Federal Circuit Reverses Pre-Suit Damages Award for Failure to Mark

Yesterday the Federal Circuit published its decision in Packet Intelligence LLC v. NetScout Systems, Inc.  The principal issue in the case is patent eligibility.  The majority (opinion authored by Judge Lourie, joined by Judge Hughes) affirms the district court's judgment that the claims in suit are valid, over a dissent by Judge Reyna.  All three judges agree on the other issues, affirming a judgment that the claims in suit are not invalid under section 102(f); that the patentee is not entitled to pre-suit damages, for failure to comply with the Patent Act's marking statute (35 U.S.C. § 287(a)); and affirming the damages awarded for post-suit infringement, as well as an enhancement of those damages and an ongoing royalty.  I'll focus on the marking issues.

As described in the majority opinion, "Packet Intelligence owns the ’725, ’751, and ’789 patents, which teach a method for monitoring packets exchanged over a computer network" (p.3).  The ’789 patent also recites apparatus claims, however, and the plaintiff asserted two of these claims, as well as method claims of the other two patents.  On the marking issue, the district court's jury instruction, in the panel's view, is at odds with a subsequent Federal Circuit decision I blogged about in late 2017 (see here).  Here is the panel's discussion, edited for conciseness (pp. 18-22):

. . . Before filing the instant suit, Packet Intelligence licensed the asserted patents to Exar, Cisco, and Huawei, which were alleged to have produced unmarked, patent-practicing products. The ’789 patent is subject to the marking requirement of 35 U.S.C. § 287(a), and the availability of pre-suit damages for the ’789 patent hinges on whether Exar’s MeterFlow product was appropriately marked. . . .

When the district court charged the jury in this case, this court had not yet ruled on which party bears the burden of proving compliance with the marking statute. After the verdict, we held that an alleged infringer “bears an initial burden of production to articulate the products it believes are unmarked ‘patented articles’ subject to [the marking requirement]” in Arctic Cat Inc. v. Bombardier Recreational Prods. Inc., 876 F.3d 1350, 1368 (Fed. Cir. 2017). We held that the initial burden was a “low bar” and that the alleged infringer needed only to put the patentee on notice that certain licensees sold specific unmarked products that the alleged infringer believes practice the patent. Id. The burden then fell on the patentee to prove that the identified products do not practice the patent-at-issue. Id.

Here, the district court’s jury instruction is in tension with the later decision in Arctic Cat, as it appears to place the burden on NetScout to show that the Exar, Huawei, and Cisco products practice the ’789 patent . . . .

NetScout argues that Packet Intelligence is not entitled to pre-suit damages for the ’789 patent because it failed to prove that MeterFlow, an unmarked product, did not practice the ’789 patent. Specifically, NetScout faults the court for relying on Mr. Dietz’s testimony because he testified about MeterWorks, not MeterFlow, and because he did not testify that the MeterFlow product did not practice the patent.

In response to NetScout’s argument, Packet Intelligence appears to argue that NetScout bears the burden of establishing that the MeterFlow products practiced any claims of the ’789 patent because it failed to object to the district court’s jury instruction or seek a new trial based on Arctic Cat.

As a preliminary matter, we disagree that the failure to object decides this matter. . . .

Under the standard articulated in Arctic Cat, NetScout bore the preliminary burden of identifying unmarked products that it believed practice the ’789 patent. It is undisputed that NetScout adequately identified Exar’s MeterFlow product. Packet Intelligence then bore the burden of proving that MeterFlow did not practice at least one claim of the ’789 patent. . . .  

Packet Intelligence submits that it met its burden in two ways: (1) by showing that the MeterFlow product was mentioned in a provisional application that the ’789 patent claims priority from and that the inventors removed that reference before filing non-provisional applications, and (2) with testimony from Mr. Dietz, a named inventor, who stated that MeterWorks, a different product, did not embody his invention. This evidence is, however, insufficient to carry Packet Intelligence’s burden of proving that the MeterFlow product does not practice the ’789 patent. The fact that the inventors chose to cease referencing MeterFlow in later patent applications does not support the inference that MeterFlow does not practice the patent. Mr. Dietz testified that the reference to MeterFlow was removed because MeterFlow was software that “evolved,” and using the term would have suggested that past versions of the software using the “marketing term” MeterFlow “were the current version.” . . . Crediting Mr. Dietz’s testimony, it appears that the exclusion of MeterFlow was to prevent “confusion” about an evolving product . . . not to comment on whether MeterFlow practiced the ’789 patent.

Packet Intelligence also relies on Mr. Dietz’s testimony that MeterWorks did not embody the invention. But Mr. Dietz was not qualified as an expert in this case and did not provide an infringement opinion regarding the MeterFlow product. Mr. Dietz testified to the ultimate question of noninfringement about a different Exar product, MeterWorks. Even if Mr. Dietz had testified about the correct product and was permitted to offer an expert opinion on whether MeterFlow practiced the asserted claims, his conclusory testimony failed to address what claim limitations were purportedly missing from the product and would have been insufficient to carry Packet Intelligence’s burden of proving that MeterFlow did not practice the ’789 patent. . . .

Alternatively, the plaintiff argued that pre-suit damages were available for infringement of the method claims of the other two patents.  (When a patentee asserts one patent's apparatus claims and another patent's method claims, and fails to mark its own patent-practicing products, it can recover damages for the infringement of the product patent only from the date on which it puts the infringer on actual notice; but it can recover damages for the infringement of the process patent from the date the infringement began.  See ActiveVideo  Networks, Inc. v. Verizon Comm’ns, Inc., 694 F.3d 1312, 1333-35 (Fed. Cir. 2012).).  But that argument doesn't work here either, on the facts:

    . .  . Packet Intelligence cannot simply count sales of the software accused of infringing the ’789 patent as sales of the method claimed in the ’725 and ’751 patents. Instead, Packet Intelligence was required to produce evidence that the claimed method was actually used and hence infringed. Packet Intelligence advanced a theory that NetScout’s internal testing, customer support, and customer training was pre-suit activity infringing the method patents and thus supporting damages. But there is no evidence supporting damages caused by or resulting from these pre-suit activities. Mr. Bergman, Packet Intelligence’s damages expert, applied a calculated reasonable royalty to revenue from NetScout’s sales of the GeoBlade and GeoProbe G10 products—occurring both before and after the suit was filed. The damages base was not tailored to any alleged internal use of the claimed methods (p.24).

The amount of post-suit damages ($2.25 million) and the royalty rate for the ongoing royalty (1.55%) are, apparently, uncontested.  The panel affirms the award of enhanced damages in the amount of $2.8 million, which (I think) were based on post-suit conduct only.  See the district court's opinion on enhancement, pp. 3, 11-12 (which, however, explicitly refers to only to the ’725 patent at these pages).

For the record, as I have stated on several previous occasions (see, e.g., here), I think that the way the U.S. patent marking requirement works is unduly formalistic and leads to results that make little if any policy sense.  I would abolish the whole thing, if it were up to me.