Halo, It’s Me, Your Advice of Counsel Opinion

Supreme Court opinion that created reduced standard for determining willful patent infringement means potential patent infringers should strongly consider opinions of patent counsel when knowledge of possible infringement occurs.

The Supreme Court recently clarified the standard for determining willful patent infringement, a finding that may increase a patent infringement damages award by up to three times. Prior to Halo Electronics Inc. v. Pulse Electronics Inc., the willful infringement standard was governed by In re Seagate, which required a patent holder to prove by “clear and convincing evidence” that the infringer acted with both “objective recklessness” and “subjective knowledge” of wrongdoing. Halo eliminates objective recklessness and lowers the burden of proof from clear and convincing evidence to “preponderance of the evidence” for the subjective knowledge element

The end result: Willful infringement has become easier to prove for patent holders.

New Standard for Willful Infringement

Under the now-abandoned Seagate standard, the first prong of objective recklessness ignored the state of mind of the infringer and required a patent holder 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.” This objectively high likelihood considered the record developed throughout the infringement litigation, which included all invalidity, unenforceability and noninfringement arguments. Based on that record, objective recklessness could not be found where the infringer raised a substantial question as to the validity, enforceability or infringement of the patent, even if the defendant was unaware of these defenses at the time of infringement. In other words, an infringer could completely avoid willful infringement by manufacturing good defenses well after the infringing conduct began. And this prong was to be decided by the judge, not the jury.

Finding the Seagate standard too onerous, the Supreme Court eliminated the objective recklessness requirement and now focuses the willfulness inquiry solely on the subjective knowledge of the infringer at the time of the infringement. Easing even further the willful infringement standard, the Supreme Court lowered the burden of proof for willful infringement to the same level as infringement – the preponderance of the evidence standard. Post-Halo, willful infringement requires only that the patent holder prove to the jury that the infringer actually knew or should have known that its actions constituted an unjustifiably high risk of infringement of a valid and enforceable patent. The non-inclusive list of factors to consider include:

(1) Whether the infringer acted in accordance with the standards of commerce for its industry.

(2) Whether the infringer intentionally copied a product of a patent holder that is covered by the patent.

(3) Whether a reasonable basis exists to believe that the infringer did not infringe or had a reasonable defense for infringement.

(4) Whether the infringer made a good-faith effort to avoid infringing the patent, for example, whether the infringer attempted to design around the patent.

(5) Whether the infringer tried to cover up its infringement.

(6) Whether the infringer obtained and relied on a competent opinion of counsel.

Presented with its first post-Halo case, with facts similar to those considered by the Supreme Court, the Federal Circuit reconfirmed the seminal importance of timely securing a favorable opinions of counsel after discovering a patent having arguable import to an accused infringers products or services. In WBIP, LLC v. Kohler Co., the court stressed that “the appropriate time frame for considering culpability is . . . at the time of the challenged conduct.”

With the daunting first hurdle of objective recklessness removed and the lowered burden of proof for subjective knowledge, juries are likely to hear and decide more willful infringement claims — an unsettling proposition for accused infringers. Accused infringers can take solace in the fact that, after a finding of willfulness by the jury, the judge still decides by how much, if at all, the damages should be enhanced, with the cap being three times the damages award. While this does provide a check on the jury’s power, how judges exercise discretion under the new framework remains to be seen. 

As WBIP, LLC v. Kohler Co. suggests, an effective defense to combat a claim of willful infringement is to timely seek an advice of counsel opinion, which may provide strong evidence against a claim of willful infringement by documenting noninfringement, invalidity and unenforceability defenses for problematic patents. Because timing matters, we recommend securing a competent opinion of counsel as soon as possible after learning of a potentially problematic patent.  Failure to timely determine if defenses to a claim of patent infringement exist can have severe consequences in the form of a finding of willful patent infringement and treble damages.