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Lost Profits Must Be Allocated to Patented Invention

December 04, 2003

Decision icon Decision

Last Month at the Federal Circuit - January 2004

Judges: Linn (author), Dyk, and Rader (concurring)

In Ferguson Beauregard/Logic Controls, Division of Dover Resources, Inc. v. Mega Systems, LLC, No. 02-1380 (Fed. Cir. Dec. 4, 2003), the Federal Circuit reversed the district court’s claim construction of U.S. Patent No. 5,146,991 (“the ’991 patent”) assigned to Delaware Capital Formation, Inc. (“Delaware Capital”) and licensed to Ferguson Beauregard/Logic Controls, Division of Dover Resources, Inc. (“Ferguson”), and vacated the determination that Mega Systems, LLC (“Mega”) infringed the ‘991 patent. The Federal Circuit also affirmed the district court’s claim construction of U.S. Patent No. 4,352,376 (“the ’376 patent”), also owned by Delaware Capital and licensed to Ferguson, and affirmed the finding that Mega infringed the claims of the ’376 patent.

The patents in this case relate to electronic control systems to produce petroleum products from a well. The terms at issue in Ferguson’s ’991 patent were “assigning . . . values” that represent “normal” and “predetermined” plunger performance. The Federal Circuit agreed with the district court that assigning “values” requires two different values defining a time interval. The “values,” however, do not have to be “separately settable” because, as the Federal Circuit reasoned, nothing in the intrinsic evidence suggests such a limitation. The Federal Circuit consulted a dictionary to ascertain the ordinary and customary meaning of “normal” and “predetermined.” The Court concluded that “normal plunger performance” means performance that is “standard or regular” and not in need of correction, and concluded that “predetermined plunger performance” means plunger performance determined “beforehand.”

Concerning infringement of Ferguson’s ’991 patent, the Federal Circuit concluded that the upper bound of Mega’s time interval is still a “value,” even though the upper bound is fixed relative to the lower bound. Further, the Federal Circuit concluded that a well operator’s subjective choice for the timeinterval values is irrelevant as long as the values represent “normal plunger performance,” as defined by the Court.

Ferguson argued that the district court applied the wrong standard when determining that an officer of Mega should not be personally liable for inducing Mega to infringe the ’376 and ’991 patents. Ferguson argued that a defendant need not be aware that accused activities amounted to infringement, but that the defendant needs only to be aware of the activities themselves. The Federal Circuit agreed with the district court,however, that a defendant must possess specific intent to encourage another’s infringement and not merely possess knowledge of the acts alleged to constitute infringement. Because Ferguson submitted no evidence under the correct standard, the Federal Circuit affirmed the district court’s determination.

The district court had struck all claims and defenses of willful infringement and inequitable conduct because, as the district court reasoned, they did not meet the standards of the Federal Rules of Civil Procedure requiring that all averments of fraud be stated with particularity. The Federal Circuit noted, however, that willfulness does not equate to fraud, and, thus, the stringent requirement of the Rules of Civil Procedure do not apply. Further, the Federal Circuit found the refusal to allow an amended complaint to reintroduce Ferguson’s claim of willfulness to be an abuse of the district court’s discretion as a matter of law and reversed the decision.

In district court, Ferguson alleged that Mega’s earlier petition to the PTO for revival of U.S. Patent No. 4,921,048 (“the ’048 patent”)was “improper” because the petitioner did not have first-hand knowledge concerning the failure to pay maintenance fees. Ferguson, however, did not allege “inequitable conduct” and the district court concluded that it had no authority to take action based on the allegedly “improper” revival of the ’048 patent. The Federal Circuit noted that inequitable conduct, while a broader concept than fraud, must be pled with particularity, which Ferguson did not do. Therefore, the Federal Circuit affirmed the district court’s decision declining to address the alleged inequitable conduct issues because it was not properly raised.

The Federal Circuit then considered Mega’s cross appeal. Mega argued that the district court did not properly construe “valve means” in Ferguson’s ’376 patent. The Federal Circuit determined that Mega’s arguments were factual in nature and amounted to arguments that it did not infringe the “valve means” under the DOE, as the district court concluded. The Federal Circuit agreed with the district court, however, that there was sufficient evidence presented that Mega infringed under the DOE.

Mega also argued that the district court’s award of lost-profit damages for infringement of the ’376 patent was in error. The district court based its lost-profits award for infringement of the ’376 patent on evidence of sales of Mega’s device embodying features of both the ’376 patent and the noninfringed ’991 patent. The Federal Circuit disagreed with this method, however, and held that the district court must distinguish the allocation of profits that would have been made “but for” the infringement of the ‘376 patent from the profits that could fairly be allocated to customer demand related to the features of the ’991 patent. Thus, the Federal Circuit vacated the damages award.

The district court determined that Mega’s ’048 patent required an adjustment of an “off-time,” and that Ferguson did not meet this limitation. The district court relied on two claim limitations, specifically “decreasing the length of the [off-time] period for the next cycle of the well” and “changing the value of either the off-time or the exhausttime . . . on each successive cycle.” Mega argued that the district court’s infringement analysis failed to consider that Ferguson’s device does, on occasion, perform the step of adjusting the off-time. The Federal Circuit disagreed, however, stating that the plain language of the claim requires that an adjustment must always be made.

Finally, Mega argued that the district court had erred in prohibiting it from introducing evidence, including evidence of an on-sale bar to invalidate the ’991 patent in a re-examination proceeding. The district court excluded the evidence because Mega failed to give thirty days of notice under 35 U.S.C. § 282. Mega argued that it presented the evidence by filing for re-examination and by filing an “Advisory to the Court re: Patent Re-Examination.” Mega also claimed that Ferguson was on notice because it participated in discovery, including depositions, related to the prior art that Mega sought to introduce. The Federal Circuit determined, however, that these actions were insufficient notice under the statute.

Judge Rader concurred in the opinion, but added that when a court relies on a dictionary definition, it must include reasoning to substantiate its choice of definition from the many other possible definitions.