Introduction

In Halo Electronics, Inc v Pulse Electronics, Inc,(1) a unanimous US Supreme Court held that:

  • an award of enhanced patent damages should be left to the discretion of the district courts;
  • entitlement to enhanced damages need be proven only by a preponderance of the evidence; and
  • an appellate court should review an enhanced patent damages award for abuse of discretion.

The court rejected the Federal Circuit's Seagate framework as unduly rigid, as it requires a showing of both objective and subjective recklessness by clear and convincing evidence, and provides for a trifurcated appellate review process using the de novo, substantial evidence and abuse of discretion standards.

Facts

Halo Electronics, Inc v Pulse Electronics, Inc

The jury found Halo's asserted patent claims valid and infringed, and that there was a high probability that the infringement was wilful. The district court declined to award enhanced damages because it found that Pulse's obviousness defence during litigation was not objectively baseless. A panel of the Federal Circuit affirmed because Pulse raised a substantial question as to the obviousness of the patents. Petitions for rehearing en banc by both parties were denied.

Stryker Corp v Zimmer, Inc

The district court entered judgment on the jury verdict of wilful infringement, awarding treble damages and attorneys' 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 wilful infringement on de novo review because Zimmer presented reasonable defences. Stryker's petition for rehearing en banc was denied.

Decision

In a decision delivered by Chief Justice Roberts, the court first determined that the Federal Circuit's enhanced damages framework as set forth in Seagate is inconsistent with the statutory text of Section 284. The language of the statute simply provides that "the court may increase the damages up to three times the amount found or assessed", without explicit limitations. The court noted that use of "may" connotes discretion. The court traced the history of enhanced damages, noting that since the 1836 Patent Act, enhanced damages have been reserved for aggravated circumstances to punish the infringer. Therefore the discretion permitted under Section 284 is generally limited to "egregious cases of culpable behavior".

The court found the principal problem with the Seagate test to be the requirement of objective recklessness, which could "insulate… the infringer from enhanced damages" even where "he did not act on the basis of the defense or was even aware of it." The court was concerned that the Federal Circuit's standard allowed a bad faith infringer to "plunder… a patent", yet escape enhanced damages "solely on the strength of his attorney's ingenuity" during litigation. The court found subjective wilfulness sufficient to warrant enhanced damages, noting that culpability is generally measured at the time of the challenged conduct.

The clear and convincing evidence standard from Seagate was also rejected because Congress expressly included a higher standard of proof elsewhere in the 1952 Patent Act, but not in Section 284. Finally, the court held that because an award of enhanced damages is committed to the district court's discretion, abuse of discretion is the appropriate standard for appellate review.

The court relied on its previous decisions in Octane Fitness, LLC v Icon Fitness, Inc(2) andHighmark Inc v Allcare Health Mgmt Sys, Inc,(3) which overturned a similar Federal Circuit test to determine when an award of attorneys' fees is available pursuant to 35 USC Section 285. The Octane Fitness and Highmark opinions similarly committed the award to the discretion of the district court, set the burden of proof to a preponderance of the evidence and applied abuse of discretion for appellate review.

Because the Halo and Stryker cases had been decided under the Seagate framework, the judgments of the Federal Circuit were vacated and the cases remanded.

Justice Breyer wrote a concurrence joined by Justice Kennedy and Justice Alito to express his understanding of the limits to the application of enhanced damages. The concurrence noted that the majority opinion still reserves enhanced damages for egregious cases, not merely where an infringer is shown to have known of the patent. The concurrence further noted that 35 USC Section 298 allows an accused infringer to determine whether to obtain an expensive opinion of counsel without being subject to enhanced damages. In applying an abuse of discretion review, the concurrence noted that it may be appropriate for the Federal Circuit to take advantage of its experience and consider the reasonableness of a defence.

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

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