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Court Affirms Holding of Infringement as a Discovery Sanction

May 21, 2002
Livingstone, John D.

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Last Month at the Federal Circuit - June 2002

Judges: Lourie (author), Newman, and Clevenger (dissenting)

In Transclean Corp. v. Bridgewood Services, Inc., No. 01-1268 (Fed. Cir. May 21, 2002), the Federal Circuit affirmed a district court’s grant of SJ of patent validity, infringement of some claims, and damages. The Federal Circuit vacated a jury’s finding of infringement of one claim in view of the district court’s improper claim construction.

Transclean Corporation (“Transclean”) sued Bridgewood Services, Inc. (“Bridgewood”) for: (1) infringement of U.S. Patent No. 5,318,080 (“the ‘080 patent”) directed to an automatic transmission fluid changing apparatus; (2) infringement of its TOTAL FLUID EXCHANGE and TOTAL FLUID XCHANGE trademarks; and (3) false advertising by Bridgewood’s promotional claims that its device replaced “100%” or “every drop” of fluid.

The district court had granted SJ that the ‘080 patent was not anticipated by two prior art patents, that Bridgewood had infringed claims 1-4 and 12 of the ‘080 patent (after precluding Bridgewood from arguing noninfringement of those claims as a sanction for Bridgewood’s failure to answer an interrogatory regarding its bases for arguing noninfringement), and that Bridgewood had not infringed Transclean’s trademarks. A jury then found that Bridgewood had willfully infringed claim 13 and engaged in false advertising and awarded Transclean damages including a reasonable royalty rate based on Bridgewood’s sales of infringing devices, additional damages for the infringement, and a reasonable royalty based on Bridgewood’s sale of its business. In a post-trial motion, the district court found that Transclean was not entitled to a reasonable royalty based on Bridgewood’s sale of its business.

On appeal, Bridgewood argued that the district court had misconstrued claim 1 by requiring that the fluid flow rate, rather than just the volume of fluid, be equalized. Bridgewood argued that this erroneous, narrow construction was the basis for the district court’s finding of no anticipation. Following a review of the specification, the Federal Circuit affirmed the lower court’s claim construction. Since neither prior art patent disclosed the equalization of fluid flow as required by the claim, the Court agreed that the ‘080 patent was not invalid as anticipated.

Bridgewood also argued that the lower court had abused its discretion when, as a discovery sanction, it precluded Bridgewood from asserting a noninfringement defense as to claims 1-4 and 12, and when it denied Bridgewood’s motion for SJ of noninfringement of claim 13. The Federal Circuit concluded that the district court had acted within its discretion in granting SJ of infringement as a discovery sanction, noting that Bridgewood had precluded Transclean from conducting discovery on the infringement issues. The Federal Circuit emphasized that to hold otherwise would be to disarm the district court of the power to police its proceedings and discourage mischievous conduct by litigants.

The Federal Circuit agreed with Bridgewood, however, that the district court had misconstrued the claim term “resilient” in claim 13. Accordingly, the Court vacated the judgment of infringement of claim 13 because the jury’s finding of infringement was based on the improper construction of that phrase.

Concerning damages, Transclean argued that because Bridgewood’s sole source of revenue was an infringing product, and it generated $6,500,000 in goodwill from the sale of its business, Transclean was entitled to recover the value of that goodwill. The Court disagreed, however, holding that the portion of a sales price consisting of goodwill, i.e., not tangible assets for a business, is not directly the sale of infringing goods that form the basis for determining a reasonable royalty.

As for enhanced damages, Transclean argued that the district court had erred in declining to enhance the patent-infringement damages in light of the jury’s finding that Bridgewood had willfully infringed the ‘080 patent. The Federal Circuit noted that of the steps enumerated in Read Corp. v. Portec, Inc., 970 F.2d 816, 826-27 (Fed. Cir. 1992), for assessing enhanced damages, willfulness was only the first step in the analysis. The second step involved a multifactorial evaluation, including: (1) deliberate copying by the infringer; (2) the infringer’s investigation and good-faith belief of invalidity or noninfringement; (3) the parties’ litigation conduct; (4) the infringer’s size and financial condition; (5) the closeness of the case; (6) the duration of the misconduct; (7) remedial action by the infringer; (8) the infringer’s motivation for harm; and (9) any concealment. The Federal Circuit found that the district court had considered the Read factors and had not abused its discretion in denying enhanced damages.

Lastly, Transclean appealed the district court’s grant of SJ of noninfringement regarding Transclean’s trademarks. Transclean argued that an affidavit alleging use of the marks on products and documents raised a genuine issue of material fact. The Federal Circuit agreed with the lower court’s holding that the affidavit was deficient in two ways. First, use of the mark on documents did not satisfy the usage requirement, and second, the affidavit did not purport to demonstrate that the use was anything more than descriptive.

Judge Clevenger’s dissent disagreed with the majority’s construction of the term “resilient” in claim 13 as unduly narrow and a departure from that term’s ordinary meaning.