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Knowledge-of-the-Patent Requirement for Inducing Infringement Can Be Satisfied by Deliberate Indifference

February 05, 2010

Decision icon Decision

Last Month at the Federal Circuit - March 2010

Judges: Rader (author), Bryson, Linn

[Appealed from: S.D.N.Y., Judge Robinson]

In SEB S.A. v. Montgomery Ward & Co., Nos. 09-1099, -1108, 1119 (Fed. Cir. Feb. 5, 2010), the Federal Circuit affirmed the jury verdict of induced and willful infringement, and the district court’s reduction of the damages award.

In 1999, SEB S.A. (“SEB”) sued defendants Montgomery Ward & Co., Inc., Global-Tech Appliances, Inc., and Pentalpha Enterprises, Ltd. (collectively “Pentalpha”) for infringement of U.S. Patent No. 4,995,312 (“the ’312 patent”).  The ’312 patent is directed to a deep fryer with a well-insulated skirt.  A ring of
heat-insulating and heat-resistive material joins the top edge of the skirt to the top edge of the fryer’s metal pan.  Other than the ring, the skirt, according to the claim language, is “completely free with respect to the pan.”  The skirt and the pan are separated by an air space of sufficient width to limit the temperature of the skirt.

Following the entry of a preliminary injunction against Pentalpha’s original deep fat fryers and supplemental injunctive relief against Pentalpha’s modified deep fat fryers, trial began in 2006.  The jury found that Pentalpha, with both its original and modified deep fryers, willfully infringed claim 1 of the ’312 patent.  The jury also found that Pentalpha induced others to infringe with both versions of the fryers.  As a result, the jury awarded SEB $4.65 million in damages.  On post-trial motions, the district court upheld the jury verdicts of willful and induced infringement, but modified the damages award to $4,878,341.

On appeal, the Federal Circuit first addressed claim construction.  The district court construed the limitation “completely free with respect to the pan” in claim 1 to mean “there are no thermal bridges between the skirt and the pan.”  Pentalpha contended, however, that “completely free” means “no solid material between the pan and the skirt.”  The Federal Circuit held that despite a minor inconsistency, the district court’s construction of “completely free” was proper.  First, the Court found that the claim language requires the ring to be heat-insulating and continuously resistant to the temperature of the pan, and, thus, the ring is not a thermal bridge.  Moreover, the Court noted that the only embodiment in the specification includes solid material between the pan and the skirt, namely, the vertical rod, as well as a thermostat attached to the base of the pan.  Thus, with the preferred embodiment in the specification showing a vertical stabilizing screw, the Court held that the “completely free” limitation cannot be read so broadly as to exclude this preferred embodiment.  Finally, the Court found that the specification repeatedly highlights the inventiveness of eliminating thermal bridges to prevent heat transfer to the plastic skirt.  Accordingly, read in light of the entire specification and with an eye to the preferred embodiment, the Federal Circuit held that the term “completely free” means “practically or functionally free.”  Pentalpha argued that SEB narrowed the claim limitation “completely free” during prosecution history, and that the doctrine of prosecution disclaimer should preclude the district court’s construction.  But the Court interpreted this prosecution history as consistent with the district court’s claim construction. 

The Court next considered Pentalpha’s contention that arguments made by SEB during prosecution precluded a finding of infringement by its modified deep fryer under the DOE.  Following the issuance of a first preliminary injunction, Pentalpha modified its deep fryer by replacing the ring that separates the skirt and the pan with six blocks.  During prosecution, the applicant argued that the claims were not obvious over Onishi in light of Taurus, which discloses a fryer with openings in the outer wall.  At trial, SEB’s expert, Mr. Charles Van Horn, testified that the temperature of the skirt in Pentalpha’s modified deep fryer might be kept at a low level in part due to hot air leaking out of the deep fryer.  Thus, Pentalpha argued that its modified deep fryer cannot infringe under the DOE because the ring segments allow for the same convective cooling that SEB disavowed during prosecution of the ’312 patent.

The Court held that a reasonable jury could nonetheless conclude that Pentalpha’s modified fryer does not rely on convective cooling to control the temperature of the skirt.  The six large vent holes in Taurus that together span almost the entire width of the side wall do not readily compare to Pentalpha’s modified fryer, which was presented to the jury and appears to allow only minimal air leakage.  The Court also found that Mr. Van Horn’s testimony about some hot air leakage did not compel the jury to find that the modified deep fryer relied on convective cooling to control the temperature of the wall.  Accordingly, the Court detected no manifest injustice in honoring the jury’s finding of infringement under the DOE.

The Federal Circuit also perceived no prejudice to Pentalpha in the district court’s conclusion at the preliminary injunction stage that prosecution history estoppel did not apply.  The Court held that a preliminary injunction ruling is by nature only preliminary, and Pentalpha had opportunities to renew its argument before the jury or to request a jury instruction stopping application of the DOE to a fryer that relies on convective cooling.  The Court further pointed out that Rule 50 at least required Pentalpha to raise its argument before the jury verdict.  The Court held that by the time Pentalpha filed its postverdict JMOL motion, it was too late, and, thus, the Court discerned no material injustice in the jury’s findings.

On appeal, Pentalpha also argued that the district court’s decision to admit the testimony of SEB’s expert was an abuse of discretion.  Pentalpha argued that Mr. Van Horn should be precluded from testifying about infringement on the ground that he lacked expertise in the art of designing deep fryers.  The Federal Circuit held that the district court did not abuse its discretion by admitting Mr. Van Horn’s testimony.  Rather, the Court noted that the district court was in the best place to judge that Mr. Van Horn had the knowledge, skill, experience, training, and education of a specialized nature that was likely to assist the trier of fact to understand the evidence or to determine infringement.  After listing Mr. Van Horn’s education and work experience, the Court found his experience relevant because the claimed invention involves the selection of particular polymer material and most of the areas he has worked in have used polymers in one form or another.  Moreover, the Court noted that Mr. Van Horn did not testify about deep frying per se, but instead described the importance of selecting a material for the ring or ring segments.  Accordingly, the Court held that Mr. Van Horn’s testimony established an adequate relationship between his experience and the claimed invention, and the Court detected no abuse of discretion for the district court to allow him to testify.

Pentalpha also challenged the district court’s judgment under 35 U.S.C. § 271(a) and (b).  As to direct infringement under § 271(a), Pentalpha challenged the district court’s jury instruction.  As to induced infringement under § 271(b), Pentalpha contended that the district court erred in its JMOL rulings because Pentalpha had no actual knowledge of the patent during part of the time it was selling deep fryers.  After examining the record and the authority cited by both parties, the Court ruled that the jury verdict satisfied the general verdict rule and was proper on both inducement and direct infringement.

Regarding direct infringement, Pentalpha faulted the jury instruction related to the extraterritorial effect because § 271(a) makes it an act of infringement to “without authority make, use, offer to sell, or sell any patented invention, within the United States.”  The Court found that Pentalpha did not show in the record where it objected to the jury instructions.  To the contrary, the only evidence on which Pentalpha relied to argue that its sales occurred overseas was that it delivered its products to f.o.b. Hong Kong or mainland China.  The Court held that the district court’s instruction that the jury could consider “where the products were shipped from and where the products were shipped to” in determining if a sale occurred in the United States was not a fundamental error.  Slip op. at 20.  The Court found that the jury instructions helped Pentalpha, which instructed the jury that it could consider the f.o.b. terms, even though those terms were not dispositive.  In addition, the Court held that the record showed Pentalpha intended to sell its deep fryers directly into the United States. 

Regarding inducement, the Court considered whether the district court erred in denying Pentalpha’s motion for JMOL where the record shows no direct evidence that Pentalpha had actual knowledge of the patent before the lawsuit started.  The Court noted that a claim for inducement is viable even where the patentee has not produced direct evidence that the accused infringer actually knew of the patent-in-suit.  The Court found that the record contained adequate evidence to support a conclusion that Pentalpha deliberately disregarded a known risk that SEB had a protective patent.  The Court noted that the record showed that Pentalpha hired an attorney to conduct a right-to-use study, but did not tell him that it had based its products on SEB’s product.  The Court held that a failure to inform one’s counsel of copying would be highly suggestive of deliberate indifference in most circumstances.  The Court also noted that Pentalpha’s president, Mr. John Sham, was well versed in the U.S. patent system and understood SEB to be cognizant of patent rights as well.  Sham testified he was the named inventor on twenty-nine U.S. patents and that Pentalpha and SEB had an earlier business relationship involving one of Pentalpha’s patented steamer products.  The record thus contained considerable evidence of deliberate indifference.  In contrast, Pentalpha did not produce any exculpatory evidence.  As noted, proof of knowledge through a showing of deliberate indifference may be defeated where an accused infringer establishes that he actually believed that a patent covering the accused product did not exist.  But Pentalpha did not argue that it or its employees actually believed that an SEB patent did not exist.  The record established sufficient support for the conclusion that Pentalpha deliberately ignored the risk that SEB had a patent on its deep fryer, and, thus, the jury’s finding of inducement was justified. 

Pentalpha next challenged the damages award on the basis that the record did not show that SEB marked “substantially all” of its deep fryers before the lawsuit started.  But the Court held that the record supplied sufficient evidence to support the jury’s conclusion that SEB consistently marked substantially all of its deep fryers.  Id. at 27.

Pentalpha also contended that discovery misconduct justifies a reduction in the damages award.  The Court held that the district court did not abuse its discretion in denying Pentalpha’s motion for JMOL on the grounds of discovery misconduct.  The Court found that Pentalpha clearly forfeited the issue, if not during its four-and-a-half year silence before trial, then when it did not object during trial.  The Court noted that Pentalpha cannot fail to prepare its case adequately and then seek to remedy the defects after judgment.  Id. at 28-29.

Finally, Pentalpha appealed the district court’s denial of its motion for new trial, which was based on SEB’s attorney’s allegedly improper argument during his closing argument on reasonable royalty damages.  The Court held that the district court did not abuse its discretion in declining to grant a new trial to Pentalpha based on the summation of SEB’s counsel.  The Court found that the record adequately supported SEB’s argument that it sought to obtain a gross margin of about 40 to 45 percent of the list price.  The Court saw no reason to preclude a jury from hearing attorney argument based on an expectation of success, particularly when Pentalpha had every opportunity to respond by highlighting to the jury that the hypothetical negotiation should result in a lower rate.  The Court held that SEB’s argumentative efforts to frame the hypothetical negotiation in its favor were not improper.  Id. at 30-31.

SEB cross-appealed the district court’s decision to set aside its original awards of enhanced damages and attorneys’ fees based on the jury’s finding of willfulness.  The Court agreed with the district court that SEB’s evidence was not so strong that SEB was entitled to a finding of willful infringement as a matter of law.  Id. at 31-32.

SEB also argued that there were factors other than willful infringement that warranted an award of attorneys’ fees, focusing primarily on alleged litigation misconduct.  The Court observed, however, that the district court apparently did not find any litigation misconduct sufficient to warrant an award of attorneys’ fees.  Accordingly, the Court declined to impose attorneys’ fees on a basis different from that ordered by the district court.

Finally, SEB appealed the district court’s modification of a prejudgment attachment in light of its ruling with respect to In re Seagate Technology, LLC, 497 F.3d 1360 (Fed. Cir. 2007) (en banc), but made no arguments in its brief with respect to that appeal.  Thus, the Court held that SEB waived any claim of error regarding that modification.

Summary authored by Jin Zhang, Esq.