RESPONDENT:Pulse Electronics Inc., et al.
LOCATION: U.S. Court of Appeals for the Federal Circuit
DOCKET NO.: 14-1513
DECIDED BY: Roberts Court (2016- )
LOWER COURT: United States Court of Appeals for the Federal Circuit
CITATION: 579 US (2016)
GRANTED: Oct 19, 2015
ARGUED: Feb 23, 2016
DECIDED: Jun 13, 2016
Carter G. Phillips – for the respondents
Jeffrey B. Wall – for the petitioners
Roman Martinez – Assistant to the Solicitor General, for the United States as amicus curiae, for the petitioners
Facts of the case
Halo Electronics, Inc. (Halo) and Pulse Electronics, Inc. (Pulse) are both suppliers of electronic components. Halo owns three patents regarding surface mount electronic packages; Pulse designs and sells surface mount electronic packages and does its manufacturing in Asia. In 2002, Halo unsuccessfully attempted to license their patents to Pulse. In 2007, Halo sued Pulse for patent infringement. The district court held that Pulse infringed on Halo’s patents with products shipped into the United States, had induced others to infringe on products delivered outside of the U.S. but ultimately imported into the U.S. as finished products, and found that it was highly probable that Pulse’s infringement was willful. The court later found that Pulse’s infringement was not willful. The U.S. Court of Appeals for the Federal Circuit affirmed and held that there was no “willful infringement.” In determining that there was no willful infringement, the appellate court applied a rigid two-part test established inIn re Seagate that required that willfulness be proven on both an objective and subjective basis. In this case, the appellate court held that the objective prong was not met. This two-part test is similar to one the Supreme Court struck down last term inOctane Fitness, LLc v. ICON Health & Fitness, which dealt with a test for awarding attorneys fees.
In the consolidated case, Stryker Corporation (Stryker) sued Zimmer, Inc. (Zimmer) over patent infringement of medical equipment. Stryker and Zimmer are both competitors in the market for pulsed lavage devices, which deliver pressurized irrigation for certain medical procedures in orthopedic medicine. Stryker holds three patents for pulsed lavage devices that it claimed Zimmer had infringed. The district court found Zimmer liable for patent infringement. The jury awarded Stryker treble damages as allowed under 35 U.S.C. § 284 on the grounds that Zimmer intentionally violated Stryker’s patents. Zimmer appealed to the U.S. Court of Appeals for the Federal Circuit, which requires that the patent-holder prove the infringement was willful to be eligible for treble damages. Therefore, the appellate court overturned the award for treble damages on the grounds that Zimmer did not intentionally violate Stryker’s patents.
Did the U.S. Court of Appeals for the Federal Circuit err by applying a rigid, two-part test for enhancing patent infringement damages under 35 U.S.C §284?
Media for Halo Electronics v. Pulse Electronics Inc.
Audio Transcription for Opinion Announcement – June 13, 2016 in Halo Electronics v. Pulse Electronics Inc.
John G. Roberts, Jr.:
And I have the opinion of the Court in case 14-1513, Halo Electronics versus Pulse Electronics and the consolidated case.
Now these are important patent cases, but they are actually pretty easy to follow.
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.”
In other words, if you infringe someone’s patent, you might have to pay not only for the sales you caused the patent holder to lose but up to three times that amount and in a patent case that could be a very large number.
The prospect of being found liable for such an amount may cause people developing new technology to be very cautious not to infringe a patent.
Perhaps in the view of some overly cautious, in a way that impedes innovation.
The Federal Circuit which is the circuit that handles appeals in patent cases has fashioned a two-part test for determining when such enhanced damages are appropriate.
Under the Seagate Test so called for the case in which it was announced, a patent owner was first “show by clear and convincing evidence that the infringer acted despite an objectively high likelihood that his actions constituted an infringement of a valid patent.”
At the second stage of the Seagate Test, the patent owner 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.”
Now if the prospect of enhanced damages might cause people developing new technology to be very cautious so they don’t infringe a patent, the Seagate Test significantly eases that concern, that’s because it says that you can’t be held liable for treble damages unless it was very clear that what you were doing infringed the patent and anybody would have been able to see that.
The Seagate Test goes on to say that if you infringed a patent you can get off the hook for enhanced damages if you come up with a reasonable defense not a winning defense but a reasonable one during the trial.
And it doesn’t matter at all whether you knew about that defense or relied on it when you infringed the patent.
The patent owners here won their infringement suits below.
They did not however get enhanced damages.
In both cases the Federal Circuit concluded that they had failed the Seagate Test because the infringers mounted reasonable defenses at trial, the court concluded their infringement was not objectively reckless.
Now the question before us in these cases is whether the Seagate Test is consistent with Section 284.
We hold that it is not.
Now recall the language of Section 284.
It says, courts “may increase the damages to three times the amount found or assessed.”
There is no explicit limit or condition on when enhanced damages are appropriate.
And the word may in the statute, courts may increase the damages clearly connotes a grant of discretion.
We see no basis for constraining that discretion with the strict test like the one the Federal Circuit announced in Seagate, but that is not the end of the story.
Just because the statute confers discretion does not mean there are no limits.
Discretion is not whim.
In the context of patent law the scope of permissible discretion has been narrowed by nearly two centuries of enhanced damaged awards by courts.
Over that period, this Court has made clear that enhanced damages are not for the typical infringement case.
Something more is required on the part of the infringer and we have used a lot of different adjectives to describe what the conduct must be like before it would make an infringer liable for enhanced damages.
The infringer’s conduct must be, we have said, willful, wanton, malicious, bad-faith, deliberate, consciously wrongful” or “flagrant” in other words pretty bad.
In one of the cases from 1854 the Court went so far as to say that the infringer must be acting like a pirate, someone plundering another’s patents.
John G. Roberts, Jr.:
So in sum, enhanced damages serve as a sanction for egregious infringement behavior.
Now the Seagate Test in many respects reflects an effort to implement this historical guidance but it is unduly rigid and impermissibly encumbers the statutory grant of discretion in Section 284.
You simply cannot get that fairly elaborate and detailed test from the one sentence grant of discretion in the Patent Act.
And the Seagate Test can lead to some odd results.
For example, if you had a patent pirate who boldly used someone else’s patented invention with no care at all about whether it was patented, even though there may have been reason to think it was, that pirate would escape any liability for enhanced damages if his lawyer were able to conjure up a losing but reasonable defense after the fact at trial.
So the Seagate Test limiting the discretion of courts to avoid enhanced damages is inconsistent with Section 284.
On the other hand while district courts have discretion to avoid enhanced damages, they cannot avoid such damages in the typical infringement case but only in one that exhibits egregious behavior.
Now because these cases were decided under the Seagate Test we vacate the judgments of the Court of Appeals and remand.
The judgment is unanimous.
Justice Breyer has filed a concurring opinion joined by Justice Kennedy and Justice Alito.