The high court's 8-1 ruling wipes out a lower court's decision upholding a $4.5 million punitive damages claim against a small tool company and sends the case back for more review.

The 9th U.S. Circuit Court of Appeals took too narrow a view of its power to decide if the award was unconstitutionally large, Justice John Paul Stevens wrote for the majority.

Appeals courts should be a check on juries that may award excessive amounts of damages, and on lower court judges with varying levels of "institutional competence," Justice Stevens wrote.

The California-based appeals court said merely that a lower federal court "did not abuse its discretion" in declining to cut the size of the damages award against Cooper Industries Inc.

Majority decision

The appeals court should have done an independent review of the issue before signing off on the judgment, Justice Stevens wrote.

The majority did not say the $4.5 million awarded to Leatherman Tool Group Inc. was excessive - only that the 9th Circuit might have found it excessive had the court done a broader review.

A 1996 Supreme Court ruling established the idea that very large awards of damages could be found unconstitutional if they violated the losing side's rights to due process under the law.

Justices Clarence Thomas and Antonin Scalia filed separate concurring opinions noting that they disagree with the 1996 ruling.

"I continue to believe that the Constitution does not constrain the size of punitive damage awards," Justice Thomas wrote.

"I was and remain of the view that excessive punitive damages do not violate the due process clause" of the Constitution, Justice Scalia echoed.

Justice Ruth Bader Ginsburg dissented, saying that other Supreme Court precedents back up the 9th Circuit's decision.

The case

Both companies in the case make all-purpose tools similar to Swiss army knives.

An Oregon federal court had ordered Cooper to pay $4.5 million as punishment for doctoring a Leatherman tool and marketing it as a new Cooper product in advertisements and other promotional materials.

Cooper admitted the ads were a mistake but argued that Leatherman was not harmed. Cooper did eventually sell its own tool, which was nearly indistinguishable from the mock-up pictured in the ads.