The U.S. Supreme Court announced last week that it will decide two cases concerning the issue of when district courts may award enhanced damages to patentees upon a finding of infringement. Stryker Corp. v. Zimmer, U.S., No. 14-1520, Halo Electronics, Inc. v. Pulse Electronics, Inc., U.S., No. 14-1513, cert granted 10/19/2015.
The Patent Act gives broad discretion to district courts in fixing a damages award, allowing them to increase damages “up to three times the amount found or assessed.” 35 U.S.C. § 284. Though the statute does not set forth an applicable standard, it is well settled that in order to receive enhanced damages a patentee must show willfulness or bad-faith on the part of the defendant.
While willful infringement was historically determined through analyzing a totally of the circumstances, the Federal Circuit adopted a two-part test in 2007 requiring the patentee to show that: (1) “the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent,” and (2) the infringer knew, or should have known, the risk of infringement. In re Seagate Technology LLC, 497 F.3d 1360 (Fed. Cir. 2007). The Stryker and Halo petitioners are urging the Supreme Court to abandon this rigid two-part test, arguing that district courts should have broad discretion to determine enhanced patent damages as afforded to them by the text of § 284.
The Stryker and Halo petitions are brought against the background of two decisions by the High Court in 2014, in which it struck down a similar two-part test created by the Federal Circuit for use by district courts in determining attorneys’ fees awards under 35 U.S.C. § 285. Highmark Inc. v. Allcare Health Mgmt. Sys., Inc., 134 S. Ct. 1749 (2014), Octane Fitness, LLC v. ICON Health & Fitness, Inc. 134 S. Ct. 1749 (2014).1 The overturned attorneys’ fees test required one to show that: (1) there was litigation misconduct, or (2) the case was objectively baseless and brought in subjective bad faith. Brooks Furniture Mfg., Inc. v. Dutailier Int’l, Inc., 393 F.3d 1378 (Fed. Cir. 2005). The Supreme Court in Highmark and Octane rejected the second component of the test, ruling that the “objectively baseless” and “subjective bad faith” standard was unduly rigid. That standard is analogous to the willful infringement test created by the Federal Circuit.
The Court explained in Octane that the Federal Circuit had wrongly imported the objective and subjective requirements from Professional Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc., 508 U.S. 49 (1993), which dealt with sham litigation in antitrust law. Similar to the attorneys’ fees test that was overturned, the willful infringement test was also adopted by the Federal Circuit based on Professional Real Estate Investors. As such, the Stryker and Halo petitioners draw parallels between the two tests, arguing that both tests must fall together.
The Supreme Court will also revisit the evidentiary standard applied by courts when deciding the issue of willful infringement. Patentees are currently required to prove willfulness by clear and convincing evidence. Previously, one had to prove their entitlement to attorneys’ fees by clear and convincing evidence as well. Last year, however, the Supreme Court in Octane rejected that standard for attorneys’ fees awards and decided that proof by a preponderance of the evidence was sufficient. The Court will decide in Halo whether the evidentiary standard should also be lowered for proving willful infringement.
1. Click here for a further explanation of the Supreme Court’s Octane and Highmark decisions.