Print PDF

There Is No Need to Determine Whether There Are Noninfringing Uses to Establish an Implied License Where an Express License Authorizes the Infringing Uses

07-1288, -1321
April 16, 2008

Decision icon Decision

Last Month at the Federal Circuit - May 2008

Judges: Newman, Lourie, Schall (author)

[Appealed from: N.D. Ill., Senior Judge Hart]

In Zenith Electronics Corp. v. PDI Communication Systems, Inc., Nos. 07-1288, -1321 (Fed. Cir. Apr. 16, 2008), the Federal Circuit affirmed the district court’s (1) grant of SJ of invalidity of claim 1 of U.S. Patent No. 5,495,301 (“the ’301 patent”); (2) grant of SJ of noninfringement of the ’301 patent; and (3) dismissal with prejudice of an inequitable conduct counterclaim with respect to certain claims of U.S. Patent No. 5,502,513 (“the ’513 patent”). The Court, however, vacated and remanded the district court’s (1) grant of SJ of invalidity of claim 1 of the ’513 patent; (2) grant of SJ of noninfringement of claim 1 of the ’513 patent; (3) dismissal without prejudice of an inequitable conduct counterclaim with respect to the ’301 patent and claim 1 of the ’513 patent; and (4) denial of motion for costs.

Zenith Electronics Corporation (“Zenith”) owns the ’301 and ’513 patents, which relate to televisions and wired remote control devices used in hospital rooms. The wired remote control devices include internal speakers by which television audio is delivered to the patient and, thus, are interchangeably referred to as “pillow speakers.” Three companies—Curbell Electronics (“Curbell”), MedTek, Inc. (“MedTek”), and Crest Electronics (“Crest”)—manufactured and distributed digital pillow speakers pursuant to licenses to the ’301 patent from Zenith. The pillow speakers were specifically designed to operate Zenith televisions.

PDI Communication Systems, Inc. (“PDI”) began marketing a new LCD television for use in the healthcare industry. PDI designed the television for compatibility with pillow speakers manufactured by Curbell, MedTek, and Crest. As a result, Zenith filed a complaint against PDI, alleging infringement of the ’301 and ’513 patents. After close of discovery, both parties moved for SJ. The district court held that PDI was entitled to SJ that claim 1 of the ’301 patent and claim 1 of the ’513 patent were anticipated by the public use of a television (model no. “J20525”) manufactured by Radio Corporation of America (“RCA”) in combination with a pillow speaker (model no. “205-E”) manufactured by Curbell prior to the critical date; that PDI was entitled to SJ of noninfringement with respect to the ’301 patent due to the existence of an implied license; and that PDI was entitled to SJ of noninfringement with respect to the ’513 patent. The district court also dismissed without prejudice PDI’s counterclaim of inequitable conduct with respect to the ’301 patent and claim 1 of the ’513 patent as moot in light of its rulings on validity and infringement, and dismissed with prejudice PDI’s counterclaim of inequitable conduct with respect to claims 2-8 of the ’513 patent, finding that PDI made no attempt to demonstrate materiality with respect to the limitations of those claims. The district court also denied PDI’s motion for costs. Zenith appealed and PDI cross-appealed.

On appeal, the Federal Circuit first considered whether claim 1 of the ’301 patent was invalid as anticipated by the public use of the RCA J20525 television in combination with the Curbell 205-E pillow speaker prior to the ’301 patent’s critical date. Zenith argued that the district court misconstrued the term “operating power” of claim 1 and that under the correct interpretation, the J20525/205-E combination did not meet the “operating power” limitation. The Federal Circuit disagreed, noting that claim 1 required that the invention’s multifunction control signal encoder receive “operating power” from the television receiver. The Court noted that the district court’s construction of “operating power”—an amount of power that is sufficient to enable the operation of the multifunction control signal encoder—was correct because nothing in the claims or written description suggested a departure from the term’s ordinary meaning, nor had Zenith pointed to anything contrary in the prosecution history. The Court therefore also agreed with the district court’s conclusion that the J20525/205-E combination anticipated the “operating power” limitation recited in claim 1 of the ’301 patent.

In addition, Zenith argued that PDI did not meet its burden of proving the elements of public use. Specifically, Zenith contended that PDI did not provide clear and convincing evidence (1) that the J20525 television and 205-E pillow speaker were used together prior to the critical date, (2) that the alleged use of the J20525/205-E was a public use, and (3) that the alleged use of the J20525/205-E was enabling. The Federal Circuit rejected each of these arguments. The Court found that there was no genuine issue of material fact with respect to whether the J20525 television and 205-E pillow speaker were publicly used together prior to the critical date. It noted that PDI presented expert testimony that was corroborated by testimony from other witnesses, documentary evidence, and Zenith’s own admissions. In addition, the Court explained that the “public use itself need not be enabling” and that the relevant question is whether the public use related to a device that embodied the invention. Slip op. at 11. The Court considered whether the J20525/205-E combination anticipated each limitation of claim 1 of the ’301 patent and found that it did. Accordingly, it concluded that the district court properly granted SJ that claim 1 of the ’301 patent was invalid as anticipated.

The Federal Circuit next considered the district court’s grant of SJ that the ’301 patent was not infringed due to the existence of an implied license. “[W]e note that the public use itself need not be enabling. . . . Rather, we must simply determine whether the public use related to a device that embodied the invention.” Slip op. at 11 (citation omitted).

The Court explained that the implied license defense is typically presented when a patentee or its licensee sells an article and the question is whether the sale carries with it a license to engage in conduct that would infringe the patent owner’s rights. It noted that there are two requirements for the grant of an implied license: the products involved must have no noninfringing uses and the circumstances of the sale must plainly indicate that the grant of a license should be inferred. Here, however, noted the Court, the license was not merely implied by virtue of the sale of pillow speakers by Curbell, MedTek, and Crest. Instead, the implied license that customers obtained to use the pillow speakers according to the method of the ’301 patent was derived from the express licenses between Zenith and those manufacturers. The Court held that it was clear from these express agreements between Zenith and those manufacturers that Zenith granted the manufacturers a license to make and sell any pillow speaker unit, the use of which would otherwise infringe the ’301 patent. Thus, the Court concluded that there was no reason to determine whether there are noninfringing uses for the pillow speakers.

Zenith also argued that the implied license obtained by customers of the pillow speaker manufacturers extended only to their use of the pillow speakers in combination with Zenith televisions. The Federal Circuit disagreed. The Court noted that there was no such binding restrictions in the express licenses and, thus, the implied license extended to use of the pillow speakers in combination with any compatible television.

The Federal Circuit then turned to the ’513 patent. First, the Court considered the district court’s grant of SJ that claim 1 of the ’513 patent was invalid as anticipated by the public use of the J20525 television prior tothe critical date. The Federal Circuit noted that in reaching its conclusion, the district court focused solely on whether the J20525 television satisfied the “programmed to ignore” limitation of claim 1 and noted that it did not need to consider the other limitations because Zenith did not specifically point to any other element of claim 1. The Federal Circuit disagreed with this approach, noting that PDI provided no evidence whatsoever that the J20525 television satisfied the final two limitations of claim 1. Instead, with respect to those limitations, PDI merely argued that to the extent its product is considered to practice them, then so did the RCA J20525 television. The Court explained that anticipation cannot be proved by merely establishing that one practices the prior art and that “mere proof that the prior art is identical, in all material respects, to an allegedly infringing product cannot constitute clear and convincing evidence of invalidity.” Id. at 24. The Court noted that anticipation requires a showing that each element of the claim at issue, properly construed, is found in a single prior art reference. Here, noted the Court, there had been no such showing. Accordingly, the Court vacated the district court’s grant of SJ that claim 1 of the ’513 patent was invalid as anticipated by the J20525 television. In so doing, the Federal Circuit also noted that the district court, on remand, should consider the parties’ respective arguments as to how the term “programmed to ignore” should be construed before considering the validity issue.

Next, the Federal Circuit considered infringement of claim 1 of the ’513 patent. The Court noted that the district court stated that PDI is entitled to “a judgment declaring that . . . it ha[d] not infringed the ’301Patentor Claim 1 of the ’513 Patent.” Id. at 26 (first alteration in original). Despite this language, the Federal Circuit found that it appeared that the district court did not actually conclude that claim 1 of the ’513 patent was not infringed. Instead, the Court noted that it seemed more likely that the district court intended to state that Zenith’s allegation of infringement with respect to claim 1 of the ’513 patent was dismissed in light of the ruling that claim 1 was invalid. Moreover, the Court found that PDI’s implied license defense was inapplicable under the ’513 patent for two reasons. First, the Court observed that the express license agreements between Zenith and the pillow speaker manufacturers did not extend to the ’513 patent. Second, the Court observed that because the ’513 patent is directed solely to the television side of the television/pillow speaker interface, the mere sale of pillow speakers did not imply a license for their use with televisions that have the additional features claimed in the ’513 patent. Accordingly, the Federal Circuit vacated the district court’s grant of SJ that claim 1 of the ’513 patent was not infringed.

The Federal Circuit then turned to the issues of inequitable conduct. The Court agreed with PDI’s argument that PDI’s inequitable conduct counterclaim did not become moot simply because 17 Last Month at the Federal Circuit asserted claims of Zenith’s patents were found invalid and/or not infringed. The Court therefore reinstated PDI’s counterclaim of inequitable conduct with respect to claim 1 of the ’301 patent and claim 1 of the ’513 patent. However, the Court held that PDI was precluded from seeking to prove inequitable conduct with respect to claims 2-8 of the ’513 patent because PDI failed to introduce evidence that the J20525 television was material to the limitations recited in claims 2-8 of the ’513 patent. The Court noted that PDI remained free to pursue inequitable conduct with respect to claim 1 of the ’513 patent, which, if established, would additionally render claims 2-8 unenforceable.

Finally, PDI argued that the district court improperly denied its motion for costs without explanation. The Federal Circuit found that it was in no position to opine on whether PDI should ultimately be deemed the prevailing party for purposes of recovering costs, given that it had vacated a number of the district court’s rulings. The Court agreed with PDI, however, that the district court should have provided some explanation of its decision regarding costs. Accordingly, the Court vacated the district court’s denial of PDI’s motion for costs; stated that PDI may again move for costs, if appropriate, following the district court’s resolution of the remaining issues on remand; and that the district court’s conclusion on that issue should be accompanied by an explanation.