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. The culpability standard for awarding enhanced damages to successful patent plaintiffs under 35 U.S.C. § 284 includes actual knowledge of the patent-in-suit. This standard stems from pre-industrial tort actions designed to punish egregious interpersonal behaviors such as assault, piracy, libel, and seduction, and to preserve public tranquility. But as the law developed to cover “depersonalized” torts committed by corporate defendants and expanded from its moral foundations to embrace economic reasoning, 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 approach 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 state of affairs given the widely recognized notion that disclosure is a core function of the patent system. Moreover, in tension with notions of fundamental fairness, this approach sometimes treats potential infringers who make good-faith attempts to ascertain the nature of the patent landscape in the fields in which they operate—by, for example, looking for patents that they may be infringing on the United States Patent and Trademark Office website—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. Although it acknowledged the pre-industrial, subjective conception of punitive damages in its discussion of “deliberate” and “wanton” infringements, the Court also pointed to the modern conception when it repeatedly referred to recklessness as an acceptable standard of culpability for enhanced damages in patent law.
I argue that, in failing to heed this guidance, 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 and utilitarian policies that it reflects. If applied properly, the proposed standard will mitigate the current doctrine’s perverse effect of discouraging reading of patents, encourage cost-effective patent searches, and take account of the vast differences in patent landscapes between various industries.
GW Paper Series
GWU Law School Public Law Research Paper No. 2017-25; GWU Legal Studies Research Paper No. 2017-25
Karshtedt, Dmitry, The Modern Pirate: Toward a New Standard for Enhanced Damages in Patent Law (April 3, 2017). UC Davis Law Review, Forthcoming; GWU Law School Public Law Research Paper No. 2017-25; GWU Legal Studies Research Paper No. 2017-25. Available at SSRN: https://ssrn.com/abstract=2945696