SCOTUS Relaxes Standard For Enhanced Patent Damages In Stryker
June 14, 2016 (IP Flow) — The Supreme Court of the United States handed down a monumental decision yesterday in its Stryker ruling, relaxing the Federal Circuit’s test for calculating enhanced damages in patent infringement cases.
The statute, 35 U.S.C. § 284, in this context provides that in patent cases, courts may increase damages up to three times actual damages. However, it does not provide guidance on the test to be used by district courts for its implementation. The Federal Circuit had been using a long winded two-part test, which was almost entirely comparable to the test adopted for attorney’s fees that the Supreme Court had set aside in a previous case, Octane.
The case, Stryker v Zimmer, was decided in conjunction with a case petitioned at the same time, Halo v Pulse, and aimed to make clear how the statute should be interpreted by district courts. The cases considered situations where willful patent infringement was found, but enhanced patent damages were denied.
The jury in the Stryker case awarded lost profits for Zimmer’s infringement at the district court level, and found that Zimmer’s infringement had indeed been intentional. Enhanced damages were awarded because the jury heard testimony that Zimmer “all but instructed its design team to copy Stryker’s products.” The Federal Circuit later reversed the willfulness determination and vacated the damages enhancement, finding that, notwithstanding its pre-litigation conduct, Zimmer presented objectively reasonable defenses during the course of the litigation.
In the analogous case, Halo alleged that Pulse was aware of the asserted patents years before the lawsuit, and that Pulse’s due diligence consisted entirely of a single engineer’s two-hour review. The district court held that Pulse’s infringement was not willful because Pulse presented objectively reasonable litigation defenses and the Federal Circuit affirmed decision, with the en banc court denying Halo’s rehearing petition, with Judges O’Malley and Hughes dissenting.
The Supreme Court in these cases considered whether the Federal Circuit had improperly misconstrued the plain meaning of 35 U.S.C. § 284 by forbidding any award of enhanced damages unless a finding of willfulness was found under the rigid, two-part test, when the court rejected a corresponding framework imposed on 35 U.S.C. § 285, the statute providing for attorneys’ fee awards in exceptional cases (Octane and Highmark).
At the Supreme Court, Halo and Stryker essentially argued that their cases were a replay of Octane, and that the Federal Circuit adopted a far too restrictive test for enhanced damages. The Justices in this instance had to balance the protection of innovation and property rights. In other words, considering making it easier for patent trolls to be awarded greater damages on the one hand, and an outcome where willful infringers would pay only actual damages leaving little incentive not to infringe and take chances with litigation on the other. Sullivan & Cromwell’s Jeffrey Wall, the lead attorney for Stryker explains:
In the end, the Supreme Court unanimously vacated the Federal Circuit’s ruling, holding that the wrongfully employed two-part test that was too rigid for determining willful patent infringement. In the decision, Chief Justice Roberts commended the ruling for abolishing the two-part Federal Circuit test as it required “a finding of objective recklessness in every case before district courts may award enhanced damages.” and establishing a standard “designed as a sanction for egregious infringement behavior.”
Note: Sullivan & Cromwell is a client of our sister organization, Mimesis Labs.