June 13, 2016 – Today’s unanimous decision from the Supreme Court of the United States (Halo v. Pulse http://www.supremecourt.gov/opinions/15pdf/14-1513_db8e.pdf) vacates the Federal Circuit’s limits to enhanced damages in patent cases and has made the test for willful infringement damages in a patent case more flexible, according to Rob Brunelli, head of the litigation practice group at Sheridan Ross P.C., an IP boutique firm based in Denver.
Most notably, a finding of willful infringement can lead to a district court judge trebling a damages award and/or awarding attorney fees to the prevailing party. The decision has multiple positive impacts for patent holders, including the encouragement to license and deterring patent infringers as the risk of treble damages is not easily dismissed now that the standard for willful infringement is more easily met.
At a big picture level, the U.S. Supreme Court has “possibly begun to swing the patent pendulum back in favor of patent-holders,” said Brunelli. “After 10 years of having patent rights diluted by the Supreme Court’s KSR, Bilski and related 101 decisions, the U.S. Supreme Court has basically said that ‘if you have a valid patent, and there’s evidence of an infringer maliciously pirating that patent for no purpose other than to steal the patentee’s business and the district court finds that the conduct was willful, then there is possibly a higher chance that the district court’s finding will not be disturbed on appeal.”
There’s strong language in the opinion of the Court — and stinging criticism of the Federal Circuit’s rigid approach in the opinion written by Chief Justice Roberts. “Throughout the opinion, the Chief Justice speaks of the Federal Circuit’s previous test as ‘unduly rigid’ and one that ‘insulated some of the worst patent infringers from any liability for enhanced damages.’” Because the decision cites cases from the 1800s and early 1900s, Brunelli expects that patent lawyers will be now scouring these decisions with some interest to determine the contours of the new standard.
Perhaps the real upside of the new standard could well be for small-to-medium sized companies, including small biotech or diagnostic companies. For these types of companies, their entire business can be predicated on one or two innovative patents, where research is expensive and the uncertainty of pay-off is high. Indeed, the Court’s decision points out that “the new standard helps to guard against the free-rider problem because alleged infringers may now be less inclined to infringe in the first place knowing that a treble penalty could be imposed.”
At the same time, small companies, some backed with venture capital investment, may become more emboldened to assert their patents against alleged infringers for the simple reason that there is a higher chance that an award of treble damages will be awarded in their favor. In other words, “there’s a bigger carrot.”
But this thinking is not industry-specific. It also applies to small manufacturers who compete with product imitators coming in from overseas. There now could be fewer instances of this scenario because “patent holders now hold a bigger sword” to help deter such infringers.
Alleged Infringer Takeaways
On the flipside of the ruling, there are also some takeaways for alleged infringers. If the test for enhanced damages is now easier to meet, it follows that alleged infringers will need to put stronger shields in front of willful infringement claims. One of those shields, says Brunelli “is to obtain an opinion of counsel to determine whether an infringement claim has traction—i.e., whether the patent is, in fact, valid and enforceable, or whether an alleged infringing product falls outside of the claims (non-infringement).”
Opinions of counsel can, he says, “establish the foundation for any patent litigation strategy and also, in light of today’s decision, provide downstream benefits of providing a stronger shield to withstand the larger sword that patent holders now wield.”
Justice Breyer’s concurring opinion tends to support this view. Specifically, Justice Breyer commented that “consulting counsel may help draw the line between infringing and non-infringing uses.”
By drawing this line and forming a good faith belief that the invention does not infringe (or that it is invalid), even before the threat of patent litigation, better demonstrates the bona fides of an alleged infringer.
Brunelli says that “such an opinion, if legitimately relied upon in deciding to proceed with allegedly infringing activities, would be helpful in leveraging a better settlement, while at the same time providing a stronger defense against a willful infringement claim.”
Robert Brunelli is head of the Sheridan Ross P.C. Litigation Practice. With more than 30 years of experience, he has counseled a wide range of companies from early-stage start-ups to multi-national corporations in trial and appellate courts and before governmental tribunals.