Spectralytics v. Cordis

The conclusion of the case:

The judgment of validity, infringement, and the royalty
rate for measurement of damages is affirmed. The denial of
enhanced damages and attorney fees is vacated, and the
case is remanded for redetermination of these issues, as
well as other steps appropriate to completion of this litiga-
tion.

The background of the story:

both Spectralytics and Norman Noble were producers of coronary
stents, and both hoped that Cordis would select it as the
producer, for further provision by Cordis to users. In April
of 1995 Spectralytics hired a sales representative named
Jack Lundeen, who stated that he had close connections
with key Cordis executives. Unbeknownst to Spectralytics,
two months later, in June of 1995, Lundeen was also hired by Norman Noble.

AND

On August 24, 1995 Larry and Scott Noble
traveled to the Spectralytics plant in Minneapolis, for the
stated purpose of learning about Spectralytics’ laser stent-
cutting technology. Spectralytics’ president, Gary Oberg,
testified that he gave the Nobles a tour of the shop floor.
Mr. Oberg testified that he did not recall all details of the
visit, after ten years, but that Spectralytics’ new laser
cutting machine was on the shop floor, and there was no
reason he would not have shown the machine to the Nobles
when they toured the shop.

AND the problem:

Norman Noble then built a Swiss-style stent cutting
machine that had the workpiece fixture carried on the laser
cutting tool. The stents produced by the new Noble machine
were significantly improved over the stents previously
produced by Noble, and Cordis entered into an exclusive
supply contract with Noble. Cordis agreed to indemnify
Noble for any patent infringement.

Spectralytics filed suit in July of 2005 against Cordis for
patent infringement, and in August of 2006 Spectralytics
added Norman Noble, Inc. as a defendant. Trial to a jury
was held on the issues of validity, infringement, willful
infringement of the ’277 patent, and damages.

The was a legal issue on JMOL:

In Tec Air, Inc. v. Denso Manufacturing
Michigan, Inc., 192 F.3d 1353, 1357 (Fed. Cir. 1999), this
court reiterated that for a party to prevail on appeal of
denial of JMOL “it must prove that the jury's factual find-
ings were not supported by substantial evidence or that the
facts were not sufficient to support the conclusions necessar-
ily drawn by the jury on the way to its verdict.”

There was an issue of obviousness:

The defendants argued at trial that it would have been
obvious to change the Swiss-style machine into the struc-
ture that is the subject of the ’277 patent. Witnesses testi-
fied for both sides, and the jury verdict was that the
defendants did not prove that claim 1 of the ’277 patent is
invalid on the ground of obviousness. On motion for judg-
ment as a matter of law, the district court discussed the
evidence and concluded that the jury findings were sup-
ported by substantial evidence, that obviousness had not
been proved by clear and convincing evidence, and that the
jury verdict was not a miscarriage of justice. Spectralytics,
650 F. Supp. 2d 900.

One notes it is a claim which is obvious, not a machine:

The defendants argue that U.S. Patent No. 5,324,913 to
Oberg and U.S. Patent No. 5,026,965 to Ohe render the
Spectralytics machine obvious.

BUT

The Cordis expert on Swiss-style machines, Mr.
Huber, testified that the machine of the ’277 patent was
“contrary to the accepted teachings of Swiss automatic
screw machines.” Trial Tr. 2105. Another Cordis witness,
Jeff Miller, testified that when he first heard about the idea
of carrying the workpiece fixture directly on the cutting tool
he thought it was a “fantastic” idea.




On teaching away:

The defendants argue that the district court misappre-
hended the law of “teaching away,” and erred in concluding
that the jury could have found that the prior Swiss-style
machines taught away from the ’277 invention. The defen-
dants cite cases where this court rejected assertions of
“teaching away” on the ground that the prior art did not
directly warn against the claimed invention or teach that
the claimed invention would not work, e.g., Baxter Interna-
tional, Inc. v. McGaw, Inc., 149 F.3d 1321, 1328 (Fed. Cir.
1998) (finding no teaching away where nothing in the prior
art device suggested that the claimed invention was
unlikely to work); In re Gurley, 27 F.3d 551, 553 (Fed. Cir.
1994) (“A reference may be said to teach away when a
person of ordinary skill, upon reading the reference, would
be discouraged from following the path set out in the refer-
ence or would be led in a direction divergent from the path
that was taken by the applicant.”). The defendants argue
that nothing about the prior Swiss-style machines teaches
that other designs should not or cannot be devised, or warns
against mounting the workpiece fixture on the laser-cutting
tool.
“Teaching away” does not require that the prior art fore-
saw the specific invention that was later made, and warned
against taking that path. It is indeed of interest if the prior
art warned against the very modification made by the
patentee, but it is not the sole basis on which a trier of fact
could find that the prior art led away from the direction
taken by the patentee. Instead, the jury could find, based
on the expert testimony, that prior Swiss-style machines
taught away from embracing vibrations to improve cutting
accuracy because all prior machines improved accuracy by
dampening vibrations.2 Nor is “teaching away” an essential
element of a conclusion of unobviousness.

AND

Whether the prior art teaches away from the claimed
invention is a question of fact, Dystar Textilfarben GmbH v.
C.H. Patrick Co., 464 F.3d 1356, 1360 (Fed. Cir. 2006), and
the district court took cognizance of the parties’ arguments
on this aspect. The court concluded that on the evidence
presented “a reasonable jury could have found that the
Swiss art taught away from attaching the workpiece fixture
to the laser-cutting head as is done in the ’277 patent,” 650
F. Supp. 2d at 906-07, and explained that such a finding
supported the verdict that obviousness had not been proved.
We agree that the correct law was applied, and that an
implicit finding of teaching away was supported by substan-
tial evidence.

A KSR issue was addressed in a footnote:

Cordis suggests that under KSR International Co. v.
Teleflex Inc., 550 U.S. 398, 421 (2007), it would have been
obvious to try mounting the workpiece fixture on the cutting
tool because there were only a finite number of predictable
places to mount the fixture. That suggestion ignores the
expert testimony indicating that the cutting tool was not a
predictable place to mount the workpiece fixture.

Evidence of copying came up:

Spectralytics points to the evidence of copying and
commercial success. In Stratoflex, Inc. v. Aeroquip Corp.,
713 F.2d 1530, 1538-39 (Fed. Cir. 1983), this court observed
that “evidence of secondary considerations may often be the
most probative and cogent evidence in the record. It may
often establish that an invention appearing to have been
obvious in light of the prior art was not. It is to be consid-
ered as part of all the evidence, not just when the decision-
maker remains in doubt after reviewing the art.” The
objective considerations reflect the contemporary view of the
invention by competitors and the marketplace. In Iron Grip
Barbell Co. v. USA Sports, Inc., 392 F.3d 1317, 1324 (Fed.
Cir. 2004), the court stated: “This court has previously
identified, inter alia, commercial success, satisfaction of a
long-felt need, and copying to be relevant factors.” The jury
could have considered this evidence, in deciding the ques-
tion of obviousness.

On damages:

A party challenging a jury damages verdict “must show
that the award is, in view of all the evidence, either so
outrageously high or so outrageously low as to be unsup-
portable as an estimation of a reasonable royalty.” Rite-Hite
Corp. v. Kelley Co., 56 F.3d 1538, 1554 (Fed. Cir. 1995) (en
banc) (quoting Lindemann Maschinenfabrik GmbH v. Am.
Hoist & Derrick Co., 895 F.2d 1403, 1406 (Fed. Cir. 1990)).
As discussed in Lucent Technologies, Inc., v. Gateway, Inc.,
“on post-trial JMOL motions, district court judges must
scrutinize the evidence carefully to ensure that the ‘sub-
stantial evidence’ standard is satisfied, while keeping in
mind that a reasonable royalty analysis ‘necessarily in-
volves an element of approximation and uncertainty’.” 580
F.3d 1301, 1336 (Fed. Cir. 2009) (quoting Unisplay, S.A. v.
Am. Elec. Sign Co., 69 F.3d 512, 517 (Fed. Cir. 1995)).

On substitutes:

The district court stated that the jury was not required
to accept the defendants’ position that these alternative
machines were available and acceptable, in light of the
contrary evidence. Spectralytics, 650 F. Supp. 2d at 907. A
fact finder “must proceed with caution in assessing proof of
the availability of substitutes not actually sold during the
period of infringement.” Grain Processing Corp. v. Am.
Maize-Prods. Co., 185 F.3d 1341, 1353 (Fed. Cir. 1999). We
agree with the district court that a reasonable jury could
have found that the alleged alternatives were either not
acceptable or not available, and that such a finding was
supported by substantial evidence.

An argument:

The defendants also argue that Spectralytics placed a
low value on its invention, because in 2004 Spectralytics
sold its assets for $4 million plus a contingent 25-percent of
any recovery for patent infringement.

As to willful infringement:

The district court’s decision on whether to enhance
damages is reviewed for abuse of discretion, that is, whether
the decision was based on clearly erroneous findings of fact,
an incorrect conclusion of law, or a clear error of judgment.
SRI Int’l, Inc. v. Advanced Tech. Labs., Inc., 127 F.3d 1462,
1469 (Fed. Cir. 1997). We observe that the district court
applied our decision in In re Seagate Technology, LLC, 497
F.3d 1360 (Fed. Cir. 2007) (en banc), in a more rigorous
manner than is appropriate, as has been elaborated in
intervening decisions.

The Microsoft/i4i case arose:

Precedent has also clarified that the failure to obtain an
opinion of counsel or otherwise investigate the patent situa-
tion can be considered, in the totality of the circumstances.
See Aspex Eyewear, Inc. v. Clariti Eyewear, Inc., 605 F.3d
1305, 1313 (Fed. Cir. 2010) (“the timing as well as the
content of an opinion of counsel may be relevant to the issue
of willful infringement, for timely consultation with counsel
may be evidence that an infringer did not engage in objec-
tively reckless behavior”) (citing Finisar Corp. v. DirecTV
Group, Inc., 523 F.3d 1323, 1339 (Fed. Cir. 2008)). In i4i
this court sustained the district court’s enhancement of
damages, because “Microsoft was aware of i4i’s patent,
never formed a good faith belief of noninfringement, and
clearly intended to add a custom XML editor in Word with
similar capabilities to i4i’s patented products.” 598 F.3d at
858. Although Microsoft had presented the same argument
as here offered, viz. that Seagate abrogated the duty to
investigate previously placed upon those with knowledge of
an adverse patent, this court held that the district court
could and should consider whether infringement had been
investigated, explaining: “Although a finding of willfulness
is a prerequisite for enhancing damages under § 284, the
standard for deciding whether – and by how much – to
enhance damages is set forth in Read, not Seagate . . . .
Under the Read factors, the district court properly consid-
ered . . . whether Microsoft investigated the scope of the
patent.” i4i, 598 F.3d at 859.

AND

Applying the Read factors, the district court found that
“[m]ost of these factors weigh against, or are neutral to-
ward, a finding of enhanced damages in this case.” Spectra-
lytics, 650 F. Supp. 2d at 922. The district court stated that
“after Seagate, greater emphasis must be placed on objective
factors in assessing the degree of a defendant’s willfulness.”
Id. The district court remarked that the jury was not asked
for a specific finding as to whether Noble copied the Spectra-
lytics machine. Spectralytics argues that the jury verdict of
willful infringement necessarily was based on a finding of
copying. The district court stated: “With respect to defen-
dants’ investigation, the Court finds that Cordis did not
carefully investigate the ’277 patent until trial, but the
Court discounts this factor in light of Seagate’s abrogation of
the duty of due care.” Id.

The interplay of Seagate and Read lead the CAFC to vacate
in this case:

Seagate removed the presumption of willful infringe-
ment flowing from an infringer’s failure to exercise due care
to avoid infringement, but Seagate did not change the
application of the Read factors with respect to enhancement
of damages when willful infringement under §285 is found.
We thus vacate the district court’s denial of enhanced
damages, and remand to the district court to redetermine
whether enhanced damages are warranted under the guid-
ance of Read, 970 F.2d at 826, that the “paramount deter-
mination in deciding to grant enhancement and the amount
thereof is the egregiousness of the defendant’s conduct
based on all the facts and circumstances.”

Attorneys fees:

The patent statute provides that “The court in excep-
tional cases may award reasonable attorney fees to the
prevailing party.” 35 U.S.C. §285. Although an attorney fee
award is not mandatory when willful infringement has been
found, precedent establishes that the court should explain
its decision not to award attorney fees. Transclean Corp. v.
Bridgewood Servs., Inc., 290 F.3d 1364, 1379 (Fed. Cir.
2002) (“[T]he general rule [is] that the district court must
normally explain why it decides that a case is not excep-
tional under 35 U.S.C. §285 when a factual finding of willful
infringement has been established and, if exceptional, why
it decides not to award attorney fees.”); Modine Mfg. Co. v.
Allen Group, Inc., 917 F.2d 538, 543 (Fed. Cir. 1990)
(“[W]hen a trial court denies attorney fees in spite of a
finding of willful infringement, the court must explain why
the case isute.”).