DETERMINING ENHANCED DAMAGES AFTER HALO ELECTRONICS: STILL A STRUGGLE?

AuthorCorcoran, Veronica

INTRODUCTION I. THE FEDERAL CIRCUIT'S APPROACH TO HALO II. DISTRICT COURT DETERMINATIONS UNDER THE HALO INQUIRY A. District Court Determinations That Have Adopted the Read Inquiry 1. Read and an evaluation of its factors. 2. At least three district courts have explicitly adopted the Read factors to direct their discussion of enhanced damages under [section] 284. B. District Court Determinations That Do Not Use Read CONCLUSION Introduction

35 U.S.C. [section] 284 of the Patent Act allows district courts to use their discretion to award enhanced damages up to three times the amount found or assessed in the case of patent infringement.1 This Comment will consider how the Supreme Court of the United States' holding in Halo Electronics, Inc. v. Pulse Electronics, Inc. changed the landscape of enhanced damages awards in light of willful infringement.

Previously, in 2007, the Court of Appeals for the Federal Circuit, in In re Seagate, (2) rejected a subjective standard, and moved towards an objective standard, which introduced a two-part test used to establish willful infringement and thus subject an infringer to a claim of enhanced damages. (3) First, a 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." (4) This is the part of the test that establishes willful infringement. Second, a patent owner must establish by clear and convincing evidence that the risk of infringement "was either known or so obvious that it should have been known to the accused infringer." (5)

The Seagate test had one significant limit: (6) a patentee could only recover enhanced damages when an infringer acted with objective recklessness, shown by clear and convincing evidence, and such recklessness was "despite an objectively high likelihood that [the infringer's] actions constituted infringement of a patent." (7) Consequently, in determining objective recklessness, the infringer was protected from enhanced damages if they could raise any valid defense at trial, (8) even if the infringer did not act on the basis of the defense or was even aware of it at the time of their infringement. (9) The mere fact that a "reasonable (even though unsuccessful) defense" for infringement existed protected the infringer from enhanced damages. (10)

However, in Halo, the Supreme Court reconsidered the Seagate analysis. (11) The facts of Halo are straightforward. In 2014, Halo Electronics sued Pulse Electronics for infringing its patents for electric packages containing transformers designed to be mounted to the surface of circuit boards. (12) A jury found that Pulse Electronics had committed infringement and further determined it was likely that Pulse willfully infringed Halo's patents. (13) The district courtjudge, however, declined to award enhanced damages under [section] 284 after determining that Halo had failed to demonstrate objective recklessness under the first step of Seagate and the Federal Circuit affirmed. (14)

The question before the Supreme Court, then, was whether the Seagate test was consistent with [section] 284. (15) The Supreme Court held that [section] 284 gives district courts the discretion to award enhanced damages against those guilty of patent infringement free of a strict test, and that district courts are "'to be guided by [the] sound legal principles' developed over nearly two centuries." (16) In its reasoning, the Court noted that awards of enhanced damages under the Patent Act are designed as "punitive" or "vindictive" sanctions for "egregious infringement behavior." (17) The Court also specified that "egregious infringement behavior" is often described as "willful, wanton, malicious, badfaith, deliberate, consciously wrongful, flagrant, or--indeed--characteristic of a pirate." (18)

Therefore, the Supreme Court held that the requirements of Seagate's test were "unduly rigid" and "encumber[ed] the statutory grant of discretion to the district courts" to determine enhanced damages. (19) Moreover, the Court noted such a high threshold would exclude from discretionary punishment many of the most guilty offenders, "such as the 'wanton and malicious pirate' who intentionally infringes on another's patent ... for no purpose other than to steal the patentee's business." (20) Further, the Court held that "[s]ection 284 gives district courts the discretion to award enhanced damages against those guilty of patent infringement" free of a strict test. (21) Although the Supreme Court suggested a flexible inquiry, the Court concluded that there were three important guideposts for such an inquiry: (1) that the district court have discretion in awarding enhanced damages; (2) that the district courts were "to be guided by [the] sound legal principles developed over nearly two centuries" concerning application and interpretation of the Patent Act; and (3) enhanced damages were only to be reserved for egregious infringement behavior. (22)

First, this Comment will examine the Federal Circuit's approach that now embraces both an objective and subjective inquiry in determining enhanced damages, which may resolve the concern over the rigidity in the Seagate test that the Supreme Court expressed in Halo. Second, this Comment will examine how district courts address the question that remains after Halo: what conduct warrants enhanced damages. A split appears to be developing between district courts that have adopted Read Corporation v. Portec, Inc. (the "Read factors"23) and those rejecting Read that are consistent with the Supreme Court's Halo decision. Finally, this Comment will end with an assessment of what is the appropriate test to discuss enhanced damages going forward.

  1. The Federal Circuit's Approach To Halo

    In WBIP, LLC v. Kohler, Co., (24) the Federal Circuit held that enhanced damages were warranted because, first, "there was substantial evidence for the jury's finding that Kohler had knowledge of the patents in suit at the time of the infringement," and second, an objectively reasonable defense, created at the time of litigation, will not protect a defendant from enhanced damages. (25) "Subjective bad faith alone may support an award of enhanced damages" (26) and "the appropriate timeframe for considering culpability is by assessing the infringer's knowledge at the time of the challenged conduct." (27)

    The district court applied the Seagate test framework and the jury found that WBIP proved by clear and convincing evidence that Kohler's infringement was willful. (28) Kohler appealed the district court's finding that it willfully infringed on WBIP's patents on three grounds. (29) Kohler's first two objections on appeal were based on obviousness (that the claims in the patent were obvious and known to a person of ordinary skill in the art) and written description (the claims lack written description for the claimed "compound control scheme"). (30) The court found that Kohler failed to prove the claims were obvious or that the asserted claims lacked written description. (31)

    The third objection was based on willful infringement. (32) Kohler argued that the judgment of willful infringement should be reversed because: (1) per the Federal Circuit's decision in Halo, Kohler's "obviousness and written description defenses are objectively reasonable," and (2) no evidence was presented that Kohler knew of the patents, which is a requirement of Seagate. (33) Under Seagate, if the Federal Circuit had found Kohler's defenses to be objectively reasonable, Kohler could have escaped enhanced damages despite the fact that Kohler's defenses were created during litigation and the original infringement was not based on a good faith belief that the patents in suit were obvious and lacked written description. (34)

    Relying on Halo, the Federal Circuit rejected Kohler's argument that its defenses (obviousness and written description) were objectively reasonable. (35) In Halo, the Supreme Court held that the principal problem with Seagate was the objective recklessness requirement, which allowed offenders to create some defense later during litigation to escape enhanced damages after willfully infringing on a patent. (36) The Federal Circuit reasoned this is exactly what Kohler was attempting to do; Kohler, in fact, had never disputed that its defense was created during litigation after years of engaging in patent infringement. (37) By looking at the accused infringer's knowledge of a patent "at the time of the challenged conduct" (38) infringers can no longer protect themselves from enhanced damages by creating some sort of defense at trial after the infringement has already taken place. (39)

    The Federal Circuit also "conclude[ed] that there was substantial evidence for the jury's finding that Kohler had knowledge of the patents in suit." (40) The evidence presented at the trial by WBIP to the jury included: (1) testimony that the "low-carbon monoxide gen-sets were marked with the patents;" (2) "testimony that Westerbeke and Kohler were the only two companies in the market that provide low-carbon monoxide gen-sets;" and (3) Kohler's admission that it had pre-suit knowledge of the patents in suit. (41)

    Kohler demonstrates that "[p]roof of an objectively reasonable litigation inspired defense to infringement is no longer a defense to willful infringement" (42) and helps to highlight some of the changes Halo brings to willful infringement and enhanced damages. In the Kohler opinion it is further explained that "timing does matter" and that subjective willfulness at the time of infringement will subject an infringer to enhanced damages. (43)

    Before Seagate, an infringer had to exercise a duty of care if an infringer had knowledge of a patent. (44) This duty of care usually required that an accused infringer had to seek opinion of counsel before engaging in infringing activity. (45) Seagate upended this practice by instead...

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