Why it matters: The U.S. Supreme Court is reviewing the standard for awarding "enhanced" damages in patent cases (allowing a district court to increase damages up to three times the amount found or assessed) in the consolidated cases of Stryker Corp. v. Zimmer, Inc. and Halo Electronics, Inc. v. Pulse Electronics, Inc. During oral argument on February 23, 2016, a majority of the justices expressed concern that the current two-part test is overly rigid, but lacked clear consensus concerning a replacement.
Detailed discussion: On February 23, 2016, the U.S. Supreme Court heard oral argument in the consolidated cases of Stryker Corp. v. Zimmer, Inc. and Halo Electronics, Inc. v. Pulse Electronics, Inc.—to review the standard for awarding a patent plaintiff "enhanced" (i.e., increased) damages under Section 284 of the Patent Act (35 U.S.C. §284). This was the first day of argument before the Court since the passing of Justice Scalia.
The Seagate Test
Current Federal Circuit precedent holds that a district court's ability to enhance patent damages (up to three times) is limited to cases where the patent owner has established willful infringement. In turn, willful infringement requires the plaintiff to satisfy a two-part test. See In re Seagate Technology, LLC. The first prong of this Seagate test is objective in nature, and asks if the infringer "acted despite an objectively high likelihood that its actions constituted infringement of a valid patent." The second prong is subjective in nature, and asks 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 must be independently satisfied, an infringer's subjective intent is irrelevant if it can show any objectively reasonable defense to its actions.
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 Petitioners assert that the first prong of the Seagate test is ripe for review, because the Supreme Court (in 2014) unanimously rejected a comparable two-part test for awarding attorneys' fees (under Section 285 of the Patent Act) in Octane Fitness, LLC v. ICON Health & Fitness, Inc.The Court in Octane Fitness construed the broad language of that statute (35 U.S.C. §285) in accordance with its ordinary meaning, rejected the Federal Circuit's rigid test for determining whether a patent case was "exceptional," and left future determinations to the discretion of district courts on a case-by-case basis (considering the "totality of the circumstances").
Most observers commented that a majority of the justices were in general agreement that the Federal Circuit's Seagate test is at odds with the language of the statute (Section 284) and/or sets an artificially high bar for patent plaintiffs to recover enhanced damages. However, these justices appeared divided as to a new standard. For example, Chief Justice Roberts and Justice Ginsburg seemed to lean toward granting judges broad discretion to award enhanced damages (similar to the approach taken in Octane Fitness), while Justices Kennedy, Sotomayor, and Kagan seemed to lean toward providing district court judges with guidance, but would allow them greater flexibility to consider the infringer's subjective intent.
In relatively stark contrast, Justice Breyer appeared to adopt the position that the Federal Circuit took a broad statute and made a reasonable determination that it should be limited in scope for public policy reasons (e.g., relaxing the standard might negatively affect small businesses and stifle innovation). He also suggested that the Federal Circuit should be the final arbiter of the proper test, stating "we did create…that expert court [that is, the Federal Circuit] to make such determinations in the face of language that seems to allow it….So what is wrong with letting them do what they are paid to do?"
Click here to read the 2/24/16 article by Ronald Mann on Scotusblogentitled "Argument analysis: Justices unsettled on standard for enhanced damages in patent cases."
For more on this subject, read the 2/23/16 article in The Recorder entitled "Supreme Court Apt to Tinker With Patent Damages" by Scott Graham.