The Supreme Court decides that the two-part test from Seagate is too restrictive

Halo Electronics, Inc. v. Pulse Electronics

Currently, section 284 of The Patent Act provides that courts can increase damages by up to three times the amount found or assessed. The debate for discretionary damages began in 1793, when the Patent Act mandated treble damages for a successful case. Then in 1836 Congress made enhanced damages discretionary due to concerns about defendants facing severe damages on account of innocent mistakes.

Additional clarity was then added in 1870 allowing courts to award treble damages but depending on the circumstances of the case, which the court interpreted as requiring a wanton and willful patent infringement.

Finally, in 1952 Congress enacted §284 in the Patent Act, stating that they were merely enacting a law to support the existing practices of awarding damages at the court’s discretion. Finally, in 2007 the Federal Circuit court established a two part test to determining when increased damages were warranted. In re Seagate Technology, LLC. The first step requires the patentee 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.” They then need to demonstrate that “the risk of infringement was either known, or so obvious that it should have been known”, again by a clear and convincing showing of evidence.

Ultimately, the Supreme Court decided that this test was inconsistent with §284. Halo sent Pulse two notices in 2002 to license to Pulse their patents; however, Pulse decided that Halo’s patents were invalid and went forward with their production.

Halo sued Pulse for patent infringement and the jury not only found for Halo but also found that there was a significant possibility of willfulness resulting in this case and the finding that the two part test was invalid. “The principal problem with Seagate’s two-part test is that it requires a finding of objective recklessness in every case before district courts may award enhanced damages. Such a threshold requirement excludes from discretionary punishment many of the most culpable offenders, such as the ‘wanton and malicious pirate’ who intentionally infringes another’s patent – with no doubts about its validity or any notion of a defense – for no purpose other than to steal the patentee’s business.”

This article is provided for informational purpose only and is not intended as a form of legal advice. If you have any questions on the subject matter of this article, call Roland Tong, at 949-298-6867 or email Mr. Tong at [email protected]. Mr. Tong has been obtaining patent, trademark, copyright, and trade secret protections for his clients since 2001. He has represented a wide range of clients from start-up companies to Fortune 500 companies in a wide range of industries.