Expanding the Framework for Enhanced Patent Damages

So far this term, the Supreme Court has agreed to hear only one patent issue – enhanced damages, a.k.a. willfulness.  Two separate lawsuits have been joined together for the Supreme Court hearing: Halo[1] and Stryker[2].  An expanded one-hour has been allotted for the yet-to-be-scheduled oral arguments.

Petitioners have now filed their merit briefs.

In all likelihood, the Supreme Court will continue its decade-long path of rejecting the Federal Circuit’s penchant for patent-centric bright-line tests and instead require that the Federal Circuit simply follow the statute and general law associated with enhanced and punitive damages.  See., e.g., Octane Fitness (2014)[3], MedImmune (2007)[4], and eBay (2006).[5] In particular, the statute’s only statement on enhanced damages gives deference to the district court to act within the treble-damages limit, indicating that “the court may increase the damages up to three times the amount found or assessed.”  The most parallel case-on-point is Octane Fitness where the 2014 Supreme Court eliminated the Federal Circuit’s rigid test for attorney fee shifting under Section 285.

The question of enhanced damages is only relevant once the asserted patent is adjudged enforceable and infringed and damages awarded for the infringement.  Then, under Federal Circuit rule, enhanced damages can only be awarded upon clear-and-convincing evidence that (1) the infringer acted despite an objectively high likelihood that its conduct was infringing, and (2) the infringer knew or should have known of the risk.

Question presented in Halo:

Whether the Federal Circuit erred by applying a rigid, two-part test for enhancing patent infringement damages under 35 U.S.C. § 284, that is the same as the rigid, two-part test this Court rejected last term in Octane Fitness . . .  for imposing attorney fees under the similarly-worded 35 U.S.C. § 285.

Questions presented in Stryker:

  1. Whether the Federal Circuit has erred in imposing a rigid, two-part threshold test on the flexible text of Section 284.

  2. Whether a district court has the discretion under Section 284 to award enhanced damages for the deliberate copying of a patented invention.

Both briefs highlight the Supreme Court’s pre-1952 statements that the power to enhance damages is within the district court’s discretion.[6]  Of course, the statute at that point was perhaps more explicit that enhanced damages were “in the power of the court.”  But, the current statute is almost on point – “the court may increase the damages.”  And, in the 1983 General Motors case, the Supreme Court wrote that the 1952 Patent Act’s implementation of Section 284 was simply a codification of existing law.[7]

Briefing will continue into January with oral arguments to come after that.

= = = = =

[1] Halo Electronics, Inc. v. Pulse Electronics, Inc., et al., Supreme Court Docket No. 14-1513 (2015).

[2] Stryker Corporation, et al. v. Zimmer, Inc., et al., Supreme Court Docket No. 14-1520 (2015).

[3] Octane Fitness v. Icon Health & Fitness (2014) (fee-shifting under § 285 sits within the discretion of the district courts based upon a totality of the circumstances rather than a rigid framework involving both subjectively and objectively bad behavior.)

[4] MedImmune v. Genentech (2007) (test for declaratory judgment is more flexible than what had been allowed by the Federal Circuit).

[5] eBay v. MercExchange (2006) (traditional equitable test for a permanent injunction applies in patent cases).

[6] See Birdsall v. Coolidge, 93 U.S. 64 (1876) and Topliff v. Topliff, 145 U.S. 156 (1892).

[7] Gen. Motors v. Devex (1983) (case focused on prejudgment interest).

23 thoughts on “Expanding the Framework for Enhanced Patent Damages

  1. One way to inhibit unlawful conduct is to a) clarify the law so that it is quite clear, what conduct is unlawful, and then b) provide the claimant with an economical process to deliver speedy and effective relief from ongoing harm. Another is to ratchet up remedies to such draconial levels as to use the awful prospect of being found to have have been willful as the means to deter infringement.

    It seems to me that a) is streets better, even with criminal conduct. It seems to me a bit uncivilised, ineffective and unimaginative to use b) to deter criminal conduct. It seems to me even worse, to use b) rather than a) to deter the civil wrong of patent infringement.

    What a Start Up patent owner needs, and hence what benefits the innovation society, above any eventual pecuniary “compensation” to the patent owner, is speedy injunctive relief, no?

    1. Max, if what you meant by “a Start Up patent owner” is the first company to launch a new product, there should not be at that launch point others already manufacturing and selling the product,* but if they were, injunctions against actual unlicensed competitors are still aviailable.

    2. Max, preliminary injunctions have been issued in a few cases. But no amount of “clarify the law” is going to avoid all the fact issue determinations delaying or precluding injunctions in most cases. Determining the scope of the claims and determining if they read on the alleged infringing product. Determining what prior art is available and what it teaches to a POSITA re that determined scope of the claims. Etc. The U.S. is not about to enact a system in which an injunction can be issued by a court shutting down commercial products before any evidence of the invalidity of the patent can even be suggested.

      Further re your “Start Up patent owner,” that usually presumes they have a relatively newly issued patent. If you take a look at the issue dates of patents sued on in the U.S. you will find that only a relatively small percentage are suits on newly issued patents. That is further evidenced by the fact that the AIA PGR system provided for challenging newly issued patents has yet to ever be actually initiated by anyone.

        1. Interestingly, that site does not suggest the difficulty Dyson had in commercializing his new vacuum cleaner had anything to do with patents difficulties. Rather, that eliminating replacement vacuum bags reduced a major source of the profits from selling vacuum cleaners! [Many unanticipated new product commercialization failures do get blamed on patent law.]

          1. Works like a charm – the bag less thing is nice (not really why we go it though) but it moves real well, has good strength on our carpets and the engineering on taking it apart // putting it together is impressive.

            We’ve had it for 3 years – we expect a lot more. Haven’t had any problems that sliding the pieces apart cannot fix.

            1. Interesting that Dyson is not a regular in the patents courts in the USA. He has had no end of trouble with patent infringements in Europe, notably with Hoover but also with products coming out of Asia. He has demonstrated thought, that he is a forceful litigant.

          2. Dyson sells more than just vacuum cleaners. I have one of their “bladeless” fans. They also sell “blade” hand dryers. To me, Dyson is like Apple — over-hyped, over-marketed, and ridiculously expensive, but nice looking and works OK.

    3. Max, the cases use to hold that once the validity of a patent had been established, a refusal to stop infringing or take a license was willful. Then we passed a statute that said that validity of a patent shall be presumed. The Federal Circuit effectively ignores that statute by allowing one to defend against willful infringement based on a reasonable case for invalidity presented during trial.

      It would seem to me that the Federal Circuit is ignoring the statute. However, another view is that they are following prior case law.

      1. Hi Ned. I should like to comment usefully, but struggle to write something interesting in reply to your observation.

        But I’m still wondering why Dyson has been so much more active a litigant in the patents courts of Europe than those of the USA. Perhaps it is because in the USA there is a fear of being held to infringe a not invalid claim, a fear unknown in mainland Europe.

        Perhaps the US patent system does work well, for holders of quality patents, on inventive contributions to one of the useful arts.

        1. Max, the linked article talking about Dyson and his inventions suggested that he successfully sued Hoover in the UK. I do not know about what he did in Germany;
          however he had this to say about Germans: “[T]he European Union is dominated by “very large German companies” who set the standards and ensure that the “old guard and old technology” is supported while new technology is not. ”

          You know many of us here think the same about the Europeans trying to dominate the American patent system. But what really is going on it seems that the Germans are dominating Europe and by consequence the Germans are attempting to dominate the United States patent system, shaping it according to the German model.

          But is not just simply the Germans or the German government that is the identified villain. It is large German companies – something similar to the large American companies that are dominating the American patent system, to their sole and exclusive benefit.

          1. So, comment caught in Moderation. I will try editing it. Thus:

            Ned, James Dyson is alluding to the committees that set pan-European technology standards. It will come as no surprise to you that they tend to be (occupied) by industry-leading manufacturers. And guess where most of them are based.

            When it comes to tweaking the US patent system, do the mega US corporations need any help from foreign manufacturers? And do the foreign manufacturers suppose that their help is needed? I should have thought not. In any case, the US patent system is already far more helpful to Big Corp than the German patent system is.

            Circling back to vacuum cleaners, Dyson wants Europe to set standards that promote the progress by supporting more (pressure differential) efficiency with more frugal electric motors. The relevant EU committee (in the pocket of the likes of Miele and BSH) refuses to support his initiative. The volume manufacturers make and sell vacuum cleaners with less efficient technology and (less efficient) motors.

            1. Looks like I succeeded, in picking out and excising the word that triggered the filter. I replaced it (in the above posting) with a less apposite word, with brackets around it.

    4. [i]What a Start Up patent owner needs, and hence what benefits the innovation society, above any eventual pecuniary “compensation” to the patent owner, is speedy injunctive relief, no?[/i]

      Yes, exactly right Max. Even before the Statute of Monopolies in 17th century, it was clear to patent owners that equitable remedies were much more effective than any monetary or legal remedy.

      However, granting equity is not always in the public’s best interest. (Despite the Federal Circuit’s habit since eBay to dismiss the fourth equitable factor, stating that it is in the best interest of the public to enforce patents without any further analysis.) Preliminary injunctions, especially, are difficult to grant because typically those injunctions preserve the status quo, which usually is to let the defendant continue manufacturing the accused infringing device. So it is difficult to get a preliminary injunction unless it is certain that the patent owner wins.

      The next best thing are monetary damages, but a reasonable royalty is not likely to fully compensate the Start Up, and the Start Up will almost certainly NOT get lost profits because of the inability to take full advantage of a national market. The full compensation is somewhere in between, which is why there should be more flexibility in awarding enhanced damages.

      Note, this is all independent of the behavior of the infringer. A Start Up looking to take advantage of a national market, but is undercut by infringement, might be entitled to enhanced damages even if the defendant was not acting willfully or wantonly.

    5. MaxDrei,

      If you are going to start looking at and evaluating “inhibitions,” then you are in the realm of remedies.

      One critical aspect in that realm that is so often misconstrued is the overlooking of the right itself when “judging” harshness of the traditional remedies.

      Another is to remember the cardinal goal of remedies: to make the transgressed as whole as possible.

      To your question then of “What a Start Up patent owner needs, and hence what benefits the innovation society, above any eventual pecuniary “compensation” to the patent owner, is speedy injunctive relief, no?” the answer is an easy and strong “Yes.

      Further, since a basic understanding of the nature of the patent right reveals that a patent right is a negative right, any “tendency” to favor “positive” actions (those actions typically attributed to actual product production) must also be appropriately modified when weighing equitable considerations. “Actual” products then, even – or especially – when infringing, should have at most hardly a feather’s weight of consideration afforded them. The Quid Pro Quo deal simply does not include the “positive” aspects, thus those aspects should have little relevancy to the “Rights/Remedy” equation, especially in consideration of the equitable determination of injunction.

      Sadly, the nuances of determining equitable “making whole” is often bludgeoned by a lack of critical thinking and a fall back to an (only) “just throw money at it” mentality coupled with a “let’s make this an “efficient breaking contract” model. Such actions necessarily fall short as they favor those established entities who would already rather compete on non-innovation factors – the very antipathy of why we have a patent system (as even Ned Heller has noted).

  2. Another reversal of the Fed. Cir. is widely predicted here. The most vulnerable my be for what the Halo brief states as follows:
    “For starters, the Federal Circuit applies the clear and convincing evidence standard for proving willfulness. (Pet. App. 28a-29a.) Yet Section 284 itself imposes no heightened burden, and, as in Octane, provides no basis to depart from the typical burden in civil cases. Octane, 134 S. Ct. at 1758 (“[W]e reject the
    Federal Circuit’s requirement that patent litigants establish their entitlement to fees under § 285 by clear and convincing evidence.”). ”

    [Note that a reversal here will be PRO-patent-owners. An increased risk of treble damages will make ignoring asserted patents of others a far greater risk even where the patent owners may not be entitled to an injunction.]

    1. I think the heightened willfulness standard and the objective baselessness test will be overturned. Maybe unanimously.

      I think the Court will take a pass on the question whether willfulness should be a prerequisite for enhanced damages, at least for now. I don’t think the issue is ripe, and both petitioners will win if the Federal Circuit overturns the willfulness standard.

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