Spectralytics v. Cordis and Norman Noble (CAFC 2009-1564, 2010-1004) precedential; Judges Newman (author), Clevenger and Bryson

Validity

Nothing wrong with letting a jury decide, as long as they have a proper guide.

We review the district court's decision on a motion for judgment as a matter of law by reapplying the district court's standard of review. Sextant Avionique, S.A. v. Analog Devices, Inc., 172 F.3d 817, 824 (Fed. Cir. 1999). In Reeves v. Sanderson Plumbing Products., Inc., 530 U.S. 133, 150-51 (2000), the Court explained that a reviewing court must view the facts in the light most favorable to the prevailing party and must grant the benefit of all reasonable inferences to the party to whom the jury awarded the verdict. The Court explained that the reviewing court on JMOL must "give credence to the evidence favoring the nonmovant," and must "disregard all evidence favorable to the moving party that the jury is not required to believe." Id. at 151. In discussing the jury role with respect to the issue of obviousness, the court stated in Railroad Dynamics, Inc. v. A. Stucki Co., 727 F.2d 1506 (Fed. Cir. 1984):

[I]t is neither error nor dangerous to justice to submit legal issues to juries, the submission being accompanied by appropriate instructions on the law from the trial judge. The rules relating to interrogatories, jury instructions, motions for directed verdict, JNOV, and new trial, and the rules governing appeals following jury trials, are fully adequate to provide for interposition of the judge as guardian of the law at the proper point and when necessary.

727 F.2d at 1515. In Tec Air, Inc. v. Denso Manufacturing Michigan, Inc., 192 F.3d 1353, 1357 (Fed. Cir. 1999), this court reiterated that for a party to prevail on appeal of denial of JMOL "it must prove that the jury's factual findings were not supported by substantial evidence or that the facts were not sufficient to support the conclusions necessarily drawn by the jury on the way to its verdict." The applicable standard of the Eighth Circuit, in which this case arose, does not differ. See, e.g., Jackson v. Prudential Ins. Co., 736 F.2d 450, 453 (8th Cir. 1984) (JMOL "motions should not be granted if reasonable persons could differ as to the conclusions to be drawn from the evidence," and a trial court does not err when it denies a motion for JMOL if there is "substantial evidence - more than a mere scintilla of evidence - to support a verdict in favor of the party opposing such a motion.").

With the patent found valid, Cordis needed to spot an error. Not diplomatically (nor intelligently), it spotted the jury, and the judge, for letting the jury do its job.

As did the district court, we apply this standard to the issues raised on JMOL. Therefore, for Cordis to prevail it must establish that the jury's actual or inferred factual findings were not supported by substantial evidence, or that the evidence was not sufficient to support the findings and conclusions necessarily drawn by the jury on the way to its verdict. See Applied Med. Res. Corp. v. United States Surgical Corp., 147 F.3d 1374, 1376 (Fed. Cir. 1998).

The defendants argue that the district court abdicated its role as the ultimate decisionmaker, in relying on the presumed jury findings. The defendants point to the district court's statement that "if this case had been tried to the Court, the Court likely would have found the '277 patent invalid. But the Court cannot, on a post-trial motion, substitute its view of the evidence for the jury's." 650 F. Supp. 2d at 905. We discern no error in the court's procedure for review of a jury verdict on the issue of obviousness where the underlying facts were disputed. "We first presume that the jury resolved the underlying factual disputes in favor of the verdict winner and leave those presumed findings undisturbed if they are supported by substantial evidence. Then we examine the legal conclusion de novo to see whether it is correct in light of the presumed jury fact findings." Jurgens v. McKasy, 927 F.2d 1552, 1557 (Fed. Cir. 1991) (citations omitted).

The district court discussed the evidence before the jury, determined that the jury's presumed findings were supported by substantial evidence, and that such evidence supported the jury's conclusion that obviousness had not been proved. The defendants concentrate their appeal on two prior art references, and assign error to the district court's comment that the jury could have found that the prior art and prior knowledge "taught away" from the '277 machine. The defendants also challenge the weight that may have been given to the objective factors including copying and commercial success.

The invalidating value of prior art reference was disputed by experts, but the "experts generally agreed" that the prior art machines had "failed to achieve the precision, yield, and complexity of cut that is achieved by the '277 design." Spectralytics' expert said the prior art taught away from the claimed invention, which Cordis scoffed at, arguing predictable variation.

"Teaching away" does not require that the prior art foresaw the specific invention that was later made, and warned against taking that path. It is indeed of interest if the prior art warned against the very modification made by the patentee, but it is not the sole basis on which a trier of fact could find that the prior art led away from the direction taken by the patentee. Instead, the jury could find, based on the expert testimony, that prior Swiss-style machines taught away from embracing vibrations to improve cutting accuracy because all prior machines improved accuracy by dampening vibrations.² Nor is "teaching away" an essential element of a conclusion of unobviousness.

²Cordis suggests that under KSR International Co. v. Teleflex Inc., 550 U.S. 398, 421 (2007), it would have been obvious to try mounting the workpiece fixture on the cutting tool because there were only a finite number of predictable places to mount the fixture. That suggestion ignores the expert testimony indicating that the cutting tool was not a predictable place to mount the workpiece fixture.

Whether the prior art teaches away from the claimed invention is a question of fact, Dystar Textilfarben GmbH v. C.H. Patrick Co., 464 F.3d 1356, 1360 (Fed. Cir. 2006), and the district court took cognizance of the parties' arguments on this aspect.

Secondary considerations of nonobviousness "may often be the most probative and cogent evidence in the record."

Spectralytics points to the evidence of copying and commercial success. In Stratoflex, Inc. v. Aeroquip Corp., 713 F.2d 1530, 1538-39 (Fed. Cir. 1983), this court observed that "evidence of secondary considerations may often be the most probative and cogent evidence in the record. It may often establish that an invention appearing to have been obvious in light of the prior art was not. It is to be considered as part of all the evidence, not just when the decisionmaker remains in doubt after reviewing the art." The objective considerations reflect the contemporary view of the invention by competitors and the marketplace. In Iron Grip Barbell Co. v. USA Sports, Inc., 392 F.3d 1317, 1324 (Fed. Cir. 2004), the court stated: "This court has previously identified, inter alia, commercial success, satisfaction of a long-felt need, and copying to be relevant factors." The jury could have considered this evidence, in deciding the question of obviousness. See Comark Commc'ns. v. Harris Corp., 156 F.3d 1182, 1192 (Fed. Cir. 1998) ("It is not the province of an appellate court to second guess the jury's credibility determinations or to reevaluate the weight to be given the evidence.").

This is a stark difference from Odom v. Microsoft, where a CAFC panel completely ignored undisputed commercial success and "view of the invention by the marketplace" in its reckless finding of obviousness. The CAFC has an insufferable variety of quality on the bench. It makes a huge difference who sits on a panel as to appreciation of the facts and application of the law leading to outcome.

Validity affirmed.

Damages

The infringers naturally argued 5% royalty as "excessive." The legal bar is set at "outrageous."

A party challenging a jury damages verdict "must show that the award is, in view of all the evidence, either so outrageously high or so outrageously low as to be unsupportable as an estimation of a reasonable royalty." Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1554 (Fed. Cir. 1995) (en banc) (quoting Lindemann Maschinenfabrik GmbH v. Am. Hoist & Derrick Co., 895 F.2d 1403, 1406 (Fed. Cir. 1990)). As discussed in Lucent Technologies, Inc., v. Gateway, Inc., "on post-trial JMOL motions, district court judges must scrutinize the evidence carefully to ensure that the 'substantial evidence' standard is satisfied, while keeping in mind that a reasonable royalty analysis 'necessarily involves an element of approximation and uncertainty'." 580 F.3d 1301, 1336 (Fed. Cir. 2009) (quoting Unisplay, S.A. v. Am. Elec. Sign Co., 69 F.3d 512, 517 (Fed. Cir. 1995)).

In the district court the defendants argued that there was insufficient evidence to support the jury's award of a 5- percent running royalty. However, in accordance with 35 U.S.C. §284, the damages awarded should be "adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer." The jury was instructed that "a reasonable royalty is the amount of royalty that Spectralytics and Norman Noble would have agreed to in a hypothetical negotiation in December 1998, when the '277 Patent issued and the alleged infringement began." The jury was given a non-exhaustive list of eleven factors to consider...

The district court stated that the jury was not required to accept the defendants' position that these alternative machines were available and acceptable, in light of the contrary evidence. Spectralytics, 650 F. Supp. 2d at 907. A fact finder "must proceed with caution in assessing proof of the availability of substitutes not actually sold during the period of infringement." Grain Processing Corp. v. Am. Maize-Prods. Co., 185 F.3d 1341, 1353 (Fed. Cir. 1999). We agree with the district court that a reasonable jury could have found that the alleged alternatives were either not acceptable or not available, and that such a finding was supported by substantial evidence.

We agree with the district court that the 5-percent royalty awarded by the jury was supported by substantial evidence in the record as a whole. See Unisplay, 69 F.3d at 519 ("a jury's [royalty] choice simply must be within the range encompassed by the record as a whole").

Damages affirmed.

Willfulness

The CAFC has set a very high bar for willfulness, which is laid out here. The district court's finding didn't rise to the bar in the first attempt.

The jury found that the infringement was willful. Spectralytics appeals from the district court's denial of Spectralytics' request for enhanced damages and attorney fees, stating that the district court misapplied the law, and thus abused its discretion.

The district court's decision on whether to enhance damages is reviewed for abuse of discretion, that is, whether the decision was based on clearly erroneous findings of fact, an incorrect conclusion of law, or a clear error of judgment. SRI Int'l, Inc. v. Advanced Tech. Labs., Inc., 127 F.3d 1462, 1469 (Fed. Cir. 1997). We observe that the district court applied our decision in In re Seagate Technology, LLC, 497 F.3d 1360 (Fed. Cir. 2007) (en banc), in a more rigorous manner than is appropriate, as has been elaborated in intervening decisions. The district court also applied the Seagate criteria for determining whether infringement is willful, to the separate determination of whether to enhance damages after willful infringement is found. Recent precedent has clarified that the factors relevant to these determinations are not coextensive.

In Seagate this court held that failure to exercise due care by obtaining an exculpatory opinion of counsel before commencing infringing activity is not of itself probative of willful infringement; the court held that there must be "objective recklessness," before failure to obtain an exculpatory opinion of counsel can establish willful infringement. Id. at 1371. However, the court did not hold that after willful infringement is established, it is improper to consider whether the infringer exercised adequate investigation of any adverse patents. This distinction was clarified in i4i v. Microsoft, where this court explained that "the test for willfulness is distinct and separate from the factors guiding a district court's discretion regarding enhanced damages." i4i Ltd. P'ship v. Microsoft Corp., 598 F.3d 831, 859 (Fed. Cir. 2010), cert. granted on other grounds, 131 S. Ct. 647 (2010).

Precedent has also clarified that the failure to obtain an opinion of counsel or otherwise investigate the patent situation can be considered, in the totality of the circumstances. See Aspex Eyewear, Inc. v. Clariti Eyewear, Inc., 605 F.3d 1305, 1313 (Fed. Cir. 2010) ("the timing as well as the content of an opinion of counsel may be relevant to the issue of willful infringement, for timely consultation with counsel may be evidence that an infringer did not engage in objectively reckless behavior") (citing Finisar Corp. v. DirecTV Group, Inc., 523 F.3d 1323, 1339 (Fed. Cir. 2008)). In i4i this court sustained the district court's enhancement of damages, because "Microsoft was aware of i4i's patent, never formed a good faith belief of noninfringement, and clearly intended to add a custom XML editor in Word with similar capabilities to i4i's patented products." 598 F.3d at 858. Although Microsoft had presented the same argument as here offered, viz. that Seagate abrogated the duty to investigate previously placed upon those with knowledge of an adverse patent, this court held that the district court could and should consider whether infringement had been investigated, explaining: "Although a finding of willfulness is a prerequisite for enhancing damages under § 284, the standard for deciding whether - and by how much - to enhance damages is set forth in Read, not Seagate . . . . Under the Read factors, the district court properly considered . . . whether Microsoft investigated the scope of the patent." i4i, 598 F.3d at 859.

In Read Corp. v. Portec, Inc., 970 F.2d 816 (Fed. Cir. 1992), the court identified factors that may be relevant to determination of whether damages should be enhanced: (1) whether the infringer deliberately copied the ideas or design of another; (2) whether the infringer, when he knew of the other's patent, investigated the patent and formed a good faith belief that it was invalid or that it was not infringed; (3) the infringer's behavior in the litigation; (4) the infringer's size and financial condition; (5) the closeness of the case; (6) the duration of the misconduct; (7) the remedial action by the infringer; (8) the infringer's motivation for harm; and (9) whether the infringer attempted to conceal its misconduct. Id. at 826-27. Thus although the district court was correct in holding that a finding of willful infringement may not warrant enhancement of damages, nonetheless, after willful infringement is found, it is inappropriate to discount evidence relating to whether there was adequate investigation of adverse patent rights. That is only one of the Read factors, but Seagate did not hold that it should be ignored.

Applying the Read factors, the district court found that "[m]ost of these factors weigh against, or are neutral toward, a finding of enhanced damages in this case." Spectralytics, 650 F. Supp. 2d at 922. The district court stated that "after Seagate, greater emphasis must be placed on objective factors in assessing the degree of a defendant's willfulness." Id. The district court remarked that the jury was not asked for a specific finding as to whether Noble copied the Spectralytics machine. Spectralytics argues that the jury verdict of willful infringement necessarily was based on a finding of copying. The district court stated: "With respect to defendants' investigation, the Court finds that Cordis did not carefully investigate the '277 patent until trial, but the Court discounts this factor in light of Seagate's abrogation of the duty of due care." Id.

Seagate removed the presumption of willful infringement flowing from an infringer's failure to exercise due care to avoid infringement, but Seagate did not change the application of the Read factors with respect to enhancement of damages when willful infringement under §285 is found. We thus vacate the district court's denial of enhanced damages, and remand to the district court to redetermine whether enhanced damages are warranted under the guidance of Read, 970 F.2d at 826, that the "paramount determination in deciding to grant enhancement and the amount thereof is the egregiousness of the defendant's conduct based on all the facts and circumstances."

Willfulness vacated for remand.

Attorneys Fees

The CAFC told the district court to take another look at award of attorneys fees, in a case where "both sides did not exhibit immaculate trial behavior." Isn't "immaculate litigator" an oxymoron, or at least a legal Zen koan?

The patent statute provides that "The court in exceptional cases may award reasonable attorney fees to the prevailing party." 35 U.S.C. §285. Although an attorney fee award is not mandatory when willful infringement has been found, precedent establishes that the court should explain its decision not to award attorney fees. Transclean Corp. v. Bridgewood Servs., Inc., 290 F.3d 1364, 1379 (Fed. Cir. 2002) ("[T]he general rule [is] that the district court must normally explain why it decides that a case is not exceptional under 35 U.S.C. §285 when a factual finding of willful infringement has been established and, if exceptional, why it decides not to award attorney fees."); Modine Mfg. Co. v. Allen Group, Inc., 917 F.2d 538, 543 (Fed. Cir. 1990) ("[W]hen a trial court denies attorney fees in spite of a finding of willful infringement, the court must explain why the case is not 'exceptional' within the meaning of the statute.").

Here, the district court did not separately analyze the attorney fee issue, but denied attorney fees in conjunction with denial of enhanced damages. Indeed, similar considerations may be relevant to both enhanced damages and attorney fees. See Transclean, 290 F.3d at 1379 ("In this case, the court's careful analysis of the Read factors regarding enhancement of damages suffices as grounds for affirming the court's implicit conclusion that the infringement case was not exceptional within the meaning of 35 U.S.C. §285."). However, the situations in which §284 and §285 may be invoked are not identical. For example, attorney misconduct or other aggravation of the litigation process may weigh heavily with respect to attorney fees, but not for enhancement of damages.

We take note of the district court's remark that both sides did not exhibit immaculate trial behavior. However, in view of our remand for redetermination of enhancement of damages, reconsideration of the request for attorney fees is also warranted.

An excellently crafted opinion by Judge Newman.