Supreme Court Strikes Down Federal Circuit's Enhanced Damages Standards in Halo, Stryker Patent Ruling
The Supreme Court unanimously ruled Monday against the U.S. Court of Appeals for the Federal Circuit’s standards for awarding enhanced punitive damages in patent infringement cases and remanded two consolidated patent cases -- Halo Electronics v. Pulse Electronics and Stryker v. Zimmer -- to respective district courts in Las Vegas and Grand Rapids, Mich. Chief Justice John Roberts criticized the Federal Circuit’s enhanced damages standards for being “overly rigid,” saying federal law “allows district courts to punish the full range of culpable behavior.” The Supreme Court’s ruling on the Halo and Stryker cases will affect only a fraction of all patent litigation but is significant for solidifying the court’s dissatisfaction with the Federal Circuit’s interpretation of patent law, patent lawyers said in interviews.
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The Federal Circuit’s test for awarding enhanced damages of up to triple the value of actual damages awarded in an infringement lawsuit “excludes from discretionary punishment many of the most culpable offenders, such as the ‘wanton and malicious pirate’ who intentionally infringes another’s patent -- with no doubts about its validity or any notion of a defense -- for no purpose other than to steal the patentee’s business,” Roberts said. The Federal Circuit’s test involved an initial assessment of whether there was “clear and convincing” evidence that the infringement at issue is objectively unreasonable, followed by a de novo court review of the infringing party’s argument. The Federal Circuit developed the test in its 2007 ruling on In re Seagate Technology.
Roberts attempted in his opinion to assuage tech firms’ concerns about a potential ruling striking down the Federal Circuit’s test, particularly companies’ fears that “the ready availability of [enhanced] damages will embolden” patent assertion entities (PAEs). Enhanced damages should be rewarded only in “egregious cases” such as those in which the infringing party engaged in “willful misconduct,” Roberts said. PAEs would be able to gain an advantage from a more-flexible enhanced damages test only if such damages “are awarded in garden-variety cases,” he said. “As we have explained, however, they should not be. The seriousness of respondents’ policy concerns cannot justify imposing an artificial construct.”
The Federal Circuit's standards made it "virtually impossible to win a claim for enhanced damages at trial, even if an infringer copied the patented invention," said Foley Hoag patent lawyer Philip Swain, chairman of the American Bar Association IP Law Section Amicus Committee. "Now the Supreme Court has given more discretion to the trial court judges to decide whether to enhance damages on a case by case basis." The Supreme Court’s ruling changes precedent on the standard for interpreting what constitutes willful infringement, but the number of cases that would qualify for enhanced damages under the “relaxed standards” laid out in the court’s ruling is likely to be extremely limited, said Public Knowledge Patent Reform Project Director Charles Duan.
The Supreme Court’s ruling provides a only vague sense of how the justices want a revised enhanced damages test to be structured, so the full effect of the ruling won’t be clear until the Grand Rapids and Las Vegas district courts have a chance to develop case law on remand, said Matt Levy, Computer and Communications Industry Association patent counsel. "We’ll have to wait and see how this shakes out,” he said. District courts “will have to develop evidentiary factors for what indicates egregious behavior,” said Adam Mossoff, George Mason University Center for the Protection of Intellectual Property senior scholar.
The Supreme Court’s strikedown of the enhanced damages test “follows the court’s general pattern of the last five-to-seven years” of overruling what the justices view as the Federal Circuit’s attempts to create “special rules” for deciding damages in patent cases that depart from damages rules in other areas of U.S. law, Mossoff said. The Supreme Court similarly used its rulings last year in Highmark v. Allcare Health Management Systems and Octane Fitness v. Icon Health & Fitness to strike down Federal Circuit rules for determining fee shifting in patent cases, he said. “It’s pretty obvious at this point that the Supreme Court has significant problems with the rules the Federal Circuit has created” for patent cases, Duan said.