CAFC Clarifies Experimental Use Exception, Reduces Damages in Partial Reversal of Sunoco Patent Infringement Win

“The CAFC analogized the agreement here to that in the Helsinn decision, noting that in both instances the ‘agreement bears ‘all the hallmarks of a commercial contract.’”

Federal CircuitOn April 29, the United States Court of Appeals for the Federal Circuit (CAFC) affirmed in part, reversed in part, vacated in part, and remanded a decision of the United States District Court for the Northern District of Illinois regarding alleged infringement by U.S. Venture Inc., (Venture) of certain patents owned by Sunoco Partners Marketing & Terminals L.P., (Sunoco).

Sunoco sued Venture, alleging that its operation of butane-blending systems infringed claims of U.S. Patent Nos. 7,032,629 (the ‘629 patent), 6,679,302 (the ‘302 patent), and 9,606,548 (the ‘548 patent). Venture counterclaimed, asserting that the patents were not infringed, were invalid and unenforceable. The district court ultimately awarded Sunoco $2 million in damages, which were trebled to $6 million. Venture appealed the district court decision challenging “(I) [the] rejection of its on-sale-bar defense, (II) [the] determination that it infringed two patents we have since held invalid, (III) [the] construction of two claim terms, and (IV) [the] decision to enhance damages.” On cross-appeal, Sunoco challenged the lower court’s decision not to grant its reasonable-royalty award or lost-profits damages.

Butane is commonly added to gasoline for two reasons: first, because butane helps cars start more easily at low temperatures due to its increased volatility, and because butane is cheaper than gasoline. However, due to butane’s contribution to air pollution when burned in warmer climates, butane limits are established by the Environmental Protection Agency and fluctuate throughout the year and depending on the region. Butane may be added by gasoline producers at any point throughout the process of refining crude oil into gasoline but blending it in late in the process allows refineries shipping gasoline to different areas with different butane limits to maximize the amount of butane. If butane were added early in the process, all the gasoline would have to comply with that of the requirements of the strictest region the refinery produces gasoline for. Accordingly, Sunoco’s patents “describe a system and method for blending butane with the gasoline at any point before the end of the distribution process: immediately before being distributed to the tanker trucks that take gasoline to consumer gas stations.”

On Sale Bar

On appeal, Venture asserted that claim 2 of the ‘629 patent and claims 2, 3, and 16 of the ‘302 patent were invalid under the principle that “no person is entitled to patent an ‘invention’ that has been ‘on sale’ more than one year before filing a patent application (i.e., before the critical date).” Pfaff v. Wells Elecs., Inc., 525 U.S. 55, 57 (1998). Citing Helsinn Healthcare S.A., the CAFC reasoned that for Venture to “prevail” it “needed to show that, before the critical date, Sunoco’s patented invention was both (1) ‘the subject of a commercial offer for sale’ and (2) ‘ready for patenting.’” Helsinn Healthcare S.A. v. Teva Pharms. USA, Inc., 139 S. Ct. 628, 630 (2019). Alternatively, the CAFC explained, citing Allen Eng’g Corp., “Sunoco can negate an on-sale bar by demonstrating that the sale occurred ‘primarily for the purposes of experimentation.’” Allen Eng’g Corp. v. Bartell Indus., Inc., 299 F.3d 1336, 1352 (Fed. Cir. 2002).

On February 7, 2000, two days before “the critical date,” the inventor’s company, MCE Blending (MCE) offered to sell an automated butane-blending system to Equilon Enterprise LLC (Equilon) and install it in Detroit at Equilon’s facility. The district court concluded that the primary purpose of the sale of Sunoco’s patented invention was for experimentation, therefore it reasoned that the first prong of the analysis was not met and did not consider the second prong. The CAFC disagreed with this conclusion.

At the outset, the CAFC recognized, citing Petrolite Corp., that “whether the Equilon transaction was primarily experimental or for commercial purposes ‘is a question of law to be analyzed based on the totality of the surrounding circumstances.’” Petrolite Corp. v. Baker Hughes Inc., 96 F.3d

1423, 1426 (Fed. Cir. 1996). The CAFC then turned to the text of the agreement between Equilon and MCE and noted that it expressly characterized the transaction as a sale, making no reference to an experimental purpose. Further, the CAFC reasoned that “the recitals section of the agreement reinforce[d] the sale’s commercial character,” drawing specific attention to the section that states MCE had “developed” the relevant technology and equipment, that Equilon wished to purchase it, and that MCE was interested in selling it, installing it, and supplying all necessary butane.

Sunoco argued that the agreement did not require Equilon to pay anything for MCE’s system. However, the CAFC rejected this interpretation of the agreement, noting that while it is true that the agreement allocated installation costs to MCE, that does not mean Equilon exchanged nothing of value for the system. The district court recognized two distinct sections of the agreement, one contemplating installation of the invention and another covering the supply of butane. The CAFC declined to adopt this position, reasoning instead that the agreement was to buy butane in exchange for the equipment, therefore the agreement constituted a sale of the invention. The CAFC analogized the agreement here to that in the Helsinn decision, noting that in both instances the “agreement bears ‘all the hallmarks of a commercial contract.’” Helsinn Healthcare S.A. v. Teva Pharms. USA, Inc., 855 F.3d at 1361. The court went on to explain that, similarly to Helsinn, the agreement “represents ‘an agreement between parties to give and to pass rights of property for consideration which the buyer pays or promises to pay the seller for the thing bought or sold. 855 F.3d at 1361.

Sunoco cited the pre-installation testing and post-installation testing described in the “Equipment Testing” section of the agreement as evidence that the primary purpose of the agreement was experimental in nature. However, the CAFC was unpersuaded, reasoning that the purpose of this testing was not “to experiment with the system’s design,” but “to ensure that ‘the Equipment satisfie[d] minimum operating standards.’” Therefore, the CAFC concluded that this provision standing alone was insufficient to prove primarily experimental purpose. Accordingly, the CAFC reversed the lower court’s experimental-use determination regarding claim 2 of the ‘629 patent and claims 2,3, and 16 of the ‘302 patent and remanded the case for the lower court to consider the second prong of the analysis.

Claim Construction

Venture also challenged the claim-construction of claims 16-17 of the ‘302 patent and claim 31 of the ‘629 patent. The dispute over claims 16-17 turned on the definition of “a vapor pressure of the butane stream.” Sunoco argued that the term did not need construction but should instead be afforded its ordinary meaning. At the claim-construction hearing, the disputed term was construed to mean “vapor pressure determined by a measurement taken from the butane stream.” At summary judgment, the district court determined that “claim 16 does not expressly require the determination of such an ‘actual’ butane pressure,” reasoning that interpreting claims 16-17 otherwise would render the claim set redundant.  Further, the district court concluded that Venture infringed claims 16-17 because it “used a value for butane vapor pressure—either determined from a sampling of the butane stream or through the use of an assumed value.” On appeal, the CAFC affirmed the district courts claim construction and finding of infringement of claim 17 of the ‘302 patent, finding nothing in the specification that justifies limiting the claim to actual measurements.

The dispute over the claim construction of claim 31 of the ‘629 patent was centered on the parties’ disagreement over whether the received “first measurement” must be used in “calculating” the blend rate. Venture’s noninfringement argument rested on the contention that it did not infringe because it collected the vapor pressure only for record keeping purposes instead of for the purposes of calculating blend rate. The lower court concluded, and the CAFC agreed on appeal, that “claim 31 does not require that the measurement actually be used to calculate the ratio.” Therefore, the CAFC affirmed the lower court’s determination that Venture infringed claim 31 of the ‘629 patent.

Enhanced Damages

The district court cited four reasons for enhancing Venture’s damages: first, that “it appear[ed] Venture effectively copied the patented system,” second, the district court’s determination that an opinion letter provided by attorney John Manion (the Manion Opinion) did not give Venture a good-faith belief that it was not infringing the asserted patents, third, Venture’s “less-than-ideal” litigation conduct, and lastly, Venture’s expansion of its butane-blending business after the start of the litigation. On appeal, the CAFC reversed the district court’s decision to enhance damages, noting a clear abuse of discretion by the lower court based on its improper treatment of the Manion Opinion. The CAFC reasoned that Venture had a good faith basis for relying on the Manion Opinion and therefore vacated the district court’s enhancement of damages.

Cross Appeal

On cross-appeal, Sunoco challenged the decision of the district court to deny lost-profits damages and its reasonable-royalty award. Finding no clear abuse of discretion, the CAFC affirmed the district court’s reasonable-royalty award and decision to deny lost profits damages.

 

 

 

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