SCOTUS takes case on awarding enhanced damages for patent infringement

By Gene Quinn
October 19, 2015

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.

 

The Author

Gene Quinn

Gene Quinn is a Patent Attorney and Editor and President & CEO ofIPWatchdog, Inc.. Gene founded IPWatchdog.com in 1999. Gene is also a principal lecturer in the PLI Patent Bar Review Course and Of Counsel to the law firm of Berenato & White, LLC. Gene’s specialty is in the area of strategic patent consulting, patent application drafting and patent prosecution. He consults with attorneys facing peculiar procedural issues at the Patent Office, advises investors and executives on patent law changes and pending litigation matters, and works with start-up businesses throughout the United States and around the world, primarily dealing with software and computer related innovations. is admitted to practice law in New Hampshire, is a Registered Patent Attorney and is also admitted to practice before the United States Court of Appeals for the Federal Circuit. CLICK HERE to send Gene a message.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 5 Comments comments.

  1. Edward Heller October 20, 2015 8:19 am

    Indeed, Gene. Another 9-0 case.

    Gene, can you think of any reason why the Federal Circuit refused to budge when it was told in Octane Fitness that discretion means discretion?

    Did the AIPLA or the IPO file an amicus brief here?

  2. Night Writer October 20, 2015 11:18 am

    This is a strange one that seems to highlight how odd the Fed. Cir. is. I wonder why the Fed. Cir. keeps doing stuff like this.

  3. Dan Wood October 20, 2015 11:36 am

    So many recent Supreme Court decisions in patent cases have shown a lack of knowledge about matters patent, have been poorly written, and have been… oh, what’s the word… wrong! But now, as “The Force Awakens,” an opportunity arises the nail one! 9-0 would be perfect (whether or not it might be mostly motivated by its antagonism to the Fed Circuit.) “Down goes Seagate!”

  4. Edward Heller October 20, 2015 1:49 pm

    Why treble damages?

    “With prospective damages and injunctions available only in
    rare circumstances, a patentee would have to continually sue for
    actual damages against infringers to stop continued infringement.
    Therefore, it was necessary that the legal damages be trebled to
    prevent duplicative cases.”

    Ryan, James. “A Short History of Patent Remedies.” Cybaris® 6.2 (2015): 5.

    link to web.wmitchell.edu

  5. TVp1rat3 October 31, 2015 7:24 pm

    OK the more i have read lately about the patent system the more it seems the only one that seems to get it is the person walking down the street with no legal training .
    With enough fancy legal ease you can get breathing patented. Is there no common sense standard in any of these cases .. I can spend one hour looking at software patents and can break all of it down to a couple of sentence of what there trying to patent and show there is nothing special about what they have come up with or that a bunch of people will come up with same idea because it common sense.This is like me trying to patent the use of 12 digits to dial a phone number it not that common right now (im just using as example) unless you make international calls but I can do simple math and know that at some point in order for there to be enough phone numbers there will have to be more digits dialed base on population increases and percent of people that have phones.anyone with any commen sense would come up with the same idea some time in the future should i be able to sue them . NO of course not,unless you ask a patent lawyer. one of my favorites of late is a patent that was issued for getting the information about a TV show that has been uploaded to a newsgroup . or the patent for taking a picture against a white background. You lawyers can sit there with a straight face and tell me these and a list of many many more are worth millions of dollars and there actual a patentable kills me . i been a black-hat since i was in middle school in the early 1980 when we figured out a new way to do something I could not wait to jump on BBS (if you don’t know what BBS is you made my point) and share it with everyone and encourage everyone to use it,hack on it make it better but than the lawyers got involved it killed progress.
    I’m not a lawyer but i know software. why are the asking the 70 year old folks on at the scotus deciding anything to do with software or computers it is a joke your lucky if they can turn a PC on and need the nice neat GUI to use it . Instead you should be asking the nerds that are 12 if the idea is new or common sense when it come to tech before you even ask if it worth millions of dollars. I know you all laugh but it the real world. You and other patent trolls aka lawyers are why a phone that should cost 25 to 50 dollars cost 500 and you feel no shame for this .. i hope if nothing else people will take 2 sec and think is this really what the Untied States needs to a focus on in the world today when every country seems be better a coming up with tech. The united states should be leader in tech instead we are leader in file lawsuits over tech and software that the people doing the fighting in courts don’t even understand.