ARE Patent Law Alert:
Federal Circuit Applies Supreme Court’s Enhanced Damages Standard in Patent Cases Remanded from the Supreme Court
August 10, 2016On June 13, 2016, the United States Supreme Court issued a joint decision in Halo Electronics, Inc. v. Pulse Electronics, Inc. and Stryker Corp. v. Zimmer, Inc., (“Halo”), unanimously rejecting the United States Court of Appeals for the Federal Circuit’s Seagate test for enhanced damages in patent cases. In both cases, the Court vacated the decisions of the Federal Circuit, which were decided using the Seagate test, and remanded the cases for further proceedings consistent with the opinion of the Court. 136 S. Ct. 1923, 1935 (2016).
Specifically, the Court took issue with Seagate’s requirement of a finding of “objective recklessness” before a district court may consider enhanced damages. Id. The Court held that this standard allows an infringer to insulate himself from enhanced damages by simply mustering a reasonable, yet unsuccessful, defense at trial, even where the infringer “did not act on the basis of the defense or was even aware of it.” Id. at 1933.
The Court “eschew[ed] any rigid formula for awarding enhanced damages under § 284.” Id. at 1934. Ultimately, the Court reiterated that while § 284 gives district courts discretion to award enhanced damages against patent infringers, district courts should be guided by “sound legal principles” developed over many years of application and interpretation of the Patent Act in which enhanced damages are awarded only in “egregious cases of misconduct beyond typical infringement.” Id. at 1935.
The Federal Circuit has now begun to apply this new more flexible standard. In the remand of Halo, the Federal Circuit vacated the district court’s decision not to enhance damages pursuant to § 284. Halo Electronics, Inc. v. Pulse Electronics, Inc., Nos. 2013-1472, 2013-1656, slip op. at 21 (Fed. Cir. Aug. 5, 2016). The Federal Circuit noted that the jury had found it was “highly probable that Pulse’s infringement was willful.” Id. at 20. However, the district court found against enhanced damages because the defendant Pulse presented an obviousness defense that was not objectively baseless. Id. In vacating the decision, the Federal Circuit instructed the district court to exercise its discretion in awarding enhanced damages taking into account that: (1) Pulse did not challenge the jury’s subjective willfulness finding; and (2) Pulse’s obviousness defense, which the district court found was not objectively baseless, had not been developed until after the lawsuit was filed in 2007, meaning that it did not have such a defense at the time the infringement occurred. Id.
Similarly, in Innovention Toys, LLC v. MGA Entertainment, Inc., the Federal Circuit in a non-precedential opinion vacated the district court’s finding of no enhanced damages. Again, despite a jury finding of subjective willfulness that was not disputed on appeal, no enhanced damages were awarded (this time by the Federal Circuit upon de novo review at the appellate level) because MGA’s obviousness defense was not objectively unreasonable. No. 2014-1731, slip op. at 3 (Fed. Cir. Aug. 5, 2016). Noting that the finding of willful misconduct should remain untouched on remand, the Federal Circuit instructed the district court on remand to exercise its discretion to award enhanced damages, “including the emphasis on [the] egregiousness” of MGM’s conduct. Id. at 4.
We will continue to monitor the Courts for the latest developments on this issue.
*Charles R. Macedo is a partner and Benjamin Charkow is an associate at Amster, Rothstein and Ebenstein LLP. Their practice specializes in intellectual property issues, including litigating patent, trademark and other intellectual property disputes. They may be reached at [email protected] and [email protected].
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