June 13, 2016

Supreme Court Decides Halo Electronics, Inc. v. Pulse Electronics, Inc. and Stryker Corp. v. Zimmer, Inc.

On June 13, 2016, the Supreme Court of the United States decided Halo Electronics, Inc. v. Pulse Electronics, Inc., No. 14-1513, and Stryker Corp. v. Zimmer, Inc., No. 14-1520, holding that a patent-infringement plaintiff can recover enhanced damages if it shows, by a preponderance of the evidence, that the infringer engaged in “egregious” activity “beyond typical infringement.”

The Patent Act, 35 U.S.C. § 284, provides that when a patentee wins a judgment for infringement “the court may increase the damages up to three times the amount found or assessed.” Under prior Federal Circuit decisions, enhanced damages were permitted only if the patentee showed “by clear and convincing evidence that the infringer” acted with both “objective recklessness” and “subjective knowledge” of wrongdoing. In reviewing enhanced-damages decisions, the Federal Circuit reviewed district courts’ objective-recklessness determinations de novo. It reviewed subjective-knowledge determinations for substantial evidence, and it reviewed “the ultimate decision” whether to enhance the damages for abuse of discretion.

Halo Electronics is a supplier of electronic components. It claimed that Pulse Electronics “infringed its patents for electronic packages containing transformers designed to be mounted to the surface of circuit boards.” Halo won a jury verdict for infringement against Pulse, but the district court found enhanced damages inappropriate under the Federal Circuit’s objective-recklessness requirement. The Federal Circuit affirmed.

The Supreme Court decided the case together with one involving Stryker Corporation, which sells “orthopedic pulsed lavage devices”—“a combination spray gun and suction tube, used to clean tissue during surgery.” Stryker won a patent-infringement judgment against Zimmer, Inc. The district court awarded Stryker treble damages under § 284. But the Federal Circuit vacated the treble-damages award for lack of objective recklessness.

The Supreme Court unanimously vacated both judgments. The Court rejected the Federal Circuit’s enhanced-damages test because “it requires a finding of objective recklessness in every case before district courts may award enhanced damages.” This, said the Court, “excludes from discretionary punishment many of the most culpable offenders.” The Court noted that “culpability is generally measured against the knowledge of the actor at the time of the challenged conduct.” So it held that “[t]he subjective willfulness of a patent infringer, intentional or knowing, may warrant enhanced damages, without regard to whether his infringement was objectively reckless.”

The Court explained that “Section 284 permits district courts to exercise their discretion in a manner free from the inelastic constraints of” the Federal Circuit’s former test. The Court cautioned, however, that enhanced damages should not be “awarded in garden-variety cases.” Instead “district courts are to be guided by the sound legal principles developed over nearly two centuries of application and interpretation of the Patent Act,” which “channel the exercise of discretion, limiting the award of enhanced damages to egregious cases of misconduct beyond typical infringement.” The Court noted that these “egregious cases” are “typified by willful misconduct.” It further instructed that “none of this is to say that enhanced damages must follow a finding of egregious misconduct.”

The Court also rejected the Federal Circuit’s clear-and-convincing-evidence standard, observing that “patent-infringement litigation has always been governed by a preponderance of the evidence standard,” and “[e]nhanced damages are no exception.” Finally, the Court held that enhanced-damages “decisions should be reviewed for abuse of discretion,” “in light of the longstanding considerations we have identified” in the Court’s opinion.

The Court therefore vacated the judgments and remanded for further proceedings.

Chief Justice Roberts delivered the opinion for a unanimous Court.

Download the Opinion of the Court.

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