Patent Case Summaries September 19, 2014

Federal Circuit Patent Case Summaries for the Week Ending September 19, 2014

The following is a summary of the precedential patent-related opinions issued by the Court of Appeals for the Federal Circuit for the week ending September 19, 2014. Tom Davison and Michele Glessner prepared this edition. 

Case Summaries

Claim Interpretation: Generally
Infringement: Doctrine of Equivalents: Generally
Defenses: Invalidity
Remedies: Damages: Generally

VirnetX, Inc., et al. v. Cisco Systems, Inc., et al., No. 13-1489 (Fed. Cir. (E.D. Tex.) Sept. 16, 2014). Opinion by Prost, joined by Chen.

In an appeal from a final judgment of the U.S. District Court for the Eastern District of Texas based on a jury finding that Apple Inc. (“Apple”) infringed patents asserted against its “VPN On Demand” and “FaceTime” products, the Federal Circuit affirmed-in-part, reversed-in-part, and remanded with respect to issues of claim construction, infringement, invalidity, and exclusion of evidence. With respect to the jury award for damages, the Federal Circuit vacated the $368 million award and remanded.

The patents at issue relate to technology for providing security over networks, such as the Internet. At trial, one of the claim terms at issue, “secure communication link,” was construed by the district court as “a direct communication link that provides data security.” On appeal, Apple argued that this term should be construed to require not only data security, but also anonymity. Because the parties agreed that the term “secure” as used did not have a plain and ordinary meaning and, thus, needed to be defined by the specification, the Federal Circuit agreed with Apple, reversing the district court’s claim construction and holding that in light of the entire specification, the term “secure communication link” requires anonymity. As a result, the Federal Circuit remanded one of Apple’s arguments of noninfringement for further proceedings to determine whether Apple’s FaceTime servers provide anonymity.

Although affirming the district court’s ruling on literal infringement of some of the claims at issue, with respect to a claim that was found to infringe under the doctrine of equivalents, the Federal Circuit agreed with Apple’s argument that the theory of equivalents used in the district court was legally insufficient because it vitiated a particular claim element. Thus, the district court’s denial of judgment as a matter of law (“JMOL”) on this issue was reversed.

With respect to Apple’s position that the asserted claims were all anticipated by a prior art reference, the Federal Circuit concluded that the jury heard substantial evidence that at least one element of each asserted claim was missing from that reference. Thus, the Federal Circuit held that the district court did not err in denying Apple’s JMOL motion with respect to invalidity.

On the issue of induced infringement and whether Apple knew or was willfully blind to the fact that its customers’ use of its products would infringe valid patent claims, Apple sought to inform the jury in the district court that, after learning of the allegations, Apple initiated reexaminations against the asserted patents. Apple further sought to offer the initial rejections of the asserted claims during reexamination as evidence of Apple’s reasonably held belief that the patents were invalid. The district court, however, excluded this proffer, concluding that such non-final actions in pending reexaminations would be highly prejudicial evidence and would risk misleading the jury. Because under the regional circuit law evidentiary issues are reviewed for a “clear abuse of discretion” resulting in substantial prejudice, the Federal Circuit held that the district court did not abuse its discretion in excluding this evidence.

Apple next challenged the district court’s jury instruction on damages, arguing that the district court misstated this law on the entire market value rule. The Federal Circuit agreed with Apple that the jury instruction inappropriately created a second exception to the rule that the value of the entire apparatus is used in determining a royalty base, where the exception would allow a patentee to rely on the entire market value of a multicomponent product so long as that product is the smallest saleable unit containing the patented feature.

Apple also argued that the testimony of the other side’s damages expert on the proper royalty base should have been excluded because it relied on the entire market value of Apple’s products without demonstrating that the patented features drove the demand for those products. The Federal Circuit agreed and held that the expert’s approach was inadmissible and should have been excluded. With respect to Apple’s argument that the expert’s testimony regarding the royalty rate should also have been excluded as relying upon licenses that were not sufficiently comparable to the license that would have resulted from a hypothetical negotiation, however, the Federal Circuit held that the district court did not abuse its discretion in permitting the expert to rely on the six challenged licenses. Accordingly, the Federal Circuit vacated the damages award and remanded for further proceedings.  

Defenses: Delay in Filing Suit: Laches
Defenses: Equitable Estoppel

SCA Hygiene Products Aktiebolag, et al. v. First Quality Baby Products, LLC, et al., No. 13-1564 (Fed. Cir. (W.D. Ky.) Sept. 17, 2014). Opinion by Hughes, joined by Reyna and Wallach.

In a case in which the party alleging infringement of its patent delayed filing suit for three years after reexamination of its patent concluded, for a total delay of over six years, the Federal Circuit affirmed the U.S. District Court for the Western District of Kentucky’s grant of summary judgment with respect to laches, but held that there remained genuine issues of material fact pertaining to equitable estoppel, reversing the district court’s grant of summary judgment in that regard and remanding for further proceedings.

SCA Hygiene Products Aktiebolag and SCA Personal Care, Inc. (collectively “SCA”) own U.S. Patent No. 6,375,646 (“the ’646 patent”), which relates to certain adult incontinence products. Six years and nine months after first contacting its competitors, First Quality Baby Products, LLC and related entities (collectively “First Quality”), regarding infringement of the ’646 patent, SCA filed suit against First Quality. The district court dismissed the case, finding that SCA’s claims were barred by both laches and equitable estoppel. SCA appealed.

The Federal Circuit began by noting that laches is an equitable defense to patent infringement that may arise only when an accused infringer proves by a preponderance of evidence that a patentee unreasonably and inexcusably delayed filing an infringement suit to the material prejudice of the accused infringer. If these prerequisite elements are present, a court must then balance all pertinent facts and equities, including the length of delay, the seriousness of prejudice, the reasonableness of excuses, and the defendant’s conduct or culpability. When found, laches bars retrospective relief for damages accrued prior to filing suit, but does not bar prospective relief. Delays exceeding six years give rise to a presumption that the delay is unreasonable, inexcusable, and prejudicial. The Federal Circuit reviews conclusions as to laches for an abuse of discretion.

SCA argued that reexamination of the ’646 patent conducted prior to filing of the suit precluded application of the laches presumption in this case because the reexamination period should be excluded from the total delay. The district court rejected that theory, noting that because SCA filed suit more than six years after first learning of First Quality’s allegedly infringing activities, the laches presumptions applied. The Federal Circuit agreed with the district court, stating that the presumption was not rebutted by SCA’s arguments because SCA did not file suit after the reexamination proceedings concluded, but rather waited another three years prior to filing suit. Accordingly, the court held that summary judgment was appropriate because no reasonable jury could have concluded that SCA’s delay was reasonable, excusable, or materially non-prejudicial.

With respect to equitable estoppel, the Federal Circuit noted that equitable estoppel may arise only when an accused infringer shows by a preponderance of evidence that (1) a patentee, acting on the basis of accurate facts, communicated something in a misleading way, by words, conduct, or omission, to an alleged infringer, (2) on which the accused infringer relied, (3) such that he would be materially prejudiced if the patentee is allowed to assert a claim that is inconsistent with his earlier communication. Even if these elements are established, a court must also take into consideration any other evidence and facts respecting the equities of the parties. When found, equitable estoppel acts as a complete bar to a patentee’s infringement claim. The Federal Circuit reviews conclusions about equitable estoppel for an abuse of discretion.

SCA and First Quality exchanged only six letters over a course of eight months. And only two of those letters, sent within one month of one another, referenced the ’646 patent or the accused products. First Quality did not solicit further comment from SCA. On appeal, First Quality argued that SCA’s silence was tantamount to an admission that the ’646 patent was invalid. The Federal Circuit noted that a verbal charge of infringement followed by silence is not sufficient affirmative conduct to induce a belief that the patentee has abandoned an infringement claim. In addition, the Federal Circuit stated that a reasonable juror could conclude that First Quality raised an issue SCA had overlooked and that SCA took immediate action to address the issue, given that SCA almost immediately filed a request for ex parte reexamination of the ’646 patent to address the issues raised by First Quality.

Thus, the Federal Circuit held that genuine issues of material fact remain as to whether SCA made a misleading communication to First Quality. The Federal Circuit further held that there were questions of material fact as to whether First Quality relied on its own opinion that the ’646 patent was invalid or simply ignored the ’646 patent, rather than relying on SCA’s silence. Accordingly, the Federal Circuit reversed the district court’s grant of summary judgment as to equitable estoppel and remanded for further proceedings.  

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