American Seating v. USSC Group (CAFC 2007-1112, -1135)

Validity

The patent withstood validity attack by USSC, specifically, whether the claimed invention had been in public use more than a year before filing for patent protection.

USSC contends that American Seating’s ‘038 patent is invalid for public use. An invention “in public use” more than one year prior to the date of the application for a patent in the United States is unpatentable. 35 U.S.C. § 102(b). The purpose of the public use bar to patentability is to discourage “the removal of inventions from the public domain which the public justifiably comes to believe are freely available.” Bernhardt, L.L.C. v. Collezione Europa USA, Inc., 386 F.3d 1371, 1379 (Fed. Cir. 2004) (internal quotation marks omitted). Whether a patent is invalid for public use is a question of law based on underlying facts. Netscape, 295 F.3d at 1320. The test for whether an invention is ineligible for a patent due to the section 102(b) public use bar “is whether the purported use: (1) was accessible to the public; or (2) was commercially exploited.” Invitrogen Corp. v. Biocrest Mfg., L.P., 424 F.3d 1374, 1380 (Fed. Cir. 2005). Consideration of public use includes analysis of, inter alia, the nature of and public access to activities involving the invention; confidentiality obligations imposed upon observers; commercial exploitation; and the circumstances surrounding testing and experimentation. Id.; Netscape, 295 F.3d at 1320. An invention is in public use if it is shown to or used by an individual other than the inventor under no limitation, restriction, or obligation of confidentiality. Petrolite Corp. v. Baker Hughes Inc., 96 F.3d 1423, 1425 (Fed. Cir. 1996) (citing In re Smith, 714 F.2d 1127, 1134 (Fed. Cir. 1983)). However, “use of an invention by the inventor himself, or of any other person under his direction, by way of experiment, and in order to bring the invention to perfection, has never been regarded as such a use.” City of Elizabeth v. Am. Nicholson Pavement Co., 97 U.S. 126, 134 (1877).

A patent carries a statutory presumption of validity, 35 U.S.C. § 282, so USSC had the burden to show by clear and convincing evidence that the inventors of the wheelchair tie-down system placed their invention in public use more than one year before filing the ‘038 patent application. Bernhardt, 386 F.3d at 1378.

The inventors (Ditch and Razavi) went through a trial-and-error testing period with friends and colleagues. No confidentiality agreements were signed, but the inventors trusted the testers to keep it quiet. The appeals court considered that private enough.

As they improved the invention, on several occasions Ditch and Razavi placed evolving prototypes in an out-of-service bus for the purpose of soliciting feedback from friends and colleagues who to varying degrees assisted in the invention’s development.

Contrary to USSC’s argument, the fact that the inventors revealed the prototype to a select group of individuals without a written confidentiality agreement is not dispositive. When access to an invention is clearly limited and controlled by the inventor, depending upon the relationships of the observers and the inventor, an understanding of confidentiality can be implied. Id. at 1381; Moleculon Research Corp. v. CBS, Inc., 793 F.2d 1261, 1265-66 (Fed. Cir. 1986). In this case, the jury was entitled to conclude that Ditch, Razavi, and the limited number of people permitted to view the tie-down restraint system prototype shared a general understanding of confidentiality. Ditch demonstrated the prototype on an out-of-service bus, solicited feedback, and removed the invention to store under his control. There was no evidence that the prototype was placed in service before December 1995, and no evidence that an unrestricted number of people unconnected with the development of the invention observed the invention in use. The district court properly confirmed the jury verdict that the ‘038 patent is not invalid for public use.

Lost Profits

American Seating satisfactorily proved lost sales because of infringement. USSC argued that the lost profits award had included non-infringing products, but those sales were tainted: USSC had promised to sell the infringing version, which the customer bought, but USSC then delivered a non-infringing version, which was inferior. In effect, USSC did a bait-and-switch; at least one customer had objected to it.

“To recover lost profits as opposed to royalties, a patent owner must prove a causal relation between the infringement and its loss of profits. The patent owner must show that ‘but for’ the infringement, it would have made the infringer’s sales.” BIC Leisure Prods. v. Windsurfing Int’l, 1 F.3d 1214, 1218 (Fed. Cir. 1993)

To prove lost profits from lost sales, the patent owner bears the initial burden to show a reasonable probability that “but for” the infringement, he would have made the sales. Grain Processing Corp. v. Am. Maize-Products Co., 185 F.3d 1341, 1349 (Fed. Cir. 1999); State Indus., Inc. v. Mor-Flo Indus., Inc., 883 F.2d 1573, 1577 (Fed. Cir. 1989). Once this reasonable probability is shown, the burden shifts to the infringer to show that the “but for” causation analysis is unreasonable under the specific circumstances. Grain Processing, 185 F.3d at 1349. Here, it appears the jury determined that American Seating met its initial burden, and that USSC failed to persuasively rebut.

Although the evidence in this case was relatively sparse, it sufficed for the jury to assume that USSC offered the VPRo I for sale and then substituted the non-infringing VPRo II - a bait-and-switch - and to find that absent USSC’s offer to sell the VPRo I, the sales would have gone to American Seating.

American Seating wanted a higher damages award for lost profits based upon "convoyed sales," which relates to two products sold together, where one infringes but the other doesn't. The district court found, and the CAFC concurred, that selling the patented tie-down seat with unpatented passenger seats didn't qualify as a single unit sale. Just because customers buy the two together doesn't prove convoyed sale; there must be a functional relationship.

A “convoyed sale” refers to the relationship between the sale of a patented product and a functionally associated non-patented product. A patentee may recover lost profits on unpatented components sold with a patented item, a convoyed sale, if both the patented and unpatented products “together were considered to be components of a single assembly or parts of a complete machine, or they together constituted a functional unit.” Rite-Hite Corp. v. Kelly Co. Inc., 56 F.3d 1538, 1550 (Fed. Cir. 1998). “Our precedent has not extended liability to include items that have essentially no functional relationship to the patented invention and that may have been sold with an infringing device only as a matter of convenience or business advantage.” Id. Damages on these items would exceed that which suitably compensates for the infringement. Id.

A functional relationship does not exist when independently operating patented and unpatented products are purchased as a package solely because of customer demand. The fact that customers prefer that passenger seats and tie-down wheelchair restraint systems come from a single supplier for ease of purchase, repair, and uniform design and appearance, does not compel the conclusion that the seats and tie-down system are “analogous to components of a single assembly or . . . parts of a complete machine.”

Here, the trial court granted USSC’s motion to set aside the verdict for convoyed sales because the record evidence, viewed in the light most favorable to American Seating, was insufficient as a matter of law for the jury to find that the patented tie-down system and unpatented passenger seats were part of a single functional unit.

Because it is clear that no interrelated or functional relationship inheres between the seats and the tie-down restraint system on a passenger bus, the district court was correct that the jury had no basis to conclude that lost profits on collateral sales of passenger seats were due American Seating.

District court determinations affirmed.