced damages because culpability is “measured against the knowledge of the actor at the time of the challenged conduct,” not at a subsequent proceeding based “on the strength of [an] attorney’s ingenuity.”
The Supreme Court also faulted Seagate for requiring clear and convincing evidence, and held that preponderance of the evidence was the standard under § 284. Lastly, the Supreme Court held that a district court decision to enhance damages under § 284 should be reviewed on appeal for abuse of discretion, rejecting Seagate‘s tripartite review framework.
The Supreme Court then vacated the judgments of the Federal Circuit (there was a companion case), and remanded.
Justice Breyer, joined by Kennedy and Alito, concurred. He clarified that willful misconduct does “not mean that a court may award enhanced damages simply because the evidence shows that the infringer knew about the patent and nothing more.” Rather, enhanced damages are generally appropriate “only in egregious cases.” Breyer also clarified that, even under Halo, the failure of an infringer to obtain advice of counsel may not be used to prove that the accused infringer willfully infringed.
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