By Ryann H. Beck and Thomas R. Knight
The U.S. Supreme Court’s recently-issued decision in Halo Electronics, Inc. v. Pulse Electronics, Inc. (136 S. Ct. 1923 (2016)) lowers the bar for proving willful patent infringement, likely increasing companies’ exposure to enhanced damages in patent infringement cases. After nearly a decade under the onerous Seagate test (In re Seagate Tech., LLC, 497 F.3d 1360 (Fed. Cir. 2007)), the Supreme Court has made it easier for patent owners to prove that the infringing behavior was willful. Under Seagate, a patent owner seeking enhanced damages for willfulness was required to prove that the infringer was “objectively reckless” and had “subjective knowledge” that its acts were infringing. Under the Court’s new guidance, trial courts are given more discretion to assess the facts surrounding the infringer’s knowledge and intent at the time of the infringing conduct. In view of this relaxed willfulness standard, written opinions from counsel documenting reasons for non-infringement and invalidity may be essential for limiting exposure to increased damage liability.
Monetary damages for patent infringement are generally awarded to compensate the patent owner for the loss of sales, royalties, and other injuries caused by the infringing activity. However, the law also provides for enhanced damages in the case of willful infringement and other menacing acts. This enhancement permits the court to increase the damages up to three-fold in order to punish egregious infringers and to deter others from such bad behavior.
Upon becoming aware of another’s patent rights, a potential infringer generally has a duty to determine whether it is infringing those rights. This often involves seeking the opinion of competent legal counsel to assess the scope of the patent claims and the risk of infringement liability. Beyond gaining upfront liability insight, a party may seek a formal written opinion from counsel to document its basis for believing that it does not infringe a patent, or that the patent is invalid. If that party is subsequently found to be infringing, this upfront written opinion can serve to refute an assertion that the party did so willfully. In this regard, a well-reasoned opinion of non-infringement may allow a party to avoid liability for triple damages by demonstrating that the party had good-faith belief that they were not infringing.
Seagate Eliminates the Need for Non-Infringement Opinions
In 2007, the Federal Circuit’s Seagate decision developed a two-part test for proving willfulness that dramatically changed the willfulness standard, making it very difficult to prove that a party willfully infringed a patent. The Seagate test required clear and convincing evidence (the highest evidentiary standard) that:
A first challenge in satisfying this test arises from the fact that evidence of a party’s subjective knowledge is rare. Moreover, the Seagate test was also difficult to satisfy because it allowed an infringer to shield itself from liability by generating post hoc evidence that its actions were not objectively reckless. Specifically, Seagate allowed the infringer to prove this by obtaining a well-reasoned non-infringement or invalidity opinion at any time, even after being accused of infringement. Thus, Seagate essentially eliminated the need to obtain a non-infringement opinion upfront.
Halo Reestablishes the Value of Upfront Opinions
In its unanimous Halo decision, the Court did away with the Seagate test. While the Court expressly reiterated that the award of enhanced damages is limited to “egregious cases of misconduct beyond typical infringement,” it returned discretion to the lower courts to award enhanced damages where an infringer subjectively intended to infringe the patent. Culpability is assessed based on the infringer’s knowledge and actions at the time of the alleged willful infringement. Therefore, non-infringement and invalidity opinions obtained after being sued will no longer provide exonerating evidence.
Furthermore, Halo restored the decision of willfulness to a question of fact determined by a jury, rather than a legal question resolved by a judge. Under the Seagate test, judges decided whether a patent owner sufficiently proved willfulness of the infringing party. Following the subjective intent change in Halo, this threshold decision is now a question for juries. However, the question of whether and how much to apply enhanced damages to willful infringement—up to the three-fold maximum—remains a decision for the judge.
In total, the number of infringement rulings awarding enhanced damages is reasonably expected to increase under Halo as compared to rulings under the previous Seagate regime. For law-abiding parties trying to manage legal risk in conducting business, Halo restores the value of a non-infringement opinion for minimizing the risk of treble damages if actions are later found to be infringing. Such an opinion not only allows assessment of potential infringement issues upfront, but offers direct evidence of a non-infringing intent at the relevant time of action.
While a non-infringement opinion is not necessary in all matters, it may provide much needed insight and insurance against later enhanced damages for higher-risk ventures. An opinion may be particularly advantageous where a party is directly competing against an existing patented product, designing around a known patent, entering a new market, or generally competing in a high-risk or high-return market. In particular, an opinion may be invaluable in markets where an infringement assertion relating to a key product would result in considerable damages.
Likewise, the nature of a product and market dictate the depth and formality necessary for an effective opinion. In some cases, a claim chart highlighting the differences between a proposed product and a competitor’s patented product—any why the patent is not infringed—may be sufficient to demonstrate a lack of willfulness if later found to be infringing. In other situations, particularly those in highly-technical fields or where product differences have fine distinctions, a detailed report may be necessary to adequately support the opinion of non-infringement.
In any case, early involvement of a registered patent attorney is often a wise investment, particularly in view of the lower standard for finding willful infringement post-Halo. If you have any questions regarding non-infringement opinions for a product or service offering, or would like to discuss risk management strategies, please do not hesitate to contact us.
We are pleased to announce that Tolga S. Gulmen, Ph.D. has joined our firm’s Madison Office as a non-equity partner.
Tolga focuses his practice in domestic and international patent prosecution, licensing, and strategic intellectual property portfolio development. His experience includes drafting, prosecuting, managing, and licensing patent portfolios with an emphasis on chemistry, materials, nanotechnology, catalysis, and biotechnology.
Prior to joining Andrus, Tolga founded a law firm that provided university technology transfer offices and startups with patent and licensing services. He has also been in-house counsel at an emerging technology company and an invention manager at a university technology transfer office. Tolga has extensive graduate and postdoctoral research experience, and serves as a faculty member at the University of Wisconsin School of Law.
Tolga received a bachelor of science degree in chemistry from William & Mary, a doctorate in chemistry from the University of Wisconsin, Madison, and a juris doctor degree from the University of California, Berkeley, School of Law.
Andrus was once again included in the guide entitled IAM Patent 1000 - The World’s Leading Patent Practitioners. The IAM Patent 1000 is a standalone publication that identifies individual and firm expertise in all major areas of patent law and practice. Through an extensive research process by a team of highly qualified analysts, the publication identifies the top patent practitioners and law firms in 40 of the world’s most important jurisdictions and 17 U.S. states. In addition to firm-wide recognition, Peter Holsen, Joseph Kuborn, Aaron Olejniczak, Michael Taken and Tambryn VanHeyningen were featured individually, based on positive feedback from clients and associates.
In August, Andrus Intellectual Property Law sponsored the Milwaukee Bar Association’s golf outing benefiting The Milwaukee Justice Center (MJC), and the Andrus golf team (Joe Kuborn, Aaron Olejniczak, Peter Holsen and Kevin Spexarth) won first place in the golf tournament that day!