Supreme Court Upholds IPR Proceedings; Rejects Partial Institutions

Maier & Maier

Two Supreme Court Decisions came down April 24, 2018 with potentially significant impacts on patent practice. First, in Oil States v. Greene’s Energy, the Court rejected Oil States’ Article III and 7th Amendment challenges to inter partes review (IPR) proceedings, declaring the proceedings constitutional under the public rights doctrine. Second, the Court ruled that Patent Trial and Appeal Board (PTAB) Final Written Decisions must address the patentability of all challenged claims if an IPR is instituted in SAS Institute v. Iancu, eliminating partial institutions.

Oil States Energy Services v. Greene’s Energy Group

After Oil States Energy Services sued Greene’s Energy Group for infringement in federal district court, Greene’s Energy challenged the patent at the PTAB, successfully arguing the patent was invalid. Oil States then appealed the decision to the Federal Circuit, challenging both the decision and the constitutionality of IPR proceedings at the PTAB as a whole. Oil States argued that patents were a private right and that actions revoking a patent must be limited to Article III courts before a jury, and alternatively that the Seventh Amendment requires a jury trial as patent validity was traditionally decided by a jury. Attempting to distinguish IPR proceedings from re-examination proceedings, which have previously been ruled constitutional, Oil States pointed out how the adversarial process of IPR proceedings mimicked the procedure of Article III courts, while re-examination mimicked the prosecution process at the PTO.

The Court’s 7-2 decision to uphold rested primarily on the finding that because patent rights are public rights, reconsideration of those rights need not be reviewed in an Article III court. Public rights are those “arising between the government and others, which from their nature do not require judicial determination and yet are susceptible of it.”[1] The Court then explained that to whatever extent patent rights are granted to a patent holder, they are statutory rights which cannot exceed the scope allowed by statute. The Court reasons that since the AIA is a statutory limitation of the patent rights, any rights granted to the patent owner are granted subject to continual review by the PTO and possible revocation.[2] Based on this construction reserving review for the PTAB, the Court resolved the Seventh Amendment challenge as moot, since it only applies when Congress has not properly assigned a matter to adjudication outside of an Article III tribunal.

Justice Gorsuch, joined by Justice Roberts, dissented from the opinion, specifically objecting to the conflation of the constitutional power of the executive to issue patents with the power to also revoke patents. He concludes his detailed history of the difference between those powers with an appeal to Article III’s purpose, explaining that “enforcing Article III isn’t about protecting judicial authority for its own sake. It’s about ensuring the people today and tomorrow enjoy no fewer rights against governmental intrusion than those who came before. And the loss of the right to an independent judge is never a small thing.”[3]

Despite these concerns, the Oil States decision has assured that any patent rights enjoyed today and tomorrow will be subject to review at the PTAB.

SAS Institute v. Iancu

SAS Institute challenged all 16 claims in ComplementSofts’s software patent in an inter partes review proceeding before the Patent Trial and Appeal Board (PTAB).  The PTAB instituted review on only some of the claims (claims 1 and 3-10).  The PTAB found claims 1, 3, and 5-10 invalid in the Final Written Decision, only upholding the validity of claim 4. SAS appealed this decision to the Federal Circuit, objecting to the PTAB’s failure to address all 16 challenged claims. The Federal Circuit upheld the PTAB in a 2-1 decision, which the Supreme Court has now reversed 5-4.

The majority relies on the plain language of the statute, the America Invents Act (AIA), in its ruling that the PTAB must address all challenged claims once it institutes an IPR. Justice Gorsuch, the author of the majority opinion, declared, “The statute, we find, supplies a clear answer: the Patent Office must ‘issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner.’ In this context, as in so many others, ‘any’ means ‘every.’”[4]

This holding will impact the PTAB’s procedures, taking away their discretion to partially deny institution on individual challenged claims where they do not find a ‘reasonable likelihood of success”. Justice Ginsburg emphasizes efficiency as a concern in her dissenting opinion, rhetorically asking “Why should the statute be read to preclude the Board’s more rational way to weed out insubstantial challenges?. . . the Court’s opinion offers no persuasive answer to that question, and no cause to believe Congress wanted the board to spend its time so uselessly.”[5]

The removal of the PTAB’s current institution practice puts Director Iancu’s plan for issuing updated procedural guidance to the PTAB in the spotlight moving forward, and emphasizes the importance of the multiple patent reform bills currently being debated in Congress as potential solutions.

Meanwhile, the Court has remanded this case to be decided in accordance with their statutory interpretation, and the outcome will bear watching as it continues.


[1] Ex parte Bakelite Corp., 279 U. S. 438, 451 (1929).

[2] Oil States Energy Services v. Greenes Energy Group, Slip Op. at 10-11. (April 24, 2018).

[3] Oil States Energy Services v. Greenes Energy Group, Slip Op. at 12. (April 24, 2018) (Justice Gorsuch, dissenting).

[4] SAS Institute v. Iancu, Director, United States Patent and Trademark Office, Slip Op. at 1 (April 24, 2018).

[5] SAS Institute v. Iancu, Director, United States Patent and Trademark Office, Slip Op. at 1 (April 24, 2018). (Justice Ginsburg, dissenting)


Oral Arguments in Oil States Show a Divided Supreme Court

Maier & Maier
On November 27, 2017, the Supreme Court of the United States heard oral arguments in Oil Sates Energy Services, LLC v. Greene’s Energy Group, LLC. This much anticipated case is set to determine whether inter partes review proceedings at the United States Patent and Trademark Office (USPTO) Patent Trial and Appeal Board (PTAB) violate the Constitution by extinguishing private property rights through a non-Article III forum without a jury.
Over 50 amicus briefs were filed leading up to oral arguments in the widely anticipated and heavily scrutinized case.  The amicus briefs showed a relatively even split in support for the positions of the Petitioner and the Respondent.  Similarly, there appeared to be a split among the Supreme Court Justices during oral arguments.  The Justices asked tough questions of all parties and it will be interesting to see how they ultimately rule.
A large portion of the questions directed to the Petitioner, Oil States, centered around whether ex parte reexam and inter partes reexam proceedings are constitutional, and, if so, how inter partes review is distinguishable.  Counsel for Oil States conceded that ex parte reexam and inter partes reexam are constitutional, calling out that those proceedings are examinational and not adjudicational in nature.  In other words, those proceedings are between the USPTO and the Patent Owner, whereas inter partes review proceedings are between two private parties.
Questions for the Respondent, Greene’s Energy, included a focus on due process, whether patents are a public or private right, and whether a patent owner’s rights could ever vest due to reliance on the patent’s presumed validity.  Lastly, counsel on behalf of the federal government faced questions on the USPTO’s ability to decide infringement and concerns of panel stacking at the USPTO.
While it is dangerous to speculate on the ultimate ruling based merely on oral arguments, it does appear unlikely that the Court will rule unanimously.

Supreme Court Clarifies Biosimilar Legislation in Sandoz

Maier & Maier

On June 12, the Supreme Court also handed down another patent-related opinion in Amgen Inc. v. Sandoz Inc., a case dealing with the Biologics Price Competition and Innovation Act, a small 17-page subchapter contained within the Affordable Care Act (“Obamacare”). This subchapter deals with generic “biologics,” very-large-molecule drugs typically synthesized from biological sources such as recombinant DNA technology. The biologic at issue in this case is filgrastim, a G-CSF glycoprotein.

Typically, when patent protection on a drug expires, the producer of a generic drug can enter the market with an exact copy of the formerly-patented drug, which greatly simplifies the process of FDA approval. However, in the case of biologics, the generic drugs are not always exact copies, and may instead be “biosimilars” that are slight variations on the original drug, and which originally required separate FDA approval. The law at issue here (the BPCIA) was intended to streamline the FDA approval process for biosimilars.

This case dealt with certain regulatory requirements set forth in the BPCIA for new biosimilars. Subsection (l) of the law establishes a process by which an applicant for a biosimilar license can exchange information with the company that originally obtained FDA approval for the drug. One of the first requirements of this process is that the new applicant “shall provide” to the original company “a copy of the application submitted [to the agency],” so that the original company can evaluate the biosimilar for possible infringement of any of its unexpired patents.

In the present case, the new applicant, Sandoz, did not provide a copy of the application it had filed to the original company or “sponsor,” Amgen. This created a question of whether the sponsor was entitled to obtain a copy of the application filed by the applicant.

The Supreme Court, like the Federal Circuit before it, determined that Amgen was not entitled to a federal injunction to force Sandoz to turn over the application (though the two courts used different reasoning). The BPCIA establishes that the filing of a biosimilar application allows the sponsor to immediately bring an action for “a declaration of infringement, validity, or enforceability of any patent that claims the biological product or a use of the biological product.” On this basis, other injunctive relief is foreclosed, and Amgen would need to sue Sandoz for patent infringement and seek discovery on the application in order to obtain it.

A separate requirement of the BPCIA requires the applicant to provide notice to the sponsor that it is going to market a generic biosimilar, no later than 180 days before it plans to do so. In this case, Sandoz had provided notice before the FDA approved the biosimilar, so that it would be able to market the biosimilar immediately after approval. This created a question of whether Sandoz needed to wait until after the biosimilar had actually been approved before providing this notice.

The Supreme Court determined that there was no requirement for Sandoz to wait for the FDA to approve the biosimilar, and that the statute only set forth a single timing requirement (i.e. marketing can be made 180 days after notice) and not two timing requirements (i.e. marketing can be made 180 days after notice and after FDA approval). The Federal Circuit had come to the opposite conclusion.

The main effect of this case is to accelerate the marketing of biosimilars. Generic drug manufacturers may be able to market biosimilars immediately, or very soon after, FDA approval (provided FDA approval takes more than 180 days) rather than needing to wait an extra half-year to market the drug. This can often bring in hundreds of millions of dollars in extra revenue for the generic manufacturer.

The different reasoning used by the Supreme Court as to the question of injunctive relief also means that sponsoring drug companies may be able to seek injunctive relief in state court. While the Federal Circuit had ruled that the Patent Act, 35 U.S.C. § 271(e)(4), prevented Amgen from obtaining an injunction, the Supreme Court instead ruled that a section of the BPCIA did so, and determined that this did not cut off state law remedies.

 


Supreme Court to Review Constitutionality of Post-Grant Proceedings in Oil States

Maier & Maier

On June 12, the Supreme Court granted certiorari in Oil States vs. Greene’s Energy Group, et al., a case dealing with the constitutionality of the post-grant challenge procedures established by the America Invents Act (AIA). The Federal Circuit, below, had upheld the constitutionality of these procedures.

The petition for writ of certiorari submitted by Oil States presented three questions:

  1. Whether inter partes review – an adversarial process used by the Patent and Trademark Office (PTO) to analyze the validity of existing patents – violates the Constitution by extinguishing private property rights through a non-Article III forum without a jury.
  2. Whether the amendment process implemented by the PTO in inter partes review conflicts with Court’s decision in Cuozzo Speed Technologies, LLC v. Lee, 136 S.Ct. 2131 (2016), and congressional direction.
  3. Whether the “broadest reasonable interpretation” of patent claims – upheld in Cuozzo for use in inter partes review – requires the application of traditional claim construction principles, including disclaimer by disparagement of prior art and reading claims in light of the patent’s specification.

The Supreme Court granted certiorari only as to the first question.

The petitioner, Oil States, has based much of their argument on an 1898 decision from the Supreme Court, McCormick Harvesting Mach. Co. v. Aultman & Co., 169 U.S. 606 (1898). This decision held that “the Patent Office had no power to revoke, cancel, or annul” an issued patent, because once the patent has issued, “[i]t has become the property of the patentee, and as such is entitled to the same legal protection as other property.” Oil States charges that the USPTO has acted contrary to McCormick and has unconstitutionally revoked patents through the post-grant challenges made available under the AIA, such as inter partes review.

It is unclear how the Supreme Court will rule on this case. Several commentators have noted that the Supreme Court has, in the recent past, typically granted certiorari to Federal Circuit patent cases in order to overrule them; as the Federal Circuit upheld the constitutionality of these procedures, the Supreme Court may intend to strike them down. It is also noted that a majority of the Justices of the Supreme Court have adopted “private property” interpretations of patents in other cases, and as such they may find McCormick to be persuasive.

However, the constitutionality of post-grant procedures has been challenged in a number of cases, and the Supreme Court may have wished to take this case just to settle the issue. It is also noted that the facts of McCormick could be limited to the narrow facts of the case. When McCormick was decided, the USPTO did not have a revocation power expressly granted to them by Congress, and the USPTO now has such a power. The Supreme Court may decide that Congress can grant the USPTO jurisdiction over an issued patent and has properly done so.


Supreme Court Narrows Patent Venue Law in TC Heartland, Likely Limiting Future Suits in the Eastern District of Texas

Maier & Maier

In TC Heartland LLC v. Kraft Foods Group Brands, LLC., 581 U. S. ____ (2017), the Supreme Court substantially narrowed the law of patent venue, preventing a patent owner from filing an infringement suit against a defendant in any district court where the defendant is subject to personal jurisdiction. Instead, patent owners will only be able to bring suit in districts in states where a defendant is incorporated, or in districts where there has been an act of infringement and the defendant has a regular and established place of business.

The ruling required the Supreme Court to reconcile two venue statutes: 28 U.S.C. § 1391, which sets forth the requirements for venue generally, and 28 U.S.C. § 1400(b), which sets forth venue requirements specific to patent infringement. The patent venue statute, 28 U.S.C. § 1400(b), stipulates that “Any civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.” However, the general venue statute, 28 U.S.C. § 1391, allows a patent owner to file suit in any judicial district where the defendant “resides;” under 28 U.S.C. § 1391(c)(2), a corporate defendant is deemed to “reside” in any district in which the corporation would be subject to personal jurisdiction.

Past Supreme Court precedent, Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 (1957), had established that §1400(b) is not supplemented by §1391. However, in 1988, Congress amended §1391, to state that  “[f]or purposes of venue under this chapter, a defendant that is a corporation shall be deemed to reside in any judicial district in which it is subject to personal jurisdiction at the time the action is commenced.” The Federal Circuit found, in VE Holding Corp. v. Johnson Gas Appliance Co., 917 F. 2d 1574 (1990), that this amendment had made §1391 applicable to patent infringement actions. Congress again amended §1391 in 2011, to state that “[e]xcept as otherwise provided by law… this section shall govern the venue of all civil actions brought in district courts of the United States.”

In this case, Kraft sued TC Heartland in the District of Delaware, where TC has no meaningful presence but does have the minimum contacts necessary for personal jurisdiction.  TC moved to dismiss or transfer the case based on improper venue, citing §1400(b). The District Court rejected these arguments based on Federal Circuit precedent and the Federal Circuit denied a writ of mandamus.

The Supreme Court decided, in a unanimous opinion, that Fourco was still good law and that §1400(b) is not supplemented or replaced by §1391. The Supreme Court based this decision on the fact that Congress never indicated that it had intended to overrule Fourco when it amended §1391 to apply to “all venue purposes” in 1988. Further, if Congress had overruled Fourco by amending §1391 to apply to “all venue purposes,” then, by essentially the same reasoning, Congress had reestablished Fourco by clarifying that §1391 applied “except as otherwise provided by law.”

The most significant effect of this case is expected to be a substantial reduction in the number of patent lawsuits filed in the Eastern District of Texas, which is often chosen for patent litigation because it is perceived to be friendlier to patent owners. Approximately 35% of all patent litigations currently pending have been filed in the Eastern District of Texas, and this case is likely to create a flood of motions to dismiss for improper venue or motions to transfer to a new district.

However, the District of Delaware, also a patent-owner-friendly district, is expected to take up the mantle of the Eastern District of Texas as the patent forum of choice. The District of Delaware is already a very popular patent forum (often the second most active for patent litigation), and as many corporations are incorporated in Delaware there are likely to be few questions of improper venue even under §1400(b).


Supreme Court Grants Certiorari in Oil States to Review Constitutionality of IPRs

Maier & Maier

On June 12, the Supreme Court granted certiorari in Oil States vs. Greene’s Energy Group, et al., a case dealing with the constitutionality of the post-grant challenge procedures established by the America Invents Act (AIA). The Federal Circuit, below, had upheld the constitutionality of these procedures.

The petition for writ of certiorari submitted by Oil States presented three questions:

  1. Whether inter partes review – an adversarial process used by the Patent and Trademark Office (PTO) to analyze the validity of existing patents – violates the Constitution by extinguishing private property rights through a non-Article III forum without a jury.
  2. Whether the amendment process implemented by the PTO in inter partes review conflicts with Court’s decision in Cuozzo Speed Technologies, LLC v. Lee, 136 S.Ct. 2131 (2016), and congressional direction.
  3. Whether the “broadest reasonable interpretation” of patent claims – upheld in Cuozzo for use in inter partes review – requires the application of traditional claim construction principles, including disclaimer by disparagement of prior art and reading claims in light of the patent’s specification.

The Supreme Court granted certiorari only as to the first question.

The petitioner, Oil States, has based much of their argument on an 1898 decision from the Supreme Court, McCormick Harvesting Mach. Co. v. Aultman & Co., 169 U.S. 606 (1898). This decision held that “the Patent Office had no power to revoke, cancel, or annul” an issued patent, because once the patent has issued, “[i]t has become the property of the patentee, and as such is entitled to the same legal protection as other property.” Oil States charges that the USPTO has acted contrary to McCormick and has unconstitutionally revoked patents through the post-grant challenges made available under the AIA, such as inter partes review.

It is unclear how the Supreme Court will rule on this case. Several commentators have noted that the Supreme Court has, in the recent past, typically granted certiorari to Federal Circuit patent cases in order to overrule them; as the Federal Circuit upheld the constitutionality of these procedures, the Supreme Court may intend to strike them down. It is also noted that a majority of the Justices of the Supreme Court have adopted “private property” interpretations of patents in other cases, and as such they may find McCormick to be persuasive.

However, the constitutionality of post-grant procedures has been challenged in a number of cases, and the Supreme Court may have wished to take this case just to settle the issue. It is also noted that the facts of McCormick could be limited to the narrow facts of the case. When McCormick was decided, the USPTO did not have a revocation power expressly granted to them by Congress, and the USPTO now has such a power. The Supreme Court may decide that Congress can grant the USPTO jurisdiction over an issued patent and has properly done so.


Supreme Court Limits Laches Defense

Maier & Maier
In SCA Hygiene Products Aktiebolag et al. v. Quality Baby Products, LLC, et al., No. 15-927, 580 U.S. ___ (2017), the Supreme Court held that the defense of laches is not appropriate when suit is brought within the six year limitations period for patent infringement.
Laches is an equitable doctrine used to limit the recoverability of damages when a suit is filed after unreasonable delay.  In patent law, damages are already limited by a “statute of limitations” set forth in 35 U.S.C. § 286, which limits damages to only cover infringement that occurred within the six year period prior to the filing of the complaint. Contrary to typical limitations periods, the limitations period of 35 U.S.C. § 286 is counted backward from the filing of a complaint, not forward from the time of infringement.  However, this existing limitation on damages weighed heavily in the Court’s ruling.  The Court found that a laches defense would override the statutory damages period set forth by Congress.
The highly-anticipated ruling mirrored that of Petrella v. Metro-Goldwyn-Mayer, Inc., 572 U.S. ___ (2014), which addressed the defense of laches in copyright law.  On its face, the ruling looks to be favorable for patent owners by eliminating a defense in infringement proceedings and allowing plaintiffs to bring suit at a time of their choosing, which will likely be after a favorable six years of damages have accrued.

February 2017 Case Highlights

Maier & Maier

Supreme Court Overrules Life Techs v. Promega

In Life Technologies Corp. v. Promega Corp., No. 14–1538 (February 22, 2017), the Supreme Court overruled the Federal Circuit’s finding of induced infringement. Writing for a majority of the court, Justice Sotomayor determined that supplying a single component of a multi-component invention from the United States cannot be an infringing act under 35 U.S.C. §271(f)(1).

Promega’s patent had claimed a process for examining polymorphism in DNA samples. A subsidiary of Life Techs manufactured, overseas, genetic testing kits that included one component (Taq polymerase) that was manufactured by Life Technologies (“Life Techs”) in the US. The statute in question, 35 U.S.C. §271(f)(1), establishes infringement liability if a “substantial portion” of a claimed invention’s components are manufactured within the US and provided elsewhere. The Federal Circuit ascribed a qualitative meaning to the term, establishing that one single component could be a “substantial portion” if it was vital enough to the invention.

The Supreme Court found that, in the context of the statute, the term “substantial portion” is intended to be quantitative, rather than qualitative. The “qualitative” interpretation is intended to be covered by other law. As such, a single component, no matter how vital, can never be a “substantial portion” and thus cannot give rise to infringement liability under 35 U.S.C. §271(f)(1).


Federal Circuit Narrows CBM Eligibility

In Secure Axcess, LLC v. PNC Bank Nat’l Assoc., No. 16-1353 (Fed. Cir. February 21, 2017), the Federal Circuit overturned a covered business method patent review decision of the USPTO Patent Trial and Appeal Board (PTAB), on the basis that the patent fell outside of the statutory definition for a CBM patent.

Secure Axcess (“Secure”) had a patent for a computer security system and for a method for authenticating a web page. The PTAB found that the patent was directed to solving problems that might arise from customers of a financial institution attempting to access the web site of the financial institution, and determined that the patent therefore qualified as a CBM patent, because it was “incidental” to a financial activity.

The Federal Circuit found that, under section 18 of the America Invents Act, CBM review is only available for patents that claim “a method… for performing data processing or other operations used in the practice, administration, or management of a financial product or service [emphasis added].” It is not sufficient that a claim be “incidental” to financial activity; instead, it must actually have some financial activity element.

Judge Lourie wrote a dissenting opinion, arguing that while the term “financial” was not found within the claims, the exemplary embodiments described in the patent deal exclusively with online banking, and the patent has been asserted exclusively against financial institutions. Therefore, although the claims do not recite the intended use of the invention, she contended that they should not have to do so for the PTAB to find that the claims recite an invention “used in the practice of a financial product.”


Federal Circuit Declines to Interpret Claims In Light of Limiting Terms in Provisional

In MPHJ Techn. Invs., LLC v. Ricoh Ams. Corp., No. 16-1243 (Fed. Cir., February 3, 2017), the Federal Circuit upheld an inter partes review decision of the PTAB invalidating the claims of a patent. The patent in question, owned by MPHJ, claimed a computer data management system and method for enabling virtual copying by scanning a document and emailing the scanned copy.

The USPTO construed the claims of the patent as requiring that scanning and emailing of a document be done either in separate steps or in one step. MPHJ argued that several statements included in the provisional application had “expressly limited the scope of the invention” to a one-step copying and sending process. However, these statements had been deleted from the non-provisional patent application.

The Federal Circuit determined that the deletion of the limiting statements in the provisional application was significant. Without them, the patent contained no suggestion of an intent to limit the claims expressly to a one-step operation. The court found that a skilled artisan would find the deletion significant, and would conclude that the inventor considered the one-step operation to be optional rather than obligatory.

Judge O’Malley wrote a dissenting opinion, arguing that, because the patent made repeated references to a one-step operation, and incorporated the entire provisional application by reference in the specification, the patentee did the opposite of deleting the limiting statements, and the claims should be interpreted accordingly.


The Heightened Need for Non-Infringement Opinions After Halo and Stryker

Timothy Maier

The Supreme Court recently decided two cases, Halo Electronics, Inc. v. Pulse Electronics, Inc., et al. and Stryker Corporation, et al. v. Zimmer, Inc., et al., dealing with the standard that courts must use when determining whether or not to award enhanced damages to a patent plaintiff. As an enhanced damage award can often be “treble damages” – that is, a tripling of the actual damages caused by the infringement – it is important for any company that expects to ever be on the receiving end of a patent lawsuit to be aware of this standard.

The Statutory Law

Following the award of damages by a jury or the trial judge, 35 U.S. Code § 284 gives a court discretion to increase the awarded damages “up to three times the amount found or assessed.” Historically, this has provided courts with the opportunity to consider a patent infringer’s mindset as part of the damage award, and given courts some flexibility to distinguish willful infringement from non-willful infringement in a meaningful way. While a patent defendant that has accidentally infringed a patent might only be held liable for a reasonable royalty, a patent defendant that a court considers to have more deliberately infringed the patent may be held liable for a higher award.

Seagate

The prior standard establishing when enhanced damages should be awarded to a patent plaintiff was set forth in a 2007 Federal Circuit case, In re Seagate Technology, LLC, 497 F. 3d 1360 (2007) (en banc). In Seagate, the Federal Circuit set forth a two-pronged test for the award of enhanced damages under 35 USC §284. In the first prong, a patentee was required to show, by clear and convincing evidence, “that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent.” If the first, objective prong was satisfied, the patentee was then required to prove “subjective recklessness,” which meant proving that the objectively defined risk was either known or should have been known to the accused infringer.

The petitioners in Halo and Stryker argued that this standard was far too strict, and that it was very rare that even a blatant infringer would be found to be liable for enhanced damages under Seagate. Even an ex post facto argument for non-infringement of the patent, or for the invalidity of the patent, would typically be enough to allow the infringer to escape the Seagate standard, so long as the argument was in some way defensible and non-frivolous. (This typically applied even if the infringer came up with the argument after the fact.)

Halo and Stryker

The Supreme Court rejected the Seagate test as inconsistent with the language of 35 USC §284. First, the Court noted that §284 allows lower courts to punish a range of culpable behavior, and is not limited to showings of both objective and subjective willfulness. As such, the inelastic constraints of the Seagate test were “unduly rigid.” The Court instead adopted a newer, more ambiguous standard, under which a lower court could exercise discretion to punish a full range of culpable behavior on the part of a patent infringer, though noting that “such punishment should generally be reserved for egregious cases.”

The Court also struck down the heightened clear and convincing standard required for enhanced damages required by Seagate as inappropriate and inconsistent with §284. It noted, instead, that “patent infringement litigation has always been governed by a preponderance of the evidence standard.” Under its reasoning, the same standard should be applied to the award of damages under §284.

Effects of Halo and Stryker

The effect of Halo and Stryker was to lower the burden on receiving treble damages in patent litigation, and increase the influence of judicial discretion on patent cases.

This case represents a rare victory for patent holders in the Supreme Court, after case after case has eroded patent rights based on the threat of so-called “patent trolls.” Under Seagate, enhanced damages were almost never awarded, but under Halo and Stryker, patent holders can expect to have a somewhat better chance at receiving them. This may be a nail in the coffin of the practice of “efficient infringement,” whereby a corporation or other entity would deliberately fail to do patent due diligence and ignore patent demand letters based on the expectation that defending against an occasional patent lawsuit would be a more efficient use of resources. Certainly, “efficient infringement” looks like far less of a favorable gamble.

However, any company that expects to be on the receiving end of a patent lawsuit may have cause for concern after Halo and Stryker. The standard set forth by the Supreme Court for when enhanced damages should be awarded is intentionally a muddy one, or, in its words, not governed by a “‘precise rule or formula.’” As such, judges have a great deal of discretion in when they can choose to award or choose not to award enhanced damages.

First, this means that a great deal of money – up to twice as much money as the actual amount of damages caused by the infringement – is now riding on the subjective opinion of the district court judge that hears the infringement case. This makes it significantly more desirable for a patent plaintiff to shop around for a favorable forum before filing suit, based on which districts or which judges are found to be more likely to grant enhanced damages based on a finding of willful infringement, or based on the size of the enhanced damages awards that they provide. This means that companies can no longer rely on being sued in one of just a few locations around the country, such as the Eastern District of Texas, and must anticipate being sued in any district where the court would have jurisdiction over the company. (For example, District Court judges that are less experienced with patent law may be more likely to see particular conduct on the part of a company as unusually egregious, simply because they would not be familiar with the patent practices of as many companies as a more experienced judge. As such, they may be more likely to give higher enhanced damage awards.)

Second, the greater likelihood of an award of enhanced damages for “egregious misconduct” and looser definition of what constitutes “egregious misconduct” means that it is now more important for companies to investigate demand letters more closely and seek non-infringement opinions. Justice Breyer noted that a jury may well find that a company behaved “recklessly” for failing to follow up on a demand letter, even a somewhat ambiguous demand letter, if the company is later found to infringe one or more of the patents that are identified in the demand letter. This may put the company at risk for treble damages. However, the greater weight that must be given to a demand letter may also encourage non-practicing entities, or “patent trolls,” to send out more demand letters of more dubious merit, knowing that a target company may have a greater incentive to settle or abandon a challenged activity if they must spend time investigating even a dubious demand letter.

Third, Halo clarified that it is most valuable to specifically seek a legal opinion on patent non-infringement from a legal practitioner. In Halo, the alleged infringer, Pulse Electronics, had sought an opinion of one of its engineers that a patent was invalid; even based on this opinion, the lower courts still found that Pulse had willfully infringed.  However, Justice Breyer’s concurrence notes that the informed opinion of legal counsel would be more helpful in reducing the probability of a finding of willful infringement. Thus, based on Halo, it appears that one of the best approaches that can be taken by a company wishing to avoid an award of treble damages for patent infringement is to seek an informed opinion of counsel, rather than an opinion of an engineer or technical advisor, early after being informed of the patent. In addition to the fact that courts are likely to give the opinion of legal counsel more weight, opinions from legal counsel are also protected by the attorney-client privilege.