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Supreme Court okays troll toll increase

Limits lifted on patent payouts

By Shaun Nichols, 13 Jun 2016

The US Supreme Court has struck down rules limiting patent infringement damages in a decision opponents fear will embolden trolls.

In a unanimous opinion [PDF], the court overturned a lower court's ruling in the Halo Electronics v Pulse Electronics case and, in the process, shot down a review standard that has been used to limit the amount of money that can be collected when a patent holder successfully sues for infringement.

The Supreme Court judges all concurred that the "Seagate" test (named for storage giant Seagate Technology) does not concur with the US Patent Act, and therefore should not be used to decide payouts.

The ruling will allow district court judges more discretion when deciding damages, including the ability to award higher damage amounts.

The Seagate test comprised a number of steps taken when deciding damages, including the suggestion that infringement in a case should be "either known or so obvious that it should have been known to the accused infringer."

The Seagate test had been used by courts to limit the payouts awarded to patent holders, something Halo Electronics had challenged, arguing that Section 284 of the Patent Act, which calls for courts to be able to decide damages "up to three times the amount found or assessed" should determine payouts without the need for a Seagate test.

The court, in its 8-0 ruling, sided with the petitioners, arguing that Seagate should not be used to limit damages.

"The pertinent language of §284 contains no explicit limit or condition on when enhanced damages are appropriate, and this Court has emphasized that 'the word may clearly connotes discretion'," the court said in its ruling.

The decision will come as a disappointment to the technology companies and advocacy groups that had opposed the challenge and argued that throwing out the Seagate test would allow patent trolls to make more money on dubious claims.

In an amicus brief [PDF] filed with the court late last year, the Electronic Frontier Foundation (EFF) and Public Knowledge argued that getting rid of Seagate would increase instances of small companies being forced out of business at the hands of patent trolls.

"The patent system is filled with those who use patents not as a shield of protection but rather as a sword to threaten operating businesses," they argued.

In issuing the Court's opinion, Chief Justice John Roberts acknowledged the worry over patent trolls and the argument against removing Seagate, but reasoned that the ability of judges to decide infringement awards should not be constrained by additional rules or tests.

"The seriousness of respondents' policy concerns cannot justify imposing an artificial construct such as the Seagate test on the discretion conferred under §284," he wrote.

EFF Staff Attorney Daniel Nazer said that the ruling was unsurprising, but pointed out that the decision does not give free reign to judges to issue pumped-up awards.

"EFF is glad to see that the Court emphasized that enhanced damages should still be reserved for the most egregious cases," Nazer told The Register.

"We agree with the concurrence that district courts should be cautious not to impose enhanced damages too often, especially where non-practicing entities send threat letters out to numerous small businesses."

The case will now be referred back to the lower courts to reconsider damages. ®

The Register - Independent news and views for the tech community. Part of Situation Publishing