Why it matters: On June 13, 2016, the U.S. Supreme Court decided the consolidated cases of Stryker Corp. v. Zimmer, Inc. and Halo Electronics, Inc. v. Pulse Electronics, Inc. and, as had been widely anticipated, overturned the Federal Circuit's "inelastic" Seagate standard for awarding enhanced damages in patent cases. The upshot of the decision is that, with Seagate out of the picture, deference will now be given to district courts in the exercise of their statutory discretion under Section 284 of the Patent Act to increase damages up to three times the amount assessed for egregious cases of misconduct beyond typical infringement. This was recently illustrated by the actions of the Federal Circuit when the Stryker and Halo cases and a third, WesternGeco, LLC v. Ion Geophysical Corporation, came back before it on remand from the Supreme Court.

Detailed discussion: On June 13, 2016, the U.S. Supreme Court handed down its opinion in the consolidated cases of Stryker Corp. v. Zimmer, Inc. and Halo Electronics, Inc. v. Pulse Electronics, Inc., where it reviewed the standard for awarding a patent plaintiff "enhanced" damages under Section 284 of the Patent Act (35 U.S.C. § 284). We covered the February 23, 2016, oral argument in these cases before the Court in our April 2016 newsletter, where the Justices had signaled this outcome by expressing concern that the Federal Circuit's current two-part Seagate test was overly rigid. As anticipated, in their June 13 opinion the Court overturned the Federal Circuit's "inelastic" Seagate standard, making it easier for a district court to exercise its statutory discretion under Section 284 of the Patent Act to increase damages up to three times the amount assessed in infringement cases where egregious cases of willful infringement are found. The Court vacated the Stryker and Halo cases and remanded them to the Federal Circuit for further proceedings consistent with its opinion. In addition, on June 20, 2016, the week following the Stryker/Halo decision, the Court granted certiorari in WesternGeco, LLC v. Ion Geophysical Corporation (which raised similar Section 284 enhanced damages issues) and immediately vacated and remanded it to the Federal Circuit on GVR order. In each of the three cases, the Federal Circuit in turn vacated and remanded the issue of enhanced damages back to the respective district courts so that the judges could exercise their discretion under Section 284 without the constraints of Seagate.

Setting the stage: the Seagate test and procedural history

Federal Circuit precedent holds that a district court's ability to enhance patent damages (up to three times) under Section 284 of the Patent Act is limited to cases where the patent owner has established willful infringement. Up until the Supreme Court's decision in Stryker/Halo, to prove enhanced damages/willful infringement, the Federal Circuit required a plaintiff to satisfy a two-part test from its 2007 decision in In re Seagate Technology, LLC. The first prong of this Seagate test was objective in nature, and asked if the infringer "acted despite an objectively high likelihood that its actions constituted infringement of a valid patent." The second prong was subjective in nature, and asked if "this objectively-defined risk (determined by the record developed in the infringement proceeding) was either known or so obvious that it should have been known to the accused infringer." Because both prongs of the Seagate test had to be independently satisfied, an infringer's subjective intent under the second prong was irrelevant if it could show any objectively reasonable defense to its actions under the first prong.

In both Stryker and Halo, the Federal Circuit denied enhanced damages under the first prong of the Seagate test, as the infringers (in each case) were found to have set forth sufficient evidence that their actions were "objectively reasonable." The Court granted certiorari to review the Seagate test in light of its 2014 decision in Octane Fitness, LLC v. ICON Health & Fitness, Inc., where it had unanimously rejected a comparable two-part test for awarding attorneys' fees under Section 285 of the Patent Act (35 U.S.C. § 285).

The Stryker/Halo opinion

In a unanimous opinion authored by Chief Justice John Roberts, the Court held that the Federal Circuit's Seagate test was inconsistent with Section 284. While recognizing that "[t]he Seagate test reflects, in many respects, a sound recognition that enhanced damages are generally appropriate under § 284 only in egregious cases," the Court quoted its decision in Octane Fitness to find that the Seagate test " 'is unduly rigid, and it impermissibly encumbers the statutory grant of discretion to district courts.' " The Court found the "principal problem" with the Seagate test to be that, under the first prong, it "requires a finding of objective recklessness in every case before district courts may award enhanced damages" which "can have the effect of insulating some of the worst patent infringers from any liability for enhanced damages."

The Court also rejected the Seagate test because it imposed an "unsupported" burden of proving willfulness by "clear and convincing evidence," much higher than the "preponderance of the evidence" standard used in patent litigation generally. As it had in Octane Fitness, the Court further rejected the Federal Circuit's "tripartite framework for appellate review" in Section 284 cases, holding that a district court's award of damages should be subject to review at the appellate level solely for "abuse of discretion." The Court's specific holding for determining enhanced damages was as follows:

Section 284 gives district courts the discretion to award enhanced damages against those guilty of patent infringement. In applying this discretion, district courts are "to be guided by [the] sound legal principles" developed over nearly two centuries of application and interpretation of the Patent Act. . . . Those principles channel the exercise of discretion, limiting the award of enhanced damages to egregious cases of misconduct beyond typical infringement.

In exercising discretion in awarding enhanced damages under Section 284, the Court said that the district courts should "continue to take into account the particular circumstances of each case" in a manner "free from the inelastic constraints of the Seagate test." Justice Stephen Breyer wrote a concurring opinion where he attempted to put some parameters around the district court's exercise of discretion in determining enhanced damages for egregious conduct, in which Justices Anthony Kennedy and Samuel Alito joined.

The Federal Circuit's actions on remand

The Supreme Court vacated both Stryker and Halo and remanded the cases back to the Federal Circuit for further proceedings consistent with its opinion. In addition, on June 20, 2016, the Supreme Court granted certiorari in WesternGeco, LLC v. Ion Geophysical Corporation, a case that raised similar Section 284 enhanced damages issues, and immediately vacated and remanded the case to the Federal Circuit on GVR order in light of its June 13 decision. In all three cases, the Federal Circuit in turn sent the cases back to their respective district courts to reconsider enhanced damages without the constraints of the Seagate test.

Stryker came back before the Federal Circuit on September 12, 2016. The merits panel began by reaffirming the original jury's findings that Stryker's patents were willfully infringed, even after giving effect to the "new willfulness standard articulated by the Supreme Court." The panel noted that the district court had awarded enhanced damages upon the jury's finding of willfulness, and that the first time around the Federal Circuit had overturned the enhanced damages award under the first prong of the now defunct Seagate test. Rather than merely reaffirming the district court's enhanced damages award as it had the jury's finding of willfulness, however, the panel vacated and remanded the case back to the district court so that it could exercise its discretion to review and "re-make" its enhanced damages award in light of the Supreme Court's decision.

Halo came back before the Federal Circuit on August 5, 2016. In that case, relying on Seagate, the district court had denied enhanced damages to the plaintiff. The panel thus vacated and remanded the case to the district court to reconsider the question of enhanced damages, stating that "[b]ecause the district court applied the Seagate test in declining to enhance damages … we vacate its unenhanced damages award … and remand for further proceedings consistent with the Supreme Court's opinion on enhanced damages."

Last, WesternGeco came back before the Federal Circuit on September 21, 2016. To the extent that, as in Halo, the district court had denied enhanced damages based on Seagate, the panel vacated and remanded the case on that issue (it reinstated its earlier opinion on other matters), stating that:

on remand the district court must consider two questions. The first of these is subjective willfulness… the district court must review the sufficiency of [the evidence presented to the jury for subjective willfulness] as a predicate to any award of enhanced damages, mindful of Halo's replacement of Seagate's clear-and-convincing evidence standard with the "preponderance of the evidence standard."… The second issue that the district court must consider on remand, if the jury's finding of willful infringement is sustained, is whether enhanced damages should be awarded. Halo emphasized that the question of enhanced damages under § 284 is one that must be left to the district court's discretion.

See here to read the Supreme Court's 6/13/16 opinion in the consolidated cases of Stryker Corp. v. Zimmer, Inc. and Halo Electronics, Inc. v. Pulse Electronics, Inc.

See here to read the Federal Circuit's 9/12/16 opinion on remand in Stryker Corp. v. Zimmer, Inc.

See here to read the Federal Circuit's 8/5/16 opinion on remand in Halo Electronics, Inc. v. Pulse Electronics, Inc.

See here to read the Federal Circuit's 9/21/16 opinion on GVR order in WesternGeco, LLC v. Ion Geophysical Corporation.