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Objective Evidence of Nonobviousness Overcomes Prima Facie Case of Obviousness

November 15, 2012

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Last Month at the Federal Circuit - December 2012

Judges: Prost, Moore (author), Wallach

[Appealed from: S.D. Tex., Judge Hoyt]

In Transocean Offshore Deepwater Drilling, Inc. v. Maersk Drilling USA, Inc., No. 11-1555 (Fed. Cir. Nov. 15, 2012), the Federal Circuit reversed the district court’s JMOL and held that (1) the asserted claims of U.S. Patent Nos. 6,047,781 (“the ’781 patent”), 6,085,851 (“the ’851 patent”), and 6,068,069 (“the ’069 patent”) were not invalid for obviousness and lack of enablement; (2) Maersk Drilling USA, Inc. (“Maersk”) infringed the asserted claims; and (3) Transocean Offshore Deepwater Drilling, Inc. (“Transocean”) was entitled to damages.

The ’781, ’851, and ’069 patents are directed to a “dual-activity” drilling apparatus for improving the efficiency of offshore drilling. Transocean alleged that Maersk infringed claims 10-13 and 30 of the ’781 patent, claim 10 of the ’851 patent, and claim 17 of the ’069 patent by entering into a contract with Statoil Gulf of Mexico LLC (“Statoil”) that granted Statoil the right to use an allegedly infringing drilling rig.

The district court granted SJ of obviousness, lack of enablement, and noninfringement in favor of Maersk. After the Federal Circuit vacated the SJ of infringement and reversed the SJ of obviousness and lack of enablement on appeal, a jury trial was held. The jury found that Maersk failed to prove obviousness or lack of enablement. Its specific findings included that each of seven objective factors indicated nonobviousness. The jury also found that Maersk infringed and awarded $15 million in compensatory damages. However, the district court granted JMOL of invalidity and noninfringement, and held that Transocean was not entitled to damages.

On appeal for the second time, the Court stated that under Graham v. John Deere Co. of Kan. City, 383 U.S. 1 (1966), obviousness has “several underlying factual inquiries: (1) the scope and content of the prior art; (2) the differences between the prior art and the claims at issue; (3) the level of ordinary skill in the field of the invention; and (4) objective considerations such as commercial success, long felt but unsolved need, and the failure of others.” Slip op. at 6. During the initial appeal, the Court had concluded that the combination of two prior art references presented a prima facie case of obviousness, and in the second appeal, the Court acknowledged that this conclusion was established as the law of the case. The Court noted that it was therefore error to permit the jury to consider whether the two references disclosed all the claim elements. The Court stated that the prima facie case was a presumption of obviousness based on the first three Graham factors above, but that a party could rebut the presumption with evidence relevant to the fourth factor, objective evidence of nonobviousness. The Court held it was not error to allow the jury to weigh the strength of the prima facie case together with the objective evidence to reach a conclusion on obviousness.

The jury made express findings on seven types of objective evidence of nonobviousness: commercial success, industry praise, unexpected results, copying, industry skepticism, licensing, and long-felt but unsolved need. The Court held that Transocean presented substantial evidence from which a reasonable jury could find that each of the seven factors supported nonobviousness.

First, the Court concluded that a reasonable jury could conclude from the evidence that Transocean’s dual-activity rigs were a commercial success and that the success had a nexus to the features claimed in the patents. The Court concluded that substantial evidence therefore supported the finding that commercial success weighed in favor of nonobviousness.

Next, the Court addressed the second and third factors, industry praise and unexpected results. The Court concluded that, from numerous documents showing industry praise for the unexpected increase in drilling efficiency made possible using the patented technology, there was substantial evidence from which the jury could reasonably conclude that Transocean’s claimed dual-activity apparatus produced unexpected efficiency gains and that this benefit garnered praise in the drilling industry.

The Court concluded that there was also substantial evidence supporting the jury’s finding of copying, the fourth factor. The Court noted that the evidence showed that Maersk decided to incorporate the claimed dual-activity features regardless of the patents because it believed they were invalid over the prior art.

Addressing the fifth factor, industry skepticism, the Court concluded that it was error to reject the jury’s finding that skepticism supported nonobviousness. Although Maersk presented evidence that it contended dispelled the concerns of skeptics, the Court held that a reasonable jury could accept Transocean’s evidence of skepticism even if the evidence could also support a contrary conclusion.

Although the jury found that the sixth factor, licensing, supported nonobviousness, the district court found that Transocean’s sales of its dual-activity technology were due primarily to litigation or the threat of litigation. The Federal Circuit noted that Transocean introduced evidence that the royalties paid under the licenses exceeded any litigation costs and that at least three companies licensed the asserted patents despite being under no threat of litigation. The Court concluded that Transocean presented sufficient evidence for a reasonable jury to find that the licenses reflected the value of the claimed invention and were not solely attributable to litigation.

The Court also concluded that substantial evidence supported the jury’s finding that nonobviousness was supported by long-felt but unsolved need, the last of the seven factors. The Court noted that Transocean presented testimony that the drilling industry had been operating in deepwater since the 1970s, had been seeking greater efficiency, and had unsuccessfully attempted to eliminate the interruptions to drilling well operations that the dual-activity rig prevented.

Accordingly, the Federal Circuit concluded that Transocean’s compelling objective evidence of nonobviousness overcame the prima facie case of obviousness, and reversed the district court’s grant of JMOL of obviousness.

Turning to enablement, the Court noted that the specification shared by the patents discloses two systems that could be used to perform the claimed function and that testimony at trial confirmed that modifying those systems for use in the claimed invention would be trivial. The Court held that substantial evidence supported the jury’s verdict that Maersk failed to prove that undue experimentation would be required to operate the claimed invention, and reversed the district court’s grant of JMOL of no enablement.

Next, the Federal Circuit addressed whether Maersk infringed Transocean’s patents. The district court granted JMOL of noninfringement on the ground that Maersk’s contract with Statoil expressly indicated that the final drill design could be modified based on the outcome of a pending district court litigation. Quoting from the initial appellate decision, the Court held that if the contract and its accompanying schematics could support a finding that the sale was of an infringing article, the fact that Maersk could later alter the rig after the contract’s execution was irrelevant to the infringement analysis. The schematics were introduced at trial, and Maersk did not argue on appeal that the rig depicted in them was missing any of the limitations of the asserted claims. The Court concluded that substantial evidence supported the jury’s finding that Maersk literally infringed the asserted claims and reversed the grant of JMOL of noninfringement.

Addressing the issue of damages, the Federal Circuit looked to the upfront $15 million fee in Transocean’s model license agreement, to which several companies had agreed, and concluded that the jury award of $15 million was supported by substantial evidence. While acknowledging that the rig Maersk delivered to Statoil was modified to avoid infringement, the Court rejected the argument that Maersk only needed a license allowing it to sell or offer to sell a dual-activity rig. The Court pointed out that the hypothetical negotiation used to calculate a reasonable royalty seeks to determine the terms the parties would have agreed to at the time infringement began. The Court held that a reasonable jury could conclude that at the time Maersk first infringed by offering a dual-activity rig for sale, the parties would have negotiated a license granting the right not only to offer the rig for sale, but also to deliver it.

Finally, the Court reversed the district court’s conditional grant of Maersk’s motion for a new trial. The Court pointed out that the jury’s verdict regarding the objective evidence of nonobviousness was supported by substantial evidence. The Court rejected the argument that the finding might have been tainted by the court’s failure to instruct the jury that the first three Graham factors were already resolved by the first appeal.

Summary authored by Hillary Cain Matheson, Esq.