Court takes on new energy pricing dispute
The Supreme Court, already pondering a case on how the federal and state governments divide up authority over the price of electricity, agreed on Monday to take up a second version of that question. At issue is a state system that subsidizes local utilities to help them gain increased sources of power generation for their customers in homes, offices, and factories.
Although the two cases (which were consolidated for oral argument and decision) involve a Maryland subsidy plan, New Jersey has a similar one, which will also be affected by the Court’s ruling in Hughes v. PPL EnergyPlus and CPV Maryland v. PPL EnergyPlus. The Court took no action on a pair of New Jersey cases raising the same question. When asked by the Court for its views on this dispute, the federal government had urged the Court not to hear the cases, arguing that the state programs clearly infringe on federal authority.
The Court on Monday also granted a pair of cases, and consolidated them for decision, on the standard to be used for awarding higher damages for patent infringement. Those cases are Halo Electronics v. Pulse Electronics and Stryker Corporation v. Zimmer Inc. The cases test a two-step standard used by the U.S. Court of Appeals for the Federal Circuit that allows enhanced money awards only if there is strong proof of a clear intention to illegally copy a patented invention.
Just last Wednesday, the Court had heard oral arguments in the ongoing dispute between the Federal Energy Regulatory Commission and state and local governments about the interaction between electricity prices at the wholesale and retail levels. No one doubts that pricing at either level can affect the other, but there is deep controversy over where to draw the dividing line between the authority to regulate such pricing.
FERC oversees an auction market on wholesale pricing, and last week’s hearing focused on whether that system illegally induces local utilities to enter into that market, thus interfering with state pricing rules. The new cases that the Court has now accepted for review involve state use of subsidies that are designed specifically to move the local utilities into the wholesale auction, making low pricing bids and thus forcing that market to adjust wholesale prices in response.
It is not clear what overlap, if any, the Justices see in the two types of cases. At the core of each is the language of the Federal Power Act that assigns wholesale pricing to FERC regulations, and leaves retail pricing to state and local rules. Thus, the Court might have simply held onto the new Maryland cases until after it has issued a final decision following Wednesday’s hearing in the FERC case.
But the details of the FERC mandate in the cases heard on Wednesday and the operation of the Maryland subsidy system in the new cases are quite different, so the Justices may have wanted a new factual array before them as they moved ahead toward resolving the underlying meaning of the Federal Power Act.
Further complicating the meaning of what the Court is now doing on that question is the possibility, emerging at Wednesday’s hearing, that the Court might split four to four on that particular case, making it unable to decide it except to simply affirm a lower court ruling that denied FERC the authority it claimed there. If such an even split did occur when the Justices voted on that case at last Friday’s private Conference, that might have led the Court at that same session to agree to take on the new Maryland cases to try to sort out the meaning of the Act, although in a different factual context.
The patent cases that the Justices added to their docket for decision involve a somewhat loosely worded federal law, giving judges the authority to award “adequate compensation” when a claim of infringement has been upheld in court, but then adds that the court “may increase the damages up to thee times the amount” of the award. It does not specify what proof is necessary to support such a tripling of an award.
The Federal Circuit has interpreted that law to mean damages can be increased only if the infringement was willful, and it defines willfulness to require proof that the infringer acted in the face of a high likelihood that it was infringing, plus proof that this risk was either known to the infringer or was so obvious that it should have known it.
Last year, in the case of Octane Fitness v. ICON Health & Fitness, the Supreme Court ruled that the Federal Circuit could not use a similar two-step standard for judging when the winner of a patent infringement case could be awarded attorneys’ fees. That ruling was cited in the two new cases in challenging the Federal Circuit’s use of such an approach on the willfulness issue in deciding for or against a damages increase of up to three times.
The Halo Electronics case is something of a “David versus Goliath” case, because Halo is a small, family-run business and its adversary, Pulse Electronics, is a major firm. Halo claimed that Pulse infringed on a patent Halo has for small transformers used in the circuitry of computers, routers, and other electronic products. At trial on Halo’s infringement claim, the jury found that Pulse had infringed, and had done so willfully. It awarded Halo $1.5 million, but the trial judge refused to enhance the damages, finding that Pulse had offered a non-frivolous defense that the Halo patent might be invalid. The Federal Circuit agreed.
The new companion case, which will be heard along with Halo’s, involves Styker Corporation’s claim that a direct competitor, Zimmer, Inc., infringed on a Stryker patent for a hand-held medical device used to suction out wounds and remove tissue from wound sites. A jury ruled that Zimmer had infringed on that patent, that this was done willfully, and that Stryker was entitled to $70 million in damages. The trial judge enhanced Stryker’s award by tripling it, to $210 million. The Federal Circuit agreed that Pulse had infringed the Stryker patent, but overturned the finding of willfulness and, with that, reversed the tripling of the damages.
All of the new cases in which the Court granted review on Monday are likely to be scheduled for oral argument in January or February.