SPECIAL EDITION: The Supreme Court alters the standard for enhanced damages in patent cases

Stryker Corp. v. Zimmer, Inc.

Halo Electronics, Inc. v. Pulse Electronics, Inc.

PATENT – Decided: Jun. 13, 2016

Issue: Whether the Federal Circuit’s two-part test for willful patent infringement, with separate objective and subjective prongs, should be rejected and replaced with a more flexible “totality of the circumstances” test.

Held: Vacated and Remanded. The Federal Circuit’s two-prong Seagate standard for willful infringement and enhanced damages is “unduly rigid,” conflicts with the text of §284, and “impermissibly encumbers” the statute’s grant of discretion to the district court.

As previewed in the Q4 2015 Supreme Court Corner, the Court has now decided both Halo v. Pulse Electronics and Stryker v. Zimmer, and in doing so, has changed the applicable legal standard for a finding of willful infringement and enhanced damages under 35 U.S.C. § 284.

In 2007, the Federal Circuit decided Seagate, making a willful infringement finding more difficult than it had been under prior precedent by applying a heftier two-pronged standard: (1) “a patentee must show by clear and convincing evidence that the accused infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent” (the objective prong) and (2) the patentee must then demonstrate the objectively defined risk was “either known or so obvious that it should have been known to the accused infringer” (the subjective prong).

In Halo and Stryker, the Court has now rejected the Seagate standard. Recognizing that enhanced damages are “as old as U.S. patent law,” the Court’s opinion traces their history from the Patent Act of 1793 through the 1952 enactment of §284, in which Congress “merely reorganiz[ed]” the language of the statutes to “clarify” them. Slip Op. at 2-4. Consistent with this history, the Supreme Court quickly recognized that the “new” enhanced damages provision of the Patent Act, §284, provided for “punitive or increased damages” in a case of “willful or bad-faith infringement.” Id.

In rejecting the Seagate framework as “unduly rigid” and as an “impermissib[e] encumber[ance]” on the statutory grant of discretion, id. at 9, the Court explained that §284 (which states that a district court “may” enhance damages) “contains no explicit limit or condition” and that the statute’s use of the word “may” “clearly connotes discretion.” Id. at 7-8. Indeed, 180 years of precedent established that enhanced damages “are not to be meted out in a typical infringement case, but are instead designed as a ‘punitive’ or ‘vindictive’ sanction for egregious infringement behavior” which includes “willful, wanton, malicious, bad-faith, deliberate, consciously wrongful, flagrant, or—indeed—characteristic of a pirate.” Id. at 8.

Responding to the argument that removing the Seagate standard will “embolden [patent] ‘trolls,’” the Court cautioned that enhanced damages are not to be awarded in “garden variety cases.” Id. at 14-15. Moreover, an unspecified threat that so-called “patent trolls” will seek enhanced damages more often simply “cannot justify imposing an artificial construct such as the Seagate test on the discretion conferred under §284.” Id. at 15.

Thus, in applying their discretion to award enhanced damages, district courts are to be “guided” by the “nearly two centuries of application and interpretation of the Patent Act” which “limit[s] the award of enhanced damages to egregious cases of misconduct beyond typical infringement.” Id. at 15.