October 2021
Recent Federal Circuit cases highlight a confused standard applied to discretionary enhanced damages determinations in patent infringement cases. As will be shown, the Federal Circuit has elevated the statement of mind requirement for enhanced patent damages contrary to Supreme Court precedent.
In Halo, the Supreme Court discussed how conventionally reckless conduct at the time of the conduct in question supports punitive damages for patent infringement under 35 U.S.C. § 284. Halo Elecs., Inc. v. Pulse Elecs., Inc., 979 U.S. ___, ___, 136 S. Ct. 1923, 1932-35 (2016) (“The principal problem with Seagate[] . . . 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”). After-the-fact rationalizations drummed up during litigation were at odds with the conventional understanding of recklessness, which requires analysis of the accused’s state of mind at the time of the actions in question. Id. at 1930,1933. The Court clarified that “a person is reckless if he acts ‘knowing or having reason to know of facts which would lead a reasonable man to realize’ his actions are unreasonably risky.” Id. at 1933 (emphasis in original); cf. Sherry F. Kolb, “Why Can’t Jurors Distinguish ‘Knowing’ From ‘Reckless’ Misconduct?” Verdict (Jan. 11, 2012) (discussing subjective states of mind in the criminal law context, with helpful illustrative examples). “Section 284 allows district courts to punish the full range of culpable behavior[] . . . in a manner free from the inelastic constraints of the Seagate test.” Halo, 136 S. Ct. at 1933-34. In a way, Halo‘s ruling about conventional recklessness standards fits with other Supreme Court cases (like eBay v. MercExchange) striking down special rules and holding that patent matters are generally subject to the same standards that apply in other types of civil tort cases.
Since Halo, the Federal Circuit has been eager to restrict the Supreme Court’s holding to only a first step in a multipart analysis under § 284 despite the Supreme Court’s expansive discussion about “punish[ing]” the “full range of culpable behavior.” The Federal Circuit has, to some extent, lost the forest for the trees by focusing rather myopically on one sentence in Halo: “The subjective willfulness of a patent infringer, intentional or knowing, may warrant enhanced damages, without regard to whether his infringement was objectively reckless.” Id. at 1933. In doing so, Halo‘s ultimate holding that enhanced damages are available for conventional recklessness is lost.
The Federal Circuit currently maintains a two-step process for analysis of enhanced damages under 284. “[Halo] leaves in place our prior precedent that there is a right to a jury trial on the willfulness question. *** Whether the conduct is sufficiently egregious as to warrant enhancement and the amount of the enhancement that is appropriate are committed to the sound discretion of the district court.” WBIP, LLC v. Kohler Co., 829 F.3d 1317, 1341-42 (Fed. Cir. 2016). So, first, the finder-of-fact determines “willfulness” and, second, the court has discretion to impose enhanced damages, if any.
For the first step, the Federal Circuit has said that willfulness can be found if the accused infringer “acted despite a risk of infringement that was ‘ ‘either known or so obvious that it should have been known . . . .’ ‘ ” WesternGeco LLC v. ION Geophysical Corp., 837 F.3d 1358, 1362 (Fed. Cir. 2016) (emphasis added), reinstated 913 F.3d 1067, 1075 (Fed. Cir. 2019); accord Arctic Cat, Inc. v. Bombardier Recreational Prods. Inc., 876 F. 3d 1350, 1371 (Fed. Cir. 2017) (willfulness supported if accused infringer “actually knew or should have known that its actions constituted an unjustifiably high risk of infringement of a valid and enforceable patent.”). Halo used the phrase “having reason to know” while the Federal Circuit has, without explanation, instead used the phrase “should have known”.
The second step is a moral judgment that falls to the discretion of the district court. But enhanced damages do not automatically follow from a finding of willfulness. Halo, 136 S. Ct. at 1933 (“Yet none of this is to say that enhanced damages must follow a finding of egregious misconduct.”); see also Presidio Components, Inc. v. Am. Technical Ceramics Corp., 875 F.3d 1369, 1382 (Fed. Cir. 2017) (“an award of enhanced damages does not necessarily flow from a willfulness finding.”).
In Eko, the Federal Circuit ruled on jury instructions for willfulness. Eko Brands, LLC v. Adrian Rivera Maynez Enters., Inc., 946 F.3d 1367, 1377-79 (Fed. Cir. 2020). The most controversial passage in that opinion was the assertion that “[u]nder Halo, the concept of ‘willfulness’ requires a jury to find no more than deliberate or intentional infringement.” Id. at 1378 (emphasis added). Merely implicit in the court’s opinion is that the issue was a defendant challenging a jury instruction (based upon the Federal Circuit Bar Association’s (“FCBA’s”) National Patent Jury Instructions) upon which the jury found willful infringement. In other words, while the jury instruction may have omitted reckless conduct that Halo had found sufficient to support willfulness and enhanced damages, that point was moot and not at issue in the Eko appeal because the jury had found that even a heightened state of mind (beyond recklessness) was present. But the court’s reference to “no more than” deliberate or intentional conduct is the confusing part, because it is odd, to say the least, to describe a heightened intent standard with a phrase like “no more than” that normally connotes a low threshold.
Then the Federal Circuit offered a rationalization of Eko in SRI International. SRI Int’l, Inc. v. Cisco Sys., Inc., No. 20-1685, Slip. Op. at *9-10 (Fed. Cir., Sept. 28, 2021). There, a district court had noted that “the [Federal Circuit] is not entirely consistent in its use of adjectives to describe what is required for willfulness.” SRI Int’l, Inc. v. Cisco Sys., Inc. (SRI III), No. 13-1534, 2020 WL 1285915, at *1 n.1 (D. Del., Mar. 18, 2020). So the Federal Circuit responded: “To eliminate the confusion created by our reference to the language ‘wanton, malicious, and bad-faith’ in Halo, we clarify that it was not our intent to create a heightened requirement for willful infringement. Indeed, that sentence from Halo refers to ‘conduct warranting enhanced damages,’ not conduct warranting a finding of willfulness.” SRI Int’l, No. 20-1685, Slip. Op. at *9-10 (Fed. Cir., Sept. 28, 2021). This actually adds to rather than eliminates confusion, by emphasizing rather minor procedural points as a kind of shell game but doubling down on the aspect that runs contrary to recent Supreme Court precedent. The partial and selective quotation from Halo omits a number of grounds the Supreme Court held can support an award of enhanced damages. The relevant sentence in Halo reads in full: “The sort of conduct warranting enhanced damages has been variously described in our cases as willful, wanton, malicious, bad-faith, deliberate, consciously wrongful, flagrant, or — indeed — characteristic of a pirate.” Halo, 136 S. Ct. at 1932. Notice how the Federal Circuit’s quote drops the word “willful” and others? And recall from above how Halo was primarily about enhanced damages awards encompassing conventional recklessness?
The visualization above is meant to show that there is a continuum of states of mind for “willfulness”, though there is a long line of cases from different areas of law that show that there is no definitive definition of how to describe “willful” intent in civil matters. Indeed, Justice Breyer’s concurrence in Halo noted that “‘[w]illfu[l]’ is a ‘word of many meanings whose construction is often dependent on the context in which it appears.'” Halo, 136 S. Ct. at 1936 (Breyer, J., concurring) (also contrasting behavior that is not “wanton” or “reckless”) (quoting Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47, 57 (2007), a case relied upon by the majority). Though it is indisputably clear that Halo found that conventional recklessness qualifies as willfulness for enhanced patent damages.
A typical description of recklessness is conscious and willful indifference to the risk imposed on the unlucky victim; not that the defendant intended to harm the victim, but that he knowingly imposed a risk on the victim, which could have been eliminated with minimum effort. See Anthony J. Sebok, “Purpose, Belief, and Recklessness: Pruning the ‘Restatement’ (Third)’s Definition of Intent,” 54 Vanderbilt Law Review 1165, 1177 (2001) (discussing punitive damages in product liability cases). Yet there is potential circularity in any continuum that would partly define one degree of “willfulness” in the patent context as “willful indifference”.
Despite argument over the proper descriptors of degrees of willful intent, the Supreme Court has said that these distinctions may be troublesome but are nonetheless necessary and that “the difference between one end of the spectrum—negligence—and the other—intent—is abundantly clear.” Daniels v. Williams, 474 U.S. 327, 334-35 (1986) (citing LeRoy Fibre Co. v. Chicago, M. & St. P. R. Co., 232 U.S. 340, 354 (1914) (Holmes, J., partially concurring) and O. Holmes, The Common Law 3 (1923)). But in Eko the Federal Circuit discusses only the opposite end of the spectrum from negligence and not the troublesome “middle” degrees of willful intent—namely the lowest degree of willful intent set forth in Halo: recklessness. In other areas of law, courts distinguish a “deliberate” state of mind as from a “reckless” one, with “deliberate” representing a higher degree of intent than “recklessness”. E.g., Express Scripts, Inc. v. Bracket Holdings Corp., 248 A.3d 824, 825 (Del. 2021) (“A deliberate state of mind is a different kettle of fish than a reckless one.”). It is problematic, to say the least, for the Federal Circuit to sidestep entirely these troublesome but necessary distinctions in degree by using terminology like “deliberate” and “intentional” that typically connotes a higher degree of intent than the recklessness standard set forth in Halo.
Further complicating matters is that the Federal Circuit has taken a contradictory position about what “should have known” means in patent and trademark cases. Sometimes the Federal Circuit says “should have known” means negligence while at other times appears to say it means recklessness. For instance, more than a decade ago it clarified the requirements to establish when fraud on the USPTO bars trademark registration. The Federal Circuit rejected the TTAB’s “should have known” fraud standard because it — supposedly — correlates to mere negligence. In re Bose Corp., 580 F.3d 1240, 1244 (Fed. Cir. 2009) (“[B]y equating ‘should have known’ with a subjective intent,” the TTAB “erroneously lowered the fraud standard to a simple negligence standard.”). The Federal Circuit has also interpreted “should have known” as equating to negligence in patent cases involving active inducement of infringement. And yet, in WesternGeco and Arctic Cat the Federal Circuit held that “should have known” is an appropriate standard for willfulness in patent cases under Halo. And Halo made clear that “a person is reckless if he acts ‘knowing or having reason to know of facts which would lead a reasonable man to realize’ his actions are unreasonably risky” and that such recklessness is sufficient to award enhanced damages. Halo, 136 S. Ct. at 1933; see also Motiva Patents, LLC v. Sony Corp., 408 F. Supp. 3d 819, 837 (E.D. Tex. 2019) (“Halo holds that recklessness alone is enough to show willful infringement.”).
Halo abrogated at least the “inelastic” part of Seagate that set the threshold for willfulness and enhanced damages too high because if failed to allow enhancement for conventional (subjective) reckless intent at the time of the conduct at issue. Now (since Eko and SRI), the Federal Circuit has seemingly done an end-run around Halo by requiring an elevated level of intent beyond recklessness in order to support discretionary “enhanced damages” following a finding of willfulness. An issue here is that Halo said, “Consistent with nearly two centuries of enhanced damages under patent law, however, such punishment should generally be reserved for egregious cases typified by willful misconduct.” Halo, 136 S. Ct. at 1933-34. But recent Federal Circuit cases make no reference to that nearly two century history and instead utilize rather tendentious, selective, and partial quotations from Halo suggesting that a heightened state of mind beyond conventional recklessness is required for enhancement following a willfulness determination (contrary to the holding in Halo).
In the past, the Federal Circuit said that willfulness and discretionary enhancement analyses were basically the same. E.g., SRI Int’l, Inc. v. Advanced Tech. Labs., Inc., 127 F.3d 1462, 1469 (Fed. Cir. 1997) (“The principal considerations in enhancement of damages are the same as those of the willfulness determination, but in greater nuance as may affect the degree of enhancement.”). The Read factors commonly used for these analyses were about the totality of the circumstances and did not draw any categorical distinctions between degrees of intent within the category of willfulness (e.g., between recklessness and knowing/deliberate states of mind). Now, the Federal Circuit seems to be heading in another direction with (purportedly) a different standard for discretionary enhancement than for willfulness determinations. See Ryan Davis, “Fed. Circ. Outlines Willfulness, Enhanced Damages Standards,” Law360 (Oct. 7, 2021).
So today patentees face a situation in which the Federal Circuit seems to have merely pushed the abrogated initially high (“objective recklessness”) threshold of Seagate to the back end of the discretionary enhanced damages analysis, with what looks unmistakably like a heightened subjective intent requirement—higher than, and contrary to, the conventional recklessness standard set forth in Halo. Though another way to look at this is to say that the Federal Circuit has actually heightened the threshold “willfulness” standard too, even though they deny doing so, because a “deliberate or intentional” requirement has long been considered a heightened level of intent compared to conventional recklessness. Either way, this seems to shield merely reckless conduct from punishment, contrary to Halo, and is an untenable position for the Federal Circuit that calls for either an en banc reversal or further action by the Supreme Court.
P.S. — I should have a magazine article forthcoming in mid-2022 dealing with willfulness/enhanced damages. It will discuss the way district courts have frequently overlooked (or even ruled contrary to) 35 U.S.C. § 298 when dealing with issues involving the minimum requirements for willfulness and the way some district court cases (not yet reached in any precedential Federal Circuit decision) seem to resurrect something that looks like the old, abrogated “duty of due care” standard that corresponded to mere negligence.
Austen Zuege is an attorney at law and registered U.S. patent attorney in Minneapolis whose practice encompasses patents, trademarks, copyrights, domain name cybersquatting, IP agreements and licensing, freedom-to-operate studies, client counseling, and IP litigation. If you have patent, trademark, or other IP issues, he can help.