On October 19 2015 the US Supreme Court granted petitions for writs of certiorari in two cases regarding the standard for enhanced damages in patent cases pursuant to 35 USC § 284: Stryker Corp v Zimmer, Inc(1) and Halo Electronics, Inc v Pulse Electronics, Inc.(2) The cases have been consolidated with a total of one hour allotted for oral argument.

Background

Upon a finding of patent infringement, the claimant patentee by statute is to be awarded damages that adequately compensate for the infringement.(3) In addition, the statute states that "the court may increase the damages up to three times the amount found or assessed". However, Section 284 specifies no conditions under which such enhanced damages may be awarded.

In 2007 the Federal Circuit confirmed in In re Seagate Tech, LLC that a finding of wilful infringement is a prerequisite to an enhanced damages award.(4) Further, to prove wilful infringement, the Federal Circuit held that a prevailing party is required to establish by clear and convincing evidence that:

  • the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent (objective prong); and
  • the objectively defined risk was either known or so obvious that it should have been known to the accused infringer (subjective prong).(5)

Lastly, the Federal Circuit held that the objective prong is a question of law that is subject to de novo appellate review.(6)

The patent statute also permits courts to award reasonable attorneys' fees in 'exceptional cases'.(7) In April 2014 the Supreme Court overturned three aspects of prior Federal Circuit law on when an award of attorneys' fees is appropriate:

  • In Octane Fitness, LLC v Icon Health Fitness, Inc,(8) the Supreme Court lowered the evidentiary standard for proving a case 'exceptional' under 35 USC § 285 to 'a preponderance of the evidence', instead of the 'clear and convincing' standard that the Federal Circuit previously required.
  • In Octane the Supreme Court also rejected the Federal Circuit's test for when a case is 'exceptional'.(9) Previously, in the absence of litigation or prosecution misconduct, the Federal Circuit required the prevailing party to prove that the suit was both objectively baseless and brought in subjective bad faith.(10) The Supreme Court determined that the Federal Circuit's framework was too rigid and impermissibly encumbered the discretion of district courts, requiring instead a totality of the circumstances analysis.(11)
  • In Highmark Inc v Allcare Health Mgmt Sys, Inc,(12) the Supreme Court overturned the Federal Circuit's previous application of de novo review and instead held that awards of attorneys' fees should be reviewed on appeal for an abuse of discretion.

The Octane and Highmark decisions have accordingly given rise to a question of whether the Federal Circuit's standards for enhanced damages awards, as per Seagate, should also be revisited. The Supreme Court's grant of certiorari in Stryker and Halo suggests that the answer is yes.

Stryker Corp v Zimmer, Inc

Stryker Corp and other plaintiffs (collectively 'Stryker') asserted infringement by Zimmer, Inc and other defendants (collectively 'Zimmer') of three patents concerning portable, battery-powered pulsed lavage devices, which delivered pressurised irrigation for certain medical therapies. The US District Court for the Western District of Michigan granted summary judgment of infringement of two patents and a jury subsequently found infringement of the third patent. It was found that all patents in suit were valid, and that infringement was wilful. The district court denied various motions by Zimmer for judgment as a matter of law and entered judgment of wilful infringement, awarding treble damages and attorneys' fees for exceptional case.

The Octane and Highmark decisions were issued after the appellate briefing in Stryker was complete, but before the oral argument. Stryker's request for supplemental briefing was denied.

In its Stryker opinion, a Federal Circuit panel affirmed the findings of infringement and validity for all patents in suit, but reversed the district court's determination of wilful infringement on de novo review, because the district court had failed to undertake the necessary objective assessment of Zimmer's defences under the Seagate standard for wilfulness. The Federal Circuit found that Zimmer had presented reasonable defences to all of the asserted claims; therefore, Zimmer's actions did not meet the objective recklessness prong. As a result, the award of trebled damages was vacated.

Stryker's petition for rehearing en banc was also denied, but the Federal Circuit panel issued a revised opinion with a footnote stating that although the court has not yet addressed whether the Supreme Court decisions in Octane and Highmark have altered the standard of review for wilfulness, the district court erred under any standard of review. Following this, Stryker's petition for a writ of certiorari was granted in full.

Halo Electronics, Inc v Pulse Electronics, Inc

Halo Electronics, Inc asserted infringement by Pulse Electronics, Inc and other defendants (collectively 'Pulse') of three patents concerning surface mount electronic packages that contained transformers for mounting on a printed circuit board. A jury found, among other things, that:

  • certain claims were directly infringed;
  • the claims were not invalid for obviousness; and
  • it was "highly probable" that the infringement was wilful.

The US District Court for the District of Nevada concluded that the objective component of wilfulness was not satisfied because Pulse had reasonably relied on its obviousness defence.

The Octane and Highmark decisions were issued a few weeks before reply appeal briefs were filed in Halo.

In a panel opinion by Judge Lourie, the Federal Circuit affirmed the district court's finding of no wilfulness because the record showed that Pulse had raised a substantial question as to the obviousness of the patents. Judge O'Malley filed a concurrence – joined by Judge Hughes writing separately – noting that "it is time for the full court to reevaluate our standard for the imposition of enhanced damages in light of" Octane and Highmark, and "the terms of the governing statutory provision 35 U.S.C. § 284 (2012)". The concurrence noted that the Seagate test is analogous to the test that the court prescribed for awards of attorneys' fees under Section 285, which was overruled by Octane. The concurrence questioned whether:

  • the flexible test required by the Supreme Court in Octane would be appropriate for enhanced damages;
  • a preponderance of the evidence standard should apply instead of a clear and convincing evidence standard; and
  • de novo appellate review is appropriate.

Halo and Pulse filed petitions for rehearing en banc, which were denied. Following this, Halo's petition for a writ of certiorari was granted with respect to Section 284 and was denied in part. Pulse's cross-petition for a writ of certiorari regarding obviousness was denied.

Comment

In granting the petitions for writs of certiorari in Stryker and Halo the Supreme Court has indicated that it will be reviewing whether the Federal Circuit is correct in continuing to predicate any award of enhanced damages under Section 284 on a finding of wilfulness as determined in accordance with its two-part Seagate test, given the Supreme Court's rejection in Octane and Highmark of an arguably analogous framework for awarding attorneys' fees in exceptional cases under Section 285.

The Supreme Court decisions in Stryker and Halo may have important consequences for patentees that are unable to meet the requirements of Seagate. Oral argument may provide early clues as to the Supreme Court's thinking on this matter.

For further information on this topic please contact Robert H Fischer or Whitney L Meier by telephone ((+1 212 218 2100) or email (rfischer@fchs.com or wmeier@fchs.com). The Fitzpatrick, Cella, Harper & Scinto website can be accessed at www.fitzpatrickcella.com.

Endnotes

(1) No 14-1520.

(2) No 14-1513.

(3) 35 USC § 284.

(4) In re Seagate Tech, LLC, 497 F3d 1360, 1368 (Fed Cir 2007) (en banc).

(5) Id at 1371.

(6) Bard Peripheral Vascular, Inc v WL Gore & Assoc, Inc, 682 F3d 1003, 1005 (Fed Cir 2012).

(7) 35 USC § 285.

(8) 134 S Ct 1749, 1758 (2014).

(9) Id at 1756-58.

(10) Id at 1752-53 (citing Brooks Furniture Mfg, Inc v Dutailier Int'l, Inc, 393 F3d 1378 (Fed Cir 2005)).

(11) Id at 1756-58.

(12) 134 S Ct 1744, 1749 (2014).

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