1. Enhanced Damages for Patent Infringement: Halo v. Pulse
Presented by David Neal
© 2016 Workman Nydegger

2. Outline Halo v. Pulse Overview:
Is the Seagate Test Consistent with 35 U.S. Code § 284?
Overview:
History of Enhanced Damages
Underwater Devices v. Morrison-Knudsen and Opinions of Counsel
The Seagate Test
Discussion and Impact of Halo v. Pulse

3. History of Enhanced Damages
Patent Act of 1793 – Treble damages mandated in any successful infringement suit
Patent Act of 1836 – Changed to discretionary, up to three times, depending on the circumstances of the case
Extensive case law exists regarding awarding of enhanced damages
Awarded for
Deliberate or willful infringement
Aggravated circumstances
Some early cases compensated patentees, including awards for legal fees
35 USC § 285 covers legal fees now

4. History of Enhanced Damages
Continued in law to 1952 codification of the Patent Act
35 U.S. Code § Damages
Upon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court.
When the damages are not found by a jury, the court shall assess them. In either event the court may increase the damages up to three times the amount found or assessed. Increased damages under this paragraph shall not apply to provisional rights under section 154(d).
The court may receive expert testimony as an aid to the determination of damages or of what royalty would be reasonable under the circumstances.
Application was based on existing case law

5. Underwater Devices Incorporated v. Morrison-Knudsen Company, Inc
Underwater Devices (UD) attempted to license their patents to Morrison-Knudsen (MK), MK declined
MK’s Counsel considered that UD’s patents were invalid, but did not actually prepare a clearance opinion
MK began infringing activity
UD withdrew offer to license and filed suit
MK’s counsel ordered file histories of UD’s patents
UD prevailed in court and was awarded trebled damages
MK did not seek competent legal advice before initiating infringing activity, which was their duty
Federal Circuit established an affirmative duty to obtain advice of counsel prior to initiating any possible infringing activity

6. Avoiding Willful Infringement
Obtaining an opinion of counsel was considered sufficient to avoid being penalized with enhanced damages
Became standard practice to seek an opinion of counsel
Essentially required studying every possible related patent
Burdensome to law-abiding commercial enterprises
Created conflicts with attorney client privilege
Choose between attorney-client privilege or avoidance of willful infringement
Avoidance of willful infringement may prejudice on the question of liability

7. In re Seagate Technology (2007)
Convolve sued Seagate for infringement
Seagate obtained opinion of counsel prior to the lawsuit (met the affirmative duty)
Convolve sought discovery of all counsel (including trial counsel), which was granted
Seagate petitioned for writ of mandamus
In view of “the burden” imposed by the affirmative duty to obtain counsel, Federal Circuit overruled Underwater Devices v. Morrison-Knudsen
New standard for finding willful infringement needed

8. The Seagate Test Step 1: Objective Recklessness
Show by clear and convincing evidence that accused infringer acted despite an objectively high likelihood that the actions constituted infringement of a valid patent, without regard to state of mind of the accused infringer. Objective recklessness will not be found if the accused infringer raises a substantial question during court proceedings as to the validity or non-infringement of the patent(s).
Step 2: Knowledge of the Accused Infringer
After establishing objective recklessness, must show by clear and convincing evidence that risk of infringement was known or obvious to the accused infringer.
Upon satisfying both steps, district court can consider enhancing damages

9. The Seagate Test
Opinion of counsel no longer required to show lack of willful infringement
35 USC § 298 later added to codify
The failure of an infringer to obtain the advice of counsel with respect to any allegedly infringed patent, or the failure of the infringer to present such advice to the court or jury, may not be used to prove that the accused infringer willfully infringed the patent or that the infringer intended to induce infringement of the patent.
Concurrence: The court read a willfulness standard into 35 USC § 284 that does not exist, and with which the judge disagreed

10. Halo Electronics, Inc. v. Pulse Electronics, Inc., et al (2007)
Halo sued Pulse for patent infringement
Jury found infringement, considered high probability of willful infringement
District Court failed to award enhanced damages
Federal Circuit affirmed, Halo failed to show “objective recklessness”
Halo appealed to Supreme Court

11. Stryker Corporation, et al v. Zimmer, Inc., et al (2010)
Stryker sued Zimmer for patent infringement
Jury found willful infringement
District Court awarded enhanced damages
Federal circuit affirmed infringement, but vacated enhanced damages due to “reasonable defense”
Stryker appealed to Supreme Court

12. Halo v. Pulse (2016): Evaluating the Seagate Test
Is the Seagate Test consistent with § 284?
35 USC § 284
Seagate Test
District Court has discretion (“may”)
Requires finding of objective recklessness
No explicit limits or conditions
Requires clear and convincing evidence
No evidentiary burden (patent litigation has always been governed by preponderance of the evidence)
A reasonable defense at trial, even if unsuccessful, is sufficient to avoid a finding of objective recklessness
Guided by judgement and case law

13. Halo v. Pulse: Evaluating the Seagate Test
Problems with the Seagate Test:
Unduly rigid, limiting discretion of district court
Requires objective reckless finding which is not part of statute
Culpability of accused should be measured at time of challenged conduct, not at trial
Requires higher evidentiary burden than is standard
Protects some of the worst offenders

14. Halo v. Pulse
Holdings:
Seagate Test is inconsistent with 35 USC § 284
Return to 35 USC § 284 as written, with courts having discretion to award enhanced damages based on the specifics of the case and the guidance of historical precedence
Federal Circuit decisions under the Seagate test regarding Halo v. Pulse and Stryker v. Zimmer vacated and remanded
Additionally, District Court discretion to award enhanced damages reviewed on appeal only for abuse of discretion

15. Impact of Halo v. Pulse Enhanced damages more likely to be awarded
Objective recklessness no longer required
Evidentiary standard only preponderance of the evidence
Enhanced damages are less likely to be vacated on appeal
Only reviewed for abuse of discretion
Opinions of counsel have more value
Can help show non-willful infringement
35 USC § 298 still applies, so still no affirmative duty
Patent trolls may be encouraged due to availability of enhanced damages

16. Questions?