Brittany HoganThe Supreme Court on Monday made it easier for patent holders to win extra damages in infringement lawsuits.
The justices upended a lower court’s standard that made it difficult for prevailing patent holders to win so-called treble damages—which amount to actual monetary damages multiplied by three.
The unanimous opinion (PDF) by Chief Justice John Roberts said the US Court of Appeals for the Federal Circuit, which hears all patent appeals, had set too rigid of a test under the Patent Act to determine whether a losing company’s infringement was willful. Prevailing parties can get punitive damages if infringement is deemed willful.
The court noted that the law in question simply says that a judge “may increase the damages up to three times the amount found or assessed.” The Supreme Court on Monday noted that, after nearly two centuries, the bar has been raised—making it more difficult to win treble damages.
Those special damages have wrongly become “reserved for egregious cases of culpable behavior.” The chief justice said that the “principal problem” with the test the courts have glommed onto is that “it requires a finding of objective recklessness in every case.”
“Such a threshold requirement 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 wrote.
The chief justice added: “The subjective wilfulness of a patent infringer, intentional or knowing, may warrant enhanced damages, without regard to whether his infringement was objectively reckless.”
And here’s where it gets even more nuanced. Patent infringers, until today’s ruling, could concoct a defense at trial that “insulates the infringer from enhanced damages, even if he did not act on the basis of the defense or was even aware of it.”
“Under that standard, someone who plunders a patent—infringing it without any reason to suppose his conduct is arguably defensible—can nevertheless escape any comeuppance under §284 solely on the strength of his attorney’s ingenuity,” Roberts said. He added the lower courts have evolved into wrongly adopting a damages standard that “requires clear and convincing evidence to prove recklessness.”
The justices said the law allows “courts to punish the full range of culpable behavior.”
The high court said that “none of this is to say that enhanced damages must follow a finding of egregious misconduct” in every case. “Consistent with nearly two centuries of enhanced damages under patent law, however, such punishment should generally be reserved for egregious cases typified by willful misconduct.”
While not spelling out a new formula for judges to consider, the justices said that enhanced damages should not be granted in “garden-variety cases.” Because of that, the court noted, patent trolls won’t flourish under today’s holding.
Respondents and their amici are concerned that allowing district courts unlimited discretion to award up to treble damages in infringement cases will impede innovation as companies steer well clear of any possible interference with patent rights.
They also worry that the ready availability of such damages will embolden “trolls.” Trolls, in the patois of the patent community, are entities that hold patents for the primary purpose of enforcing them against alleged infringers, often exacting outsized licensing fees on threat of litigation. Respondents are correct that patent law reflects “a careful balance between the need to promote innovation” through patent protection, and the importance of facilitating the “imitation and refinement through imitation” that are “necessary to invention itself and the very lifeblood of a competitive economy.” Bonito Boats, Inc. v.
Thunder Craft Boats, Inc., 489 U.
S. 141, 146 (1989).
That balance can indeed be disrupted if enhanced damages are awarded in garden-variety cases.
As we have explained, however, they should not be.
With that in mind, the justices ordered the lower courts to take another crack at the damages awarded in two cases.
In one case, Halo Electronics won $1.5 million from a competitor, Pulse Electronics, that was selling $39 million worth of Halo infringing products such as surface mount transformers—a product embedded in computers, routers, and other consumer electronics.
A judge said the infringement was not willful, despite license offers to Pulse from Halo before the lawsuit was filed. On appeal, Halo labeled the lower court’s finding as “ridiculous.” (PDF)
In the other case, medical-device maker Stryker won a patent infringement case against rival Zimmer Biomet Holdings that it willfully infringed patents connected to devices that clean wounds.
A jury awarded $70 million, and the judge tripled it because, according to testimony, Zimmer “all-but instructed its design team to copy Stryker’s” hand-held devices.
A federal appeals court upheld the $70 million but vacated the enhanced award, ruling that Zimmer had asserted “reasonable defenses” at trial.