IP Law Bulletin

In 2016, the U.S. Supreme Court issued a decision in the case of Halo Electronics, Inc. v. Pulse Electronics, Inc. making it easier for courts to find willful infringement in patent cases and award enhanced damages. Prior to Halo, district courts were guided by the so-called Seagate test in which plaintiff patent holders 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” and that the risk of infringement “was either known or so obvious that it should have been known to the accused infringer.” Under the Seagate test, an infringer could effectively escape an assessment of enhanced damages for willful infringement by constructing an objectively reasonable infringement defense at the time of trial. 

In Halo, the Court found that the test’s objective prong placed too narrow a restriction on district courts’ discretion, and “excludes from discretionary punishment many of the most culpable offenders.” Although implying that enhanced damages “should generally be reserved for egregious cases typified by willful misconduct,” the Court indicated that “subjective willfulness of a patent infringer, intentional or knowing, may warrant enhanced damages, without regard to whether his infringement was objectively reckless.” Thus, by directing the inquiry on the subjective culpability of the infringer, Halo focuses attention on the infringer’s state of mind at the time the infringing actions occurred with knowledge of the patent—as opposed to the time of trial. As a result, infringement defendants can no longer rely solely on reasonable litigation-inspired defenses to prevent a finding of willfulness and possible treble damages. 

Halo does not explicitly impose an obligation to obtain opinions of counsel. However, recent case law suggests obtaining an opinion, or absence thereof, may be a factor in a court’s decision for awarding enhanced damages. For example, in Dominion Res. Inc. v. Alstom Grid, Inc. (E.D. Pennsylvania 2016), the court held that “Alstom did not have a good faith belief in non-infringement or invalidity because it did not conduct a proper review of Dominion’s patents” and “did not have someone with the specific skill in the art of reading patent claims reviewing Dominion’s patent.” Thus, it may be prudent to seek assistance of competent patent counsel to timely investigate any allegation or potential risk of patent infringement and to consider obtaining a written opinion of counsel that memorializes one’s good faith basis for believing a patent to be not infringed, invalid, and/or unenforceable. For example, one should at least consider obtaining a written opinion of counsel upon becoming aware of a third party patent in the following situations: 

• Upon receipt of a cease-and-desist letter, complaint, or during license negotiations with a third party patent holder;
• Upon receipt of a request for indemnification for patent infringement;
• During performance of a freedom-to-operate search or other product clearance review in advance of a product launch or investment/acquisition;
• Upon receipt of an external inquiry or notice regarding a third party patent from a customer, third-party supplier or distributor, or any other source in the supply chain of one’s products and/or services;
• Upon receipt of an internal inquiry or notice regarding a third party patent from an employee (g., sales, engineering, etc.); and
• Upon notice of patent markings on a competitor’s product or product literature.

Although there are many situations in which one could obtain a written opinion of counsel, it may not always be economically feasible or necessary to obtain an opinion in each instance. Thus, when deciding whether to obtain a written opinion of counsel is advisable, one should confer with patent counsel to discuss a number of considerations, including but not limited to:

• Whether the third party patent arguably covers relevant products or services;
• Whether a significant amount of revenue is generated from the potentially infringing product/service or whether the product/service is being phased out;
• Whether the product or service may be easily modified to work around the patent; and
• Whether the patent holder is a competitor or otherwise has a reputation for patent litigation.

In sum, although one cannot prejudge with certainty how the presence or absence of an opinion of counsel will ultimately impact the decision for awarding enhanced damages for willful infringement, a written opinion that is timely-obtained from competent patent counsel should be considered a valuable tool for mitigating the risk.