Monday, June 27, 2016

Claims for Residual Damages Under German Law

Last month I blogged about an article by Michael Nieder titled Europäische (Bündel)Patente--Restschadensersatzanspruch adé? ("European (Bundle) Patents--Farewell to Residual Damages Claims?") in the January 2016 issue of Mitteilungen der deutschen Patentanwälte (pp. 1-3), which discusses, among other things, whether article 72 of the Agreement on a Unified Patent Court, which mandates a five-year statute of limitations for infringement claims, eliminates the ten-year statute of limitations for underlying residual damages claims under German law.  As I wrote at the time (see here): 
The author explains that, under section 199(1) of the German Civil Code, a claim for damages for the infringement of a German patent or the German portion of a European Patent normally must be brought within three years ("Unless another commencement of limitation of is determined, the standard limitation period commences at the end of the year in which . . . 1.  the claim arose and 2.  the obligee obtains knowledge of the circumstances giving rise to the claim and of the identity of the obligor, or would have obtained such knowledge if he had not shown gross negligence").  However, the second sentence of section 141 of the German Patent Act states "Where the person obliged has obtained something as a consequence of the infringement at the expense of the entitled person, section 852 of the German Civil Code shall apply mutatis mutandis," and section 852 states "If by a tort the person liable to pay compensation obtains something at the cost of the injured person, then even after the claim to compensation for the damage arising from a tort is statute-barred he is obliged to make restitution under the provisions on the return of unjust enrichment. This claim is statute-barred ten years after it arises, or, notwithstanding the date on which it arises, thirty years after the date on which the act causing the injury was committed or after the other event that triggered the loss." 
Similarly, in a post I published in 2013 I noted that:
In Germany, the statute of limitations for filing an action for patent infringement is governed by article 141 of the Patent Act.  WIPO’s translation of this provision reads:
As regards the period of limitation for claims due to infringement of a patent right, the provisions of Part 5 of Book 1 of the Civil Code shall apply mutatis mutandis. If the infringer has gained something through the infringement at the expense of the entitled party, Section 852 of the Civil Code shall be applicable mutatis mutandis.
Focusing on sentence 1, the general statute of limitations for filing a patent infringement claim is three years.  See Thomas Kühnen, Patent Litigation Proceedings in Germany:  A Handbook for Practitioners ¶ 1554,at 389 (6th ed. Frank Peterreins tr. 2013); Benkard, Patentgesetz § 141 ¶ 4, at 1504 (10th ed. 2006).  But the second sentence provides a second opportunity to file a claim for damages, after the three-year period has lapsed.  Here is the text of the referenced section of the Civil Code (BGB § 852) (English translation can be found here, German original here):
If by a tort the person liable to pay compensation obtains something at the cost of the injured person, then even after the claim to compensation for the damage arising from a tort is statute-barred he is obliged to make restitution under the provisions on the return of unjust enrichment. This claim is statute-barred ten years after it arises, or, notwithstanding the date on which it arises, thirty years after the date on which the act causing the injury was committed or after the other event that triggered the loss.
So even after the three-year period, the patent owner may get to file a claim, but for what?  The term used for the damages the patent owner may recover under these circumstances is Restschadensersatz, or residual damages.  Prevailing opinion is that these damages consist of a reasonable royalty only.  See Benkard Patentgesetz, § 141 ¶ 6, at 1505-06.  The argument appears to be that the only benefit the infringer derived at the expense of the entitled party is the royalty it didn’t pay.  For a contrary opinion, however, see Matthias Hülsewig, Der Restschadensersatzanspruch im Patentrecht—beschränkt auf die angemessene Lizenzgebühr?, GRUR 2011, 673, arguing that the patentee should have the option of recovering the infringer’s profit or a reasonable royalty.
A few weeks back Dr.  Hülsewig kindly emailed me a copy of a 2015 opinion of the German Federal Supreme Court in a copyright matter, in which the court states that the question of whether BGB § 852 permits the recovery of the infringer's profit remains an open question.  See paragraph 34 of Judgment of Jan. 15, 2015, I ZR 148/13 (BGH)--Motorradteile, available here.  In addition, as Dr. Hülsewig pointed out, the new 11th edition of the Benkard treatise on German Patent Law now also takes the position that claims for residual damages are not limited to reasonable royalties but also may include the disgorgement of other pecuniary benefits the infringer has derived ("Daher kann der Rest-Schadensersatzanspruch nicht in jedem Fall auf die (stets geschuldete) angemessene Lizenz beschränkt werden; vielmehr können auch weitere Vermögensvorteile herausverlangt werden" (section 141, p. 1907).  So perhaps we are witnessing a change in the majority view of what claims for residual damages may include under German law--though if Nieder is correct about the effect of the Unified Patent Agreement, in cases involving European patents such claims eventually may be constrained by the five-year statute of limitations.

Friday, June 24, 2016

IP Chat Channel Webinar on Enhanced Damages After Halo

On Thursday, June 30 at 2 p.m. EST, the IP Chat Channel is presenting a webinar titled Goodbye to Seagate:  Willfulness and Enhanced Damages After Halo.  Here is a link to the webpage, and here is a description of the webinar: 
This month’s U.S. Supreme Court decision in Halo and Stryker makes it easier for a plaintiff in a patent infringement case to win enhanced damages for willfulness. But how much easier? And which of the changes to the Seagate standard – throwing out the threshold of “objective recklessness”, lessening the burden of proof, or rejecting the Federal Circuit’s tripartite framework for appellate review — will have the most impact and in what kind of situations? Our panelists are litigators involved in cases involving willfulness, including C.R. Bard v. Gore and Innovention Toys v. MGA, and PPC v. Corning. They will discuss litigation strategy going forward, and other questions, such as whether companies should reevaluate policies regarding opinions of counsel on non-infringement during product development.
Panelists will include David Caine of Arnold & Porter, Steven Cherny of Kirkland & Ellis, and Mark Davies of Orrick.

For my initial thoughts on Halo, see here.  For other discussion, see Dennis Crouch's take on Patently-O, Mike Mireles's take on IPKat, and Lisa Larrimore Ouellette's take on Written Description.

Wednesday, June 22, 2016

More on Damages for Moral Prejudice in Spanish Law

After composing Monday's blog post on damages for moral prejudice in Spain and elsewhere, I came across an article by Marc Simon Altaba titled Take It or Leave It--The Unclear Situation of Moral Damage Claims in Spanish Intellectual Property Law, 47 IIC 178 (2016).  The article was published in February 2016, just before the CJEU's Liffers decision, and it discusses the case law and commentary leading up to that decision.  Mr. Altaba's article discusses claims for moral prejudice in the context of copyright law and, if I am reading it correctly, views such claims largely as a means of redressing infringement of authors' moral rights (droits morals).  If this view is correct, it raises questions (in my mind, at least) about the applicability of the concept of moral prejudice at all in cases involving patents or other industrial property.  Anyway, if you're interested in the subject, the article is worth your time.  Here is the abstract:
Following the adoption of European Directive 2004/48/EC on the Enforcement of Intellectual Property Rights, a number of questions arose regarding the different methods of damage calculation proposed in its Art. 13. In particular, the transposition of its contents into the Spanish Intellectual Property Law initiated a debate among national scholars regarding the possibility or lack thereof to claim moral damages using any of the criteria given. The question arrived at the national Supreme Court this year, in a case of unauthorised use of an audio-visual work. The Court asked for a clarification from the Court of Justice of the European Union on a matter that might have important effects on the determination of the damages resulting from an infraction of intellectual property rights. This opinion seeks to offer a detailed perspective on the evolution of the case in the Spanish judicial system and the possible alternatives and consequences that a future European ruling might produce.

Monday, June 20, 2016

Damages for Moral Prejudice in Spain and Elsewhere

Miquel Montañá recently published a post on the Kluwer Patent Blog about a January 15, 2016 judgment of the Court of Appeal of Madrid in a case alleging infringement of EP 860.161B1, titled "Feminine Garment with Sexual Stimulation Effect."  According to Dr. Montañá's write-up, the patent owner sued the defendant for infringing this patent, prevailed, and the defendant's liability was affirmed on appeal.  The owner sought damages under article 66 of the Spanish Patent Act, which Dr. Montañá summarizes as permitting recovery for "moral damages . . . even if the existence of an economic damage has not been proven," and article 68, which he quotes as permitting the patent owner also to "claim for indemnification for damage resulting from the loss of prestige of the patented invention caused by the infringer by producing a defective working or improper presentation of the same on the market."  (I should note that, in the new Spanish Patent Act, which goes into effect on January 1, 2017, these provisions are renumbered into articles 74(2)(a) and 76.)  On appeal, the court reversed a judgment for moral damages in the amount of €20,000, concluding that although such damages (which may include “psychological suffering or distress, which is considered to exist in a variety of situations such as psychological or spiritual shock or suffering, helplessness, worry (as a mental sensation of disquiet, sorrow, fear or foreboding uncertainty), anxiety, anguish, uncertainty, shock, affliction and other similar situations”) are in theory compensable, the patent owner had not proven the facts alleged in support of them.  On the other hand, the court affirmed a judgment in the amount of €12,500 for loss of prestige, citing evidence in the record supporting the claim that the infringing products were of lower quality, presented "in simple cardboard boxes as opposed to the luxury image attributed to the products of the complainant."

Putting aside the racy subject matter, the case raises some interesting issues about what sort of damages are recoverable in a patent infringement action.  Article 13(1)(a) of the EC Enforcement Directive states that, when judicial authorities set damages, they should "take into account all appropriate aspects, such as the negative economic consequences, including lost profits, which the injured party has suffered, any unfair profits made by the infringer and, in appropriate cases, elements other than economic factors, such as the moral prejudice caused to the rightholder by the infringement . . . ."  A few months ago I mentioned (here) an article by Nicholas Fox, Bas Berghuis, Ina vom Feld, and Laura Orlando titled Accounting for Differences:  Damages and Profits in European Patent Infringement, 37 European Intellectual Property Review 566 (2015), which discusses (among other things) how different countries in the EU interpret the term "moral prejudice."  These authors conclude (pp. 572-73):

Moral prejudice has barely any constancy between European jurisdictions even under the Enforcement Directive, and so there is no clear line to follow. All of the above-mentioned jurisdictions, with the exception of Germany, have it as an available claim, though it is rare (to an extreme) in the Netherlands, and England and Wales. In France, while theoretically tied to reputation, it appears to be used as a mechanism to adjust the quantum equitably. In Italy, moral prejudice must be demonstrated (essentially, damage to reputation), and then quantified as up to as much of 50 per cent of the loss of profits.

More recently, the CJEU in the Liffers decision (a copyright matter also arising out of Spain) concluded that IP owners can recover both reasonable royalties and damages for moral prejudice (see blog post here); and while it states in paragraph 17 that "As noted by the Advocate General in point 28 of his Opinion, moral prejudice, such as damage to the reputation of the author of a work, constitutes, provided that it is proven, a component of the prejudice actually suffered by the rightholder," it doesn't purport to state definitively what else if anything may come within the heading of moral prejudice.  In addition, the article by Charlotte Scott on damages judgments in the Intellectual Property Enterprise Court of England and Wales, which I blogged about here, indicates (consistent with Fox et al.) that damages for moral prejudice are rare in the U.K. and might be confined to cases of "acute emotional distress."  If I understand correctly, the Spanish case discussed by Dr. Montañá appears to agree that moral prejudice involves emotional harm and is distinct from harm to reputation.

My understanding is that damages for loss of reputation are in principle recoverable in U.S. patent litigation, see Lam v. Johns-Manville, 718 F.2d 1056, 1068 (Fed. Cir. 1983)--and may be relevant in determining whether the patent owner is entitled to an injunction, as discussed in Judge Reyna's concurring opinion in Apple v. Samsung, 809 F.3d 633, 647-56 (Fed. Cir. 2015)---but they are difficult to substantiate and rarely awarded.  As for emotional distress, however, there is a famous line from the Federal Circuit's decision in Rite-Hite v. Kelley, 56 F.3d 1538, 1546 (Fed. Cir. 1995) (en banc) that  "remote consequences, such as a heart attack of the inventor or loss in value of shares of common stock of a patentee corporation caused indirectly by infringement are not compensable."  

For other (brief) discussion of damages for loss of reputation or moral prejudice, see my book pp. 118 (U.S.), 256-57 (Europe), 320 (Japan).  The subject deserves further treatment.

Friday, June 17, 2016

Pai's Comments on India Discussion Paper on SEPs/FRAND

In April I published a post that linked to the India Department of Industrial Policy and Promotion (DIPP) Discussion Paper on Standard Essential Patents and Their Availability on FRAND Terms (available here), and to comments on the paper submitted by Wong-Ervin, Ginsburg, Kobayashi & Wright.  I followed up with a subsequent post linking to other comments that had been submitted to the DIPP (see here).  Professor Yogesh Pai also submitted comments and has posted them on ssrn under the title Comments on the DIPP Discussion Paper on Standard-Essential Patents and Their Availability on FRAND TermsHere is a link to Professor Pai's comments, and here is the abstract:
This note is submitted to the DIPP as comments on the DIPP "Discussion Paper on Standard-Essential Patents and their Availability on FRAND terms". It discusses the legal position and policy dynamics involving Standard Essential Patents. The comments highlight that caution must be exercised and more empirical based studies must be relied on before assuming that there are immediate policy changes that need to be made. It is submitted that the DIPP must exercise caution in making strong policy interventions in the very dynamic context of innovation and technical change. It is submitted that policy makers ought to defer to the prevailing statutory framework, regulatory and judicial scrutiny before making irreversible policy changes. It is the opinion of the author that such a deference thesis will help the Government of India to make the right policy changes, wherever needed, and yet save it from making incorrect policy decisions.
In addition to elaborating on the above thesis, Professor Pai states, among other things, that in India there is at present "no significant precedent to calculation of reasonable royalties except in case of compulsory licenses" (p.8), and that India does not recognize the doctrine of contracts for the benefit of third parties (p.6 n.20).  

If readers are aware of any other comments submitted to DIPP that I haven't mentioned, please send them along.  For a previous post on two of Professor Pai's other papers on FRAND, see here.

Tuesday, June 14, 2016

First Round of Amicus Briefs in Samsung v. Apple Design Patent Damages Case

Earlier this month I published a post on three pending patent damages matters before the U.S. Supreme Court:  the pending Halo and Stryker cases involving enhanced damages, the pending Samsung v. Apple case on design patent damages, and a cert petition filed by CSIRO in its litigation against Cisco.  (I'm thinking of getting a tee shirt that says "I was into patent damages before it was cool."  Then again, maybe not.)  Yesterday the Supreme Court issued its opinion in Halo and Stryker (see post here).  On Sunday, over at FOSS Patents Florian Mueller published a post discussing and linking to the first round of amicus briefs filed in the Samsung v. Apple case, available here.  I don't have anything to add at this point--I haven't read all of the briefs myself.  All that I can say at this point is that, if yesterday's opinion in Halo and Stryker  is any guide, there is a risk that the compelling policy arguments against awarding the infringer's entire profit will get short shrift, and that the court will instead focus on text and history--though, depending on how one interprets the text and history, I am hopeful that this might still lead to an appropriate outcome.  Perhaps the Court will conclude that courts can avoid an absurd result (awarding the entire profit earned from the sale of a device that incorporates thousands of patented features, if even one single design patent is infringed) because they have the discretion to narrowly define the term "article of manufacture" so that it isn't coextensive with the entire end product.  Heaven knows we wouldn't want a "rigid" rule, after all . . . .

Monday, June 13, 2016

U.S. Supreme Court Opinion in Halo v. Pulse, Stryker v. Zimmer: Analysis

As I reported earlier this morning, the U.S. Supreme Court today vacated the Federal Circuit opinions in Halo and Stryker, the two cases in which the Supreme Court had granted cert to determine the standards for awarding enhanced damages for patent infringement under section 284 of the U.S. Patent Act.  Opinion is here.  (For previous coverage on this blog, see, e.g., here).  Chief Justice Roberts writes for the unanimous Court, with a separate concurrence by Justice Breyer (joined by Justices Kennedy and Alito).

1.  Chief Justice Roberts begins his opinion with a discussion of the predecessor statutes and cases leading up to the enactment of section 284 in 1952, concluding that "It is against this backdrop that Congress, in the 1952 codification of the Patent Act, enacted §284. 'The stated purpose' of the 1952 revision 'was merely reorganizationin language to clarify the statement of the statutes.' Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U. S. 476, 505, n. 20 (1964) (internal quotation marks omitted). This Court accordingly described §284—consistent with the history of enhanced damages under the Patent Act—as providing that 'punitive or "increased" damages' could be recovered 'in a case of willful or bad-faith infringement.” Id., at 508 . . .'" (p.4).  The Court then explains the standards the Federal Circuit had superimposed on the statute:
Under Seagate, a plaintiff seeking enhanced damages must show that the infringement of his patent was “willful.” 497 F.3d, at 1368. The Federal Circuit announced a two-part test to establish such willfulness: First, “a patentee must show by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent,”without regard to “[t]he state of mind of the accused infringer.” Id., at 1371. This objectively defined risk is to be“determined by the record developed in the infringement proceedings.” Ibid. “Objective recklessness will not befound” at this first step if the accused infringer, during the infringement proceedings, “raise[s] a ‘substantial question’ as to the validity or noninfringement of the patent.” Bard Peripheral Vascular, Inc. v. W. L. Gore & Assoc., Inc., 776 F.3d 837, 844 (CA Fed. 2015). That categorical bar applies even if the defendant was unaware of the arguable defense when he acted. . . .
Second, after establishing objective recklessness, a patentee must show—again by clear and convincing evidence—that the risk of infringement “was either known or so obvious that it should have been known to the accused infringer.” Seagate, 497 F. 3d, at 1371. Only when both steps have been satisfied can the district court proceed to consider whether to exercise its discretion to award enhanced damages. Ibid.
Under Federal Circuit precedent, an award of enhanced damages is subject to trifurcated appellate review. The first step of Seagate—objective recklessness—is reviewed de novo; the second—subjective knowledge—for substantial evidence; and the ultimate decision—whether to award enhanced damages—for abuse of discretion. See Bard Peripheral Vascular, Inc. v. W. L. Gore & Assoc., Inc., 682 F. 3d 1003, 1005, 1008 (CA Fed. 2012); Spectralytics, Inc. v. Cordis Corp., 649 F. 3d 1336, 1347 (CA Fed. 2011) (pp. 5-6).
2.  The Court then recites the facts of Halo and Stryker, before turning to its discussion of what it views as the correct standard:
The pertinent text of §284 provides simply that “the court may increase the damages up to three times the amount found or assessed.” 35 U. S. C. §284. That language contains no explicit limit or condition, and we haveemphasized that the “word ‘may’ clearly connotes discretion.” Martin v. Franklin Capital Corp., 546 U. S. 132, 136 (2005) (quoting Fogerty v. Fantasy, Inc., 510 U. S. 517, 533 (1994)).
At the same time, “[d]iscretion is not whim.” Martin, 546 U. S., at 139. . . . Thus, although there is “no precise rule or formula”for awarding damages under §284, a district court’s “discretion should be exercised in light of the considerations” underlying the grant of that discretion. Octane Fitness, 572 U. S., at ___ (slip op., at 8) (quoting Fogerty, 510 U. S., at 534).
Awards of enhanced damages under the Patent Act over the past 180 years establish that they are not to be meted out in a typical infringement case, but are instead designed as a “punitive” or “vindictive” sanction for egregious infringement behavior. 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. See supra, at 2–5. District courts enjoy discretion in deciding whether to award enhanced damages, and in what amount. But through nearly two centuries of discretionary awards and review by appellate tribunals,“the channel of discretion ha[s] narrowed,” Friendly, Indiscretion About Discretion, 31 Emory L. J. 747, 772 (1982), so that such damages are generally reserved for egregious cases of culpable behavior (pp. 7-9).
3.  The Court then notes that Seagate reflects some of these concerns, but (surprise!) it is "unduly rigid":
The principal problem with Seagate’s two-part test 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, such as the “wanton and malicious pirate” who intentionally infringes another’s patent—with no doubts about its validity or any notion of a defense—for no purpose other than to steal the patentee’s business. Seymour, 16 How., at 488. . . .
The Seagate test aggravates the problem by making dispositive the ability of the infringer to muster a reasonable (even though unsuccessful) defense at the infringement trial. The existence of such a defense insulates the infringer from enhanced damages, even if he did not act on the basis of the defense or was even aware of it. . . .
But culpability is generally measured against the knowledge of the actor at the time of the challenged conduct. . .(pp. 9-10).
4.  On the other hand, a finding of willfulness doesn't necessarily mean that the court must award enhanced damages:
Section 284 allows district courts to punish the full range of culpable behavior. Yet none of this is to say that enhanced damages must follow a finding of egregious misconduct. As with any exercise of discretion, courts should continue to take into account the particular circumstances of each case in deciding whether to award damages, and in what amount. Section 284 permits district courts to exercise their discretion in a manner free from the inelastic constraints of the Seagate test. 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 (p.11).
Editorial comment here:  Although this paragraph helpfully points out that enhanced damages are not required in every case of willful infringement, it also doesn't provide any guidance for exercising that discretion (though presumably the Read v. Portec factors will still apply); and that word "generally" in the last clause might give rise to problems, as plaintiffs will seek to show why their case, in which the infringement may not have been egregious, nevertheless is different from the norm and deserves an enhancement.

5.  The Court also doesn't approve of the Federal Circuit's standard of proof and standard of appellate review:
The Seagate test is also inconsistent with §284 because it requires clear and convincing evidence to prove recklessness. On this point Octane Fitness is again instructive. There too the Federal Circuit had adopted a clear and convincing standard of proof, for awards of attorney’sfees under §285 of the Patent Act. Because that provision supplied no basis for imposing such a heightened standard of proof, we rejected it. See Octane Fitness, 572 U. S., at ___ (slip op., at 11). We do so here as well. . . .
Finally, because we eschew any rigid formula for awarding enhanced damages under §284, we likewise reject the Federal Circuit’s tripartite framework for appellate review (p.12).
The Chief rejects the argument that Congress approved of the Seagate standard in enacting the America Invents Act in 2011 (pp. 13-14).

6.  Finally, the Court gets to policy, but doesn't find it dispositive:
At the end of the day, respondents’ main argument for retaining the Seagate test comes down to a matter of policy. Respondents and their amici are concerned that allowing district courts unlimited discretion to award upto treble damages in infringement cases will impede innovation as companies steer well clear of any possible interference with patent rights. They also worry that the ready availability of such damages will embolden “trolls.” Trolls, in the patois of the patent community, are entities that hold patents for the primary purpose of enforcing them against alleged infringers, often exacting outsized licensing fees on threat of litigation.
Respondents are correct that patent law reflects “a careful balance between the need to promote innovation” through patent protection, and the importance of facilitating the “imitation and refinement through imitation” that are “necessary to invention itself and the very lifeblood of   a competitive economy.” Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U. S. 141, 146 (1989). That balance can indeed be disrupted if enhanced damages are awarded in garden-variety cases. As we have explained, however, they should not be. The seriousness of respondents’ policy concerns cannot justify imposing an artificial construct such as the Seagate test on the discretion conferred under § 284 (pp. 14-15).
7.  In his concurring opinion, Justice Breyer notes three important caveats,  before himself turning to policy:
First, the Court’s references to “willful misconduct” do not mean that a court may award enhanced damages simply because the evidence shows that the infringer knew about the patent and nothing more. . . .
Second, the Court writes against a statutory background specifying that the “failure of an infringer to obtain the advice of counsel . . . may not be used to prove that the accused infringer wilfully infringed.” §298. The Court does not weaken this rule through its interpretation of § 284. . . .
Third, as the Court explains, enhanced damages may not “serve to compensate patentees” for infringement-related costs or litigation expenses. Ante, at 3–4. . . .
I describe these limitations on enhanced damages awards for a reason. Patent infringement, of course, is a highly undesirable and unlawful activity. But stopping infringement is a means to patent law’s ends. Through a complex system of incentive-based laws, patent law helps to encourage the development of, disseminate knowledge about, and permit others to benefit from useful inventions. Enhanced damages have a role to play in achieving those objectives, but, as described above, that role is limited.
. . . Amici explain that some of those firms generate revenue by sending letters to “‘tens of thousands of people asking for a license or settlement’” on a patent “‘that may in fact not be warranted.’” Brief for Internet Companies as Amici Curiae 12; cf. Letter to Dr. Thomas Cooper (Jan. 16, 1814), in 6 Writings of Thomas Jefferson 295 (H. Washington ed. 1854) (lamenting “abuse of the frivolous patents”). How is a growing business to react to the arrival of such a letter, particularly if that letter carries with it a serious risk of treble damages? Does the letter put the company “on notice” of the patent? Will a jury find that the company behaved “recklessly,” simply for failing to spend considerable time, effort, and money obtaining expert views about whether some or all of the patents described in the letter apply to its activities (and whether those patents are even valid)? These investigative activities can be costly. Hence, the risk of treble damages can encourage the company to settle, or even abandon any challenged activity.
To say this is to point to a risk: The more that businesses, laboratories, hospitals, and individuals adopt this approach, the more often a patent will reach beyond its lawful scope to discourage lawful activity, and the more often patent-related demands will frustrate, rather than “promote,” the “Progress of Science and useful Arts.” . . . Thus, in the context of enhanced damages, there are patent-related risks on both sides of the equation.That fact argues, not for abandonment of enhanced damages, but for their careful application, to ensure that they only target cases of egregious misconduct.
One final point: The Court holds that awards of enhanced damages should be reviewed for an abuse of discretion. Ante, at 12–13. I agree. But I also believe that, in applying that standard, the Federal Circuit may take advantage of its own experience and expertise in patent law. Whether, for example, an infringer truly had “no doubts about [the] validity” of a patent may require an assessment of the reasonableness of a defense that may be apparent from the face of that patent. See ante, at 9. And any error on such a question would be an abuse of discretion. . . . 

*                  *                 *

My initial take:  the result is not a surprise in light of the Court's patent cases over the past decade, in which it routinely castigates the Federal Circuit for its "rigid" bright-line rules.  I actually think some bright (or brightish) line rules are not a bad idea, particularly when it comes to calculating damages--as I discuss in my paper (soon, I hope, to be on ssrn) Patent Damages Heuristics.  Moreover, while I am happy that the Court seems to recognize the potential abuses that may follow from having too open-ended a standard for awarding enhanced damages, I am less sanguine that the standard the Court adopts will be up to the task of eliminating those abuses.  (If knowledge of a plausible defense at the time of the infringement is now relevant, for example, how does that apply when the infringement is ongoing?  Does the infringement go from being willful to nonwillful if the defense seems more sound, though ultimately unsuccessful, later in time?) 

For my part, as a matter of policy I believe that enhanced damages serve a legitimate purpose only in a few narrowly circumscribed cases, such as when compensatory damages alone (1) would leave the plaintiff worse off than it would have been but for the infringement (perhaps because certain harms are not susceptible to quantification); or (2) would leave the defendant in a better position than a willing licensee (perhaps because the infringer avoids certain risks that a licensee normally would shoulder); or (3) would be necessary to achieve adequate deterrence (perhaps because the infringing act was of a type that often would go undetected, or the defendant has deliberately driven up litigation costs to discourage an impecunious patentee from filing suit). On the other hand, I would be more generous in awarding the prevailing party its attorney fees, and I believe courts should always award the prevailing patentee postjudgment interest, compounded, to enable full compensation.

Depending on how the new standard evolves, I suppose it is conceivable that Congress may amend the statute to recalibrate the balance in some regard , though I wouldn't hold my breath.