SCOTUS ruling may increase patent infringement lawsuits, settlements for fear of 'enhanced damages'

By Dawn Brotherton | Jun 28, 2016

CHICAGO - A recent U.S. Supreme Court decision discarding strict standards for awarding enhanced damages in patent infringement cases could increase the number of patent cases filed in the U.S., a Chicago intellectual property attorney believes.

In Halo Electronics, Inc. v. Pulse Electronics, Inc., a jury determined Pulse had infringed Halo's patent, but the U.S. district court refused to award enhanced damages. Halo appealed to the federal circuit, which affirmed the lower court’s decision. The Halo case was consolidated with another similar case, Stryker Corp. v Zimmer, Inc.

In June 2015, Halo petitioned the Supreme Court, questioning whether the federal circuit erred in applying the standard set under the 2007 Seagate decision. Seagate set a two-part test for awarding enhanced damages. First, a patent owner must show that infringement existed. But then, to receive enhanced damages, the owner must show that the infringer knew of the risk. Halo argued that the standard was too difficult to meet.

The Supreme Court agreed unanimously. 

“By requiring an objective recklessness finding in every case, the Seagate test excludes from discretionary punishment many of the most culpable offenders, including the 'wanton and malicious pirate' who intentionally infringes a patent - with no doubts about its validity or any notion of a defense - for no purpose other than to steal the patentee’s business," Chief Justice John Roberts wrote in the opinion.

Bryan P. Sugar, co-chair of Firmwide Intellectual Property and Technology Practice at Lewis Brisbois Bisgaard & Smith LLP in Chicago, said the consequences of the Supreme Court’s decision will likely be significant. 

"Viable claims for patent infringement will now hold greater value because there is an increased likelihood that a patent infringement claim will not only result in a larger verdict, but will also more likely withstand an appeal," Sugar told the Cook County Record. "It may also increase the volume of patent cases filed as patent holders may see a greater return in filing such infringement actions."

Sugar said the ruling could mean more defendants will be willing to settle rather than face a trial. 

“The Supreme Court’s relaxation of the requirements for willful infringement could increase the volume of cases filed by patent trolls by giving them better odds at obtaining a threefold increase in a potential award," Sugar said. "Moreover, the ruling will likely make defendants evaluate settlement differently based on a real fear of a treble damage award at trial."

According to a PricewaterhouseCoopers LLP 2015 Patent Litigation Study, patent litigation dropped by 14 percent in 2014, the first decline in five years.

Still, the court may not have opened the floodgates for patent holders or alleged infringers.

 “Justice (Stephen) Breyer’s concurrence opinion hints that opinions of counsel are likely still helpful for patent holders looking to avoid liability for willful infringement," Sugar said. "Accordingly, alleged infringers should seek opinions of counsel that a patent is invalid or not infringed soon after learning of the patent.”

Breyer stressed in his concurrence opinion that enhanced damages have to be carefully applied, “to ensure that they only target cases of egregious misconduct."

Halo will return to the district court to be re-evaluated for enhanced damages under the new ruling.

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