Supreme Court Decides on Enhanced Damages and Attorney’s Fees in IP Cases

06/29/2016 / Katherine Muller

When considering lawsuits, parties often ask about getting enhanced damages or attorney’s fees if they prevail. Although many of the issues are similar, the answer recently changed for patent cases while it stayed the same for copyright cases. As its term comes to an end, the Supreme Court recently issued two decisions regarding a losing party’s objective reasonableness in intellectual property cases, reaching seemingly different conclusions.

Enhanced Damages in Patent Cases
The Patent Act allows courts to increase an infringement damages award as a punitive measure. The U.S. Court of Appeals for the Federal Circuit has required patent owners to show that infringement was “willful” in order to trigger enhanced damages (up to three times the awarded amount). In the case of In re Seagate, the Federal Circuit established a two part test for demonstrating willfulness. The test requires the patent owner to show first that the infringer acted despite an objectively high likelihood of infringement (i.e. that the infringer was “objectively reckless”) and then that the infringer knew or should have known of the risk of infringement.

Recently, The Supreme Court unanimously overturned the Federal Circuit’s test for awarding enhanced patent damages in Halo Electronics, Inc. v. Pulse Electronics, Inc. (No. 14-1513), holding that the threshold requirement of “objective recklessness” was overly rigid. The Supreme Court noted that this requirement would allow intentional infringers to avoid enhanced damages by cobbling together a plausible defense at trial, whether they were aware of the defense at the time of infringement. The Supreme Court stated that “[t]he subjective willfulness of a patent infringer, intentional or knowing, may warrant enhanced damages, without regard to whether his infringement was objectively reckless.” In the exercise of their discretion, courts should consider all circumstances but generally reserve enhanced damages for “egregious cases.” Although the Supreme Court’s decision has loosened the requirements for an award of enhanced damages, such awards will likely still be reserved for the worst cases of willful infringement.[1]

Attorney’s Fees in Copyright Cases
In a somewhat similar context, the Copyright Act provides that judges may award attorneys’ fees to the prevailing party in a copyright action. In Kirtsaeng v. John Wiley & Sons, Inc. (No. 15-375), the Supreme Court determined that in the context of attorneys’ fee awards in copyright cases, the “objective reasonableness” of the losing party is very important. The Supreme Court determined that judges should consider whether the losing party’s position was “objectively reasonable” as well as all other relevant circumstances.

Publisher John Wiley & Sons, Inc. (“Wiley”) sued Kirtsaeng, alleging infringement of its copyright in certain textbooks. After several years of litigation, the Supreme Court ultimately found that Kirtsaeng was not liable for infringement. As the prevailing party, Kirtsaeng then sought to recover his attorneys’ fees. The Court of Appeals for the Second Circuit gave “substantial weight” to its conclusion that Wiley’s infringement claim had been objectively reasonable and denied the fee request. Courts were in conflict over the applicability of the defense upon which Kirtsaeng had relied; thus the claim of infringement was objectively reasonable.

Largely agreeing with the second circuit, the Supreme Court concluded that reliance on whether the losing party’s case or defense was objectively reasonable encourages those with meritorious cases to continue the litigation and discourages those with unreasonable positions from pursuing them. The Supreme Court noted, however, that objective reasonableness should be considered as only an important, but not dispositive, factor in a fees analysis. Judges still have the discretion to award fees where reasonable arguments were made or decline to award fees where unreasonable ones were made depending on all the facts and circumstances of the case.

In the end, these two cases help answer questions about enhanced patent damages and attorney’s fees in copyright cases, but also confirm that several factors would contribute to the final outcome.

 


[1] Senator Orrin Hatch has filed a “sense of Congress” amendment to a current bill stating that the Seagate standard governs and continues to govern the analysis for enhanced damages. While this amendment has no force of law, “sense of Congress” amendments are used to formally express congressional opinions about subjects of national interest. Apparently the “sense of Congress” is that the Supreme Court got this one wrong.