Contractors’ Infringement of Sound-Barrier Patents Was Not Willful
October 07, 2003
Last Month at the Federal Circuit - November 2003
Judges: Bryson (author), Michel, and Dyk
In State Contracting & Engineering Corp. v. Condotte America, Inc., No. 02-1588 (Fed. Cir. Oct. 7, 2003), the Federal Circuit affirmed a judgment of infringement against several private contractors, but reversed and remanded for further proceedings on the issue of obviousness.
Under a contract with the Florida Department of Transportation (“FDOT”), State Paving Corporation (“State Paving”) developed new methods for the formation of integrated column and piles for use in building structures in sandy soils and filed applications that later became U.S. Patent Nos. 5,234,288 (“the ‘288 patent”) and 5,429,455 (“the ‘455 patent”). State Paving eventually transferred the inventions to State Contracting & Engineering Corporation (“State Contracting”), which then sued FDOT and several highwayconstruction contractors for infringement of the two patents.
A district court ruled that when it executed the previous contract, State Paving had granted FDOT a license that authorized FDOT and its contractors to practice the asserted patents. The Federal Circuit, in a previous appeal, affirmed that holding with respect to FDOT but reversed with respect to the private contractors, concluding that the previous contract did not grant FDOT a license to practice the patents in future sound-wall construction projects.
On remand, the district court ruled that the contractors’ infringement was not willful, that the asserted patent claims were not invalid, and that the contractors did not have a valid defense of laches. A jury returned a verdict in favor of State Contracting and assessed damages in the form of a reasonable royalty.
On appeal, the contractors contended that State Contractor lacked standing because the contract between State Paving and State Contracting merely granted a license under the asserted patents and did not transfer ownership of the patent rights. The Federal Circuit examined the contract language transferring rights in the two patents and concluded that State Paving did not expressly retain any rights in the patents, not even the right to practice the patent itself. Therefore, the contract transerred the necessary rights to give State Contractor standing to sue.
The Federal Circuit also upheld the district court’s ruling of no willful infringement. In particular, the Court concluded that it was not unreasonable for the contractors to rely on FDOT’s representation that it had a license to practice the invention without seeking the advice of counsel to confirm the accuracy of that representation.
The contractors also contended that laches applied against State Contracting’s allegations. In particular, the contractors contended that they were prejudiced because, as a result of the delay in filing suit, FDOT continued to incorporate the invention into the bids and contracts with them. If State Paving had promptly notified FDOT of the patent, FDOT and the contractors could have avoided the controversy entirely by changing sound-wall specifications or returning to the original design. The contractors failed to show any nexus between the delay in filing suit and their asserted economic injury. They also failed to show that they would not have entered into contracts with FDOT if the suit had been brought earlier. To the contrary, the evidence indicated that it was unlikely that FDOT or the contractors would have ceased using the patented designs even if the lawsuit had been brought earlier, but instead would have followed the same course regardless of what the Plaintiff did or did not do. Accordingly, the Federal Circuit ruled that it was not error to reject the laches defense.
As to the validity of the patent, the contractors contended that the district court had erred in granting JMOL that the patents were not invalid. The Federal Circuit ruled that the district court failed to construe several claim limitations prior to making its ruling. This failure, however, was harmless to the district court’s conclusion of anticipation. The Federal Circuit ruled that certain anticipating prior art did not disclose every limitation of the claims and that numerous factual questions remained concerning obviousness, several of which depended on the proper construction of critical terms in the asserted claims. Accordingly, the Federal Circuit remanded the case to the district court for a proper claim construction and the requisite obviousness inquiries.
The contractors raised several objections to the damages award, which totaled more than $5 million based on a reasonable royalty theory. The Federal Circuit rejected the contractors’ attempts to limit the reasonable royalty to a reduced license offer made in licensing letters to various contractors. This offer presented very favorable terms, but did not necessarily reflect the terms of a reasonable royalty. Thus, the Court found no error with the damages assessment.