US Supreme Court in Halo and Kirtsaeng makes IP victory sweeter for successful parties

The AmeriKat getting her paws on some sweet
IP victory pie, thanks to the US Supreme Court

While the AmeriKat has had her eyes and whiskers towards Europe over the past couple of weeks, there has been exciting news emanating from the U.S. in the form of two Supreme Court decisions which shows a growing trend of the Court to more fully compensate the victor of IP disputes. The first decision of Halo, subject to a piece by guest Kat Mike Mirelles here, opens up the lucrative world of enhanced patent damages. The second decision of Kirtsaeng provides for recovery of attorney fees in copyright cases. The AmeriKat's fellow American friend, Taly Dvorkis (Allen & Overy LLP), ties the two decisions together:

"Last week the U.S. Supreme Court issued two decisions enhancing the ability of the victor in IP disputes to further collect against the losing party—in one decision, easing the standard by which courts can enhance (triple) damages in patent cases, and in the second decision setting out the factors by which a court determines whether winners in copyright cases can collect attorney’s fees. 

Enhanced (Treble) Damages in Successful Patent Suits 

The decision on enhanced damages concerns two cases consolidated for Supreme Court review: Halo Electronics, Inc. v. Pulse Electronics, Inc., et al., No. 14-1513, and Stryker Corp. et al. v. Zimmer, Inc., et al., No. 14-1520. Writing for a unanimous Court, Chief Justice Roberts discarded the previously-used Federal Circuit Court of Appeals’ two-part test limiting a patentee’s entitlement to enhanced damages only to cases when there is a finding of objective recklessness by the infringer, in favour of awarding enhanced damages as a sanction for egregious infringement behaviour. 

The statute governing the award of enhanced damages in patent cases, 35 U.S.C. § 284, provides that “the court may increase the damages up to three times the amount found or assessed.” As pointed out by Justice Breyer during oral argument, the statute does not provide much guidance as to when awarding treble damages is appropriate. The Federal Circuit had previously established the following test: first, a patent owner must show by “clear and convincing evidence that the infringer acted despite an objectively high likelihood that the actions constituted infringement of a valid patent,” and second, the patentee must demonstrate, also 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.” 

In rejecting the Federal Circuit’s test, the Supreme Court remarked that “enhanced damages are as old as U.S. patent law. The Patent Act of 1793 mandated treble damages in any successful infringement suit. In the Patent Act of 1836, however, Congress changed course and made enhanced damages discretionary” and within the power of the district court. 

A district court’s discretion is not without limits. As the Court stressed, “a motion to a court’s discretion is a motion, not to its inclination, but to its judgment.” In using discretion a district court is “to be guided by [the] sound legal principles” developed over the last two centuries’ application of patent law. Awards of enhanced damages “are not to be meted out in a typical infringement case, but are instead designed as a punitive or vindictive sanction for egregious infringement behavior.” 

Ultimately, a district court may award enhanced damages when appropriate given the preponderance of the evidence presented (rather than on a clear and convincing standard mandated by the previous Federal Circuit test). In addition, the district court’s decision to enhance damages will only be reviewed on appeal for abuse of discretion. 

The decision comes as no surprise given the 2014 Supreme Court cases regarding attorney’s fees in patent cases: Octane Fitness LLC v. Icon Health & Fitness Inc., 134 S. Ct. 1749 (2014) and Highmark Inc. v. Allcare Health Management System, Inc., 134 S. Ct. 1744 (2014). Those decisions, cited in Halo, rejected the Federal Circuit’s test for awarding attorney’s fees in patent cases by similarly lowering the standard of proof to a preponderance of the evidence and limiting appellate review to abuse of discretion. 

Attorney’s Fees in Successful Copyright Suits 

In contrast, last week’s decision on awarding attorney’s fees in copyright cases made no mention of the Supreme Court’s jurisprudence on attorney’s fees in patent suits. In Kirtsaeng v. John Wiley & Sons (2016), the Supreme Court overturned the Second Circuit Court of Appeals’ rejection of attorney’s fees under the Copyright Act and remanded the case to the district court to reassess whether such fees are appropriate. Copyright law aficionados will recall that this is the second time Kirtsaeng’s case has come before the Supreme Court. In 2013, the Court held, by a 6-3 margin, that the “first sale” doctrine made it lawful for Supap Kirtsaeng to resell foreign-made books of publisher John Wiley & Sons in the United States. Kirtsaeng v. John Wiley & Sons, 568 U.S. ___ (2013) (see Kat report here).

This time around, the question presented was whether Kirtsaeng could recover his attorney’s fees (totalling over $2 million) from John Wiley & Sons. Justice Elena Kagan wrote for a unanimous Court, tracking the language used in Halo and emphasizing that the statute at issue allows for broad discretion of the district court, but that discretion is not without limits. 17 U.S.C. §505 of the Copyright Act states simply that “a court may also award a reasonable attorney’s fee to the prevailing party as part of the costs.” In determining when such an award is appropriate, the reasonableness of the losing party’s argument needs to be taken into account, but is not the single controlling factor. 

In this case, Wiley & Sons had argued that since three Supreme Court justices had previously agreed with its position on the merits, its position was reasonable, and therefore no attorney’s fees should be awarded. The Supreme Court rejected this and the Second Circuit’s approach which gave not just “substantial,” but nearly “dispositive,” weight to the question of reasonableness. Rather, the reasonableness of the losing party’s position is but one factor a court must take into account. Other factors include frivolousness, motivation, objective unreasonableness and the need in particular circumstances to advance considerations of compensation and deterrence. 

In remanding the case, the Supreme Court made clear that it was not intimating that the lower court should reach a different conclusion and award Kirstaeng attorney’s fees. Rather, the question of attorney’s fees needs to be reassessed by “giving substantial weight to the reasonableness of Wiley’s litigation position, but also taking into account all other relevant factors.” It remains to be seen how the district court applies the instruction and whether Kirstaeng ever collects his attorney’s fees. 

In one week the US Supreme Court removed (or at least lowered hurdles) to receiving enhanced damages in patent cases and attorney’s fees in copyright suits, reminding litigants that these decisions are at the discretion of the district court, which is not to be abrogated on appeal. Parties opposing requests for enhanced damages or attorney’s fees must be aware of the lower standards now at play."