In a nonprecedential opinion released this morning, Global Traffic Technologies LLC v. Morgan, the Federal Circuit (1) affirmed a finding of liability for indirect infringement, (2) reversed an award of enhanced damages, and (3) affirmed the district court's conclusions (a) that the plaintiff complied with the patent marking statute, (b) admitting the plaintiff's expert testimony on damages, and (c) that defendant KM Enterprises, Inc.'s sole shareholder and director was personally liable. (In addition to the individual, the defendants included KM Enterprises and another company, STC, Inc.) The patent in suit claims traffic control preemption methods and systems for emergency vehicles, using data from a GPS, and the opinion is by Judge O'Malley (joined by Judges Dyk and Taranto). I'll focus on the damages issues.
First, on the issue of enhanced damages, the court concluded that the defendants had a good faith defense which precluded a finding of willful infringement, and that the fact that defendants developed that defense after having been sued for infringement is irrelevant:
The district court found that there was ample evidence in the record that Appellants knew of the patent and determined that “an objectively reasonable person, with knowledge that a patent exists in the field in which the potential infringers wish to compete would not ignore the patent, but would investigate whether its design would infringe.” JMOL Order, 2014 WL 1663420, at *13. The infringer’s knowledge of the patent is irrelevant to the first Seagate prong, however. See Seagate, 497 F.3d at 1371 (“The state of mind of the accused infringer is not relevant to this objective inquiry.”). Instead, the district court should have considered whether Appellants acted “despite an objectively high likelihood that its actions constituted infringement of a valid patent.” Seagate, 497 F.3d at 1371. This requires analysis of all of the infringer’s non-infringement and invalidity defenses, even if those defenses were developed for litigation. See Halo Elecs., Inc. v. Pulse Elecs., Inc., 769 F.3d 1371, 1382 (Fed. Cir. 2014) (“The court properly considered the totality of the record evidence, including the obviousness defense that Pulse developed during the litigation, to determine whether there was an objectively-defined risk of infringement of a valid patent.”).
In this case, the district court found that Appellants “had good-faith invalidity defenses once litigation began.” JMOL Order, 2014 WL 1663420, at *14. We agree. Because Appellants’ defenses during litigation were objectively reasonable, GTT failed to prove the first prong of our willfulness test. See Halo, 769 F.3d at 1382 (pp. 15-16).
Interestingly, the presence of a good faith defense of invalidity might have gotten the defendants off the hook for indirect infringement until last week, when the Supreme Court in Commil USA, LLC v. Cisco Systems, Inc. held that it doesn't.
Second, on the issue of patent marking, the defendants argued that the plaintiff was not entitled to recover damages for the period of time preceding the defendants' receipt of actual notice of infringement, because the plaintiff failed to mark the physical components of its system (which would constitute constructive notice). (Under U.S. law, you're not required to mark a process, but if you sue for the infringement of a patent's product (or system) and process claims but fail to mark, you can recover damages only from the date on which the defendant is put on actual notice. See Mformation Techs., Inc. v. Research in Motion Ltd., 830 F. Supp. 2d 815, 836-38 (S.D. Cal. 2011). Moreover, even if the defendant has actual knowledge of the patent sufficient to support a finding of indirect infringement prior to the date on which it is put on actual notice, the plaintiff still cannot recover damages for the period of time preceding receipt of actual notice, absent patent marking. See Fujitsu Ltd. v. Netgear Inc., 620 F.3d 1321, 1332 (Fed. Cir. 2010). I have long doubted that the complexity engendered by all of these byzantine rules is worthwhile, but so it goes. For further discussion on this blog of the patent marking statute, see here.) Anyway, in this case the court concluded that marking the product packaging sufficed:
As noted, the marking statute requires an analysis of the “character of the article.” 35 U.S.C. § 287(a). Certainly, the physical size of the article may be one factor in considering whether the article itself must be marked rather than the packaging. See Sessions v. Romandka, 145 U.S. 29, 49–50 (1896) (considering the patentee’s ability to stamp the patented screws with a legible mark based on the size of the screws). The physical size of the patented article, however, is not the only thing that defines the “character of the article.” 35 U.S.C. § 287(a). There may be many other aspects of a patented article that can affect whether marking the article provides sufficient constructive notice to the public. See Maxwell, 86 F.3d at 1111. Because we do not pretend to know all of the possible types, characteristics, or components of patented—and yet to be patented—machines and systems,we cannot construct a bright line rule regarding what aspects to consider in determining whether marking the packaging amounts to “substantial compliance.” Id. One example is a multi-component system that embodies a patent. In this example, marking the individual components of the system may not have the desired notice effect of providing public notice because such markings may mislead the public into believing that the marked components themselves are patented, as opposed to the entire multi-component system. As another example, patented articles may be immediately installed out of the public view once unpackaged. Again, in this example, the public may be better notified with marking on the packaging, as opposed to the article itself.
We use these examples to show that the physical size of the article is not the only aspect of the “character of the article” that may be considered. 35 U.S.C. § 287(a). Because there may be many factors that affect the character of a patented article, we hold that, when a patentee marks the packaging rather than the article, the district court should evaluate the specific character of the article at issue. See Sessions, 145 U.S. at 50 (“[S]omething must be left to the judgment of the patentee, who appears in this case to have complied with the alternative provision of the act, in affixing a label to the packages in which the [patented articles] were shipped and sold.”). This factual inquiry regarding the character of the patented article, moreover, may be submitted to a jury, as the district court did here.
In this case, there was substantial evidence for the jury to find that GTT substantially complied with § 287 by marking the Opticom packaging. Appellants presented evidence that their patented product was an entire system that contained multiple components that were separated once unpackaged. . . . Appellants’ expert also testified that some of the components are not in the public view once installed and that other companies had marked the product in the same way, that the marking used reflected industry custom. . . . Based on these factors, it was reasonable for the jury to conclude that marking the packaging of Opticom—the only time when all of the components that made up the patented system were together and in full view of the public—adequately served the purpose of providing constructive notice to the public that the entire Opticom system was patented (pp. 17-19).
Third, the court rejected the defendant's objections to the damages expert's testimony, which was based on the expert's alleged failure to consider price elasticity, based on the court's conclusion that the expert did in fact consider this matter, both at trial and in his report (p.20).
Fourth, the court affirmed the judgment of individual liability, based on its conclusion that "GTT presented substantial evidence to indicate that [the individual] personally induced customers to perform the patented method in claim 16 of the ’398 patent" (p.21). The court interpreted Wordtech Systems, Inc. v. Integrated Networks Solutions, Inc., 609 F.3d 1308 (Fed. Cir. 2010), as standing only for the proposition that "a corporate officer—or perhaps only a corporate owner, see Wordtech, 609 F.3d at 1313 n.2—cannot be found derivatively liable for the corporation’s infringement without piercing the corporate veil" (pp. 22-23 n.6).
An aside--the court doesn't discuss how the actual damages (in the amount of $2,526,059) were calculated, but the issue of how to calculate damages for indirect infringement is an interesting one. For analysis, see Dmitri Karshtedt's article, which I mentioned on the blog here.