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Patentee’s Damages Lack “Platform to Stand On”

July 31, 2002
Lim, Esther H.

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Last Month at the Federal Circuit - August 2002

Judges: Rader (author), Gajarsa, and Michel (dissenting)

In Riles v. Shell Exploration & Production Co., No. 01- 1553 (Fed. Cir. July 31, 2002), the Federal Circuit affirmed the jury’s finding of infringement but vacated and remanded the damages award as excessive and unsupported by the evidence.

William G. Riles owns U.S. Patent No. 4,669,918 (“the ’918 patent”) relating to construction and installation of fixed offshore platforms for oil drilling. The ’918 patent claims a method of installing fixed offshore platforms that eliminates the need for using mud mats, as the prior art requires. In particular, the invention first installs a foundation by preinstalling some or all of the pilings, then sets the jacket onto the pilings. After installing additional pilings as necessary, it installs any remaining portions of the jacket with the deck on top of the jacket.

Riles sued Shell Exploration and Production Company (“Shell”) for infringement of the ‘918 patent. Shell’s accused method installs four temporary “leveling pilings” into the ocean floor at predetermined locations. During the fabrication of the “Spirit” platform onshore, Shell placed a “leveling porch” within the jacket structure at each corner.

At the district court, neither party contested the district court’s Markman ruling on the claim limitations “depending support leg,” “stabbing connection,” and “metal-to-metal bearing contact.” The jury returned a verdict that Shell’s installation of the Spirit platform infringed the ’918 patent both literally and under the DOE. Moreover, the jury found willful infringement and awarded Riles $8.7 million in damages. On Shell’s motion for JMOL, the district court reversed the finding of literal infringement but upheld the jury’s finding of infringement under the DOE. The district court also awarded attorney fees but did not enhance damages.

On appeal, the Federal Circuit agreed with the district court on the infringement issue. First, the Federal Circuit upheld the district court’s finding of no literal infringement because Shell’s method did not literally satisfy the “stabbing connection” and “metal-to-metal bearing contact” limitations. Second, the Federal Circuit held that substantial evidence supported the jury’s finding of infringement under the DOE. The Federal Circuit noted that Shell’s guide sleeve, in combination with the leveling porch, performs substantially the same function as the depending support leg of the ’918 patent invention in substantially the same way to achieve substantially the same result of a “stabbing connection.” As to the “metalto- metal bearing contact” limitation, the Federal Circuit reasoned that the limitation does not require a direct physical contact and that a load transferred in compression or bearing from one metal surface to another is an equivalent.

The Federal Circuit, however, vacated and remanded to the district court for a redetermination of the damages award. In so doing, the Court rejected all three economic models proposed by Riles’s damages expert. The Federal Circuit rejected the first model based on a percentage (2-5%) of the cost of Shell’s platform. According to the Court, the market would pay Riles only for his invention— a method of anchoring offshore oil rigs without mud mats—not the unrelated cost of the entire Spirit platform, which includes more than the cost of anchoring without mud mats. The Court noted that “the market could not award Riles a royalty for his method divorced of all relation to a potential non-infringing alternative method.” Riles, slip op. at 15.

The Federal Circuit found the second economic model equally unpersuasive. In particular, the Court explained that a percentage (2-5%) of the gross revenue during the first year of production of the Spirit platform contained a faulty assumption that Riles could enjoin Shell from using the platform itself, which would place unnecessary restraints on lawful activity. The Court also rejected the third model, which added the first two models, as only compounding the errors.

The Court also ruled that Riles’s economic models improperly reflected what the royalty rate would have been at the time of trial, rather than at the time the infringement began. The Court further stated that the models ignored Riles’s established licensing practice, which based royalty rates on a percentage of any savings the licensee would realize from the use of the invention, and not on a percentage of the platform cost. Thus, the Federal Circuit held that the district court had abused its discretion in overruling Shell’s objection to Riles’s models and vacated the jury verdict of $8.7 million.

As to the district court’s denial of enhanced damages despite a finding of willfulness, the Federal Circuit found no abuse of discretion. The Court reasoned that the issues of infringement, damages, and willfulness were close questions, and that the trial court properly weighed Shell’s litigation conduct in denying enhanced damages.

In a dissenting opinion, Judge Michel expressed that a finding of infringement vitiates the all elements rule. Referring to Webster’s Dictionary, he noted that the “metal-to-metal weight bearing contact” required direct contact. He urged that without direct contact, the “metal-to-metal” contact is missing altogether from the accused product. Judge Michel applied a similar analysis to the “depending support legs” limitation. He emphasized that the all-elements rule is applied by courts as a legal matter and no amount of assertion by any trial witness can trump this rule to create a triable fact issue.