Epistar gets to challenge validity of Philips' US 5,008,718

Epistar v. ITC gets into issues with covenants not to challenge patent validity, and
also of issues of disavowal of claim scope.

Of covenants not to challenge the validity of the patent:

On August 30, 2001, Lumileds and UEC settled the litigation by negotiating and
executing a Settlement Agreement and Mutual Release, Stipulated Consent Judgment,
and License Agreement. Lumileds granted UEC a license to use the ’718 patent for the
manufacture, sale, and importation of LEDs with absorbing substrates, in exchange for
an up–front fee and royalty payments. UEC also covenanted, on behalf of itself and its
successors, not to challenge the ’718 patent’s validity.

The rub:

Later, from January 2003 through July 2004, Lumileds asserted the ’718 patent
against Epistar in district court. See Lumileds Lighting U.X., LLC v. Epistar Corp., No.
C–03–1130–CW (N.D. Cal. Jan. 10, 2003). Settling the litigation, Lumileds granted
Epistar a license to use the ’718 patent in the manufacture of absorbing–substrate LEDs
in exchange for a substantial lump–sum payment (nearly twice that in the UEC
agreement), but no ongoing royalty requirement. With respect to the licensed products,
Epistar promised not to challenge the validity of the ’718 patent, but retained the right to
challenge its validity if Lumileds sued Epistar for infringement in the future. The
agreement was silent with respect to non–licensed products, preserving Epistar’s
statutory right to contest validity of the ’718 patent when asserted against those
products.

AND

The complaint originally named two respondents, UEC and Epistar. On
December 30, 2005, UEC merged into Epistar, with UEC ceasing to exist as a separate
entity.

The issue-->

Lumileds moved in early 2006 for a summary determination that Epistar could not
assert the invalidity of the ’718 patent in defense of its Epistar–UEC LED products.
Lumileds argued that the UEC merger bound Epistar to the UEC agreement with
Lumileds, prohibiting a challenge of invalidity of the ’718 patent against UEC products.
Lumileds also claimed that Epistar’s merger with UEC prevented a validity challenge on
Epistar’s own products as well.

The CAFC's take-->

This court finds that Epistar’s right to contest validity of the ’718 patent with
respect to its products is governed by its own separate agreement with Lumileds.
Epistar (as successor to UEC) may not contest the validity of the ’718 patent with
respect to the UEC products that it inherited in the merger. Black letter contract law
states that the assignment of a contract to an assignee, such as from UEC to Epistar,
only changes the obligated party, not the scope of the obligation. See, e.g., Arthur L.
Corbin, Corbin on Contracts § 884, at 488 n.13 (1993) (An “assignor has no power, by
assignment or otherwise, to change in any material way the performance to be rendered
by the obligor.”).

Preserving the rights that Epistar separately secured by contract does not in any
respect permit UEC to escape its obligations. When Lumileds settled with Epistar, the
settlement agreement addressed only the licensed products and thereby preserved
Epistar’s unrestricted right to contest the validity of the patent in other contexts. This
court cannot allow Lumileds to escape its agreements due to a merger that does not
disturb its contract with Epistar. In other words, Lumileds cannot fortuitously gain rights
against Epistar that it could not secure pre–merger. Thus, the settlement agreement
binds the parties, as understood and intended by them, according to its ordinary terms.
See Beck, 260 Cal. Rptr. at 241–42; see also Restatement (Second) of Contracts §
201(1) (1981); id., § 202(5) (“Wherever reasonable, the manifestations of intention of
the parties to a promise or agreement are interpreted as consistent with each other and
with any relevant course of performance, course of dealing, or usage of trade.”).

(...)
To paraphrase this court in International Nutrition Co. v. Horphag Research, Ltd.,
Epistar’s acquisition of UEC does not have the effect of limiting Epistar’s rights that are
unrelated to the product lines it acquired from UEC. 220 F.3d 1325, 1329 (Fed. Cir.
2000). Accordingly, this court overturns the Commission’s final determination that
Epistar is estopped from challenging validity of the ’718 patent when asserted against
its own products, separate from the UEC–Lumileds settlement agreement.


On disavowal of claim scope:

To prevail, Epistar must establish the inventors “demonstrate[d] an intent to
deviate from the ordinary and accustomed meaning of a claim term by including in the
specification expressions of manifest exclusion or restriction, representing a clear
disavowal of claim scope.” Teleflex, Inc. v. Ficosa N. Am. Corp., 299 F.3d 1313, 1325
(Fed. Cir. 2002).

LizardTech was cited:

In LizardTech, lnc. v. Earth Resource Mapping, lnc., this court held that where
two steps (or structures) are “entirely different concepts and procedures” and identified
as separate steps in the claims, no skilled artisan could reasonably construe them as a
single element. 424 F.3d 1336, 1342–43 (Fed. Cir. 2005) (excluding the “altogether
distinct process of taking a DWT [discrete wavelet transform]” from the scope of the
claim term “maintaining updated sums of DWT coefficients”).

Micro Chemical was cited:

For example, in Micro Chemical, Inc. v. Great Plains Chemical Co., the patentee
explained in the background section of the patent that a prior art device using the
“weigh dump method” was too slow and too inaccurate. 194 F.3d 1250, 1260 (Fed. Cir.
1999). The patent did not assert that the “weigh dump method” itself was the reason for
the inaccuracies or slowness. Id. This court ruled that the patentee did not disavow the
use of the “weigh dump method,” even if the claim were construed as a step–plus–
function claim under 35 U.S.C. § 112, ¶ 6. Micro Chem., 194 F.3d at 1259–60.

(...)

By the same token, this court also recognizes that disparaging
comments alone do not necessarily show a manifest or express disavowal of the
criticized subject matter. See, e.g., Ventana Med. Sys., Inc. v. Biogenex Labs., Inc.,
473 F.3d 1173, 1180–81 (Fed. Cir. 2006) (finding that general comments distinguishing
the prior art were not sufficient to limit the term “dispensing” to “direct dispensing”); In re
Am. Acad. of Sci. Tech. Ctr., 367 F.3d 1359, 1365–67 (Fed. Cir. 2004) (finding
descriptions of the deficiencies of using mainframe computers did not exclude
mainframes from the term “user computer” because the specification as a whole did not
express a clear disavowal of that subject matter).


The Kyocera case on LEO's was discussed

Epistar filed a Motion for Temporary Remand and Order to Modify Limited
Exclusion Order in this court on April 6, 2009. Epistar moved this court to temporarily
remand this case to the ITC with instructions that the ITC modify its LEO to comport
with this court’s decision in Kyocera Wireless Corp. v. International Trade Commission,
545 F.3d 1340 (Fed. Cir. 2008). This court in Kyocera Wireless held that the ITC lacks
statutory authority to issue a LEO that excludes imported products by entities not
named as respondents before the ITC. 545 F.3d at 1345, 1357–58. Epistar did not
raise this issue in its briefs, nor did the court hear argument on this issue at the June 6,
2008, hearing.