IV. Proposed Solutions

The previous sections laid the historical groundwork and presented arguments for the need to reform the Federal Circuit's enhanced damages doctrine. This section presents two solutions: the legislative solution embodied in H.R. 1908153 and a flexible judicial solution that is consistent with the equitable principles discussed in previous sections of this Comment.

A. H.R. 1908-A Statutory Solution

H.R. 1908, also known as the Patent Reform Act of 2007, was passed by the House of Representatives on September 10, 2007. The bill encompasses a broad spectrum of changes to United States patent laws, including a provision that essentially codifies the Federal Circuit's current enhanced damages doctrine. The proposed § 284(c)(1) provides: “A court that has determined that the infringer has willfully infringeda patent or patents may increase the damages up tothree times the amount of damages found or assessed under subsection (a) . . . .”154 H.R. 1908 defines “willful infringement” by three relatively narrow, enumerated circumstances requiring a relatively high burden of proof. The proposed § 284(c)(2) reads:

The italicized portions above indicate the degree of culpability required to find willfulness under the proposed § 284. The text appears to define “willfulness” as a state of mind more culpable than “recklessness” by requiring the potential infringer to have actual rather than merely constructive knowledge of a high likelihood of infringement as required under the second prong of the Seagate test.156 This definition is consistent with the intent of the bill to “limit[] the permitted grounds for a finding of willfulness.”157 Furthermore, even under permitted grounds willfulness must be proven by “clear and convincing evidence,” a burden of proof higher than the “preponderance of evidence” standard that is used in most civil cases. By limiting the grounds and increasing the burden of proof, H.R. 1908 will likely result in fewer findings of willfulness in cases of infringement.

But what are the potential unintended consequences for limiting willfulness findings? Under the Federal Circuit's current enhanced damages doctrine, restrictions on willfulness necessarily lead to reducing courts' ability to award § 284 enhanced damages as an equitable remedy. By removing this lever of control, H.R. 1908 may have the unintended consequence of prompting courts to grant other equitable remedies more frequently. In particular, the eBay test gives courts significant discretion in deciding whether to grant permanent injunctions against infringing conduct.158 Significant evidence exists to show that post-eBay courts often utilize this discretion to grant permanent injunctions.159 Since similar discretion for awarding enhanced damages would be seriously curtailed under H.R. 1908, more infringers may find themselves cast from the “frying pan” of enhanced damages into the “fire” of a permanent injunction if this bill is enacted into law.

B. Flexible Judicial Solution

As discussed in the previous sections, there is a need for a more flexible enhanced damages doctrine that considers both the degree of culpability of the infringer and the equitable concerns between the two parties according to the circumstances of the case.160 Under this approach, a court would have the discretion to enhance a damages award upon finding any degree of culpability justifying deterrence, including negligence, willfulness (or recklessness), intent, and malice (or bad faith).161 In general, more culpable behavior would tend to justify a court applying higher multiplication factors to actual damages, subject to the statutory limit. Unlike the current Federal Circuit enhanced damages doctrine coupled with the Seagate standard for willfulness, this approach would provide a deterrent for both willful and negligent infringement behavior.

This general tendency to increase damages with culpability, however, would be balanced by any equitable concerns between the parties. Courts would be given discretion to “consider the balance of hardships between plaintiff and defendant” in determining whether an equitable remedy is justified.162 One such situation is when the infringer destroyed or failed to keep records necessary for calculating actual damages that fully compensate the patentee.163 The court would be allowed to enhance the actual damages beyond a level justified solely by the infringer's culpability, again subject to the statutory limit. Another situation is when a patentee's claim for injunctive relief passes the first three factors of the eBay test but fails the fourth factor because the public interest would be disserved by granting a permanent injunction.164 This situation would qualify as an equitable concern that a court could consider in determining whether to award enhanced damages under § 284.

Even if the patentee's claim passes all factors of the eBay test, a court may decide that despite the fact that “the balance of hardships between plaintiff and defendant [justifies] a remedy in equity,”165 the proper equitable remedy is enhanced damages rather than a permanent injunction. Consider the example cited in eBay of an individual inventor who does not practice his patent but seeks to license it to manufacturers.166 Assume that a manufacturer, acting without culpability, has incorporated the invention into its commercial product prior to being approached by the inventor with the offer to license. Even though the manufacturer may face hardship if a permanent injunction is granted, a court may reasonably conclude that the individual inventor faces an even greater hardship that justifies an equitable remedy under the third factor of the eBay test. In such a case, an award of enhanced damages rather than a permanent injunction may be preferred by both the individual inventor and the manufacturer.167

The situations described above illustrate the advantages of a flexible judicial solution to determining enhanced damages. In contrast, H.R. 1908 provides even less judicial flexibility than the Federal Circuit's current doctrine by strictly defining “willfulness” and requiring it as a predicate for an enhanced damages award. The situations described in this section also illustrate the advantages of an integrated determination of the availability of the complementary equitable remedies of enhanced damages under § 284 and injunctive relief under § 283. H.R. 1908 makes no provision for linking equitable remedies available for patent infringement.168 In contrast, H.R. 1908 narrows the range of circumstances for which enhanced damages are available, which may result in the unintended-and often undesired-consequence of more frequent awards of injunctive relief under § 283. Thus, the flexible judicial solution is preferable to H.R. 1908 for all the reasons stated above.

A potential concern about the flexible judicial solution is that it would be too flexible, giving courts too much discretion to award enhanced damages and thereby creating unnecessary uncertainty for potential defendants facing infringement litigation. Arguably, however, at the core of this concern is the inadequacy and lack of clarity of the Federal Circuit's pre-Seagate willfulness standard.169 The Federal Circuit's new standard for willfulness articulated in Seagate provides a much stronger foundation on which to base enhanced damages awards.170 Furthermore, the two-part Seagate standard allows a more granular determination of culpability, with the objective part alone clearly defining a standard for “negligent infringement.”171 Thus, the Seagate standard gives courts clear definitions of a broader range of culpable behavior from which the court may enhance awards of actual damages based on traditional equitable considerations, in the same manner as applied to permanent injunctions.172 Likewise, once Federal Circuit case law fleshes out the objective part,173 the Seagate standard should provide clearer notice for potential infringers as to what conduct is likely to result in enhancement of actual damages awards.