CAFC Denies Enhanced Damages and Lost Profits, Competitor Proves Intervening Rights

Presidio Components, Inc. v. Am. Tech. Ceramics Corp., (Fed. Cir. Nov. 21, 2017) (Before Dyk, Moore, and Taranto, J.) (Opinion for the court, Dyk, J.)

Presidio Components, Inc. (“Presidio”) alleged that American Technical Ceramics Corporation (“ATC”) infringed its patent, U.S. Patent No. 6,816,356 (“the ‘356 patent”), for a multilayer capacitor design. ATC contemporaneously sought an ex parte reexamination of the claims of the ‘356 patent. Because Presidio amended claim 1 of the patent during reexamination, ATC asserted the affirmative defense of intervening rights, to limit its damages. On appeal, ATC appealed the district court judgment that (1) claim 1 and certain dependent claims were not indefinite, (2) Presidio was awarded lost profits; and (3) granted a permanent injunction against ATC. On cross-appeal, Presidio challenged the court’s determination of absolute intervening rights and the denial of enhanced damages.

INDEFINITENESS

ATC based its claim of indefiniteness on the patent’s disclosure of multilayer capacitors with a fringe-effect between external contacts, “capable of being determined by measurement in terms of a standard unit.” During prosecution, Presidio amended the claims to determine fringe effect capacitance “by measurement” such as measurements of “insertion loss.” While insertion loss testing could be used to measure overall performance of capacitors, it was not well known as a method to measure the comparative contributions from different capacitances within the multilayer capacitor. Although the patent specification simply mentioned the method, the Federal Circuit chose not to disturb the district court’s finding because the insertion loss method was well known in the art and a person of ordinary skill would be able to use the method to measure capacitance as claimed. Consequently, the claims were not indefinite.

INTERVENING RIGHTS

For a patent that survives reexamination, the patent owner is not entitled to infringement damages for the period between issuance of the original claims and the date of issuance of the reexamined claims if the original and amended claims are not “substantially identical.” 35 U.S.C. §§ 252, 307(b). Courts evaluate “substantially identical” based on normal claim construction analysis. Here, the original claims involved a theoretical calculation of fringe-effect capacitance. The amended claims excluded theoretical calculations by requiring “measurement.” This was a substantive change, and indeed was made to overcome a rejection. Because the original and amended claims were not substantially identical, the affirmative defense of absolute intervening rights applied. Consequently, Presidio was not entitled to infringement damages during the period or intervening rights, and its cross-appeal was denied.

LOST PROFITS

To recover lost profits, the patentee bears the burden of proof to show a “reasonable probability that, ‘but for’ infringement, it would have made the sales that were made by the infringer.” Crystal Semiconductor Corp. v. TriTech Microelecs. Int’l, Inc., 246 F.3d 1336, 1353 (Fed. Cir. 2001). The patentee must show: (1) demand for the patented product; (2) an absence of acceptable, non-infringing substitutes; (3) manufacturing and marketing capability to exploit the demand; and (4) the amount of profit that would have been made. Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1156 (6th Cir. 1978). ATC argued that the lower court erred in its evaluation of non-infringing alternatives (the second factor). The patentee must prove that either a potential alternative was not available, or it was not acceptable to potential customers. Grain-Processing Corp. v. Am. Maize-Prod. Co., 185 F.3d 1341, 1353–55 (Fed. Cir. 1999).

The Federal Circuit ruled that the district court erred in finding there was no available substitute. Finding an acceptable non-infringing alternative requires comparing the patent owner’s product to the possible alternative in a hypothetical market, absent the infringing product. The court erroneously compared sales of the 560L capacitor with sales of the BB capacitor in a market that included the infringing 550 capacitor. Evidence that ATC’s non-infringing 560L capacitor was less expensive and had lower insertion loss at certain frequencies than Presidio’s BB capacitor, which embodies the ‘356 patent, indicated the possibility of a non-infringing alternative. The lower court erred by treating an alternative sold only to one customer as effectively “unavailable.” “An alternative does not need to be on the market to be available.” Grain-Processing, 185 F.3d at 1356. Moreover, the existence of the 560L capacitor on the market was sufficient proof of availability. As a result, Presidio failed to prove lost profits. Therefore, in a new trial, a reasonable royalty award must be determined.

ENHANCED DAMAGES

In patent infringement cases involving willful, wanton, or malicious behavior, district courts have the discretion to “increase damages up to three times the amount found or assessed.” 35 U.S.C. § 284. Despite the jury’s finding of willful conduct in ATC’s continued sale of the infringing 550 capacitor after reexamination, the court properly decided against enhanced damages. The court applied the Halo test to evaluate whether there was conduct so egregious that damages should be enhanced. ATC sold the 550 capacitors for nearly six years without a finding of infringement, succeeded in causing Presidio to narrow its claims during the reexamination, and had a merit based invalidity defense. Because ATC had legitimate reason to believe the 550 capacitor did not infringe the ‘356 patent, its actions were not egregious. As a result, the court did not abuse its discretion in declining to award enhanced damages.

PERMANENT INJUNCTION

A permanent injunction may be granted when the patentee can prove: (1) it has suffered an irreparable injury; (2) legal remedies, such as money damages, are inadequate to compensate for that injury; (3) the balance of hardships between the plaintiff and defendant warrants an injunction; and (4) the public interest would not be disserved by an injunction. eBay Inc. v. MercExchange, LLC, 547 U.S. 388, 391 (2006). Because the district court’s erroneous finding of lost profits supported a finding of irreparable injury, the Court vacated the injunction. On remand, to determine irreparable injury, the lower court must consider whether consumers have turned to non-infringing alternatives after the grant of the permanent injunction of the 550 capacitor.

In determining indefiniteness of a claim based on a testing method referenced in the patent, courts will evaluate whether the method is well known in the art and could reasonably be adapted for the claimed purpose. Intervening rights is an affirmative defense that may arise when claims are substantially changed after an intervening reexamination. For lost profits, a non-infringing alternative does not have to be a direct substitute; it can be an alternative in a hypothetical market absent the infringing product. Enhanced damages are discretionary and may be declined when willful infringement is not egregious, e.g. in light of its defenses and when patentee amended its claims in reexamination. Irreparable injury based on an erroneous lost profits finding will not stand. Further, a permanent injunction may be reconsidered by evaluating the sales in the actual market after the grant of an injunction.

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Joseph Robinson has over 20 years of experience in all aspects of intellectual property law. He focuses his practice in the pharmaceutical, life sciences, biotechnology, and medical device fields. His practice encompasses litigation, including Hatch-Waxman litigation; licensing; counseling; due diligence; and patent and trademark prosecution. He has served as litigation counsel in a variety of patent and trademark disputes in many different jurisdictions, and has also served as appellate counsel before the Court of Appeals for the Federal Circuit. Joe also focuses on complex inter partes matters before the U.S Patent and Trademark Office, inventorship disputes, reexaminations and reissues. His experience includes numerous interferences, a particular advantage in new U.S. Patent and Trademark Office post-grant proceedings. He also counsels on patent–related U.S. Food and Drug Administration issues, including citizen petitions, Orange Book listing, and trademark issues. For more information and to contact Joe please visit his profile page at the Troutman Sanders website.

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