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February 7, 2010

Deep Fryer

SEB sued Montgomery Ward and others for infringing 4,995,312 by selling a cheap deep fryer manufactured by Pentalpha. Speedy justice meant that getting to trial took a mere seven years, whereupon a jury found willful infringement, awarding $4.65 million in damages, which the district court judge hence cut by $2 million. The district court had awarded enhanced damages and attorneys' fees to SEB, but then snatched them back in light of the 2007 CAFC Seagate ruling that willfully gutted willfulness. Herein, a tale of disingenuity, and an appeal decision greasing understanding of inducing infringement.

SEB and T-Fal v. Montgomery Ward and Global-Tech Appliances and Pentalpha Enterprises (CAFC 2009-1099, -1108, -1119) precedential

A tale of unfettered commerce by savvy Hong Kong provider Pentalpha -

Defendant Pentalpha is a Hong Kong corporation and a subsidiary of defendant Global-Tech, a British Virgin Islands corporation, which was formerly known as Wing Shing International, Ltd. (For convenience, this opinion will refer to Pentalpha and Global-Tech collectively as "Pentalpha.") Pentalpha began selling its accused deep fryers to non-party Sunbeam Products, Inc. ("Sunbeam") in 1997. In developing its deep fryer, Pentalpha purchased an SEB deep fryer in Hong Kong and copied its "cool touch" features. Shortly after agreeing to supply Sunbeam, Pentalpha obtained a "right-to-use study" from an attorney in Binghamton, New York. The attorney analyzed 26 patents and concluded that none of the claims in those patents read on Pentalpha's deep fryer. Pentalpha, however, did not tell the attorney that it had copied an SEB deep fryer.

Sunbeam resold the Pentalpha deep fryers in the United States under its own trademarks, "Oster" and "Sunbeam." On March 10, 1998, SEB sued Sunbeam in the United States District Court for the District of New Jersey, alleging that Sunbeam's sales infringed the '312 patent (the "Sunbeam Suit"). See SEB S.A. v. Sunbeam Corp., No. 2:98-CV-1050 (date closed May 28, 2002). Pentalpha was notified of the Sunbeam Suit on April 9, 1998. That suit ended in a settlement in which Sunbeam agreed to pay SEB $2 million.

Pentalpha also sold the same deep fryers to non-party Fingerhut Corp. ("Fingerhut") and defendant Montgomery Ward. These sales to Fingerhut and Montgomery Ward occurred after Pentalpha learned of the Sunbeam Suit. Like Sunbeam, Fingerhut and Montgomery Ward also sold the products under their own trademarks, CHEF'S MARK and ADMIRAL. Pentalpha sold these deep fryers to its three customers free on board Hong Kong or mainland China. "Free on board," or "f.o.b.," is a "method of shipment whereby goods are delivered at a designated location, usually a transportation depot, at which legal title and thus the risk of loss passes from seller to buyer." Litecubes, LLC v. N. Light Prods., Inc., 523 F.3d 1353, 1358 n.1 (Fed. Cir. 2008).

Claim construction is touched upon by the CAFC panel, producing salient quotes upon which patent purveyors may rely.

The words of a claim receive the meaning discernible by a person of ordinary skill in the art who has read the entire patent, including the specification, at the time of the invention. Phillips v. AWH Corp., 415 F.3d 1303, 1312-13 (Fed. Cir. 2005) (en banc). The claims themselves, both asserted and unasserted, govern the meaning of claim terms. Id. at 1314.

A loose screw was left untightened, letting the district court skate scot-free on 'completely free.'

Despite this minor inconsistency, the district court's construction of "completely free" rings true.

Read in light of the entire specification and with an eye to the preferred embodiment, then, the term "completely free" means "practically or functionally free." Indeed, the specification uses the two terms "completely" and "practically" interchangeably... This court often assumes that different terms convey different meanings. Symantec Corp. v. Computer Assocs. Int'l, Inc., 522 F.3d 1279, 1289 (Fed. Cir. 2008). That assumption, however, carries less weight when comparing a term in the claim to a term in the specification, especially where, as here, the specification only describes one embodiment. Cf. id.

In any event, this court detects no reversible error in the district court's claim construction.

Pentalpha belatedly argued prosecution estoppel, "arguing that SEB's statements during prosecution should preclude any infringement by its modified deep fryer under the doctrine of equivalents."

See Conoco, Inc. v. Energy & Envtl. Int'l, L.C., 460 F.3d 1349, 1364 (Fed. Cir. 2006) ("To invoke argument-based estoppel . . . the prosecution history must evince a clear and unmistakable surrender of subject matter.").

Finding no "manifest injustice" to ignoring Pentalpha's last-minute attempt at cooking SEB's bacon, "the jury's finding of infringement under the doctrine of equivalents" was honored.

Pentalpha had objected to SEB's technical expert Mr. Van Horn, but did so inexpertly. Van Horn admitted "that he is not skilled in designing deep fryers," but his testimony went not to deep frying, but to heat resistance of polymers, for which he was qualified. This too went undisturbed by the CAFC.

The district court did not abuse its discretion by admitting Mr. Van Horn's testimony. This court will not disturb a district court's evidentiary rulings unless "manifestly erroneous." SR Int'l Bus. Ins. Co. v. World Trade Ctr. Props., LLC, 467 F.3d 107, 119 (2d Cir. 2006) (quotation omitted). District courts enjoy "wide latitude" to determine admissibility and "the mode and order" of evidentiary presentations. Id.

Pentalpha challenged the infringement judgment, based upon ambiguous jury instructions.

Section 271(a) makes it an act of infringement to "without authority make[], use[], offer[] to sell, or sell[] any patented invention, within the United States."

Pentalpha also challenges the district court's judgment under 35 U.S.C. § 271(a) and (b). As to § 271(a), direct infringement, Pentalpha challenges the district court's jury instructions. As to § 271(b), inducement of infringement, Pentalpha contends that the district court erred in its JMOL rulings because Pentalpha had no actual knowledge of the patent during part of the time it was selling deep fryers to Sunbeam. See DSU Med. Corp. v. JMS Co., 471 F.3d 1293, 1304 (Fed. Cir. 2006) (en banc) ("The requirement that the alleged infringer knew or should have known his actions would induce actual infringement necessarily includes the requirement that he or she knew of the patent.") (emphasis added). Before addressing either of Pentalpha's arguments, this court must determine if it needs to address direct infringement only, inducement of infringement only, or both.

Under the general verdict rule, where one or more of multiple claims is found legally invalid, a reviewing court must reverse and order a new trial if unable to determine whether the invalid theory tainted the verdict. AIG Global Sec. Lending Corp. v. Banc of America Sec. LLC, 646 F. Supp. 2d 385, 406 (S.D.N.Y. 2009) (collecting cases). That rule has also been held to apply in cases where the jury received multiple legal theories of liability. Id. (same).

Here, the jury received a verdict form with the label "special" rather than general. Using that verdict form, the jury found both direct infringement and inducement of infringement. Normally, such a verdict could support a damages award even if only one theory was correct. As long as the court can "determine" that "the verdict was based upon the [valid] theory," the general verdict rule does not require a new trial. Id. A closer look at the damages question in this verdict form, however, along with the jury instructions, reveals a hopeless ambiguity.

The verdict form itself suggests that the jury was asked to base its damages calculation on inducement only... On the other hand, the jury instructions also indicate that the jury could assess damages for direct infringement.

The record therefore does not clearly indicate that the jury found damages based on inducement alone, or based on direct infringement alone, or both. The general verdict rule requires that the only way this court can affirm in such a circumstance is by determining that the jury's finding of both direct infringement and inducement of infringement was proper. As explained below, after carefully examining the record and the authority cited by both parties, this court discerns that this verdict satisfies that requirement and was proper on both counts.

An aside as to case law unwritten about international offers to sell as infringing.

This court has yet to define the full territorial scope of the "offers to sell" offense in § 271(a). But see Rotec Indus., Inc. v. Mitsubishi Corp., 215 F.3d 1246, 1260 (Fed. Cir. 2000) (Newman, J., concurring) ("[A]n offer to sell a device or system whose actual sale can not infringe a United States patent is not an infringing act under § 271.").

[T]he only evidence on which Pentalpha relies to argue that its sales occurred overseas was that it delivered its products to Sunbeam, Montgomery Ward, and Fingerhut f.o.b. Hong Kong or mainland China. This court has "rejected the notion that simply because goods were shipped f.o.b., the location of the 'sale' for the purposes of § 271 must be the location from which the goods were shipped." Lightcubes, 523 F.3d at 1370.

Not to mention Pentalpha's attention to customer requirements.

Pentalpha itself affixed the American trademarks of Sunbeam, Montgomery Ward, and Fingerhut to the deep fryers, and it manufactured the deep fryers with North American electrical fittings. Moreover, the invoices between Pentalpha and the three U.S. companies all identify delivery to U.S. destinations.

The appeals court panel was induced into elaborating on inducing infringement.

"Whoever actively induces infringement of a patent shall be liable as an infringer." 35 U.S.C. § 271(b). In DSU Medical, which was decided after the jury verdict in this case, this court addressed the intent necessary to support a finding of induced infringement. Under that rule, the plaintiff must show that the alleged infringer knew or should have known that his actions would induce actual infringements. 471 F.3d at 1304. This court further stated that "[t]he requirement that the alleged infringer knew or should have known his actions would induce actual infringement necessarily includes the requirement that he or she knew of the patent." Id. (emphasis added). This court's opinion did not, however, set out the metes and bounds of the knowledge-of-the-patent requirement. Compare Insituform Techs., Inc. v. CAT Contracting, Inc., 161 F.3d 688, 695 (Fed. Cir. 1998) ("A crucial element of induced infringement is that the inducer must have actual or constructive knowledge of the patent.") (emphasis added).

The facts of DSU Medical did not require this court to address the scope of the knowledge requirement for intent. Instead, the court resolved conflicting case law setting forth both a requirement to knowingly induce infringement and to merely knowingly induce the acts that constitute direct infringement. Id. at 1306. In other words, the court decided the target of the knowledge, not the nature of that knowledge. As Chief Judge Michel's concurring opinion noted, the record in DSU Medical showed that the alleged infringer had actual knowledge of the patent-in-suit. Id. at 1311. "Accordingly, the 'knowledge of the patent' issue [was] not before us." Id.

This court has made clear, however, that inducement requires a showing of "'specific intent to encourage another's infringement.'" Broadcom Corp. v. Qualcomm Inc., 543 F.3d 683, 699 (Fed. Cir. 2008) (quoting DSU Medical, 471 F.3d at 1306). As other courts have observed, "specific intent" in the civil context is not so narrow as to allow an accused wrongdoer to actively disregard a known risk that an element of the offense exists. See Crawford-El v. Britton, 951 F.2d 1314, 1318 (D.C. Cir. 1991) (equating specific intent and deliberate indifference); Boim v. Holy Land Found. for Relief & Dev., 549 F.3d 685, 693 (7th Cir. 2008) (equating intentional misconduct with knowledge and deliberate indifference).

The CAFC split the proverbial hairs between "deliberate indifference" and "should have known," the former smacking of subjective assessment of percieved risk versus chimerical objectivity in what one should have known. That said, "the standard of deliberate indifference of a known risk is not different from actual knowledge, but is a form of actual knowledge." In other words, it's not what you thought you ought to do about what you thought you knew, but whether your cover got blown for what you should have known.

Pentalpha argues that the court in DSU Medical did not mean "knew or should have known of the patent" because the decision states "knew of the patent." See 471 F.3d at 1304. At the outset, this court notes that the Supreme Court has indicated, in a different civil context, that "deliberate indifference" is not necessarily a "should have known" standard. Farmer v. Brennan, 511 U.S. 825, 840 (1994). The latter implies a solely objective test, whereas the former may require a subjective determination that the defendant knew of and disregarded the overt risk that an element of the offense existed. See id. ("'[D]eliberate' is better read as implying knowledge of a risk, [but] the concept of constructive knowledge is familiar enough that the term 'deliberate indifference' would not, of its own force, preclude a scheme that conclusively presumed awareness from a risk's obviousness."). For example, an accused infringer may defeat a showing of subjective deliberate indifference to the existence of a patent where it shows that it was genuinely "unaware even of an obvious risk." Id. at 844. More importantly, and as courts have observed in a variety of settings, the standard of deliberate indifference of a known risk is not different from actual knowledge, but is a form of actual knowledge. See, e.g., United States v. Carani, 492 F.3d 867, 873 (7th Cir. 2007) ("Deliberate avoidance is not a standard less than knowledge; it is simply another way that knowledge may be proved."); Woodman v. WWOR-TV, Inc., 411 F.3d 69, 84 n.14 (2d Cir. 2005) ("We note that a party's knowledge of a disputed fact may also be proved through evidence that he consciously avoided knowledge of what would otherwise have been obvious [to] him.").

As just explained, a claim for inducement is viable even where the patentee has not produced direct evidence that the accused infringer actually knew of the patent-in-suit. This case shows such an instance. The record contains adequate evidence to support a conclusion that Pentalpha deliberately disregarded a known risk that SEB had a protective patent. The jury heard evidence that Pentalpha purchased an SEB deep fryer in Hong Kong and copied all but the cosmetics.

The record supplies sufficient evidence to support the jury's conclusion that SEB consistently marked substantially all of its deep fryers.

A failure to inform one's counsel of copying would be highly suggestive of deliberate indifference in most circumstances. Here, the jury also heard testimony that indicated that Pentalpha's president, John Sham, was well versed in the U.S. patent system and understood SEB to be cognizant of patent rights as well... In contrast, Pentalpha did not produce any exculpatory evidence.

What cuts one loose from dancing to induce still holds a deuce.

This opinion does not purport to establish the outer limits of the type of knowledge needed for inducement. For instance, a patentee may perhaps only need to show, as Insituform suggests, constructive knowledge with persuasive evidence of disregard for clear patent markings, similar to the constructive notice requirement in § 287(a). See infra Part VII. This court does not set those boundaries now, just as it did not set them in DSU Medical.

SEB lost its cross-appeal on willful infringement owing to the Seagate standard, which "held that proof of willful infringement requires a patentee to show by clear and convincing evidence that, as a threshold matter, "the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent." 497 F.3d at 1371." But SEB missed a beat: it likely could have gotten a new trial.

Importantly, SEB does not ask this court to order a new trial on willfulness. Had it asked, this court might have granted the request in light of the district court's conclusion that the willfulness verdict could have gone either way under the Seagate test. "An erroneous instruction, unless harmless, requires a new trial." Anderson v. Branen, 17 F.3d 552, 556 (2d Cir. 1994); see Voda v. Cordis Corp., 536 F.3d 1311, 1328 (Fed. Cir. 2008) (remanding and noting that the district court "may at its discretion assess Voda's evidence of willful infringement under the [intervening] Seagate standard to determine whether a new trial on willfulness is necessary"). Instead, SEB argues that the evidence on willfulness is so strong that the district court erred in vacating the enhanced damages and attorneys' fees awards. This court agrees with the district court that SEB's evidence is not so strong that SEB is entitled to a finding of willful infringement as a matter of law.

Affirmed.

Posted by Patent Hawk at February 7, 2010 1:29 PM | Infringement

Comments

Hawk:

"but his testimony went not to deep frying, but to heat resistance of polymers, for which he was qualified."

Gems like this are going to win you the first blog-based Fulbright, Hawk.

Posted by: Babel Boy at February 9, 2010 9:32 AM