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'Seagate' Sinks: Court Makes Treble Patent Damages Easier

The Patent Act authorizes courts to impose triple damages in cases of infringement. But the Federal Circuit's Seagate test makes those damages hard to come by, imposing a relatively complicated two-part test to determine when damages are warranted, subject to trifurcated (yes, trifurcated) appellate review.

The Supreme Court tossed out that test yesterday, ruling unanimously that the Seagate requirements were not consistent with the Patent Act. The ruling is a boon to patent holders, who could see much more money coming from litigating patent infringement now. It's also on track with the Court's recent trend of striking down tests which "impermissibly encumber" a court's discretion to allow enhanced damages.

The Trouble With Trebles

The Patent Act's language on treble damages is clear and broad. The act states that, when a court finds infringement, "the court may increase the damages up to three times the amount found or assessed."

It's a fairly straightforward treble damage clause. But the Federal Circuit's treatment of that clause, section 284 of the Patent Act, was anything but straightforward. In order to qualify for treble damages under the Seagate test, a patent holder must show that the infringer acted "despite an objectively high likelihood that its actions constituted infringement" and that the risk of infringement was known or obvious.

On appeal, the Federal Circuit reviews the two-part Seagate test under three different standards of review. Objective reasonableness is examined de novo, subjective knowledge must be supported by substantial evidence, and finally the decision to award treble damages or not is reviewed for abuse of discretion.

Goodbye Seagate

The language of the act, the Supreme Court found in a unanimous decision authored by Chief Justice Roberts, "contains no explicit limit or condition" restricting how courts may award enhanced damages. And while the court's discretion must be supported by sound legal principals, the Seagate test is so restrictive that it "can have the effect of insulating some of the worst patent infringers from any liability for enhanced damages," the court found, overturning the test.

The ruling is not surprising, given the Court's decision in Octane Fitness v. Icon Health, two years ago. There, the Court struck down the Federal Circuit's restriction on awarding attorney's fees under the patent act. Again, the Federal Circuit had grafted on a host of restrictions to the act's broad grant of judicial discretion. Again the test was invalidated. That test is "unduly rigid, and it impermissibly encumbers the statutory grant of discretion to district courts," the Court ruled -- the same language it quoted when striking down the Seagate test.

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