The technology industry is closely watching a Supreme Court case argued Tuesday that could have broad implications for how patent infringement damages are awarded.
The case to be decided later this year could reshape the conditions under which judges can force patent infringers to pay extra damages.
Giving too much power to lower courts could "discourage innovation" from small companies, he said, because they could "fear" the prospect of huge costs if they were found to be infringing.
"We have one more path leading us to national monopoly by Google and Yahoo or their equivalence, and the patent statute is not designed to create monopolies throughout the United States," Breyer said, summarizing the argument of some. "It's designed to help the small businessman, not to hurt him."
Though Breyer framed the argument as protection for small companies, major technology companies have filed briefs arguing a similar view. Companies like Google, Facebook, Yahoo, Netflix, Twitter, Salesforce, Verizon and others filed various petitions urging the court to maintain the status quo.
Major tech companies rely heavily on patents and are frequently the target of litigation. They have a stake in limiting when inflated damages can be awarded, especially when it can cost as much as hundreds of millions of extra dollars.
Oral arguments Tuesday dealt with two consolidated cases. Halo Electronics won $1.5 million after a competitor infringed upon its patent for transformer packages. In a separate case, Stryker Corporation won $70 million after a competitor infringed upon its medical device patent. Both companies want larger payouts, maintaining that the court’s test when awarding extra damages is too restrictive.
Under a portion of the 1952 Patent Act, courts “may increase the damages up to three times” the original amount in some infringement cases, but it is silent on which cases warrant the extra payout.
A rigid test was created about a decade ago by the U.S. Court of Appeals for the Federal Circuit, which found extra damages could only be awarded when there is “willful” infringement of a patent that is highly likely to be valid. That means patent holders who want extra damages must prove their patents are highly likely to be valid and and that infringers knew or should have known they were infringing.
Chief Justice John Roberts called that "elaborate" standard "surprising" based on the vague wording of the actual law. Others on the bench, however, said a rigid test is helpful, although they seemed open to altering that standard.
"We have to give them some guidance," Justice Sonia Sotomayor said, arguing the lower courts can't decide extra damages based on whims.
Critics wants the court to be able to consider all relevant circumstances, arguing the current framework allows even the most malicious infringer to escape paying extra damages in some cases.
On top of that, they argue that the Supreme Court recently struck down a similarly rigid test that was incorrectly used to determine when judges could force the loser of a patent infringement case to pay the winner’s attorney fees.
On the other side, supporters say the current framework can be traced back to Congress’s intent and common law. They also raise warnings that removing the rigid test and replacing it with an ambiguous and freewheeling framework could increase the leverage for so-called patent trolls who use the courts to try and extort unjustified settlements.