Supreme Court Rejects “Unduly Rigid” Federal Circuit Test For Enhanced Damages

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Supreme Court Rejects “Unduly Rigid” Federal Circuit Test For Enhanced Damages


There is a certain Groundhog Day–effect to many recent Supreme Court patent cases. The Supreme Court takes up a case challenging a legal test the Federal Circuit has created, rejects that test, and sends the case back to the lower court with an admonition not to be too rigid in its approach. In so doing, the Court often expressly or impliedly rejects the notion that special rules apply in patent cases.

Such appears to be the case with the opinion issued today in Halo Electronics v. Pulse Electronics, in which the high court addressed the legal test for enhanced damages available to a patent–owner who proves infringement at trial. Under 35 U.S.C. § 284, the trial court “may increase the damages up to three times the amount found or assessed.” As is its wont, the Federal Circuit had developed a two–part test under which, to get enhanced damages, (1) the patent–owner had to 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 (2) the patent–owner had to show that the risk of infringement was known or so obvious that it should have been known to the accused infringer.

In its unanimous opinion, written by Chief Justice Roberts, the Supreme Court rejected this test. Quoting its earlier opinion in Octane Fitness v. ICON Health & Fitness—in which the Court rejected the Federal Circuit test for attorneys’ fees in patent cases—the justices held that the two–part Seagate test was “unduly rigid.” The high court rejected the notion that objective recklessness is a necessary prerequisite to enhanced damages. It rejected the requirement of clear and convincing evidence of recklessness. And it rejected the application of a complex framework for appellate review, in which different elements of the analysis were reviewed on appeal under different standards of review. The Court framed its opinion as a return to the basic legal principles that discretionary rules must be flexibly applied and that their application can only be reviewed by a higher court for an abuse of discretion. Trial judges exercising that discretion are to look to case law and history, not a mechanical test, in making such judgments. In sum, “Section 284 gives district courts the discretion to award enhanced damages against those guilty of patent infringement. In applying this discretion, district courts are to be guided by the sound legal principles developed over nearly two centuries of application and interpretation of the Patent Act” (quotation omitted).

As a practical matter, this opinion shifts power away from the appellate court. It increases the authority of trial judges to impose enhanced damages in cases where they deem it appropriate, and decreases the authority of the Federal Circuit to reverse those discretionary determinations on appeal. Whether this re–investiture of authority in the district courts will increase the number of enhanced damage awards remains to be seen. That is certainly possible. What seems certain, however, is that the Supreme Court is continuing to push back against efforts by the Federal Circuit to generate special rules for patent cases.

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