CAFC Orders New Trial on Damages, Clarifies IPR Estoppel Rule in Appeal of Caltech’s $1.1 Billion Win Against Apple and Broadcom

On February 4, in a mixed precedential decision, the U.S. Court of Appeals for the Federal Circuit (CAFC) affirmed, vacated, and remanded in part a decision by the U.S. District Court for the Central District of California in a patent infringement suit filed by the California Institute of Technology (Caltech) against Broadcom Limited, Broadcom Corporation, and Avago Technologies (collectively “Broadcom) and Apple Inc.

The suit was related to Caltech’s U.S. Patent 7,116,710 (‘710 patent), U.S. Patent 7,421,032 (‘032 patent), and U.S. Patent 7,916,781 (‘781 patent). The CAFC affirmed the district court’s denial of judgment as a matter of law (JMOL) on infringement because the jury’s verdict of infringement of the declared claims of the ‘710 and ‘032 patents was supported by substantial evidence and the district court’s construction of the claim limitation “repeat” was not erroneous. The court also affirmed the district court’s conclusion that claim 13 of the ‘781 patent is patent-eligible but vacated the jury’s verdict of infringement because the jury was not instructed on the construction of the claim term “variable number of subsets” due to the district court’s failure, and thus remanded for a new trial the suit regarding the infringement of claim 13 of the ‘781 patent.

Based on inter partes review (IPR) estoppel and the court’s determination of no inequitable conduct, the CAFC affirmed the district court’s summary judgment findings of no invalidity. Regarding the district court’s jury instructions on extraterritoriality, the court affirmed the district court’s decision. Finally, the CAFC vacated the jury’s damages award and remanded for a new trial because Caltech’s two-tier damages theory was not supported on the record.

Caltech’s Patents and the Alleged Infringing Products

The ‘710 and ‘031 patents owned by Caltech disclose circuits that generate and receive irregular repeat and accumulate codes, which is a type of error correction code intended to improve the quickness and dependability of data transmissions. The ’781 patent reveals and claims a method for creating codewords in which “information bits appear in a variable number of subsets.”

Prior to trial, Apple and Broadcom sought summary judgment that claim 13 of the ‘781 patent was unpatentable under 35 U.S.C. § 101. The district court adopted Caltech’s interpretation to deny summary judgment on unpatentability.

Caltech alleged infringement by some Broadcom chips which Apple products incorporated. Both Appellants denied any infringement of Caltech’s patents.

Procedural History

Apple filed multiple IPR petitions prior to trial challenging the validity of the claims at issue. The Patent Trial and Appeal Board (PTAB) issued written decisions concluding that Apple failed to show the challenged claims were unpatentable as obvious. The district court granted summary judgment of no invalidity under 35 U.S.C. 315(e)(2), which precludes raising invalidity arguments at trial that could reasonably been raised in an IPR petition, after Apple and Broadcom argued the asserted claims would have been obvious. The district court conducted a Markman hearing and construed the claim limitation “repeat.”

At trial, Caltech argued Broadcom’s chips infringed claims 20 and 22 of the ‘710 patent and claims 11 and 18 of the ‘032 patent. The district court revisited its claim construction of “repeat” to clarify and instructed the jury that “repeat” means “generations of additional bits, where generation can include, for example, duplication or reuse of bits.” Apple and Broadcom argued the chips did not infringe the ‘710 and ‘032 patents because their chips did not repeat information bits.

The jury eventually concluded that there was infringement of all the asserted claims. Appellants filed motions for JMOL challenging the jury’s verdict. The district court denied JMOL based on a finding that there was no error in its claim construction ruling and substantial evidence supported the verdict.

Caltech additionally argued that the accused chips infringed claim 13 of the ‘781 patent. The district court declined to provide the jury with an instruction of the claim construction for the term “variable number of subsets.” The jury determined that Apple and Broadcom infringed the patent. Apple and Broadcom again filed motions for JMOL arguing the district court erred in denying their requested instruction. The district court denied these motions concluding that it within its discretion to not issue the requested instruction.

Caltech proposed a two-tier damages theory to receive compensation for appellants’ infringement. The theory “sought different royalty rates from each of the infringers despite the fact that liability arose from the same accused technology in the same chops.” Relying on Caltech’s theory, the jury awarded Caltech $270,241,171 for Broadcom’s infringement and $837,801,178 for Apple’s infringement. Apple and Broadcom challenged the damages award after trial, which the district court denied.

The ’710 and ‘032 Patents

 The CAFC began its analysis by determining the standards of review for the various challenges under appeal. The court determined that claim constriction, statutory interpretation, patent-eligibility, and patent jury instructions on patent law are reviewed de novo; infringement and damages are reviewed for substantial evidence; and a district court’s denial of JMOL is reviewed under the standard applied by the Ninth Circuit.

Appellants argued the district court’s claim interpretation of “repeat” was erroneous, contending their chips did not “repeat” information in the manner claimed but rather combined the information bits with bits to output new bits, and their chips did not generate bits “irregularly” but instead output the same number of bits for every information bit. Caltech argued that expert testimony on the record established that every bit is repeated an irregular number of times. The CAFC determined there was no error in the district court’s construction and agreed with Caltech that the record was supported with substantial evidence on the verdict of infringement.

‘781 Patent Infringement

The court began by analyzing whether appellants’ contention that claim 13 of the ‘781 patent was not patentable subject matter. Appellants solely relied on an argument that claim 13 depends on mathematical operations. The court concluded that claim 13 asserts more than just a mathematical formula and therefore is patentable subject matter.

Appellants further argued that the district court erred in refusing to instruct the jury regarding the limitations to the ‘781 patent. The court determined there was an error and required remand for a new trial on infringement, with instruction for the jury on the limitation.

IPR Estoppel, Inequitable Conduct and Damages

The court affirmed the district court’s decision barring raising invalidity challenges based on known prior art after an IPR litigation. The court took this opportunity to overrule Shaw Industries Group, Inc. v. Automated Creel Systems, Inc. (Fed. Cir. 2016) and clarify that estoppel applies to claims and grounds not in the IPR but which reasonably could have been included in the petition. The CAFC explained:

To be sure, [SAS Institute, Inc. v. Iancu] did not explicitly overrule Shaw or address the scope of statutory estoppel under § 315(e)(2). But the reasoning of Shaw rests on the assumption that the Board need not institute on all grounds, an assumption that SAS rejected….. Accordingly, we take this opportunity to overrule Shaw and clarify that estoppel applies not just to claims and grounds asserted in the petition and instituted for consideration by the Board, but to all claims and grounds not in the IPR but which reasonably could have been included in the petition.

Since it is undisputed that Apple and Broadcom were aware of the prior art references when Apple filed its IPR petition, they were estopped from raising the prior art at the district court, since they reasonably could have raised it in the IPR petition.

The CAFC affirmed the grant of summary judgment of no inequitable conduct, finding that the district court’s decision did not constitute an abuse of discretion. The district court rejected the inequitable conduct argument because the appellants failed to put Caltech on notice of the inequitable conduct theory.

The court concluded that the district court’s jury instructions relating to extraterritoriality had no errors, but the damages based on Caltech’s two-tier damages theory were vacated and remanded because the theory was legally unsupportable on the record. Through the use of two experts, Caltech contended that they would have engaged in two simultaneous hypothetical negotiations, one at the “chip level” with Broadcom and one with Apple at the “device level.” The CAFC determined:

“Here, there is nothing in the record to suggest that Broadcom and Apple would have been willing to negotiate in this artificial way rather than to more conventionally negotiate a single license at a single rate for the same chips. Neither of Caltech’s experts offered any factual basis to conclude that Broadcom and Apple would have been willing to engage in separate negotiations leading to vastly different royalty rates for the same chips.”

Judge Dyk’s Dissent-in-Part

Judge Dyk disagreed with the majority’s holding that the jury’s verdict of infringement for the ‘710 and ‘032 patents was supported by substantial evidence and would have reversed the district court’s denial of JMOL of no literal infringement and similarly would have reversed the denial of JMOL rather than remand for a new trial regarding the infringement of the ‘781 patent. Judge Dyk noted that the majority did not rely on a reuse theory to uphold the jury’s verdict, but rather concluded that infringement was supported by expert testimony, which Judge Dyk found no support in the record for. The testimony relied upon by the majority cannot satisfy Caltech’s burden, said Dyk.

Judge Dyk found no support in the majority’s opinion, Caltech’s briefs, or from Caltech’s experts that explained why a combination of two non-infringing components would result in infringement. Judge Dyk concluded by analyzing Caltech’s presentation of a doctrine of equivalents case to the jury. Judge Dyk found no basis to sustain the verdict on a doctrine of equivalents theory because Caltech did not satisfy the burden to provide “particularized testimony and linking arguments as to the ‘insubstantiality of the differences’ between the claimed invention and the accused device or process . . . on a limitation-by-limitation basis.” Thus, Dyk would have reversed the district court’s denial of JMOL and entered a non-infringement judgment.