The big battle was over claim construction, over the term "form set", and how ink permeates. Before the CAFC -

The government challenges the trial court’s interpretation of these two claim phrases, but agrees that if the constructions stand, so do the rulings of use of the patented invention. The United States also appeals the damage award, alleging that too large a royalty base was used, as no reduction was made for a percentage, allegedly 10%, of one of the form sets that due to production variations does not meet all claim limitations. Paymaster Technologies, Inc. (“Paymaster”) cross appeals the damage award and requests remand to re-determine and increase the royalty rate, particularly if the royalty base is reduced.

The CAFC affirmed the claim construction, hence the infringement, affirmed the royalty rate of 3.5%, but remanded the royalty base of the damages judgment owing to lack of government quality control. And in a rare compliment: "we commend the trial judge for her painstaking, lucid, and lengthy opinion."

The technology at issue in this case relates to form sets for use with an imprinting apparatus for imprinting money orders. Often, form sets of several interlayered sheets are used for money orders, including one upper, negotiable sheet on which an amount to be paid is entered, one intermediate, voucher sheet for the issuer, and a lower, customer receipt sheet. Layered between these sheets are “transfer medium” sheets impregnated with ink. The ink from these transfer medium sheets permeates onto the intermediate, voucher and lower, customer receipt sheets to transfer the amount entered on the upper, negotiable sheet onto the intermediate and lower sheets when the form set is impacted by the imprinting apparatus. The dollar amount and payee entered on the upper sheet are thus also visible on the front surface of the intermediate and lower sheets. The amount is also visible on the back surface of the upper, negotiable sheet – because the ink penetrates to the back of the sheet. This visibility provides both optical character recognition for automatic processing by computer and resistance to subsequent alteration and tampering.

At issue are claims 1, 5, and 10. Paymaster accuses the government of using two different types of money order form sets covered by the ’283 patent: (1) a five-ply money order form set (consisting of the three specific sheets described above with interlayered ink-infused transfer medium sheets); and (2) a single-ply money order form set that is both imprinted and processed electronically. The first type of form set was found to be covered by claims 1 and 5, while the single-ply form set was found to be covered by claim 10.

The Court of Federal Claims conducted a one-day Markman hearing in September 2002 and issued its claim construction in November 2002. Following denial of various summary judgment motions, in May 2004 the court held a seven-day trial on liability and damages. Based on its claim constructions, the trial court found that both the USPS five-ply money orders and the single-ply money orders were covered by the ’283 patent and, consequently, that the government owed Paymaster compensation for use of both variations of the invention of the ’283 patent. Relying on expert testimony as to the Georgia-Pacific factors, Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 116 (S.D.N.Y. 1970), the trial court established a royalty rate of 3.5% on a royalty base of $55,923,969.47.

The first critical issue is the correct construction of the term “form set.” According to the trial court’s construction, “form set” includes “single-ply” form sets... The issue, then, is whether a form set with “at least one negotiable instrument sheet” may be “single-ply.” We hold that a form set as recited by all three claims and disclosed in the specification may be single-ply. A “form set” is simply a set of forms, i.e., more than one form.

The trial court and CAFC relied upon the summary and preferred embodiment of the specification for evidence regarding the definition of "form set".

Judge DKY dissented on the definition of "form set," reading the summary differently than the majority opinion.

Here, the specification makes clear that a “form set” includes more than one sheet. The first paragraph of the Summary of the Invention states that “[t]he present invention provides a form set for use with an imprinting apparatus for imprinting indicia with dye-based ink on negotiable instruments. The form set includes an upper negotiable instrument sheet . . . a lower customer receipt sheet, and an intermediate voucher sheet . . . .” ’283 Patent, col. 2, ll. 12-17 (emphasis added). Contrary to the majority, nothing in paragraph 3 of the Summary of the Invention supports a single sheet construction or undermines the significance of the first paragraph.

The government also contested the claim construction of how ink permeates, but lost that too.

The CAFC remanded on the royalty base owing to "imperfect production of the accused forms," which could be as much as 10%. In other words, because the Post Office used such badly manufactured forms, they may save on infringement damages. As the cliché goes, good enough for government work.

While the amount of damages is a question of fact reviewed under the clear error standard, the methodology used is reviewed for abuse of discretion.

The CAFC let the trial court royalty percent determination method stand, basically giving the lower court the benefit of a doubt, because "the court clearly understood all the facts."