In U.S Supreme Court takes 1st patent case of term, and plaintiffs could benefit

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In 2012 year, 15-employee Halo Electronics won a patent case against Pulse Electronics, a much larger competitor it accused of copying its technology. The company and its lawyers savored the victory with its David v. Goliath overtones. Halo’s victory ended in disappointment, though, when it was able to get just $1.5 million from a competitor that was selling $39 million worth of infringing products per year by 2007, the year the lawsuit was filed.
Now, Halo’s demands for better compensation will get another look. On Monday, the Supreme Court agreed to hear Halo Electronics v. Pulse Electronics along with Stryker Corp. v. Zimmer In..a medical device case hinging on the same damages issues. So far, they’re the only two patent cases the high court has agreed to hear this term.
A string of Supreme Court patent decisions over the past several years has gone generally in favor of defendants, making it harder for patent holders to win cases and collect large damages. At the same time, the Supreme Court has upended precedents set at the US Court of Appeals for the Federal Circuit, which hears all patent appeals. In Pulse Electronics and Stryker Corp., the Federal Circuit made decisions that favor defendants. Will this be the year that patent plaintiffs get a helping hand from the nation’s highest court?
Big case, small payout
Halo Electronics makes surface mount transformers, which are embedded in computers, routers, and other consumer electronics. The company uses what it calls “open construction” packaging to create the transformers, and that technology pushed its sales to $5 million by 1997. Big customers included the likes of Cisco, Motorola, Siemens, and GE.
In 2002, Halo asked the much larger Pulse Electronics to license its technology. Pulse didn’t take a license and got sued in 2007. Halo won its lawsuit in 2012, but the win wasn’t nearly as big as what the smaller company and its lawyers had hoped for. The jury awarded $1.5 million after the judge overseeing the case excluded the great majority of Pulse’s sales because they involved products not directly shipped to the US. On top of that, Halo lost its argument that Pulse’s infringement was willful. A finding that patent infringement was “willful” can result in up to treble damages.
On appeal, Halo argued that the test for willfulness was too rigid. Two judges on the Federal Circuit panel that heard its case said the willfulness test should be reconsidered by the full court, but the other judges didn’t vote to hear the case. Now the Supreme Court will take it up.
Halo’s lawyers argue (PDF) that just as the Supreme Court created a more flexible test for awarding attorneys’ fees when it decided the Octane Fitness case last year, the test for when willfulness awards should be granted should be loosened up as well.
Top patent court almost never makes bad actors pay. Supremes see it differently.
“[D]istrict courts are now unable to impose enhanced damages if a defendant presents a non-frivolous defense, even if it acted in bad faith before the suit by copying the patentee’s product, ignoring offers to license, and failing to investigate or develop any pre-suit defense,” Halo told the high court. “Nothing in the statutory text justifies this ridiculous result, and Octane suggests just the opposite.”
Pulse counters (PDF) that the decision to award attorneys fees is entirely different from the equation of who gets a “willfulness” award and that Halo only started using that strategy after it appealed its disappointing damage award. The company also says that Halo continues to misstate the nature of the case by making accusations of “copying” and bad faith. Pulse honestly believed Halo’s patents showed “obvious combinations of prior art components” and that it had no obligation to license patents it didn’t believe were valid.
The defendant had “consistent good faith and strong, although unsuccessful, infringement defenses,” including a strong argument that the patents weren’t valid, Pulse lawyers argue.
Halo has also argued that it shouldn’t have had products that weren’t directly shipped to the US excluded from its damage equation. In its petition, it focused on Cisco, a larger customer that bought transformers from Pulse. Once a deal was struck, Pulse shipped transformers directly from its Asian manufacturing location to Cisco’s manufacturing facilities, also based in Asia. However, Halo argues that Pulse and Cisco struck their deal in the US and their arrangement is bound by US law, including patent laws, so products that Pulse shipped outside the US should be considered in the damage calculation.
The Supreme Court has consolidated the Halo and Stryker cases. SCOTUSblog reports that oral argument for the combined cases is likely to take place in January or February of 2016.