U.S. Supreme Court

Supreme Court rules test for enhanced patent-infringement damages is too strict

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A test used to determine whether enhanced damages may be awarded for patent infringement is so strict that it impermissibly insulates some of the worst infringers, the U.S. Supreme Court has ruled.

The court on Monday overturned the standard used by the U.S. Court of Appeals for the Federal Circuit to award damages under Section 284 of the Patent Act, which authorizes enhanced damages of up to three times actual damages. Chief Justice John G. Roberts Jr. wrote the decision (PDF) for the unanimous court.

The problem with the Federal Circuit’s test, Roberts wrote, is that it requires objective recklessness by the infringer. That test could exclude from enhanced liability some of the worst offenders, such as the pirate who intentionally infringes the patentee’s business without any awareness of a defense that his lawyer discovers after the fact.

Under the Federal Circuit standard, Roberts wrote, “someone who plunders a patent—infringing it without any reason to suppose his conduct is arguably defensible—can nevertheless escape any come-uppance under [Section] 284 solely on the strength of his attorney’s ingenuity.”

The Federal Circuit was also wrong to require clear and convincing evidence of recklessness, a heightened standard of proof that is not mentioned in Section 284, Roberts said.

Roberts cautioned, however, that enhanced damages should “generally be reserved for egregious cases typified by willful misconduct.” He noted arguments that the increased availability of enhanced damages will embolden patent “trolls” that hold patents mainly to enforce them against infringers, “often exacting outsized licensing fees on the threat of litigation.”

Avoiding enhanced damages in “garden-variety cases,” Roberts said, will preserve the balance between the need to promote innovation through patent protection and the importance of facilitating refinement through imitation.

Justice Stephen G. Breyer concurred in an opinion joined by Justices Anthony M. Kennedy and Samuel A. Alito Jr. Breyer said he agreed that the Federal Circuit had taken “too mechanical an approach,” but he was writing separately to describe his understanding of the limits on enhanced damages.

The court ruled in the consolidated cases of Halo Electronics v. Pulse Electronics and Stryker Corp. v. Zimmer.

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