Supplemental, Enhanced Damages Added For Post-Trial Continuing Patent Infringement
By Tony Dutra
A district court may find post-verdict continuing infringement of a patent to be willful, justifying enhancement of a damages award, according to a March 13 ruling by the U.S. Court of Appeals for the Federal Circuit (SynQor Inc. v. Artesyn Technologies Inc., Fed. Cir., No. 2011-1191, 3/13/13).
The court affirmed a lower court’s judgments that resulted in a $95 million award, over $5 million in supplemental damages, and almost $12 million enhanced damages against nine foreign firms that make power converters incorporated into computing and telecommunications equipment overseas and shipped to the United States.
Also, the court held that post-trial indemnification agreements showed intent to continue inducement to infringe, and it affirmed sanctions against one defendant that had withheld information on arguably infringing sales during trial.
The court further clarified that the mere mention of the total market for a product, of which the patented article is a small component, is not an improper invocation of the entire market value justification for a damages calculation.
Nine Foreign Converter Makers Infringe
SynQor Inc. holds patents (U.S. Patent Nos. 7,072,190; 7,272,021; 7,564,702; 7,558,083; and 7,269,034) related to power converter systems used in large computer systems and telecommunications and data equipment.
SynQor filed patent infringement claims against nine power converter manufacturers: Artesyn Technologies Inc., Astec America Inc., Bel Fuse Inc., Delta Electronics Inc., Power-One Inc., Murata Electronics North America Inc., Murata Power Solutions Inc., Cherokee International Corp., and Lineage Power Corp. Each defendant engaged in manufacturing and sale of converters overseas. SynQor asserted induced and contributory infringement under 35 U.S.C. §§271(b) and (c).
Judge T. John Ward of the U.S. District Court for the Eastern District of Texas ruled in favor of SynQor on all issues before and after a jury trial. The jury awarded damages of more than $95 million. The district court added on supplemental and enhanced damages for post-trial infringement. SynQor had not charged willful infringement at trial. The defendants appealed on several grounds.
Jury Instructions ‘as a Whole’ Adequate
Chief Judge Randall R. Rader first affirmed the lower court’s findings as to invalidity for anticipation and obviousness and rejected challenges to Ward’s claim constructions in a fact-specific analysis.
The defendants also challenged a jury instruction on inducement that had stated that “A Defendant also cannot be liable for inducing infringement if it had no reason to be aware of the existence of the patent.” They argued that “had reason to be aware of” was an inaccurate representation of the actual knowledge standard.
“While this instruction might be erroneous if considered in isolation, this court finds that the instructions as a whole in the context of the trial informed the jury that actual knowledge was required,” the court said.
In particular, the court noted that the jury instruction for contributory infringement had not included that statement and had instead required actual knowledge, and the jury had found each defendant liable for contributory infringement. The jury had thus found actual knowledge the court said, such that it would apply to the inducement finding as well.
The court further rejected the defendants’ argument that the evidence of actual knowledge had been inadequate, again based on facts specific to the case.
The court also saw no abuse of discretion in the district court’s barring of evidence of preliminary findings by the Patent and Trademark Office during reexamination of two of the patents at issue.
Price Erosion Theory on Damages Acceptable
The defendants’ appeal as to the jury’s $95 million calculation focused on SynQor’s expert’s “but for” theory of price erosion–the price that SynQor could have charged for its products covered by the patents had not the defendants infringed, forcing SynQor’s actual prices downward. The prices proposed for the damages calculations were two to three times higher than the defendants’ prices.
SynQor justified its figure based on sales prior to the infringement to such firms as Cisco Systems Inc. A Cisco representative testified at trial and said that the company would not have paid the but-for price, but he admitted his company would have had to incur significant costs to redesign its end products to use any noninfringing power converter.
The court concluded that, with this and other information, the jury had sufficient evidence to have accepted the but-for pricing estimate.
A second question as to SynQor’s damages theory revolved around noninfringing alternatives that were conceived of and encouraged by a Cisco Awards program during the infringing period, but had not yet been made available.
“Factors to consider include the ease with which a substitute was eventually made available, the state of the technology, and the availability of input products and equipment,” the court said, citing Grain Processing Corp. v. American Maize-Products Co., 185 F.3d 1341, 1354, 51 U.S.P.Q.2d 1556 (Fed. Cir. 1999).
In the instant case, the appeals court agreed with the district court that such noninfringement alternatives could not have been readily available. And it rejected another challenge to a jury instruction on the issue, concluding that the instruction did not indicate that the alternatives needed to be “on the market.”
SynQor Did Not Violate EMV Rule
Finally as to pre-trial damages, there was a question as to whether SynQor had improperly invoked the entire market value rule by revealing during trial the $20 billion market for end-products into which its converter components were incorporated.
Reciting the caution against such information, the court said that the patentee may “assess damages based on the entire market value of the accused product only where the patented feature creates the ‘basis for customer demand’ or ‘substantially create[s] the value of the component parts,’ ” a quote from Lucent Technologies Inc. v. Gateway Inc., 580 F.3d 1301, 1336, 92 U.S.P.Q.2d 1555 (Fed. Cir. 2009) (177 PTD, 9/16/09). That was not the point here, though, the court concluded.
“Here, SynQor never sought to justify its damages figure based on the price of the customer end products,” the court said, noting that the damages theory was based only on but-for pricing. “SynQor used the end-product value only to argue that the price elasticity of demand for the intermediate bus converters would be high because they enable space saving and efficiency while representing a small fraction of the end price.”
Post-Verdict Actions Increase Damages
The district court’s justifications for supplemental and enhanced damages resulted from post-verdict findings of continuing sales that led to imports into the United States.
First, the appeals court said, there was no right to jury trial on new factual issues arising post-verdict relevant to the supplemental damages, citing Amado v. Microsoft Corp., 517 F.3d 1353, 1362 n.2, 86 U.S.P.Q.2d 1090 (Fed. Cir. 2008) (42 PTD, 3/4/08).
Second, the court noted that Astec and Bel Fuse had issued stop orders on shipments, but each had also entered into indemnification agreements with its overseas customers with respect to post-verdict exports. By the terms of each indemnification agreement, the court concluded, each manufacturer had acknowledged that infringing products would be sold in the United States, satisfying the intent requirement for a showing of inducement.
As to the enhanced damages, the district court had found egregious conduct “in continuing, and even increasing, sales in the face of an infringement verdict,” and had multiplied the damages attributed to post-verdict sales by a factor of 1.75.
“The court’s enhancement of damages was squarely based on a recognition of Defendants’ willful infringement and the enhancement therefore was proper under [35 U.S.C.] §284,” the appeals court said. And addressing another argument presented by the defendants, it added, “This court also sees no reason why SynQor’s decision not to argue pre-verdict willful infringement at trial should preclude the district court from finding willful infringement for post-verdict sales.”
Withheld Sales Punished
Finally, Delta contested additional damages awards of $568,000 and $500,000 in sanctions against the company for failure to disclose certain pre-verdict sales. The court again agreed with the district court that SynQor had based its damages calculations on known quantities of infringing products and would have adjusted its underlying assumptions had it known of Delta’s additional sales.
Further, the lower court had not abused its discretion in the size of the sanctions as they “bear a ‘reasonable relationship’ to the harm that occurred, and serve as a deterrent against similar discovery violations by future litigants.”
The court thus affirmed the district court’s judgment on all appealed grounds.
Judge Alan D. Lourie and Chief Judge Wiley Y. Daniel of the District Court for the District of Colorado, sitting by designation, joined the opinion.
SynQor was represented by Carter G. Phillips of Sidley Austin, Washington, D.C. Artesyn was represented by Donald R. Dunner of Finnegan, Henderson, Farabow, Garrett & Dunner, Washington, D.C. Bel Fuse and Delta were represented by Andrew J. Pincus of Mayer Brown, Washington, D.C. Murata was represented by Alan D. Smith of Fish & Richardson, Boston.
By Tony Dutra
Dunner is a member of this journal’s advisory board.