FEDERAL CIRCUIT CASES
Federal Circuit Explains the Role of Actual Profits in Reasonable Royalty Calculations and the Relationship Between Preliminary Injunctions and Willful Infringement
On December 22, 2014, the Federal Circuit vacated a district court’s decision on damages and willfulness, reasoning that the court (1) placed too much weight on an infringer’s actual profits in calculating a reasonable royalty, and (2) improperly relied on the denial of a preliminary injunction to find no willful infringement. The Federal Circuit’s opinion reflects a nuanced, fact-specific approach to these two issues.
Aqua Shield’s patent claims “enclosures designed to cover pools or create sun rooms.” Aqua Shield sued Inter Pool Cover Team (IPC) for infringement, and the district court granted summary judgment that IPC infringed and that Aqua Shield’s patent was not invalid. The district court then conducted a bench trial to decide the appropriate remedy for IPC’s infringement. The court ultimately awarded Aqua Shield $10,800 in damages and found that IPC’s infringement was not willful.
To calculate a reasonable royalty, the district court multiplied IPC’s net profits on infringing sales—$135,000—by a rate of 8 percent, in what the district court viewed as a proper “hypothetical negotiation.” The Federal Circuit, however, found reversible error in the district court’s methodology. Specifically, while an “infringer’s actual profits earned during the period of infringement can be relevant to the [hypothetical negotiation] inquiry,” the district court erred in treating IPC’s actual profits “as a royalty cap.” The Federal Circuit stressed that a proper hypothetical negotiation should be forward-looking, inquiring into what the infringer “would have anticipated the profit-making potential of use of the patented technology to be, compared to using non-infringing alternatives.” The district court, on the other hand, looked at only “what turned out to have happened.” The Federal Circuit noted, for example, that IPC might have increased prices to account for a royalty payment in the hypothetical negotiation context, thus implying that IPC’s anticipated profits (and a proper reasonable royalty) may have been larger than its actual profits. The Federal Circuit remanded for the district court to re-determine damages, considering “the advantages of the patented product, the ease and cost of designing around the claimed invention, and the relevance of IPC’s actual profits to what IPC’s expectations would have been in a hypothetical negotiation.”
The Federal Circuit also vacated the district court’s decision that IPC’s infringement was not willful. The district court found no willfulness in large part because Aqua Shield’s request for a preliminary injunction had been denied. The Federal Circuit recognized that the denial of a preliminary injunction may weigh against a later determination of willfulness, but there is “no rigid rule;” the relationship between the two depends on the circumstances. Here, the preliminary injunction was denied “because of personal-jurisdiction questions and because Aqua Shield lacked sufficient knowledge of IPC’s product to make the required showing of a likelihood of success on the merits”—not because of the actual merits of Aqua Shield’s infringement claims or IPC’s invalidity defenses. Therefore, the denial of a preliminary injunction in this case was “a legally insufficient reason for determining that IPC did not willfully infringe.” The Federal Circuit also noted that the evidence failed to demonstrate conclusively that IPC actually designed around Aqua Shield’s patent (even if IPC intended to), which is also relevant to willfulness.
The fact-intensive approach to damages and willfulness taken by the Federal Circuit in this case serves as a reminder of the importance of making and preserving a good record at the trial court. The Federal Circuit’s opinion also reminds that legal authority cannot be read in a vacuum; the factual context of each case matters.
Aqua Shield v. Inter Pool Cover Team, 2014-1263 (Fed. Cir. Dec. 22, 2014) (Taranto (author), Wallach, and Chen).
- Author: Wesley D. Markham
Objectively Reasonable Invalidity Defense Shields Accused Infringer From Willful Infringement
In Stryker v. Zimmer, Stryker filed suit alleging infringement of three patents by Zimmer. The patents relate to devices used to remove damaged tissue and clean bones during joint-replacement surgery. The jury found the three asserted patents to be valid and infringed, and awarded Stryker $70 million in lost profit damages. Following the jury trial, the district court trebled the $70 million award based on Zimmer’s willful infringement, because the court found that: (1) Zimmer “all but instructed its design team to copy Stryker’s products”; (2) Stryker’s patents were pioneering; and (3) the secondary considerations of non-obviousness “made it dramatically less likely that Zimmer’s invalidity arguments were reasonable.” Zimmer appealed.
The Federal Circuit reversed the finding of willful infringement and vacated the treble damages award, holding that the district court “failed to undertake an objective assessment of Zimmer’s specific defenses to Stryker’s claims.” In the court’s view, Zimmer’s invalidity arguments were not unreasonable, even though they were unsuccessful at trial. The Court reasoned that Stryker had to: (1) obtain broad claim construction for terms not explicitly supported by the specification; (2) convince the jury about the location of an infringing component to meet the claim limitations; and (3) overcome statements made during prosecution that were relevant to this location. From the Court’s standpoint, these “extra miles” by Stryker demonstrated that Zimmer’s invalidity defenses were not objectively unreasonable, and therefore, Zimmer did not act recklessly.
Whether a defendant’s subjective belief that a patent is invalid is a defense to willful infringement remains to be a hotly contested issue- one that the U.S. Supreme Court will likely address after granting certiorari in Commil v. Cisco. For now, the Federal Circuit has set a high standard for patentees to prove willful infringement in order to obtain treble damages in patent infringement lawsuits.
Stryker v. Zimmer, 2014 WL 7210311 (Fed. Cir. 2014).
- Author: Alex Chan
DECISIONS ON PATENTABLE SUBJECT MATTER UNDER ALICE CORP.
District Court Finds Claims on Linking Data Objects over the Internet Patent Ineligible
A California court has granted summary judgment invalidating claims of four patents related document linking technology as patent ineligible abstract ideas under the Supreme Court’s Alice decision. Bascom sued Facebook and Linkedin in 2012 on patents relating to methods for publishing, distributing, relating and searching document objects on computer networks. The patents claimed methods that allowed users to establish relationships between document objects located on the Internet and maintain link directories. Following the Supreme Court’s decision in Alice, the defendants filed motions for summary judgment of patent invalidity under § 101. Applying the two-step Alice test, the court agreed with defendants that establishing relationships between documents is a centuries-old concept that can also be performed by the human mind. The court ruled that Bascom’s patents describe an abstraction having no particular concrete or tangible form. Finding the Federal Circuit’s Ultramercial decision instructive, the court ruled that “allowing users to generate relationships between document objects and storing those relationships separately from the document objects simply describes the abstract idea of creating, storing and using relationships between objects.” According to the court, “establishing relationships between document objects and making those relationships accessible is not meaningfully different from classifying and organizing data.” The court further compared Bascom’s patents to other recently invalidated software patents. Evaluating the claims under step two of the Alice patent eligibility test, the court ruled that Bascom’s patents failed to include any inventive concept. The court rejected Bascom’s proffered expert testimony as conclusory, and held that Bascom’s patents require nothing beyond a generic computer. The court decided that computer-based limitations recited in the claims failed to demonstrate an “inventive concept” that transforms Bascom’s claims into patentable subject matter.
Bascom Research LLC v. Facebook Inc., No. 3:12-cv-06293 (N.D. Cal. Jan. 2, 2015) (Illston, J.).
PATENT TRIAL AND APPEAL BOARD
Rehearing Denied Where Broadest Reasonable Construction Obviated The Need For Choice Between Two Distinct Constructions
A Patent Trial and Appeal Board (PTAB) panel denied a petitioner’s request for rehearing of its decision to deny institution of inter partes review of a patent as obvious over two prior art references. The panel found no abuse of discretion where it had adopted the broadest reasonable construction of a term. The panel also found that the absence of evidence showing a skilled artisan would not act in a certain way did not support the contention that a skilled artisan would act in that way.
First, the panel reviewed its construction of the term “secured to.” The petitioner had argued “secured to” required “direct contact” between a plate and an enclosure “without being spaced apart,” whereas the patent owner argued for the “plain and ordinary meaning” of the term. The panel had found no support for the petitioner’s construction, and imposed no specific limitations on the term. In its request for rehearing, the petitioner argued the panel’s decision resulted in inconsistencies because no specific definition was adopted and the term “either requires ‘direct contact’ or allows ‘spacing’”. The panel found no inconsistencies because “[t]he broadest reasonable interpretation of ‘secured to’ requires only that the plates are secured to the enclosure,” and the issue of direct or indirect contact was “irrelevant to the [term’s] construction.”
Next, the panel found no error when it had rejected the petitioner’s position on obviousness. The petitioner had argued there was “no evidence of record that one of ordinary skill in the art would not incorporate [or] omit elements as proposed”, and provided expert declarations in support. However, the panel found the probative value of the expert’s declarations was not enhanced by a record that did not contain specific evidence about what a skilled artisan would not do.
Finally, the panel reminded the petitioner new arguments or evidence could not be presented during a request for rehearing. Accordingly, “colored drawings” that the petitioner included to explain “nomenclature” could not be considered where those drawings had not been included in the earlier petition.
Billy Goat Indus., Inc. v. Schiller Grounds Care, Inc., IPR2014-00742 (PTAB Dec. 18, 2014) [Grossman (opinion), Weatherley, Tartal].
- Author: Jonathan Underwood
Inter Partes Review Petitions Denied for Failing to List all Real Parties
The PTAB denied two petitions for inter partes review filed by the same petitioners for failing to list all real parties-in-interest. Under the AIA, a petition for inter partes review may be considered only if “the petition identifies all real parties in interest.” The patent owner argued petitioners failed to identify entities that are co-plaintiffs with petitioners in the declaratory judgment actions seeking to invalidate the patents that are the subject of the petitions, filed on the same day as the IPR petition. The patent owner also argued that the non-identified entities have a corporate relationship with each petitioner. Some of the non-identified entities exercised control over a petitioner in connection with the dispute involving the subject patent. The board found that a parent corporation that has exercised control, on behalf of itself and a petitioner, over the dispute involving the patent-at-issue is a real party-in-interest. The board explained that “the touchstone for determining whether a non-party is a real party-in-interest is whether the non-party exercises control over a party’s participation in the proceeding.” And a failure to list such an entity is a basis for denying a petition for inter partes review. Furthermore, the board stated that any attempt to cure the omission to add the non-identified entity as a real party in interest would be futile because the unidentified party has already filed the declaratory judgment suit. By filing the declaratory judgment suit, the party is estopped under AIA rules from filing an IPR petition.
Paramount Home Ent. Inc. v. Nissim Corp., IPR2014-00961, IPR2014-00962 (PTAB Dec. 29, 2014).[Scanlon (opinion), Fitzpatrick, Murphy].
- Author: Ashley Brown
IPR Petition May Not be Deficient where Omitted Real Party in Interest is Legal Successor to Disincorporated Petitioner
Under 35 U.S.C. § 315(a)(2), a party seeking to institute an inter partes review (IPR) must identify all “real parties in interest.” Two weeks ago, the PTAB issued a decision regarding this provision, holding that a misidentification of the real party in interest is not fatal in some circumstances.
The petitioner, Valeo, Inc., requested an IPR on U.S. Patent No. 7,877,175 This patent was generally directed to an object detection system for blind spots in automobiles.
Seven months prior to the filing of the IPR petition, Valeo, Inc., merged into Valeo North America, Inc., and Valeo, Inc. ceased to exist. However, the petition identified various Valeo entities, including Valeo, Inc., as the real party in interest and omitted Valeo North America, Inc. The patent owner argued that the petition was fatally deficient because it failed to identify all real parties in interest. However, the Board found that the petition was “correct substantively” because Valeo North America, Inc. was the legal successor to Valeo, Inc. Accordingly, the omission of the correct real party in interest was not fatal to the petition. However, Valeo’s petition was denied on other substantive grounds.
Valeo N. Am. v. Magna Elecs., IPR2014-01206, Paper No. 13 (P.T.A.B. Dec. 23, 2014) (decision denying institution of Inter Partes Review).
- Author: Josh Rychlinski
