History Repeating Itself at the Supreme Court

SCOTUS_building-335The Supreme Court recently decided to review a pair of cases that challenge the Federal Circuit’s willful infringement test. The two cases, Halo Electronics, Inc. v. Pulse Electronics, Inc, (14-1513) and Stryker Corporation v. Zimmer, Inc. (14-1520), are drawing comparisons from commentators to the Court’s Octane Fitness, LLC v. ICON Health and Fitness, Inc. ruling last term based on the similar structure of the tests and statutory language reviewed in both cases. However, another recent SCOTUS case dealing with induced infringement, Commil USA, LLC v. Cisco Systems, Inc., may also shed some light on how the Court will think about willful infringement, since both doctrines center around the defendant’s intent.

The two new cases come from disparate technical areas. The parties in Halo are a pair of competitors disputing patents related to circuit board-mounted transformers. Stryker arises in the life sciences space, centering on patents for surgical irrigation technology. However, both cases involve issues of whether the defendants intended to infringe the patents, so the Supreme Court consolidated them to review the Federal Circuit’s willfulness jurisprudence.

Currently, the CAFC has a two-pronged test for when infringement qualifies as willful. First, the judge must find an “objectively high likelihood that [the infringer’s] actions constituted infringement of a valid patent.” If the patent holder wins that prong then they move to the second. The jury then decides that second prong, whether that objective risk was “known or so obvious that it should have been known to the accused infringer.”

The petitioners in Halo and Stryker argue that the CAFC’s test is overly-rigid. They say that rigidity makes it too easy for people to infringe a valid patent in bad faith while avoiding a finding of willfulness and the associated penalties. The petitioners base their argument on the Supreme Court’s decision in Octane Fitness. That case invalidated a similar two-pronged test for when judges may award attorneys’ fees under 35 U.S.C. § 285. While that test’s structural similarity may be a helpful guide for predicting the Court, there is another recent case that practitioners should not overlook when thinking about Halo and Stryker.

In March, the Court decided Commil v. Cisco, a case related to intent in the induced infringement context. Induced infringement arises when an alleged infringer does not themselves practice the patent, but instead encourages or directs another person to infringe. In addition to actual direct infringement, a patent holder must demonstrate two other elements to prevail on direct infringement. They must show that the defendant hand knowledge of the patent, and an intent to cause someone else to infringe that patent.

In Commil, the defendants argued that they could not have intended to induce infringement because they believed Commil’s patents to be invalid, and one cannot infringe an invalid patent. The court disagreed, drawing on concepts of intent from various other doctrines in patent and tort to determine the level of intent needed to qualify as inducing infringement. Ultimately, the court decided that a belief in the patent’s invalidity does not eliminate the intent to induce infringement. The Court also made special mention of the issue highlighted by Halo that a party could intentionally infringe without a thought to invalidity, only to develop nonfrivolous invalidity arguments after drawing a suit.

The fact that Halo and Stryker center on issues of intent in the patent context makes Commil particularly relevant. When it comes to patent law, the Supreme Court has a tendency to analogize various doctrines when developing intent standards. In Commil, a case on induced infringement, the Court looked at cases in areas of contributory infringement and tortious interference with a contract. And in another seminal case dealing with patent intent, Global-Tech Appliances, Inc. v. SEB S.A., the Court actually wove criminal intent principles into patent law. So, it seems likely that Commil will be on the Justices’ minds while they consider Halo and Stryker.

Commil lowered the bar for finding induced infringement intent, so it is likely the Court could take a similar tack in these willful infringement cases. This is especially true since willful infringement cases can involve defendants who knowingly infringe and then develop objectively reasonable defenses after facing a lawsuit. That same problem drew the Justices’ attention in Commil. Replacing the CAFC’s rigid test with a more fluid standard would be similar to the Justices’ Commil decision, giving more discretion to the district courts to deter instances of bad faith infringement, rather than relying on strict legal tests.

Of particular interest in Commil is the Court’s discussion about patent assertion entities, which the Court felt the need to address despite the fact that Commil was a case between competitors. The Court acknowledged that this ruling makes it easier for patent assertion entities to bring suits, but did not consider that relevant to their decision. That line of thought may carry over into Halo and Stryker since lowering the bar for willful infringement will similarly increase the leverage available to patent assertion entities and other plaintiffs. However, another part of that discussion also presents of one the few pieces of evidence that suggests the Court might actually leave the CAFC test in place.

In Commil, the Court made special mention of their Octane Fitness ruling, along with Rule 11 sanctions, as countermeasures that exist to strike a balance between the plaintiffs’ and defendants’ rights. The Court could decide that creating such a fluid test for willfulness would give plaintiffs too much leverage to force a settlement by threat of willful infringement liability. Yet, that would still seem like an abrupt change from the Court’s thinking in Commil and Octane Fitness.

Ultimately, predicting which direction the Court will move on an issue is always difficult. But, if the Justices are thinking about intent in Halo and Stryker the same way they thought it about Commil, then we may see the CAFC’s rigid test struck down, especially since that move would also be in line with their Octane Fitness decision.


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One comment so far.

  • [Avatar for Edward Heller]
    Edward Heller
    October 26, 2015 01:31 pm

    Alex, excellent analysis.

    The way I see it is that one is not entitled to deliberately infringe a patent. The issue turns on the case for infringement, validity is entirely irrelevant.

    Still we have the statements by Scalia that one cannot infringe an invalid patent. So we know that that discussion will take place among the justices.