Halo Elecs., Inc. v. Pulse Elecs., Inc.

• Decision Date: 13 June 2016
• Docket Number: 14–1520.,Nos. 14–1513,s. 14–1513
• Citation: 118 U.S.P.Q.2d 1761,136 S.Ct. 1923,195 L.Ed.2d 278
• Parties: HALO ELECTRONICS, INC. v. PULSE ELECTRONICS, INC., et al.
• Court: U.S. Supreme Court

136 S.Ct. 1923

195 L.Ed.2d 278

118 U.S.P.Q.2d 1761

HALO ELECTRONICS, INC.

v.PULSE ELECTRONICS, INC., et al.

Nos. 14–1513

14–1520.

Supreme Court of the United States

Argued Feb. 23, 2016.

Decided June 13, 2016.

Jeffrey B. Wall, Washington, DC, for the petitioners.

Roman Martinez for the United States as amicus curiae, by special leave of the Court, supporting the petitioners.

Carter G. Phillips, Washington, DC, for the respondents.

Craig E. Countryman, Fish & Richardson P.C., San Diego, CA, Michael J. Kane, William R. Woodford, John A. Dragseth, Fish & Richardson P.C., Minneapolis, MN, for Petitioner.

Sharon A. Hwang, Deborah A. Laughton, Stephanie F. Samz, McAndrews Held & Malloy Ltd., Chicago, IL, Garrard R. Beeney, Robert J. Giuffra, Jr., Sullivan & Cromwell LLP, New York, NY, Jeffrey B. Wall, Austin L. Raynor, Sullivan & Cromwell LLP, Washington, DC, for Petitioners.

Mark C. Fleming, Rebecca A. Bact, Wilmer Cutler Pickering Hale and Dorr LLP, Boston, MA, Donald R. Dunner, Finnegan, Henderson, Farabow, Garrett & Dunner, Washington, DC, Seth P. Waxman, Thomas G. Saunders, Thomas G. Sprankling, John B. Sprangers, Wilmer Cutler Pickering Hale and Dorr LLP, Washington, DC, Jason D. Hirsch, Wilmer Cutler Pickering Hale and Dorr LLP, New York, NY, for Respondents.

Carter G. Phillips, Sidley Austin LLP, Washington, DC, Constantine L. Trela, Jr., Steven J. Horowitz, Sidley Austin LLP, Chicago, IL, Mark L. Hogge, Victor H. Boyajian, Shailendra K., Maheshwari, Charles R. Bruton, Rajesh C. Noronha, Dentons US LLP, Washington, DC, for Respondents.

Chief Justice ROBERTS

delivered the opinion of the Court.

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 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 likelihood that its actions constituted infringement of a valid patent." Id., at 1371. Second, the patentee must demonstrate, again 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 infringer." Ibid. The question before us is whether this test is consistent with § 284. We hold that it is not.

I

A

Enhanced damages are as old as U.S. patent law. The Patent Act of 1793 mandated treble damages in any successful infringement suit. See Patent Act of 1793, § 5, 1 Stat. 322. In the Patent Act of 1836, however, Congress changed course and made enhanced damages discretionary, specifying that "it shall be in the power of the court to render judgment for any sum above the amount found by [the] verdict ... not exceeding three times the amount thereof, according to the circumstances of the case." Patent Act of 1836, § 14, 5 Stat. 123. In construing that new provision, this Court explained that the change was prompted by the "injustice" of subjecting a "defendant who acted in ignorance or good faith" to the same treatment as the "wanton and malicious pirate." Seymour v. McCormick, 16 How. 480, 488, 14 L.Ed. 1024 (1854)

. There "is no good reason," we observed, "why taking a man's property in an invention should be trebly punished, while the measure of damages as to other property is single and actual damages." Id., at 488–489. But "where the injury is wanton or malicious, a jury may inflict vindictive or exemplary damages, not to recompense the plaintiff, but to punish the defendant." Id., at 489.

The Court followed the same approach in other decisions applying the 1836 Act, finding enhanced damages appropriate, for instance, "where the wrong [had] been done, under aggravated circumstances," Dean v. Mason, 20 How. 198, 203, 15 L.Ed. 876 (1858)

, but not where the defendant "appeared in truth to be ignorant of the existence of the patent right, and did not intend any infringement," Hogg v. Emerson, 11 How. 587, 607, 13 L.Ed. 824 (1850). See also Livingston v. Woodworth, 15 How. 546, 560, 14 L.Ed. 809 (1854) ("no ground" to inflict "penalty" where infringers were not "wanton").

In 1870, Congress amended the Patent Act, but preserved district court discretion to award up to treble damages "according to the circumstances of the case." Patent Act of 1870, § 59, 16 Stat. 207. We continued to describe enhanced damages as "vindictive or punitive," which the court may "inflict" when "the circumstances of the case appear to require it." Tilghman v. Proctor, 125 U.S. 136, 143–144, 8 S.Ct. 894, 31 L.Ed. 664 (1888)

; Topliff v. Topliff, 145 U.S. 156, 174, 12 S.Ct. 825, 36 L.Ed. 658 (1892) (infringer knowingly sold copied technology of his former employer). At the same time, we reiterated that there was no basis for increased damages where "[t]here is no pretence of any wanton and wilful breach" and "nothing that suggests punitive damages, or that shows wherein the defendant was damnified other than by the loss of the profits which the plaintiff received." Cincinnati Siemens–Lungren Gas Illuminating Co. v. Western Siemens–Lungren Co., 152 U.S. 200, 204, 14 S.Ct. 523, 38 L.Ed. 411 (1894).

Courts of Appeals likewise characterized enhanced damages as justified where the infringer acted deliberately or willfully, see, e.g., Baseball Display Co. v. Star Ballplayer Co., 35 F.2d 1, 3–4 (C.A.3 1929)

(increased damages award appropriate "because of the deliberate and willful infringement");

Power Specialty Co. v. Connecticut Light & Power Co., 80 F.2d 874, 878 (C.A.2 1936) ("wanton, deliberate, and willful" infringement); Brown Bag Filling Mach. Co. v. Drohen, 175 F. 576, 577 (C.A.2 1910) ("a bald case of piracy"), but not where the infringement "was not wanton and deliberate," Rockwood v. General Fire Extinguisher Co., 37 F.2d 62, 66 (C.A.2 1930), or "conscious and deliberate," Goodyear Tire & Rubber Co. v. Overman Cushion Tire Co., 95 F.2d 978, 986 (C.A.6 1938).

Some early decisions did suggest that enhanced damages might serve to compensate patentees as well as to punish infringers. See, e.g., Clark v. Wooster, 119 U.S. 322, 326, 7 S.Ct. 217, 30 L.Ed. 392 (1886)

(noting that "[t]here may be damages beyond" licensing fees "but these are more properly the subjects" of enhanced damage awards). Such statements, however, were not for the ages, in part because the merger of law and equity removed certain procedural obstacles to full compensation absent enhancement. See generally 7 Chisum on Patents § 20.03[4][b][iii], pp. 20–343 to 20–344 (2011). In the main, moreover, the references to compensation concerned costs attendant to litigation. See Clark, 119 U.S., at 326, 7 S.Ct. 217 (identifying enhanced damages as compensation for "the expense and trouble the plaintiff has been put to"); Day v. Woodworth, 13 How. 363, 372, 14 L.Ed. 181 (1852) (enhanced damages appropriate when defendant was "stubbornly litigious" or "caused unnecessary expense and trouble to the plaintiff"); Teese v. Huntingdon, 23 How. 2, 8–9, 16 L.Ed. 479 (1860) (discussing enhanced damages in the context of "counsel fees"). That concern dissipated with the enactment in 1952 of 35 U.S.C. § 285, which authorized district courts to award reasonable attorney's fees to prevailing parties in "exceptional cases" under the Patent Act. See Octane Fitness, LLC v. ICON Health & Fitness Inc., 572 U.S. ––––, ––––, 134 S.Ct. 1749, 1755, 188 L.Ed.2d 816 (2014).

It is against this backdrop that Congress, in the 1952 codification of the Patent Act, enacted § 284

. "The stated purpose" of the 1952 revision "was merely reorganization in language to clarify the statement of the statutes." Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U.S. 476, 505, n. 20, 84 S.Ct. 1526, 12 L.Ed.2d 457 (1964) (internal quotation marks omitted). This Court accordingly described § 284 —consistent with the history of enhanced damages under the Patent Act—as providing that "punitive or ‘increased’ damages" could be recovered "in a case of willful or bad-faith infringement." Id., at 508, 84 S.Ct. 1526 ; see also Dowling v. United States, 473 U.S. 207, 227, n. 19, 105 S.Ct. 3127, 87 L.Ed.2d 152 (1985) ( "willful infringement"); Florida Prepaid Postsecondary Ed. Expense Bd. v. College Savings Bank, 527 U.S. 627, 648, n. 11, 119 S.Ct. 2199, 144 L.Ed.2d 575 (1999) (describing § 284 damages as "punitive").

B

In 2007, the Federal Circuit decided Seagate and fashioned the test for enhanced damages now before us. Under Seagate, a plaintiff seeking enhanced damages must show that the infringement of his patent was "willful." 497 F.3d, at 1368

. The Federal Circuit announced a two-part test to establish such willfulness: First, "a patentee 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," without regard to "[t]he state of mind of the accused infringer." Id., at 1371. This objectively defined risk is to be "determined by the record developed in the infringement proceedings." Ibid. "Objective recklessness will not be found" at this first step if the accused infringer, during the infringement proceedings, "raise[s] a ‘substantial question’ as to the validity or noninfringement of the patent." Bard Peripheral Vascular, Inc. v. W.L. Gore & Assoc., Inc., 776 F.3d 837, 844 (C.A.Fed.2015). That categorical bar applies even if the defendant was unaware of the arguable defense when he acted. See Seagate, 497 F.3d, at 1371 ; Spine Solutions, Inc. v. Medtronic Sofamor Danek USA, Inc., 620 F.3d 1305, 1319 (C.A.Fed.2010).

Second, after establishing objective recklessness, a patentee must show—again 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 infringer."...