HALO ELECTRONICS, INC. v. PULSE ELECTRONICS, INC.

The Seagate test is not consistent with §284. Pp. 7–15.

(a) The pertinent language of §284 contains no explicit limit or condition on when enhanced damages are appropriate, and this Court has emphasized that the “word ‘may’ clearly connotes discretion.” Martin v. Franklin Capital Corp., 546 U. S. 132, 136. At the same time, however, “[d]iscretion is not whim.” Id., at 139. Although there is “no precise rule or formula” for awarding damages under §284, a district court’s “discretion should be exercised in light of the considerations” underlying the grant of that discretion. Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U. S. ___, ___. Here, 180 years of enhanced damage awards under the Patent Act establish that they are not to be meted out in a typical infringement case, but are instead designed as a sanction for egregious infringement behavior. Pp. 7–9.

(b) In many respects, the Seagate test rightly reflects this historic guidance. It is, however, “unduly rigid, and . . . impermissibly encumbers the statutory grant of discretion to district courts.” Octane Fitness, 572 U. S., at ___. Pp. 9–13.

(1) By requiring an objective recklessness finding in every case, the Seagate test excludes from discretionary punishment many of the most culpable offenders, including the “wanton and malicious pirate” who intentionally infringes a patent—with no doubts about its validity or any notion of a defense—for no purpose other than to steal the patentee’s business. Seymour v. McCormick, 16 How. 480, 488. Under Seagate, a district court may not even consider enhanced damages for such a pirate, unless the court first determines that his infringement was “objectively” reckless. In the context of such deliberate wrongdoing, however, it is not clear why an independent showing of objective recklessness should be a prerequisite to enhanced damages. Octane Fitness arose in a different context but is instructive here. There, a two-part test for determining when a case was “exceptional”—and therefore eligible for an award of attorney’s fees—was rejected because a claim of “subjective bad faith” alone could “warrant a fee award.” 572 U. S., at ___. So too here: A patent infringer’s subjective willfulness, whether intentional or knowing, may warrant enhanced damages, without regard to whether his infringement was objectively reckless. The Seagate test further errs by making dispositive the ability of the infringer to muster a reasonable defense at trial, even if he did not act on the basis of that defense or was even aware of it. Culpability, however, is generally measured against the actor’s knowledge at the time of the challenged conduct. In sum, §284 allows district courts to punish the full range of culpable behavior. In so doing, they should take into account the particular circumstances of each case and reserve punishment for egregious cases typified by willful misconduct. Pp. 9–11.

(2) Seagate’s requirement that recklessness be proved by clear and convincing evidence is also inconsistent with §284. Once again, Octane Fitness is instructive. There, a clear and convincing standard for awards of attorney’s fees was rejected because the statute at issue supplied no basis for imposing a heightened standard. Here, too, §284 “imposes no specific evidentiary burden, much less such a high one,” 572 U. S., at ___. And the fact that Congress erected a higher standard of proof elsewhere in the Patent Act, but not in §284, is telling. “[P]atent-infringement litigation has always been governed by a preponderance of the evidence standard.” Id., at ___. Enhanced damages are no exception. P. 12.

(3) Having eschewed any rigid formula for awarding enhanced damages under §284, this Court likewise rejects the Federal Circuit’s tripartite appellate review framework. In Highmark Inc. v. Allcare Health Management System, Inc., 572 U. S. ___, the Court built on the Octane Fitness holding—which confirmed district court discretion to award attorney’s fees—and rejected a similar multipart standard of review in favor of abuse of discretion review. The same conclusion follows naturally from the holding here: Because §284 “commits the determination” whether enhanced damages are appropriate to the district court’s discretion, “that decision is to be reviewed on appeal for abuse of discretion.” Id., at ___. Nearly two centuries of enhanced damage awards have given substance to the notion that district courts’ discretion is limited, and the Federal Circuit should review their exercise of that discretion in light of longstanding considerations that have guided both Congress and the courts. Pp. 12–13.

(c) Respondents’ additional arguments are unpersuasive. They claim that Congress ratified the Seagate test when it reenacted §284 in 2011 without pertinent change, but the reenacted language unambiguously confirmed discretion in the district courts. Neither isolated snippets of legislative history nor a reference to willfulness in another recently enacted section reflects an endorsement of Seagate’s test. Respondents are also concerned that allowing district courts unlimited discretion to award enhanced damages could upset the balance between the protection of patent rights and the interest in technological innovation. That concern—while serious—cannot justify imposing an artificial construct such as the Seagate test on the limited discretion conferred under §284. Pp. 13–15.

No. 14–1513, 769 F. 3d 1371; No. 14–1520, 782 F. 3d 649, vacated and remanded.  

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Online Resources Corp. v. Joao Bock Transaction Sys.

Online Resources Corporation (ORCC) and ACI Worldwide, Inc. (ACI, and collectively, ACI Worldwide) appeal from a March 2, 2015, order and judgment of the district court denying ACI Worldwide’s motion for partial summary judgment and granting partial summary judgment to Joao Bock Transaction Systems, LLC (JBTS). For the reasons stated below, we dismiss for lack of appellate jurisdiction.

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Magnetar Techs. v. Intamin, Ltd.

The panel affirmed the district court’s summary judgment on claims of (1) malicious prosecution of a patent infringement action and (2) monopolization in violation of Section 2 of the Sherman Antitrust Act.

The panel held that under California law, the defendant did not maliciously prosecute the plaintiff for infringement of a magnetic braking system patent because a reasonable attorney could have concluded that the on-sale bar of 35 U.S.C. § 102 did not apply to invalidate the patent.

Affirming the district court’s grant of summary judgment on the plaintiff’s claim that the defendant, along with its European affiliate corporations, used the invalid patent to monopolize the market for magnetic braking systems, the panel held that the plaintiff failed to establish a causal antitrust injury stemming from the defendant’s actions.

On cross-appeal, the panel affirmed the district court’s denial of the defendant’s motion for sanctions under Fed. R. Civ. P. 37 against the plaintiff for bringing a frivolous antitrust action.

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Microsoft, Corp. v. Motorola, Inc.

We live in an age in which the interconnectivity of a wide range of modern technological products is vital. To achieve that interconnection, patent-holders often join together in compacts requiring licensing certain patents on reasonable and non-discriminatory (“RAND”) terms. Such contracts are subject to the common-law obligations of good faith and fair dealing.

At issue in this appeal are two patent portfolios, formerly owned byAppellants Motorola, Inc., Motorola Mobility, Inc., and General Instrument Corp., (“Motorola”), both of which are subject to RAND agreements. Appellee Microsoft, a third-party beneficiary to Motorola’s RAND commitments, sued Motorola for breach of its obligation to offer RAND licenses to its patents in good faith. Motorola, meanwhile, brought infringement actions in a variety of fora to enjoin Microsoft from using its patents without a license.

We previously upheld, in an interlocutory appeal, an antisuit injunction preventing Motorola from enforcing in a German action any injunction it might obtain against Microsoft’s use of certain contested patents. Microsoft Corp. v. Motorola, Inc., 696 F.3d 872 (9th Cir. 2012) (“Microsoft I”). We did so after determining that there was, in the “sweeping promise” of Motorola’s RAND agreements, “at least arguably[] a guarantee that the patent-holder will not take steps to keep would-be users from using the patented material, such as seeking an injunction, but will instead proffer licenses consistent with the commitment made.” Id. at 884.

After our decision, a jury determined that Motorola had indeed breached its RAND good faith and fair dealing obligations in its dealings with Microsoft. In this appeal, we address (1) whether the district court overstepped its bounds by determining, at a bench trial preceding the jury trial on breach of contract, a reasonable and non-discriminatory rate, as well as a range of rates, for Motorola’s patents; (2) whether the court erred in denying Motorola’s motions for judgment as a matter of law on the breach of contract issue; (3) whether the court erred in awarding Microsoft attorneys’ fees as damages in connection with Motorola’s pursuit of injunctions against infringement; and (4) whether the district court abused its discretion in two contested evidentiary rulings.

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U.S. Water Servs., Inc. v. ChemTreat, Inc.

In April 2011, while its patent application was pending with the United States Patent and Trademark Office (USPTO), U.S. Water Services, Inc.sued its competitor, ChemTreat, Inc. for misappropriation of trade secrets. On October 18, 2011, the USPTO issued U.S. Patent No. 8,039,244 (’244 patent). Three days before U.S. Water and ChemTreat settled the misappropriation claim, ChemTreat filed counterclaims against U.S. Water, Global Process Technologies, Inc. and Roy Johnson (collectively, counterclaimdefendants) requesting declaratory judgments of noninfringement and invalidity of the ’244 patent. The counterclaim defendants moved to dismiss the counterclaims for lack of subject matter jurisdiction, and ChemTreat moved for summary judgment of noninfringement. The district court denied the counterclaimdefendants’ motion to dismiss and later granted ChemTreat’s subsequent motion for summary judgment as to the noninfringement counterclaim and dismissed the invalidity counterclaim. The counterclaim defendants appeal. We affirm the district court’s well-reasoned judgment.

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Amity Rubberized Pen Co. v. Market Quest Grp.

This is a patent case. Congress has directed that appeals of patent cases shall be heard by the Court of Appeals for the Federal Circuit, and that other circuit courts, including this court, do not have jurisdiction to decide such cases. See 28 U.S.C. § 1295(a)(1). Thus, this appeal should have been filed with the Federal Circuit. Because, however, it was filed with us, we must decide what to do with it. We hold that the interest of justice would be served by allowing this case to be heard by the Federal Circuit, and so order that it be transferred to that court.

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King Drug Co of Florence Inc, v. Smithkline Beecham Corp.

In this appeal from the grant of a motion to dismiss for failure to state a rule-of-reason claim under Sections 1 and 2 of the Sherman Act under Federal Rule of Civil Procedure 12(b)(6), we are asked to determine whether FTC v. Actavis, 133 S. Ct. 2223 (2013), covers, in addition to reverse cash payments, a settlement in which the patentee drug manufacturer agrees to relinquish its right to produce an “authorized generic” of the drug (“no-AG agreement”) to compete with a first-filing generic’s drug during the generic’s statutorily guaranteed 180 days of market exclusivity under the Hatch-Waxman Act as against the rest of the world.

In Actavis, the Supreme Court held that unexplained large payments from the holder of a patent on a drug to an alleged infringer to settle litigation of the validity or infringement of the patent (“reverse payment”) “can sometimes violate the antitrust laws.” Id. at 2227. The Court rejected the near-irrebuttable presumption, known as the “scope of the patent” test, that a patentee can make such reverse payments so long as it is paying potential competitors not to challenge its patent within the patent’s lifetime.

Plaintiffs here, direct purchasers of the brand-name drug Lamictal, sued Lamictal’s producer, Smithkline Beecham Corporation, d/b/a GlaxoSmithKline (“GSK”), and Teva Pharmaceutical Industries Ltd. (“Teva”2 ), a manufacturer of generic Lamictal, for violation of Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 & 2.3 In earlier litigation, Teva had challenged the validity and enforceability of GSK’s patents on lamotrigine, Lamictal’s active ingredient. Teva was also first to file an application with the FDA alleging patent invalidity or nonenforceability and seeking approval to produce generic lamotrigine tablets and chewable tablets for markets alleged to be annually worth $2 billion and $50 million, respectively. If the patent suit resulted in a judicial determination of invalidity or nonenforceability—or a settlement incorporating such terms—Teva would be statutorily entitled to a valuable 180- day period of market exclusivity, during which time only it and GSK could produce generic lamotrigine tablets. (The relevant statute permits the brand to produce an “authorized generic” during the exclusivity period. Mylan Pharm., Inc. v. FDA, 454 F.3d 270, 276-77 (4th Cir. 2006); Teva Pharm. Indus. Ltd. v. Crawford, 410 F.3d 51, 55 (D.C. Cir. 2005); see also Sanofi-Aventis v. Apotex Inc., 659 F.3d 1171, 1175 (Fed. Cir. 2011).)

After the judge presiding over the patent litigation ruled the patent’s main claim invalid, GSK and Teva settled. They agreed Teva would end its challenge to GSK’s patent in exchange for early entry into the $50 million annual lamotrigine chewables market and GSK’s commitment not to produce its own, “authorized generic” version of Lamictal tablets for the market alleged to be worth $2 billion annually. Plaintiffs contend that this “no-AG agreement” qualifies as a “reverse payment” under Actavis because, like the cash reverse payments the Court there warned could face antitrust scrutiny, GSK’s no-AG commitment was designed to induce Teva to abandon the patent fight and thereby agree to eliminate the risk of competition in the $2 billion lamotrigine tablet market for longer than the patent’s strength would otherwise permit.

We believe this no-AG agreement falls under Actavis’s rule because it may represent an unusual, unexplained reverse transfer of considerable value from the patentee to the alleged infringer and may therefore give rise to the inference that it is a payment to eliminate the risk of competition. As the Court noted, these kinds of settlements are subject to the rule of reason.

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Kimble v. Marvel Entertainment, LLC

Respondent Marvel Entertainment’s corporate predecessor agreed to purchase petitioner Stephen Kimble’s patent for a Spider-Man toy in exchange for a lump sum plus a 3% royalty on future sales. The agreement set no end date for royalties. As the patent neared the end of its statutory 20-year term, Marvel discovered Brulotte v. Thys Co., 379 U. S. 29, in which this Court held that a patentee cannot continue to receive royalties for sales made after his patent expires. Marvel then sought a declaratory judgment in federal district court confirming that it could stop paying Kimble royalties. The district court granted relief, and the Ninth Circuit affirmed. Kimble now asks this Court to overrule Brulotte.

Held: Stare decisis requires this Court to adhere to Brulotte. Pp. 3–18.

(a) A patent typically expires 20 years from its application date. 35 U. S. C. §154(a)(2). At that point, the unrestricted right to make or use the article passes to the public. See Sears, Roebuck & Co. v. Stiffel Co., 376 U. S. 225, 230. This Court has carefully guarded the significance of that expiration date, declining to enforce laws and contracts that restrict free public access to formerly patented, as well as unpatentable, inventions. See, e.g., id., at 230–233; Scott Paper Co. v. Marcalus Mfg. Co., 326 U. S. 249, 255–256.

Brulotte applied that principle to a patent licensing agreement that provided for the payment of royalties accruing after the patent’s expiration. 379 U. S., at 30. The Court held that the post-patent royalty provision was “unlawful per se,” id., at 30, 32, because it continued “the patent monopoly beyond the [patent] period,” id., at 33, and, in so doing, conflicted with patent law’s policy of establishing a “postexpiration . . . public domain,” ibid.

The Brulotte rule may prevent some parties from entering into deals they desire, but parties can often find ways to achieve similar outcomes. For example, Brulotte leaves parties free to defer payments for pre-expiration use of a patent, tie royalties to non-patent rights, or make non-royalty-based business arrangements. Contending that such alternatives are not enough, Kimble asks this Court to abandon Brulotte’s bright-line rule in favor of a case-by-case approach based on antitrust law’s “rule of reason.” Pp. 3–7.

(b) The doctrine of stare decisis provides that today’s Court should stand by yesterday’s decisions. Application of that doctrine, though “not an inexorable command,” is the “preferred course.” Payne v. Tennessee, 501 U. S. 808, 828, 827. Overruling a case always requires “special justification”—over and above the belief “that the precedent was wrongly decided.” Halliburton Co. v. Erica P. John Fund, Inc., 573 U. S. ___, ___. Where, as here, the precedent interprets a statute, stare decisis carries enhanced force, since critics are free to take their objections to Congress. See e.g., Patterson v. McLean Credit Union, 491 U. S. 164, 172–173. Congress, moreover, has spurned multiple opportunities to reverse Brulotte, see Watson v. United States, 552 U. S. 74, 82–83, and has even rebuffed bills that would have replaced Brulotte’s per se rule with the standard Kimble urges. In addition, Brulotte implicates property and contract law, two contexts in which considerations favoring stare decisis are “at their acme,” Payne, 501 U. S., at 828, because parties are especially likely to rely on such precedents when ordering their affairs.

Given those good reasons for adhering to stare decisis in this case, this Court would need a very strong justification for overruling Brulotte. But traditional justifications for abandoning stare decisis do not help Kimble here. First, Brulotte’s doctrinal underpinnings have not eroded over time. The patent statute at issue in Brulotte is essentially unchanged. And the precedent on which the Brulotte Court primarily relied, like other decisions enforcing a patent’s cutoff date, remains good law. Indeed, Brulotte’s close relation to a whole web of precedents means that overruling it could threaten others. Second, nothing about Brulotte has proved unworkable. See Patterson, 491 U. S., at 173. To the contrary, the decision itself is simple to apply—particularly as compared to Kimble’s proposed alternative, which can produce high litigation costs and unpredictable results. Pp. 7–12.

(c) Neither of the justifications Kimble offers gives cause to overrule Brulotte. Pp. 12–18.

(1) Kimble first argues the Brulotte hinged on an economic error—i.e., an assumption that post-expiration royalties are always anticompetitive. This Court sees no error in Kimble’s economic analy-sis. But even assuming Kimble is right that Brulotte relied on an economic misjudgment, Congress is the right entity to fix it. The patent laws are not like the Sherman Act, which gives courts exceptional authority to shape the law and reconsider precedent based on better economic analysis. Moreover, Kimble’s argument is based not on evolving economic theory but rather on a claim that the Brulotte Court simply made the wrong call. That claim fails to clear stare decisis’s high bar. In any event, Brulotte did not even turn on the notion that post-patent royalties harm competition. Instead, the Brulotte Court simply applied the categorical principle that all patent-related benefits must end when the patent term expires. Kimble’s real complaint may go to the merits of that principle as a policy matter. But Congress, not this Court, gets to make patent policy. Pp. 12–16.

(2) Kimble also argues that Brulotte suppresses technological innovation and harms the national economy by preventing parties from reaching agreements to commercialize patents. This Court cannot tell whether that is true. Brulotte leaves parties free to enter alternative arrangements that may suffice to accomplish parties’ payment deferral and risk-spreading goals. And neither Kimble nor his amici offer any empirical evidence connecting Brulotte to decreased innovation. In any event, claims about a statutory precedent’s consequences for innovation are “more appropriately addressed to Congress.”

Halliburton, 573 U. S., at ___. Pp. 16–18. 727 F. 3d 856, affirmed.

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US Supreme Court Decision: COMMIL USA, LLC v. CISCO SYSTEMS, INC.

Held: A defendant’s belief regarding patent validity is not a defense to an induced infringement claim. Pp. 5–14.

(a) While this case centers on inducement liability, 35 U. S. C. §271(b), which attaches only if the defendant knew of the patent and that “the induced acts constitute patent infringement,” Global-Tech Appliances, Inc. v. SEB S. A., 563 U. S. ___, ___, the discussion here also refers to direct infringement, §271(a), a strict-liability offense in which a defendant’s mental state is irrelevant, and contributory infringement, §271(c), which, like inducement liability, requires knowledge of the patent in suit and knowledge of patent infringement, Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U. S. 476, 488 (Aro II). Pp. 5–6.

(b) In Global-Tech, this Court held that “induced infringement . . . requires knowledge that the induced acts constitute patent infringement,” 563 U. S., at ___, relying on the reasoning of Aro II, a contributory infringement case, because the mental state imposed in each instance is similar. Contrary to the claim of Commil and the Government as amicus, it was not only knowledge of the existence of respondent’s patent that led the Court to affirm the liability finding in Global-Tech, but also the fact that petitioner’s actions demonstrated that it knew it would be causing customers to infringe respondent’s patent. 563 U. S., at ___. Qualifying or limiting that holding could make a person, or entity, liable for induced or contributory infringement even though he did not know the acts were infringing. GlobalTech requires more, namely proof the defendant knew the acts were infringing. And that opinion was clear in rejecting any lesser mental state as the standard. Id., at ___. Pp. 6–9.

(c) Because induced infringement and validity are separate issues and have separate defenses under the Act, belief regarding validity cannot negate §271(b)’s scienter requirement of “actively induce[d] infringement,” i.e., the intent to “bring about the desired result” of infringement, 563 U. S., at ___. When infringement is the issue, the patent’s validity is not the question to be confronted. See Cardinal Chemical Co. v. Morton Int’l, Inc., 508 U. S. 83. Otherwise, the long held presumption that a patent is valid, §282(a), would be undermined, permitting circumvention of the high bar—the clear and convincing standard—that defendants must surmount to rebut the presumption. See Microsoft Corp. v. i4i Ltd. Partnership, 564 U. S. ___, ___–___. To be sure, if a patent is shown to be invalid, there is no patent to be infringed. But the orderly administration of the patent system requires courts to interpret and implement the statutory framework to determine the procedures and sequences that the parties must follow to prove the act of wrongful inducement and any related issues of patent validity.

There are practical reasons not to create a defense of belief in invalidity for induced infringement. Accused inducers who believe a patent is invalid have other, proper ways to obtain a ruling to that effect, including, e.g., seeking ex parte reexamination of the patent by the Patent and Trademark Office, something Cisco did here. Creating such a defense could also have negative consequences, including, e.g., rendering litigation more burdensome for all involved. Pp. 9–13.

(d) District courts have the authority and responsibility to ensure that frivolous cases—brought by companies using patents as a sword to go after defendants for money—are dissuaded, though no issue of frivolity has been raised here. Safeguards—including, e.g., sanctioning attorneys for bringing such suits, see Fed. Rule Civ. Proc. 11— combined with the avenues that accused inducers have to obtain rulings on the validity of patents, militate in favor of maintaining the separation between infringement and validity expressed in the Patent Act. Pp. 13–14. 720 F. 3d 1361, vacated and remanded.

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