Patent litigation could be forever changed when the United States Supreme Court decides two related cases concerning the test for enhancing damages. The Supreme Court granted certiorari in two cases, Stryker Corp. v. Zimmer, U.S., No. 14-1520, and Halo Electronics, Inc. v. Pulse Electronics, Inc., U.S., No. 14-1513, on the sole issue of whether the Federal Circuit committed error by applying a bright-line two-part test for enhancing patent infringement damages under 35 U.S.C. § 284. A similar test was struck down by the High Court a year ago in Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749, 572 US __ (2014) which involved the test for awarding attorney fees.
The relevant statute, 35 U.S.C. § 284, provides that “the court may increase the damages up to three times the amount found or assessed.”
In applying the enhanced damages provisions of 35 U.S.C. § 284, the courts have interpreted these provisions as containing a “willfulness” requirement, though the word “willfulness” does not appear in the statute. The Supreme Court likely granted certiorari on these two cases because (a) courts are applying a rigid and inflexible test to determine willfulness; and (b) the test has no textual basis in the statute. A year ago, in the case Octane Fitness, the Court emphasized the need to exercise equitable discretion and avoid precise rules or formulas when awarding attorneys’ fees. This guidance appears to be particularly relevant to the test here where the Federal Circuit’s test is not rooted in the statutory text. The current test arguably makes it far more difficult for successful litigants to recover enhanced damages by confining the court’s exercise of discretion, though the statute does not handcuff the exercise of discretion. Certainly, the Court will likely strongly consider whether the Federal Circuit’s test sufficiently allows for consideration of an accused infringer’s subjective bad faith in determining whether enhanced damages should be awarded.
The question is what the standard should be, in practice as well as in doctrine, for evaluating whether the discretion exercised to enhance damages was appropriately exercised. Arguably, the Federal Circuit has set the bar too high. Many argue, as Halo argues in its petition, that accused infringers can “concoct a defense” to avoid willfulness under the Federal Circuit’s standard, for example taking “advantage of hindsight to locate and combine…prior publications” to develop an obviousness invalidity defense. Others have different views. One thing is certain: increasing the threat of enhanced damages by lowering the bar to recovering them would have a significant impact on the calculus of deciding to bring infringement claims and deciding whether to risk a claim of infringement. We look forward to seeing what standard, precisely, the Supreme Court will articulate to ensure that the discretion to award enhanced damages is not unfettered, while respecting a statutory text that contains no apparent limits on the exercise of that discretion. Given the recent propensity of the Supreme Court to modify Federal Circuit precedent, companies would be wise to consider obtaining a competent opinion of counsel on a pre-suit defense before going forward with a proposed product or process. A non-frivolous defense developed for trial may be insufficient to avoid willfulness.