On February 23, 2016, the Supreme Court of the United States heard oral argument in the consolidated cases of Stryker Corp. v. Zimmer, Inc., No. 14-1520 and Halo Electronics, Inc. v. Pulse Electronics, Inc., No. 14-1513. The principal issue that these cases present is of widespread interest: when is it appropriate for a trial court to award enhanced damages once patent infringement liability is established?
The oral argument suggested that the Justices are by no means unanimous on seeking to entirely vitiate the existing Federal Circuit standard, so as to accord district courts broad discretion to award enhanced damages. At the same time, the Justices seemed to have not yet clearly resolved how to accommodate the competing interests of patent holders and competitors in an alternative standard that would be more in line with the governing statute.
35 U.S.C. § 284 provides that “[u]pon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement . . . . [T]he court may increase the damages up to three times the amount found or assessed.”
Based on the Federal Circuit’s en banc decision in Seagate, In re Seagate Tech., LLC, 497 F.3d 1360, 1368, 1371 (Fed. Cir. 2007), willful infringement is currently a prerequisite to an enhanced damages award, requiring a patentee to establish by clear and convincing evidence both: (1) the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent (objective prong); and (2) the objectively-defined risk was either known or so obvious that it should have been known to the infringer (subjective prong). The objective prong is a question of law subject to de novo appellate review. Bard Peripheral Vascular, Inc. v. W.L. Gore & Assoc., Inc., 682 F.3d 1003, 1005 (Fed. Cir. 2012).
Apart from enhanced damages, a court may award reasonable attorney fees in “exceptional cases” pursuant to 35 U.S.C. § 285. In April 2014, the Supreme Court overturned aspects of Federal Circuit law regarding when an award of attorney fees is appropriate, making it easier for the prevailing party to show that a case is exceptional and giving district courts greater discretion. Octane Fitness, LLC v. Icon Fitness, Inc., 134 S. Ct. 1749, 1756-58 (2014); Highmark Inc. v. Allcare Health Mgmt. Sys., Inc., 134 S. Ct. 1744, 1749 (2014).
Stryker Corp. v. Zimmer, Inc.
The district court entered judgment on the jury verdict of willful infringement, awarding treble damages and attorney fees for exceptional case to Stryker. A panel of the Federal Circuit affirmed findings of infringement and validity, but reversed the district court’s determination of willful infringement on de novo review because Zimmer presented reasonable defenses to all of the asserted claims, and therefore Stryker could not meet the objective recklessness prong.
Halo Electronics, Inc. v. Pulse Electronics, Inc.
The jury found the asserted patent claims valid and infringed, and that it was “highly probable” that the infringement was willful. The district court found no willfulness because Pulse’s obviousness defense was not objectively baseless. A panel of the Federal Circuit affirmed the district court’s finding of no willfulness because Pulse raised a substantial question as to the obviousness of the patents.
The Supreme Court’s Octane and Highmark decisions raised questions about whether the Federal Circuit’s Seagate standard for an enhanced damages award should be revisited. Thus, when certiorari petitions were filed in the Halo and Stryker cases, it was not altogether surprising that certiorari was granted in each case on October 19, 2015. The cases were consolidated for oral argument.
Merits Briefing and Oral Argument
The widespread interest that these cases generated is evidenced by the number of amicus briefs that were filed – more than twenty, including one by the United States in support of Petitioners and one by members of Congress in support of Respondents. In its brief, the United States argued that enhanced damages should be awarded only for especially egregious acts of patent infringement, but that assertion of an objectively reasonable defense at trial should not categorically exclude enhanced damages. Taking a different view were the Congressional amici, who argued that Congress passed the 2011 America Invents Act (“AIA”) with the expectation that the Seagate standard would continue governing the assessment of enhanced damages.
As to the parties, the petitioners’ briefing argued in part that district courts should be accorded substantial discretion in awarding enhanced damages under Section 284 of the Patent Act, as informed by historical case precedent. The parties also addressed Congressional intent in passing the 1952 Patent Act and amendments thereto, particularly the AIA, and the similarities and differences between Sections 284 and 285 of the Patent Act.
Based on the questioning by the Justices during oral argument, the Justices seemed concerned less with understanding the legal background, and more with the impact that their construction of the Section 284 enhanced damages standard might have on industry, patent owners, and competitors.
Justice Breyer expressed concerns that a more relaxed standard for granting enhanced damages would raise barriers to entry for small companies that cannot afford to seek opinions of counsel every time they are notified of a patent. He also manifested some sympathy with the objective prong of Seagate, suggesting that whatever the state of mind of the defendant at the time infringement commenced, punitive damages are not appropriate when the patent is a weak one. Justice Breyer indicated that this arena would be better left to the “expert court,” the Federal Circuit.
Justice Sotomayor did indicate some interest in giving more discretion to district courts to enhance damages, so as to better safeguard the interests of patent owners. She noted, however, that some additional standard was needed, stating that “we have to give them some guidance.” Justices Kennedy and Kagan indicated an interest in allowing for subjective intent alone to be sufficient to permit enhancing damages, at least in particularly egregious cases.
In comparison with these Justices, Chief Justice Roberts seemingly leaned toward according the district courts broad discretion to enhance damages. He called the Federal Circuit’s Seagate test “surprising,” in light of the simple language of the statute and the history of lower courts dealing with discretionary standards. He indicated that the arguments that were being made to the Supreme Court as to what standard was appropriate could just as well be made to district courts in evaluating whether to enhance damages in the exercise of their discretion. For her part, Justice Ginsberg indicated disapproval of the Federal Circuit’s requirements that there be clear and convincing evidence to support enhanced damages and that appellate review be conducted on a de novo basis.
Some Justices of the Court seemed ready to change the Seagate standard that presently governs when enhanced damages are appropriate, but the Justices also seemed to be divided and unsure as to what an alternative standard should be. How this question is resolved may have important consequences for both patentees and accused infringers. It will therefore be awaited with great interest.