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A Revised Product Design Did Not Breach Settlement Term

05-1337
June 12, 2006

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Last Month at the Federal Circuit - July 2006

Judges: Michel, Gajarsa, Linn (author)

In Panduit Corp. v. HellermannTyton Corp., No. 05-1337 (Fed. Cir. June 12, 2006), the Federal Circuit affirmed the district court’s grant of SJ in favor of HellermannTyton Corporation (“HellermannTyton”) that it did not breach the provisions of a settlement agreement that ended a prior infringement suit involving Panduit Corporation’s (“Panduit”) U.S. Patent No. 5,998,732 (“the ’732 patent”).

The ’732 patent relates to a “modular offset power box and communication extension” for a “multi-channel power and communication wiring and raceway system.” Multichannel wiring raceway systems are typically used for installation of wires within the same duct running behind the walls of an office building. Raceway systems help provide work spaces with power outlets and phone lines to run equipment like computers, fax machines, phones, and printers. The system of routing in the ’732 patent avoids interference and helps speed installation. At issue were the structural limitations of the offset power box, including “a projection” and “an opening formed in the abutment portion of the projection.”

In a prior litigation in 2001, Panduit sued HellermannTyton, alleging infringement of the ’732 patent by a power box that HellermannTyton was then selling under a specific part number MCR-SEB. Shortly after commencing suit, the parties entered into a settlement agreement, in which HellermannTytonagreed not to make or sell “Subject Products.” The settlement agreement defined “Subject Products” in provision (b)(i) as the power box identified by part number MCR-SEB, and in provision (b)(ii) as “all products, existing now or in the future, covered by any claim of the [’732 patent].” In exchange, Panduit waived its claims of infringement before the date of the settlement agreement.

In 2003, Panduit sued HellermannTyton for breach of the two provisions of the settlement agreement and for infringement of the ’732 patent based on HellermannTyton’s sale of a product having a “revised design.” The only difference between the two designs was that the previous design (of part number MCR-SEB) had a cutaway in a wall abutting a trunking duct, while the revised design had a solid wall with no cutaway. In 2004, the district court stayed litigation of the infringement claim pending the outcome of a reexamination proceeding at the PTO; however, it allowed the breach of contract claim to proceed.

In 2005, the district court granted SJ in favor of HellermannTyton on the contract claim, finding that (1) the accused device (having the revised design) was not the same as the previous design and, therefore, was not covered under provision (b)(i) of the settlement agreement; and (2) that the accused device did not infringe the ’732 patent, either literally or under the DOE, and, therefore, did not breach provision (b)(ii) of the settlement agreement.

On appeal, in addressing the standard of review, the Federal Circuit applied the law of the Seventh Circuit in reviewing the district court’s grant of SJ de novo, noting that “interpretation of a settlement agreement is not an issue unique to patent law, even if arising in the context of a patent infringement suit.” Slip op. at 7 (citation omitted). In addition, the Federal Circuit applied Illinois law in interpreting the settlement agreement de novo, noting that “[c]ontract interpretation is ordinarily governed by state law,” and that the settlement agreement specifically provided that Illinois law governed interpretation. Id. at 8.

In order to determine whether there was a breach of the settlement agreement, the Court assessed whether HellermannTyton’s revised design product infringed the ’732 patent. Regarding provision (b)(ii) of the settlement agreement, the Federal Circuit agreed with the district court’s determination that the provision clearly and unambiguously defined a specific product, namely the power box identified by part number MCR-SEB, and the accused product was not the specified product. The Court noted that its “inquiry is not a comparison between an accused and an adjudged device, but rather the interpretation of that express provision” of the settlement agreement. Id. at 10. Illinois law recognizes that the plain language of a contract governs when the language is unambiguous. Here, the Federal Circuit determined that the language of the settlement agreement was unambiguous and refused to consider Panduit’s intent to include terms not explicitly in the agreement. Finally, the Court agreed with the district court’s determination that there is no genuine issue of material fact that the accused device is not the power box identified in the settlement agreement by part number MCR-SEB.

Regarding provision (b)(ii) of the settlement agreement, the Federal Circuit agreed with the district court’s holding as a matter of law that the accused device, having the revised design, did not infringe the ’732 patent because it was missing at least the “opening” limitation. In construing the claim limitation, the Court looked to two recitations in the claim language and determined that the claim language was consistent with the written description and prosecution history. After construing the claim term, the Federal Circuit agreed with the district court’s determination that there is no genuine issue of material fact that the accused device does not literally infringe the ’732 patent because it lacks the “opening” limitation.

Furthermore, the Federal Circuit noted that the DOE cannot be applied in this case because the DOE is limited by the “all elements rule.” The “all elements rule” provides that “the [DOE] does not apply if applying the doctrine would vitiate an entire claim limitation.” Id. at 17 (citations omitted). Because claim 1 of the ’732 patent requires an “opening” in an “abutment portion” through which wires may pass, the Court rejected Panduit’s argument to extend the scope of the claim to encompass an accused device in which wires bypass the “abutment portion” altogether, which would necessarily read the “opening” limitation out of the claim.

Thus, the Court concluded that the accused device did not infringe claim 1 of the ’732 patent and upheld the district court’s grant of SJ of no breach of provision (b)(ii).