Stryker, Halo to get second chance at enhanced patent damages

By Andrew Chung

NEW YORK (Reuters) - The U.S. Supreme Court on Monday said federal judges should have more discretion to boost penalties in patent infringement cases and ordered an appeals court to review whether Zimmer Biomet Holdings Inc (ZBH.N) willfully violated Stryker Corp (SYK.N) patents on a surgical cleaning wand.

In a unanimous opinion, the high court also ordered the appeals court in a separate case to review whether Pulse Electronics Corp willfully infringed Halo Electronics Inc's patents.

The justices said a test for determining willful infringement, which can allow judges to triple damages awarded to a patent owner, was too rigid and allowed some egregious infringers to escape liability. The test had been developed by the U.S. Court of Appeals for the Federal Circuit in Washington, D.C., the nation's top patent court.

Industry groups have closely followed the cases because lowering the bar for judges to award enhanced damages could hand patent owners a potent new weapon to file infringement cases and push for licenses.

Stryker, a medical device maker, and Halo, a maker of circuit board transformers, were denied enhanced damages by the Federal Circuit after winning patent infringement lawsuits against competitors.

The appeals court has said that to be awarded enhanced damages, meant as punishment for deliberate and reckless copying, a patent owner must prove a defendant acted despite a high likelihood of infringement and had no reasonable explanation for doing so.

Both Halo and Stryker argued that the test allowed a willful infringer to escape punishment if it could muster any reasonable defence, even if it acted in bad faith.

Writing for the court, Chief Justice John Roberts agreed, saying the test wrongly insulates a "wanton and malicious pirate" who infringes to steal a patent owner's business from enhanced damages.

Roberts said concerns that so-called patent trolls, who make money by suing over patents, would be emboldened by the ruling, do not justify the rigid test.

Stryker, based in Kalamazoo, Michigan, sued Zimmer in 2010 for infringing its patented surgical wand, used to clean wounds during orthopedic surgical procedures, and was awarded more than $210 million for willful infringement, a finding overturned by the Federal Circuit in 2014.

Zimmer spokeswoman Monica Kendrick said the company, based in Warsaw, Indiana, was "disappointed" over the top court's ruling and looks forward to continuing to defend itself on remand. A Stryker representative did not immediately have a comment on Monday.

Halo praised the Supreme Court's ruling. The privately-held company, based in Las Vegas, sued Pulse in 2007. The Federal Circuit similarly found that Pulse's infringement of several Halo patents was not willful. Pulse, a privately-held company based in San Diego, could not be reached.

The cases are Halo Electronics, Inc v. Pulse Electronics, Inc and Stryker Corp v. Zimmer, Inc, in the Supreme Court of the United States, Nos. 14-1513 and 14-1520.

(Reporting by Andrew Chung; Editing by Alexia Garamfalvi and Leslie Adler)