Supreme Court to review barriers for wilful infringement
January 2016 | PROFESSIONAL INSIGHT | LITIGATION & DISPUTE RESOLUTION
Financier Worldwide Magazine
On 19 October 2015, in a somewhat surprising move, the Supreme Court granted certiorari in two cases to review the standard for enhanced damages for wilful infringement under 35 U.S.C. § 284. The two cases, Halo Electronics, Inc vs. Pulse Electronics, Inc, et al, and Stryker Corp et al vs. Zimmer, Inc, et al, are consolidated for review. The grant is surprising because a more lenient treatment under § 284 would bolster patent strength and leverage for patent owners, whereas the patent precedent of late has generally weighed against the rights holder. Relaxed standards should prompt dealers of component products to exercise greater caution in view of the indirect basis of infringement liability in the Pulse case. Similarly, would be infringers may need to re-evaluate the soundness of their non-infringement defences in view of Stryker.
In the Halo case, the grant was limited to Question 1 presented in the petition. Question 1 recites the following: “[w]hether the Federal Circuit erred by applying a rigid, two-part test for enhancing patent infringement damages under 35 U.S.C. § 284, that is the same as the rigid, two-part test this Court rejected last term in Octane Fitness, LLC vs. ICON Health & Fitness, Inc, 134 S. Ct. 1749 (2014) for imposing attorney fees under the similarly-worded 35 U.S.C. § 285”. In the Stryker case, the grant was limited to the following question one presented in the petition: “[h]as the Federal Circuit improperly abrogated the plain meaning of 35 U.S.C. § 284 by forbidding any award of enhanced damages unless there is a finding of wilfulness under a rigid, two-part test, when this Court recently rejected an analogous framework imposed on 35 U.S.C. § 285, the statute providing for attorneys’ fee awards in exceptional cases?”
The rigid, two-part test
The ‘rigid, two-part test’ that the petitioners in Halo and Stryker complain of primarily comes from In re Seagate Tech, LLC. The standard set forth in Seagate for enhanced damages under 35 U.S.C. § 284 is as follows: “to establish wilful infringement, a patentee must show by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent… If this threshold objective standard is satisfied, the patentee must also demonstrate that 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”.
The petitioners in both Halo and Stryker compare the Federal Circuit’s treatment of enhanced damages under §284 to the test for awarding attorney’s fees under § 285 set forth in Brooks Furniture Mfg, Inc vs. Dutailier Int’l, Inc, , which was abrogated by Octane Fitness, LLC vs. ICON Health & Fitness, Inc. Both petitioners assert that the Federal Circuit’s rigid treatment of enhanced damages under § 284 should be overturned as it was in Brooks Furniture.
In Brooks Furniture, the Federal Circuit stated that a case is ‘exceptional’ for purposes of § 285 only if a district court either finds litigation-related misconduct of an independently sanctionable magnitude or determines that the litigation was both “brought in subjective bad faith” and “objectively baseless”.
In Octane, the Supreme Court held that the standard set forth in Brooks Furniture is “unduly rigid, and it impermissibly encumbers the statutory grant of discretion to district courts”. In the companion case to Octane, the Supreme Court affirmed the rule in Octane and further noted that determinations under § 285 should only be reviewed for abuse of discretion.
Halo vs. Pulse
Halo is a supplier of electronic components and owns three dispute patents directed to surface mount electronic packages containing transformers for mounting on a printed circuit board inside electronic devices such as computers and internet routers. The accused infringer, Pulse, is another supplier of electronic components. Pulse designs and sells surface mount electronic packages and manufactures those products in Asia. Some of Pulse’s products were delivered by Pulse to customers in the US, but the majority of them were delivered outside the country, for example to contract manufacturers for companies such as Cisco.
In district court, the jury sided with Halo, finding inducement under 35 U.S.C. § 271(b) and awarding $1.5m in damages. The jury also found clear and convincing evidence that Pulse’s infringement of Halo’s patent was wilful, however the district court set aside this finding because the invalidity defence brought at trial was not objectively baseless (the first prong of the Seagate test). The Federal Circuit affirmed the district court’s conclusion of no wilful infringement.
Stryker vs. Zimmer
Stryker and Zimmer both work in the medical technology field, developing and marketing products relating to various medical specialties. The patents at issue in this case pertain to pulsed lavage irrigation systems, which are commonly used in orthopaedic surgeries and wound management to remove blood and other debris from surgical sites.
In district court, Stryker won its summary judgment motion of infringement by Zimmer. The district court also awarded treble damages under § 284 (triple the $70m jury award). On appeal, the Federal Circuit affirmed the district court’s grant of summary judgment of infringement, the jury’s rejection of all 22 of Zimmer’s invalidity defences, and the jury’s award of lost-profits damages. However, the Federal Circuit reversed on wilfulness, determining de novo that, although all of Zimmer’s defences were unsuccessful, Zimmer had presented a reasonable defence as to each of the three patents-in-suit. Accordingly, the Federal Circuit summarily vacated the district court’s treble damages award and vacated and remanded the district court’s finding of exceptional case and award of attorneys’ fees.
It is difficult to say how the Supreme Court will decide these cases. On the one hand, the petitioners’ arguments appear to be sound. That is, enhanced damages appear to be effectively blocked where an accused infringer can set forth any plausible (i.e., not ‘objectively baseless’) defence during trial. This looks to be a very difficult hurdle for a patent owner to overcome. Additionally, the inclusion of the term ‘exceptional cases’ in § 285 seems to suggest that the test for awarding attorney fees would be more stringent than that for enhanced damages under § 284, which does not include such language. As such, the petitioners’ comparisons to Octane and Highmark appear to be fair.
On the other hand, there is Supreme Court precedent supporting the somewhat strict Seagate test requiring wilfulness for enhanced damages under § 284. In this regard, respondents Pulse and Zimmer rightfully emphasise the difference between § 284 and § 285, wherein the former is punitive and the latter is compensatory. Additionally, attorney fees awards under § 285 typically relate to litigation conduct whereas treble damages under § 284 usually relate to conduct before, and possibly after, litigation has commenced. Accordingly, having distinct tests for § 284 and § 285 would appear to be logical.
Overall, it seems that the Supreme Court will likely alter the framework for awarding treble damages under § 284. However, it is unclear whether the Court will provide a new structured test or merely order district courts to exercise more discretion as in Octane and Highmark.
SCOTUSblog reports that oral arguments for the combined cases are likely to take place in January or early February 2016. The lag time between oral arguments and a final decision typically varies between about two months and five months. As such, we expect a final written decision sometime around May of 2016.
Michael Tobin is an associate at Sughrue Mion, PLLC. He can be contacted on +1 (202) 663 7438 or by email: firstname.lastname@example.org.
Mr Tobin is primarily focused on doing patent prosecution in the chemical arts and related areas.
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