SCOTUS takes case on awarding enhanced damages for patent infringement

Earlier this morning the United States Supreme Court accepted certiorari in two patent cases, which will require the court to determine whether district court judges should have discretion to award victorious patentees with enhanced damages under 35 U.S.C. § 284.

Halo Electronics, Inc. v. Pulse Electronics, Inc. (14-1513) and Stryker Corporation v. Zimmer, Inc. (14-1520) have been consolidated by the Court for consideration, with one hour allotted for oral argument. The motions of Independent Inventor Groups and Nokia Technologies OY for leave to file amicus briefs were both granted.

The single issue accepted by the Supreme Court is as follows:

Whether 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 v. ICON Health & Fitness, Inc. for imposing attorney frees under the similarly-worded 35 U.S.C. § 285.

While predicting the outcome of a Supreme Court decision is always speculative, this case should be one of the easiest outcomes to predict ever. Unless the Supreme Court fundamentally alters its statutory interpretation from the Octane Fitness case, arbitrarily creating a distinction without a difference, the Supreme Court will grant district courts the same broad discretion on enhanced damages that they have been given with respect to awarding attorneys fees.

The Halo Electronics decision

In a majority opinion written by Judge Lourie, the Federal Circuit concluded that Pulse did not sell or offer to sell within the United States those accused products that Pulse manufactured, shipped, and delivered outside the United States, thereby affirming summary judgment of no direct infringement of the Halo patents by those products. The Federal Circuit also found Halo’s argument on appeal concerning the issue of willfulness unpersuasive and affirmed the judgment of no willful infringement of the Halo patents with respect to products that were delivered in the United States.

Citing In re Seagate, Judge Lourie explained that establishing willful infringement requires a two-prong analysis that combines both an objective and a subjective inquiry. On the first prong, the 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. Under the second prong, which represents the subjective inquiry, the patentee must demonstrate that this objectively-defined risk was either known, or so obvious that it should have been known, to the accused infringer.

The district court held here that the objective prong was not met because it concluded that the obviousness defense that Pulse presented at trial was not objectively baseless. Therefore, in light of the record, the Federal Circuit agreed with the district court that Pulse’s obviousness defense was not objectively unreasonable.

[Varsity-3]

What is the Correct Standard?

Writing separately, Judge O’Malley, who was joined by Judge Hughes, wrote that the standard used by the Federal Circuit was not the correct standard to apply in light of the Supreme Court’s recent decisions in Highmark Inc. v. Allcare Health Management Systems, Inc., 134 S. Ct. 1744 (2014) and Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749 (2014).

She wrote:

I believe it is time for the full court to reevaluate our standard for the imposition of enhanced damages in light of the Supreme Court’s recent decisions in Highmark Inc. v. Allcare Health Management Systems, Inc., 134 S. Ct. 1744 (2014) and Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749 (2014), and the terms of the governing statutory provision, 35 U.S.C. § 284 (2012).

Our current two-prong, objective/subjective test for willful infringement set out in In re Seagate Technology, LLC, 497 F.3d 1360 (Fed. Cir. 2007) (en banc) is analogous to the test this court prescribed for the award of attorneys’ fees under § 285 in Brooks Furniture Manufacturing, Inc. v. Dutailier International, Inc., 393 F.3d 1378, 1381–82 (Fed. Cir. 2005), overruled by Octane Fitness, 134 S. Ct. at 1757–58…

As such, our standard for the award of enhanced damages under § 284 has closely mirrored our standard for the award of attorneys’ fees under § 285. See, e.g., Bard Peripheral Vascular, Inc. v. W.L. Gore & Assocs., Inc., 682 F.3d 1003, 1007 (Fed. Cir. 2012)…

Indeed, our willfulness test, as described in Seagate and Bard, and our old § 285 test, under Brooks Furniture, both were predicated on our interpretation of the Supreme Court’s decision in Professional Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc. (“PRE”), 508 U.S. 49 (1993), which we believed required a two-step objective/subjective inquiry before either enhanced damages or attorneys’ fees could be awarded.

The Supreme Court has now told us that our reading of PRE was wrong.

The Statutes

The two statutes that will be at issue in this case are 35 U.S.C. § 284 and § 285. The text of these statutes reads as follows:

35 U.S.C. § 284, in relevant part reads:

[T]he court may increase the damages up to three times the amount found or assessed.

35 U.S.C. § 285:

The court in exceptional cases may award reasonable attorney fees to the prevailing party.

When interpreting § 285 in Octane Fitness and Highmark, the Supreme Court noted that there is no statutory support for a restrictive test that takes discretion away from the district court with respect to determining when to award attorneys’ fees to a prevailing part in patent infringement litigation. Similarly, the relevant part of § 284 likewise has no textual justification for removing discretion from the district court.

Conclusion

Less than two years ago the Supreme Court specifically and directly told the Federal Circuit that their reading of PRE was too narrow. PRE was a limited decision that dealt with determining whether a case is a “sham litigation.” In Octane Fitness the Supreme Court explained that the narrow PRE test required that in order for a lawsuit to be deemed a “sham litigation” it had to be “objectively baseless” and “brought in an attempt to thwart the competition.” The Supreme Court pointed out that in terms of 35 U.S.C. § 285, there is no textual support for applying the same objective/subjective test to determine the appropriateness of awarding attorneys fees. Given the textual similarities between § 284 and § 285 there is little doubt that if the Federal Circuit was incorrect in their narrow reading of PRE relative to § 285, the Federal Circuit was (and is) incorrectly interpreting PRE relative to § 284 as well.