1 The United States
In the United States, enhanced damages for patent infringement have been available as a matter of judicial discretion since 1836. The current statutory language regarding enhanced damages is found in § 284 of the Patent Act, which provides in relevant part that courts “may increase the damages up to three times the amount found or assessed.” The Supreme Court of the United States described this provision (albeit in dicta) as providing that “punitive or ‘increased’ damages” could be recovered “in a case of willful or bad-faith infringement.” Prior to the creation of the Federal Circuit, the regional U.S. Courts of Appeals similarly required willful infringement for imposing enhanced damages under § 284.
For the first twenty-four years of the Federal Circuit’s existence, the court defined willfulness as a form of negligent infringement, holding that when “a potential infringer has actual notice of another’s patent rights, he has an affirmative duty to exercise due care to determine whether or not he is infringing.” However, in 2007 the court changed course, holding in In re Seagate that to prove willful infringement, a patentee must make “at least a showing of objective recklessness” by the accused infringer. This “objective recklessness” standard involved a two-part test:
[T]o establish willful infringement, 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. The state of mind of the accused infringer is not relevant to this objective inquiry. If this threshold objective standard is satisfied, the patentee must also demonstrate that this objectively-defined risk … was either known or so obvious that it should have been known to the accused infringer.
Subsequently, the Federal Circuit clarified that the first part of the Seagate test – the so-called objective prong – was “best decided by the judge as a question of law subject to de novo review.” Under Seagate and subsequent Federal Circuit decisions, an infringer was not objectively reckless if it “raised a ‘substantial question’ as to the validity or noninfringement of the patent.” This was true even if the infringer “was unaware of the arguable defense when he acted.”
Despite this apparently substantial change in the relevant legal standard, willfulness findings remained relatively common even after Seagate. According to one empirical study, findings of willful infringement in patent cases that reached final judgment went from 48 percent in the three-year period prior to Seagate to 37 percent for a similar period after the decision. However, when willfulness was found, the district court awarded enhanced damages only 55 percent of the time after Seagate, compared to over 80 percent of the time before it. In addition, over 70 percent of enhanced-damages awards were for double damages or less, considerably below the statutory maximum of treble damages.
The Supreme Court again weighed in on the appropriate standard for enhanced damages in Halo Electronics, Inc. v. Pulse Electronics. While recognizing that the statutory text granted discretion to the trial courts in determining enhanced damages, it also explained that such discretion “‘should be exercised in light of the considerations’ underlying the grant of that discretion.” Specifically, it explained that enhanced damages under § 284 were “designed as a ‘punitive’ … sanction for egregious infringement behavior,” including “willful, wanton, malicious, bad-faith, deliberate, consciously wrongful [or] flagrant” infringement.
Turning to the standard in Seagate, the Court held that while it “reflects, in many respects, a sound recognition that enhanced damages are generally appropriate under § 284 only in egregious cases,” the Federal Circuit’s two-part test was “unduly rigid, and it impermissibly encumbers the statutory grant of discretion to district courts.” In particular, the Court explained, the Seagate test “insulates the infringer from enhanced damages, even if he did not act on the basis of the defense or was even unaware of it.” As a result, under Seagate, “someone who plunders a patent … can nevertheless escape any liability under § 284.” Halo changed the standard to correct for this, making it possible for the “subjective willfulness” of an alleged patent infringer to lead to enhanced damages, “without regard to whether his infringement was objectively reckless.” Furthermore, a patentee need only prove willfulness by a preponderance of the evidence (unlike Seagate, which required clear-and-convincing evidence).
Evidence that the infringer has copied the patented technology, when coupled with knowledge of the patent (in contrast to mere knowledge, discussed below), can be sufficient for a court to impose enhanced damages. For instance, in Apple Inc. v. Samsung Electronics Co., Ltd., the district court held that the infringer’s continued sale of a product containing a copied feature (Apple’s swipe-to-unlock functionality) was substantial evidence to support the jury’s finding of willfulness, at least once the infringer had knowledge of the patent through the filing of plaintiff’s complaint. Considering the Read factors, the district court then imposed a 30 percent enhancement of the jury’s compensatory damages award, again basing its decision in part on undisputed evidence that the infringer had copied the patented feature. Similarly, efforts by the infringer to conceal its conduct may warrant enhanced damages.
While awarding enhanced damages in patent disputes is largely an American phenomenon, punitive damages for patent infringement are theoretically available in Europe. For example, in the United Kingdom, in Rookes v. Barnard, the House of Lords held that exemplary damages are generally available where, inter alia, “the Defendant’s conduct has been calculated by him to make a profit for himself which may well exceed the compensation payable to the Plaintiff,” but the same court subsequently explained that the award of punitive damages in civil cases is an “undesirable anomaly,” that ought to be limited as much as possible. In Catnic Components Ltd. v. Hill & Smith, the Patents Court went so far as to hold that exemplary damages could not be awarded for patent infringement. But while exemplary damages are now apparently available in patent cases, we are not aware of any UK patent decisions actually awarding exemplary damages.
The EU Enforcement Directive, adopted in 2004, outlines three measures of compensatory damages for knowing infringement: hypothetical license, lost profits, and disgorgement. All methods aim, in principle, only to compensate the patentee; indeed, although the Directive specifically directs Member States to encode provisions to prevent further infringement of property rights, it also states that the scope of this obligation does not extend to punitive damages but instead aims to “allow for compensation based on objective criteria.” In practice, however, disgorgement can go beyond mere compensation as the patentee may receive more than she would have received under an ex ante license. This tension is generally accepted because of the difficulty of otherwise determining an amount adequate to provide sufficient compensation.
Punitive damages are rare in continental Europe, as most EU nations “consider punitive damages to be against public policy, and for the most part this view applies to IP infringement just as it does to other torts.” However, courts in Germany and France have occasionally awarded royalty amounts 25 percent to 100 percent higher than those compared to what the parties would have actually negotiated, which may serve as a form of deterrence.
3 Australia, Canada, and Asia
In Australia, since 2006, courts have been able to increase damages upon consideration of the following: (1) “the flagrancy of the infringement”; (2) the need for deterrence; (3) the infringer’s conduct after infringement; (4) any benefit accrued to the infringer due to infringement; and (5) “all other relevant matters.” Despite this, few reported decisions in Australia have granted enhanced damages under this provision. Similarly, in Canada, punitive damages may be awarded “in exceptional cases of high-handed, malicious, arbitrary or highly reprehensible misconduct that represents a marked departure from the ordinary standards of decent behavior.” But they have rarely been awarded in Canadian patent cases.
In China, courts may award compensatory damages that are “one to three times the patent licensing fee” even though, strictly speaking, punitive damages as such are not currently permitted. In Japan, damages awarded for patent infringement are governed by general rules applicable in all tort actions, according to which, damages are to be compensatory in nature, and not for sanction or general deterrence. Therefore, punitive damages are not available. That said, the Japanese Patent Act contains special provisions that partly shift the burden of proof for the calculation of damages to infringers, which allows courts to award damages that likely exceed the actual loss to patentees. Still, courts seldom take into account the subjective mental state of infringers (e.g., gross negligence, willfulness, or bad faith) in the calculation of damages. Taiwan is one of the few jurisdictions that, like the United States, currently awards up to treble damages for intentional infringement.