“Supreme Court Takes Up Enhanced Damages under Section 284”

October 19, 2015
Client Alert

Stryker Corp. v. Zimmer Inc., 774 F.3d 1349 (Fed. Cir. 2014), revised, 782 F.3d 649 (Fed. Cir.), reh’g en banc denied, 596 F. App’x 924 (Fed. Cir. 2015). Supreme Court Dkt. 14-1520

Halo Elecs., Inc. v. Pulse Elecs., Inc., 769 F.3d 1371 (Fed. Cir. 2014), reh’g en banc denied, 780 F.3d 1357 (Fed. Cir. 2015). Supreme Court Dkt. 14-1513

The Supreme Court granted certiorari in two cases in which patent owners have argued the current Federal Circuit standard for awarding enhanced damages to patent owners is too rigid and stringent. In both cases, the patent owners allege that the infringer deliberately copied the patented invention, which they argue should be sufficient to support a finding of willfulness.

35 U.S.C. § 284 provides that the a court “may increase damages awarded in a patent case by up to three times the amount found or assessed.” To receive these enhanced damages under the current Federal Circuit test, a patentee must prove by clear and convincing evidence that infringement was “willful,” which requires a showing that (1) there was an objectively high likelihood that the infringer’s actions constituted infringement, and (2) the accused infringer either knew or should have known of the infringement. The appellants in each case argue that this standard has effectively stripped district courts of the discretion granted by the statute to award these enhanced damages by imposing the rigid willfulness framework on top of the flexible statutory language. They emphasize that “willfulness” does not appear in the statute at all.

In 2014, the Supreme Court rejected a similar standard that the Federal Circuit had imposed on the award of attorneys’ fees in patent cases under 35 U.S.C. § 285. See Octane Fitness LLC v. ICON Health & Fitness, Inc., 134 S.Ct. 1749 (2014); Highmark Inc. v. Allcare Health Mgmt. Sys., Inc., 134 S.Ct. 1744 (2014). There, the Supreme Court overturned the standard used by the Federal Circuit to determine if a case was “exceptional” which required that proof that the litigation was both brought in subjective bad faith and objectively baseless. Instead, the Supreme Court ruled that an “exceptional” case under the statute is “simply one that stands out from others with respect to the substantive strength of a party’s litigating position…or the unreasonable manner in which the case was litigated.” Octane, 134 S.Ct. at 1756. Similarly, the appellants in Stryker and Halo argue that the statute governing enhanced damages is flexible and does not include the objective and subjective prongs that the Federal Circuit currently requires.

In Stryker, both the jury and the district court found the infringement willful by clear and convincing evidence. However, the Federal Circuit reversed and vacated the enhanced damages because it found that, although the infringer’s arguments were unsuccessful, it had presented a reasonable defense to each of the patents-in-suit. In Halo, the jury found the infringement willful but the district court set aside the willfulness finding on the grounds that the defendant presented an invalidity defense at trial that “was not objectively baseless, or a sham.” On appeal in Halo, while the Federal Circuit affirmed that there could be no willfulness finding because the objective prong of the test had not been met since the obviousness defense presented was not objectively baseless, Judges O’Malley and Hughes issued a concurrence encourages the full court to consider en banc whether the current Federal Circuit test was inconsistent with the Supreme Court’s Octane decision. The Federal Circuit declined to do so.

The Supreme Court consolidated the Halo and Stryker cases and will consider whether the two part test for willfulness that the Federal Circuit has applied to find enhanced damages is inconsistent with the statutory language and the Court’s Octane decision.

The Court will likely issue a decision sometime between March and June, 2016. If you have questions or concerns relating to this development, please contact the author or any attorney at Marshall, Gerstein & Borun.

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