__ U.S. __ (2016), 14-1513, Halo Electronics, Inc. v. Pulse Electronics, Inc.

Docket Nº:14-1513, 14-1520
Citation:__ U.S. __, 136 S.Ct. 1923, 195 L.Ed.2d 278, 84 U.S.L.W. 4386, 118 U.S.P.Q.2d 1761, 26 Fla.L.Weekly Fed. S 246
Opinion Judge:Roberts, Chief Justice.
Party Name:Halo Electronics, Inc., Petitioner v. Pulse Electronics, Inc., et al.; Stryker Corporation, et al., Petitioners v. Zimmer, Inc., et al
Attorney:Jeffrey B. Wall argued the cause for petitioners. Roman Martinez argued the cause for the United States, as amicus curiae, by special leave of court. Carter G. Phillips argued the cause for respondents.
Judge Panel:Roberts, C. J., delivered the opinion for a unanimous Court. Breyer, J., filed a concurring opinion, in which Kennedy and Alito, JJ., joined. Justice Breyer, with whom Justice Kennedy and Justice Alito join, concurring.
Case Date:June 13, 2016
Court:United States Supreme Court
 
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__ U.S. __ (2016)

136 S.Ct. 1923, 195 L.Ed.2d 278, 84 U.S.L.W. 4386, 118 U.S.P.Q.2d 1761, 26 Fla.L.Weekly Fed. S 246

Halo Electronics, Inc., Petitioner

v.

Pulse Electronics, Inc., et al.; Stryker Corporation, et al., Petitioners

v.

Zimmer, Inc., et al

Nos. 14-1513, 14-1520

United States Supreme Court

June 13, 2016 [*]

         [136 S.Ct. 1924] Argued February 23, 2016.

         DECISION BELOW: 769 F.3d 1371, 782 F.3d 649

         LOWER COURT CASE NUMBER: 2013-1472, 2013-1656, 2013-1668

          ON WRITS OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT

          No. 14-1513, 769 F.3d 1371; No. 14-1520, 782 F.3d 649, vacated and remanded.

          SYLLABUS

         [136 S.Ct. 1925] [195 L.Ed.2d 283] Section 284 of the Patent Act provides that, in a case of infringement, courts " may increase the damages up to three times the amount found or assessed." 35 U.S.C. § 284. The Federal Circuit has adopted a two-part test for determining whether damages may be increased pursuant to § 284. First, a patent owner must " show by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent." In re Seagate Technology, LLC, 497 F.3d 1360, 1371. Second, the patentee must demonstrate, also by clear and convincing evidence, that the risk of infringement " was either known or so obvious that it should have been known to the accused [136 S.Ct. 1926] infringer." Ibid. Under Federal Circuit precedent, an award of enhanced damages is subject to trifurcated appellate review. The first step of Seagate --objective recklessness--is reviewed de novo ; the second--subjective knowledge--for substantial evidence; and the ultimate decision--whether to award enhanced damages--for abuse of discretion.

         In each of these cases, petitioners were denied enhanced damages under the Seagate framework.

          Held :

          The Seagate test is not consistent with § 284. Pp. 7-15.

         (a) The pertinent language of § 284 contains no explicit limit or condition on when enhanced damages are appropriate, and this Court has emphasized [195 L.Ed.2d 284] that the " word 'may' clearly connotes discretion." Martin v. Franklin Capital Corp., 546 U.S. 132, 136, 126 S.Ct. 704, 163 L.Ed.2d 547. At the same time, however, " [d]iscretion is not whim." Id., at 139, 126 S.Ct. 704, 163 L.Ed.2d 547. Although there is " no precise rule or formula" for awarding damages under § 284, a district court's " discretion should be exercised in light of the considerations" underlying the grant of that discretion. Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U.S. ___, ___, 134 S.Ct. 1749, 188 L.Ed.2d 816, 825. Here, 180 years of enhanced damage awards under the Patent Act establish that they are not to be meted out in a typical infringement case, but are instead designed as a sanction for egregious infringement behavior. Pp. 7-9.

         (b) In many respects, the Seagate test rightly reflects this historic guidance. It is, however, " unduly rigid, and . . . impermissibly encumbers the statutory grant of discretion to district courts." Octane Fitness, 572 U.S., at ___, 134 S.Ct. 1749, 188 L.Ed.2d 816, 825. Pp. 9-13.

         (1) By requiring an objective recklessness finding in every case, the Seagate test excludes from discretionary punishment many of the most culpable offenders, including the " wanton and malicious pirate" who intentionally infringes a patent--with no doubts about its validity or any notion of a defense--for no purpose other than to steal the patentee's business. Seymour v.

McCormick, 57 U.S. 480, 16 How. 480, 488, 14 L.Ed. 1024. Under Seagate, a district court may not even consider enhanced damages for such a pirate, unless the court first determines that his infringement was " objectively" reckless. In the context of such deliberate wrongdoing, however, it is not clear why an independent showing of objective recklessness should be a prerequisite to enhanced damages. Octane Fitness arose in a different context but is instructive here. There, a two-part test for determining when a case was " exceptional" --and therefore eligible for an award of attorney's fees--was rejected because a claim of " subjective bad faith" alone could " warrant a fee award." 572 U.S., at ___, 134 S.Ct. 1749, 188 L.Ed.2d 816, 821. So too here: A patent infringer's subjective willfulness, whether intentional or knowing, may warrant enhanced damages, without regard to whether his infringement was objectively reckless. The Seagate test further errs by making dispositive the ability of the infringer to muster a reasonable defense at trial, even if he did not act on the basis of that defense or was even aware of it. Culpability, however, is generally measured against the actor's knowledge at the time of the challenged conduct. In sum, § 284 allows district courts to punish the full range of culpable behavior. In so doing, they should take into account the particular circumstances of each case and reserve punishment for egregious cases typified by willful misconduct. Pp. 9-11.

         (2) Seagate 's requirement that recklessness be proved by clear and convincing [136 S.Ct. 1927] evidence is also inconsistent with § 284. Once again, Octane Fitness is instructive. There, a clear and convincing standard for awards of attorney's fees was rejected because the statute at issue supplied no basis for imposing a heightened standard. [195 L.Ed.2d 285] Here, too, § 284 " imposes no specific evidentiary burden, much less such a high one," 572 U.S., at ___, 134 S.Ct. 1749, 188 L.Ed.2d 816, 827. And the fact that Congress erected a higher standard of proof elsewhere in the Patent Act, but not in § 284, is telling. " [P]atent-infringement litigation has always been governed by a preponderance of the evidence standard." Id., at ___, 134 S.Ct. 1749, 188 L.Ed.2d 816, 827. Enhanced damages are no exception. P. 12.

         (3) Having eschewed any rigid formula for awarding enhanced damages under § 284, this Court likewise rejects the Federal Circuit's tripartite appellate review framework. In Highmark Inc. v. Allcare Health Management System, Inc., 572 U.S. ___, 134 S.Ct. 1744, 188 L.Ed.2d 829, the Court built on the Octane Fitness holding--which confirmed district court discretion to award attorney's fees--and rejected a similar multipart standard of review in favor of abuse of discretion review. The same conclusion follows naturally from the holding here: Because § 284 " commits the determination" whether enhanced damages are appropriate to the district court's discretion, " that decision is to be reviewed on appeal for abuse of discretion." Id., at ___, 134 S.Ct. 1744, 188 L.Ed.2d 829, 834. Nearly two centuries of enhanced damage awards have given substance to the notion that district courts' discretion is limited, and the Federal Circuit should review their exercise of that discretion in light of longstanding considerations that have guided both Congress and the courts. Pp. 12-13.

         (c) Respondents' additional arguments are unpersuasive. They claim that Congress ratified the Seagate test when it reenacted § 284 in 2011 without pertinent change, but the reenacted language unambiguously confirmed discretion in the district courts. Neither isolated snippets of legislative history nor a reference to willfulness in another recently enacted section reflects an endorsement of Seagate 's test. Respondents are also concerned that allowing district courts unlimited discretion to award enhanced damages could upset the balance between the protection of patent rights and the interest in technological innovation. That concern--while serious--cannot justify imposing an artificial construct such as the Seagate test on the limited discretion conferred under § 284. Pp. 13-15.

         No. 14-1513, 769 F.3d 1371; No. 14-1520, 782 F.3d 649, vacated and remanded.

         Jeffrey B. Wall argued the cause for petitioners.

         Roman Martinez argued the cause for the United States, as amicus curiae, by special leave of court.

         Carter G. Phillips argued the cause for respondents.

         Roberts, C. J., delivered the opinion for a unanimous Court. Breyer, J., filed a concurring opinion, in which Kennedy and Alito, JJ., joined.

          OPINION

         [136 S.Ct. 1928] Roberts, Chief Justice.

          Section 284 of the Patent Act provides that, in a case of infringement, courts " may increase the damages up to three times the amount found or assessed." 35 U.S.C. § 284. In In re Seagate Technology, LLC, 497 F.3d 1360 (2007) (en banc), the United States Court of Appeals for the Federal Circuit adopted a two-part test for determining when a district court [195 L.Ed.2d 286] may increase damages pursuant to § 284. Under Seagate, a patent owner must first " show by clear and convincing evidence that the infringer acted despite an objectively high...

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