FTO Opinions and Enhanced Patent Infringement Damages After Halo

October 7, 2016

10445191_Practical_lawThis blog post addresses the history and future of patent opinion practice in view of the US Supreme Court’s Halo Electronics, Inc. v. Pulse Electronics, Inc. decision.

A court has discretion to increase up to three times the damage award assessed against a patent infringer (35 U.S.C. § 284). Enhanced damages are typically awarded in certain willful infringement situations (Halo Electronics, Inc. v. Pulse Electronics, Inc., 136 S.Ct. 1923, 1930 (2016).)

The US Court of Appeals for the Federal Circuit (Federal Circuit) over 30 years ago held that Section 284 imposed on a potential infringer with notice of another’s patent a duty of due care to avoid infringement. This required obtaining legal advice before beginning any possibly infringing activity. (Underwater Devices Inc. v. Morrison-Knudsen Co., 717 F.2d 1380, 1389 – 90 (Fed. Cir. 1983).)

Infringers thereafter typically relied on freedom-to-operate (FTO) opinions to avoid an enhanced damages award. However, almost 10 years ago in In re Seagate Technology, LLC, the Federal Circuit changed opinion practice by holding that:

  • Enhanced damages required the patentee to prove the infringer:
    • acted despite an objectively high likelihood that its actions constituted patent infringement; and
    • knew of this objectively defined risk or should have known about it.
  • Counsel’s opinion was not needed to avoid a willful infringement determination

(497 F.3d 1360, 1371 (Fed. Cir. 2007).)

Infringers therefore began relying on non-frivolous trial defenses rather than counsels’ non-infringement or invalidity opinions to:

  • Demonstrate that their actions were not objectively reckless.
  • Avoid an enhanced damages award.

(See Stryker Corp. v. Zimmer, Inc., 782 F.3d 649, 661-62 (Fed. Cir. 2015) and Halo Electronics, Inc. v. Pulse Electronics, Inc., 769 F.3d 1371, 1381-83 (Fed. Cir. 2014).)

Also, for cases commenced on or after January 14, 2013, the Leahy-Smith America Invents Act prevents a patentee from using an infringer’s failure to obtain counsel’s advice as the basis for a willful infringement determination (35 U.S.C. § 298).

The Supreme Court may now have increased the need for more FTO opinions with its Halo decision (see Legal Update, Supreme Court Overrules Federal Circuit, Holding that Seagate is Inappropriate for Enhanced Damages Determination) holding, among other things, that:

  • Enhanced damages are based on the case’s circumstances to punish the infringer for certain egregious conduct.
  • Culpability is determined at the time of the conduct.

(Halo Electronics, Inc., 136 S.Ct. at 1932 – 33.)

Counsel should now consider the benefits of conducting FTO analyses and providing FTO opinions to their clients to minimize the client’s risks of patent infringement, willful infringement allegations, and enhanced damages awards. For more information, see Practical Law’s FTO resources, including: