Patent Cases in the October 2015 Term of the U.S. Supreme Court: Halo Electronics v. Pulse Electronics and Cuozzo Speed Technologies v. Lee

Summary

This report examines the two patent law cases decided by the U.S. Supreme Court in its October 2015 Term. The first patent case, decided on June 13, 2016, Halo Electronics, Inc. v. Pulse Electronics, Inc., concerns the circumstances in which the awarding of enhanced damages in a patent infringement case are warranted and the discretion of the district courts to award them. Section 284 of the Patent Act provides that the court may increase damages up to three times the amount found by a jury or assessed by the court, but does not provide any guidance to the court, or any express limits or conditions, in how to exercise its discretion to do so. The U.S. Court of Appeals for the Federal Circuit (Federal Circuit), a specialized tribunal established by Congress that has exclusive appellate jurisdiction in patent cases, limited such awards to cases of “willful infringement.” Specifically, in its 2007 opinion, In re Seagate Technology, the Federal Circuit established a two-part test that must be met before the district court can exercise its discretion to increase damages under Section 284. This strict standard arguably made such awards very difficult for patent holders to recover. In a unanimous opinion, the Halo Supreme Court rejected the Seagate test for enhanced damages, determining that it was unduly rigid and inconsistent with the statutory grant of discretion to courts to decide when to award punitive damages. In invalidating the strict Seagate test, the Halo opinion advised district courts to exercise their discretion to award enhanced damages in a manner consistent with Supreme Court precedent that generally reserves such punishment for “egregious cases of misconduct beyond typical infringement.”

The Court’s second patent opinion of its October 2015 Term, issued on June 20, 2016, involves the “claim construction” standard used by the Patent Trial and Appeal Board (PTAB) of the U.S. Patent & Trademark Office (USPTO) in an administrative proceeding called an inter partes review (IPR), where members of the public may challenge the validity of issued patents. In Cuozzo Speed Technologies, LLC v. Lee, the Court upheld a USPTO regulation that requires the PTAB, in IPR proceedings, to read a disputed patent claim according to its “broadest reasonable interpretation.” Such an interpretive standard arguably makes it more likely that the PTAB finds a patent claim to be obvious or not novel (and thus subject to invalidation), compared to in a judicial proceeding in which a court construes patent claims according to the “plain and ordinary meaning” of the claims’ language (a narrower standard). Furthermore, the Cuozzo Court held that a provision of the Patent Act precludes judicial review of the USPTO’s decision whether to institute an IPR proceeding.

The Halo opinion arguably favors patent holders by improving the chances of receiving enhanced damages in patent infringement cases, while Cuozzo leaves in place a process that may help third parties seeking to challenge the validity of issued patents. However, the impact of these decisions could be affected in the future by Congress, as some Members have expressed their disagreement with the Halo decision, and legislation pending in the 114th Congress (the Innovation Act (H.R. 9)) and the Protecting American Talent and Entrepreneurship Act (PATENT Act (S. 1137)) would require that the PTAB use the same claim construction standard in IPR proceedings that is applied by federal courts.