Wordtech v. Integrated Networks Solutions et al (CAFC 2009-1454) precedential

I. Individual Liability for Infringement

[INSC employees] Khatemi and Assadian appeal the district court's denial of their motions for JMOL and new trial, arguing that they cannot be individually liable for direct infringement, contributory infringement, or inducement.

We review denial of post-trial motions for JMOL and new trial under regional circuit law. Revolution Eyewear, Inc. v. Aspex Eyewear, Inc., 563 F.3d 1358, 1370 (Fed. Cir. 2009). The Ninth Circuit reviews "a jury's verdict for substantial evidence in ruling on a properly made motion under Rule 50(b)." Equal Employment Opportunity Comm'n v. Go Daddy Software, Inc., 581 F.3d 951, 961 (9th Cir. 2009). "However, in ruling on a Rule 50(b) motion based on grounds not previously asserted in a Rule 50(a) motion, we are limited to reviewing the jury's verdict for plain error, and should reverse only if such plain error would result in a manifest miscarriage of justice." Id. (quotation and citation omitted). "Under Rule 50, a party must make a Rule 50(a) motion for judgment as a matter of law before a case is submitted to the jury." Id. Rule 50(a) requires that a pre-verdict JMOL motion "specify the judgment sought and the law and facts that entitle the movant to the judgment." See Tortu v. Las Vegas Metro. Police Dep't, 556 F.3d 1075, 1082-83 (9th Cir. 2009) (quoting Fed. R. Civ. P. 50(a)(2)).

The Ninth Circuit reviews a "ruling on a motion for a new trial under Rule 59(a) for an abuse of discretion." Go Daddy, 581 F.3d at 962. "The trial court may grant a new trial, even though the verdict is supported by substantial evidence, if 'the verdict is contrary to the clear weight of the evidence, or is based upon evidence which is false, or to prevent, in the sound discretion of the trial court, a miscarriage of justice.'" United States v. 4.0 Acres of Land, 175 F.3d 1133, 1139 (9th Cir. 1999) (citation omitted). We may reverse the denial of a Rule 59(a) motion "where the District Court has made a mistake of law." Molski v. M.J. Cable, Inc., 481 F.3d 724, 729 (9th Cir. 2007) (quotation omitted).

As an aside, United States v. 4.0 Acres of Land was an Arizona case, where the U.S. government condemned land to build a federal courthouse. The property owner sued and got $2.5 million by jury award. The district court granted a retrial based upon circumstances of nebulous import. The second jury awarded $8.4 million. The Ninth Circuit Court of Appeals ruled "that the district court erred in granting a new trial; we reinstate the original jury verdict."

According to Khatemi and Assadian, INSC's corporate veil shielded them from direct infringement liability under 35 U.S.C. § 271(a) because they acted as company employees, and INSC was a valid corporation during all periods of alleged infringement.

"Patent infringement is a tort," Mars, Inc. v. Coin Acceptors, Inc., 527 F.3d 1359, 1365 (Fed. Cir. 2008), and "[i]n general, a corporate officer is personally liable for his tortious acts, just as any individual may be liable for a civil wrong," Hoover Group, Inc. v. Custom Metalcraft, Inc., 84 F.3d 1408, 1411 (Fed. Cir. 1996). However, the "corporate veil" shields a company's officers from personal liability for direct infringement that the officers commit in the name of the corporation, unless the corporation is the officers' "alter ego." See Wechsler v. Macke Int'l Trade, Inc., 486 F.3d 1286, 1295 (Fed. Cir. 2007). "To determine whether corporate officers are personally liable for the direct infringement of the corporation under § 271(a) requires invocation of those general principles relating to piercing the corporate veil." Orthokinetics, Inc. v. Safety Travel Chairs, Inc., 806 F.2d 1565, 1579 (Fed. Cir. 1986).

Wordtech countered with arguments about corporate states. Lawyers on both sides were off-point.

We do not evaluate these arguments because the jury instructions did not address any issue relating to corporate status. We have held that the doctrine of piercing the corporate veil involves "general principles," Orthokinetics, 806 F.2d at 1579, that do not apply only to patent cases, Wechsler, 486 F.3d at 1295 (noting that "the alter ego issue is not unique to patent law"). "More generally, a court may exert its equitable powers and disregard the corporate entity if it decides that piercing the veil will prevent fraud, illegality, injustice, a contravention of public policy, or prevent the corporation from shielding someone from criminal liability." Manville Sales Corp. v. Paramount Sys., Inc., 917 F.2d 544, 552 (Fed. Cir. 1990). Here, the district court never instructed the jury on INSC's corporate status. Neither the jury instructions nor the jury's verdict form mentioned piercing the corporate veil or the Nevada statutory scheme that Wordtech asserts on appeal. Jury Instructions; Joint Verdict Form. When Wordtech's counsel claimed that the instructions included corporate issues, the court replied: "That's not a jury instruction here." Reporter's Tr., Trial Proceedings, Nov. 10, 2008, 35:5-11.

Because the jury was not instructed about INSC's corporate status, we must determine whether this omission requires a new trial.

In this case, the jury's verdict of Khatemi and Assadian's individual liability, despite the lack of instructions on INSC's existence or piercing its corporate veil, was plain error that requires a new trial. Defendants concede that they did not object to the jury instructions. Nevertheless, failure to instruct the jury was plainly erroneous because "[p]ersonal liability under § 271(a) . . . requires sufficient evidence to justify piercing the corporate veil." Al-Site Corp. v. VSI Int'l, Inc., 174 F.3d 1308, 1331 (Fed. Cir. 1999). Because resolution of INSC's corporate status was a legal prerequisite to finding Khatemi and Assadian individually liable, the jury omissions were obvious, important, and seriously affected the trial's fairness. Wordtech needed to prove either that INSC was not a valid corporation when Khatemi and Assadian committed infringing acts on its behalf, or that INSC's corporate veil should be disregarded under state law. We recognize that if "the error in the jury instruction is harmless, it does not warrant reversal." Dang v. Cross, 422 F.3d 800, 805 (9th Cir. 2005). In this case, however, we cannot deem the errors harmless. While Wordtech identified evidence that INSC did not exist or served as Defendants' alter ego, a correctly instructed jury could have concluded otherwise.

Moreover, the trial record shows that even though the district court ruled that Wordtech waived its arguments about INSC's corporate status, it nonetheless allowed Wordtech to introduce evidence on these issues.

We therefore reverse the district court's denial of Defendants' Rule 59(a) motion and remand for further proceedings on whether a new trial is warranted on Khatemi and Assadian's personal liability for direct infringement. Because Defendants have not clearly established that Wordtech waived its arguments about INSC's corporate status or failed to present substantial evidence on which a properly instructed jury could find Khatemi and Assadian personally liable, we affirm the denial of Defendants' motion for JMOL.

Next, "mistakes of law precluded legitimate verdicts on inducement." Likewise contributory infringement.

Overall, multiple errors in the jury charge and the verdict form, across all infringement theories, compel the conclusion that, "looking to the instructions as a whole, the substance of the applicable law was [not] fairly and correctly covered." Dang, 422 F.3d at 805 (citation omitted).

Hence vacated and remanded.

The defendants challenged "the jury's $250,000 damages award."

On appeal, Defendants do not dispute the denial of their Rule 50(b) motion for waiver. In the Ninth Circuit, failure to challenge the sufficiency of the evidence for damages in a Rule 50(a) motion waives the right to raise it in a Rule 50(b) motion. See Zhang v. Am. Gem Seafoods, Inc., 339 F.3d 1020, 1041-42 (9th Cir. 2003). Therefore, we review Defendants' challenge to excessiveness of damages only in the context of their Rule 59(a) motion.

Wordtech's damages arguments were woolly. The CAFC called them a "pattern of guesswork."

At trial, Wordtech sought only a hypothetically negotiated royalty, and the jury received damages instructions for this theory alone.

[T]he district court's order sheds no light on Wordtech's arguments because it provided no damages analysis--only the conclusory statement that the verdict was "supported by the evidence at trial." Order at 12.

Because the verdict was "clearly not supported by the evidence" and "based only on speculation or guesswork," Del Monte, 95 F.3d at 1435, we reverse the denial of Defendants' Rule 59(a) motion and remand for a new trial on damages.

For the foregoing reasons, we reverse the denial of Defendants' motion for new trial on Khatemi and Assadian's individual liability for direct infringement, inducement, and contributory infringement. We also reverse the denial of Defendants' motion for new trial on damages. However, we affirm the denial of Defendants' motions for JMOL and for leave to amend, and remand for further proceedings.

Reversed-in-part, affirmed-in-part, and remanded.