Enhancing Patent Damages
115 Pages Posted: 4 Apr 2017 Last revised: 30 Apr 2018
Date Written: April 3, 2017
Many policymakers, judges, and scholars justify patent law on economic-utilitarian grounds. It is therefore unsettling that when it comes to damages for patent infringement in excess of the compensatory baseline, courts have followed an approach that reflects primarily moral, rather than economic, considerations. In order to obtain enhanced damages, the prevailing plaintiff must show — among other things — that the defendant actually knew of the existence of the patent-in-suit. This subjective standard stems from pre-industrial tort actions designed to punish egregious interpersonal behaviors such as assault, piracy, libel, and seduction, and to preserve the public order. But as the law developed to cover “depersonalized” torts committed by corporate defendants and expanded from its moral foundations to embrace economic reasoning to a greater degree than before, the range of cases in which punitive damages could be awarded broadened significantly. Specifically, courts relaxed the culpability standard by making it less subjective, allowing punitive damages for generalized reckless disregard for the rights of others. The recklessness framework is now dominant in the fields of negligence and products liability, which typically allow for punitive damages without actual knowledge of a specific victim or defect, and in other civil actions — including copyright and trademark infringement. Patent law, however, continues to be an outlier by requiring actual, subjective knowledge of the plaintiff’s patent and, in so doing, in effect clings to the old moral opprobrium model of punitive damages.
Not surprisingly, this standard has led to anomalous results. For one thing, the actual-knowledge approach to enhanced damages discourages firms from searching for and reading relevant patents, an unfortunate result given the widely recognized notion that disclosure is a core function of the patent system. Indeed, this rule errantly treats potential infringers who make good-faith attempts to ascertain the nature of the patent landscape in the fields in which they operate worse than those that decide to bury their heads in the sand and do no patent searching whatsoever. But there is a prospect for improvement in the law. A recent Supreme Court decision, Halo Electronics v. Pulse Electronics, arguably pushed a reset button on the jurisprudence of enhanced damages in patent cases. Although it accepted the pre-industrial, subjective conception of punitive damages in its discussion of “deliberate” and “wanton” infringements, the Court also pointed to the modern trend when it referred to recklessness as an acceptable standard of culpability for enhanced patent damages.
I argue that, in failing to embrace Halo’s endorsement of recklessness, the lower courts are making a mistake. I contend that installing recklessness toward patent rights of others as the threshold level of culpability for enhanced damages is consistent with the modern conception of punitive damages in tort — which, at least to some degree, reflects a shift away from the moral grounding of this remedy and toward economic analysis. Accordingly, I propose a recalibration of the willfulness doctrine to include reckless failures to search for patents as a route to making infringers eligible for enhanced damages. If applied properly, the new standard would mitigate the current doctrine’s perverse effect of discouraging reading of patents, promote cost-effective patent searches, and take account of significant differences in patent landscapes between various industries.
Keywords: punitive damages, willfulness, enhanced damages, Halo
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