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SCOTUS overturns infringement test for treble damages

June 13, 2016

In a consolidated case involving Indiana’s Zimmer Inc., the U.S. Supreme Court has tossed the standard test used to determine whether damages awarded in a patent infringement case should be tripled.

A unanimous Supreme Court on Monday overturned the damage awards in the joint cases of Halo Electronics, Inc. v. Pulse Electronics, Inc., and Stryker Corp. v. Zimmer, Inc., 579 U.S. ___ (2016). The justices found the Seagate test limited the lower courts’ discretion to impose financial penalties for infringing on a patent.

Under Section 2854 of the Patent Act, courts may increase the damages up to three times the amount assessed in infringement cases. The case In re Seagate Technology, LLC, 497,F.3d 1360, 1371 established a two-pronged test to determine whether an infringement was willful and, therefore, merited treble damages.  

The Supreme Court ruled the Seagate test is inconsistent with Section 284.

“Section 284 gives district courts the discretion to award enhanced damages against those guilty of patent infringement,” Chief Justice John Roberts wrote for the court. “In applying this discretion, district courts are ‘to be guided by [the] sound legal principles’ developed over nearly two centuries of application and interpretation of the Patent Act. … Those principles channel the exercise of discretion, limiting the award of enhanced damages to egregious cases of misconduct beyond typical infringement. The Seagate test, in contrast, unduly confines the ability of the district courts to exercise the discretion conferred on them.”

Puerto Rico-based surgical instrument maker Stryker Corp. filed suit charging Zimmer had infringed on its pulse lavage device, an instrument used to clear tissue during surgery. A jury found Warsaw, Indiana-based Zimmer had infringed and awarded Stryker $70 million. The U.S. District Court for the Western District of Michigan, Southern Division, added supplement damages and then trebled the total sum to bring the award to over $228 million.

The U.S. Court of Appeals for the Federal Circuit affirmed the judgment of infringement but vacated the award of treble damages, finding the Indiana company had not willfully infringed.

Zimmer had argued that giving district court greater discretion to award damages could stifle innovation and emboldened “patent trolls” who use their patents solely to extract licensing fees from alleged infringers. The argument captured the Supreme Court’s attention with Justice Stephen Breyer saying the Seagate test was designed to help the small inventor.  

Roberts acknowledged treble damages can upset the balance that the patent law tries to strike between innovation and refinement. Still he held, “The seriousness of respondents’ policy concerns cannot justify imposing an artificial construct such as the Seagate test on the discretion conferred under (Section) 284.”

In a concurring opinion, Breyer echoed the lower courts should be careful since the threat of enhanced damages could hinder the work of businesses, laboratories, hospitals and individuals rather than spur new inventions. Enhanced damages should not be abandoned, he wrote, but carefully applied “to ensure that they only target cases of egregious misconduct.”

The Supreme Court overturned the Federal Circuit and remanded for proceedings consistent with its opinion.

 

 

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