What: Shares of VirnetX Holding Corporation (NYSEMKT:VHC) rose more than 18% Thursday after the U.S. Supreme Court made it easier for so-called patent trolls to win additional damages in patent infringement lawsuits.
So what: The Supreme Court struck down a patent-law precedent created by the U.S. Court of Appeals for the Federal Circuit, which Chief Justice John Roberts ruled had set too-strict requirements to determine whether infringement was willful. With these requirements relaxed, it's easier for patent holders to win "treble damages" -- or triple the amount of actual monetary damages.
More specifically, the decision alters the meaning of a provision of patent law that states lower courts "may increase the damages up to three times the amount found or assessed," but it doesn't specifically set guidelines for when those damages should be awarded, therefore leaving the discretion of when to award up to the court. What's more, such enhanced damages were rare, according to Roberts, as "it requires a finding of objective recklessness in every case."
Such a threshold requirement excludes from discretionary punishment many of the most culpable offenders such as the "wanton and malicious" pirate who intentionally infringes another's patent -- with no doubts about its validity or any notion of a defense -- for no purpose other than to steal a patentee's business. The subjective willfulness of a patent infringer, intentional or knowing, may warrant enhanced damages, without regard to whether his infringement was objectively reckless.
Now what: Relaxing the rules for treble damages to be awarded seems an obvious win for non-practicing entities like VirnetX, which relies almost entirely on patent licensing, royalties, and court damages related to its patent infringement lawsuits to keep its coffers full.
At the same time, Justice Stephen Breyer concurred to clarify that treble damages "are generally appropriate [...] only in egregious cases." So it also seems cases where these more lax requirements apply should ultimately prove slightly less rare than they already are. As such, with shares of VirnetX now up 140% so far this year after a separate encouraging patent victory against a certain Cupertino-based tech giant, I'm not convinced this ruling justifies today's more than 18% pop.
Steve Symington has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.