When can a patent owner obtain enhanced damages in a successful suit for patent infringement? What is the relationship between the standard for awarding enhanced damages and awarding attorney’s fees in patent cases? These and other questions were debated before the Supreme Court on February 23, 2016, in a pair of consolidated cases, Halo Electronics v. Pulse Electronics and Stryker Corp. v. Zimmer. The final decision, to be announced in the next few months, will affect patent practice as well as the pace of technology development and litigation.
While the two cases arise from different industries and contain contrasting facts, they share common features. In both cases, the patent owner was denied enhanced damages by the Federal Circuit. For Halo, the Federal Circuit affirmed the district court’s ruling against enhanced damages on summary judgment. In Stryker’s case, however, the Federal Circuit reversed an award of enhanced damages by a jury. In each case, the Federal Circuit applied a two part test to determine willfulness for the purposes of awarding enhanced damages. First adopted by the court through its decision In re Seagate, 497 F.3d 1360 (Fed. Cir. (2007), the patent owners now ask the Supreme Court to overrule that decision.
Under Seagate, a patent owner, in order to establish willful infringement, must show that (1) the infringer lacked an objective basis for defending its infringement and (2) the infringer did not act in good faith. The district court will first consider whether the infringer had an objective basis (such as evidence of patent invalidity). If some objective basis exists, then the court need not consider the absence of good faith. In both Halo and Stryker’s cases, the Federal Circuit found that the infringer had evidence of patent invalidity, providing an objective basis for continuing to make and use the patented technology. The patent owners argue, nonetheless, that the defendant acted willfully because knowledge of the patent and continued infringement indicated lack of good faith. However, the district court did not consider the evidence of lack of good faith because under the Federal Circuit’s formulation, the subjective prong is not considered when the objective prong has been met. District courts should consider, the patent owners argue to the Supreme Court, both subjective and objective factors under a totality of the circumstances standard to determine willfulness. Consequently, the Supreme Court should reject the rigid two prong test adopted by the Federal Circuit in Seagate.
In support of their position, Halo and Stryker point to the longstanding use of a totality of the circumstances test to determine willfulness. They also rely on the Supreme Court’s 2014 decision in Octane Fitness v. Icon Health & Fitness. In that decision, the Court rejected an equally rigid two prong test adopted by the Federal Circuit to determine when attorney’s fees will be shifted to the prevailing party in a patent suit. Also on their side is the need for ready availability of enhanced damages to combat patent infringement.
What does the February 23 oral argument tell us about how the justices view the case? Justices Sotomayor and Kagan spoke favorably about the need to protect patent owners from infringement. Justice Roberts spoke favorably of the totality of the circumstances approach out of respect for district courts and their exercise of discretion. Justice Breyer, by contrast, referred to the expertise of the Federal Circuit on patent matters. He also was concerned that a heightened standard for an award of enhanced damages, such as the Seagate test, is a prophylactic against extortionate litigation tactics brought by nonpracticing entities against small innovative firms, particularly in the software industry. Oral arguments demonstrate that the justices are thinking deeply about the issues raised by Halo and Stryker. The final opinion, or more likely set of opinions, should be provocative and continue the debate over willfulness, enhanced damages, and the dynamics of patent litigation.
On March 31, 2016, the New York State Science & Technology Law Center at Syracuse University College of Law will host a webcast about the Halo/Stryker cases and the oral arguments. The webcast will feature Professor Shubha Ghosh, Director of the Technology Commercialization Law Program, discussing and taking questions on the cases, oral argument, and the broader implications for patent practice and technology commercialization. Topics for discussion include (but are not limited to):
- Comparing the contrasting goals of attorney fee shifting under Section 285 and enhanced damages under Section 284.
- How to respond to cease and desist letters in order to avoid an award of enhanced damages in light of Seagate and the pending opinion in Halo.
- Potential effect of the decision on technology commercialization and advising clients in the start-up world.
- General climate of patent law and reform efforts in Congress and in the courts.
- Developing relationship between the Federal Circuit and the Supreme Court.