IP Law Daily Damages, infringement verdict against ALE over networking patents affirmed
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Tuesday, May 8, 2018

Damages, infringement verdict against ALE over networking patents affirmed

By Peter Reap, J.D., LL.M.

The federal district court in Tyler, Texas, did not commit reversible error in entering judgment against ALE USA (formerly known as Alcatel-Lucent Enterprise USA) for infringement of networking patents asserted by Chrimar Systems, the U.S. Court of Appeals for the Federal Circuit has determined. Further, the district court’s award of damages to Chrimar, rejection of ALE’s fraud counterclaim under Texas law, and denial of Chrimar’s post-trial motion for attorney fees under the Patent Act were affirmed. One of the claim constructions adopted by the district court was rejected, and the case was remanded for further proceedings regarding the affected patent (Chrimar Holding Co., LLC v. ALE USA Inc., May 8, 2018, Taranto, R.).

Chrimar owned four related patents with materially similar specifications—U.S. Patent Nos. 8,155,012; 8,942,107; 8,902,760; and 9,019,838. The ’012 patent’s specification was treated as representative. The specification describes the use of devices that connect to a wired network, such as Ethernet, and manage or track remote electronic equipment, such as a personal computer, on that network.

All four patents are standard-essential patents in that they cover features required by the Institute of Electrical and Electronics Engineers (IEEE) Power over Ethernet (PoE) 802.3af standard (ratified in 2003) and 802.3 at amendments to the IEEE PoE 802.3 standard (ratified in 2009). Those standards address detection, classification, power-on, operating power, and removal of power. Chrimar’s patents cover the first three features (detection, classification, and power-on).

In 2015, Chrimar sued ALE in the Eastern District of Texas for direct and indirect infringement of the ’012, ’107, ’838, and ’760 patents under 35 U.S.C. §§ 271(a), (b). A jury trial was held in early October 2016. The issues submitted to the jury were infringement damages, invalidity based on improper inventorship, fraud, and breach of contract. On October 7, 2016, the jury returned a verdict in favor of Chrimar on all issues and awarded Chrimar a royalty of $324,558.34. The defenses of equitable estoppel, waiver, prosecution laches, and inequitable conduct were left to the court, which ruled for Chrimar on all issues. After the jury trial, Chrimar filed a motion for attorney fees under 35 U.S.C. § 285, and ALE moved for judgment as a matter of law or a new trial. The court denied both motions.

ALE appealed three of the district court’s claim constructions, the denial of its motion to exclude damages testimony by Chrimar’s expert Mr. Mills, and the jury instruction on ALE’s state-law fraud claim. Chrimar cross-appealed the district court’s denial of its motion for attorney fees under 35 U.S.C. § 285.

Claim construction and infringement. ALE objected to the court’s construction of "adapted" in claim 31 of the ’012 patent (on which claims 35, 43, and 60 directly or indirectly depend). The district court, at the parties’ request, adopted the construction of "[a]n adapted piece of Ethernet data terminal equipment" from an earlier case in which the same court construed the preamble in claim 31 of the ’012 patent.

In the claim construction order entered in the earlier case, the court construed the preamble as "limiting" and stated that its "plain and ordinary meaning" should govern its scope, a construction with which both parties to that case agreed. While acknowledging that the parties continued to dispute the meaning of the term "adapt," the court in that order reasoned: "The ‘adapting’ requirement in the claims of the ’012 Patent is essential to address the problem confronted by the inventors taking existing networks and adapting them to make equipment distinguishable. Thus, the word ‘adapting’ must have some meaning. "The court did not say more about what that "meaning" is.

In light of the parties’ agreement in this case that the preamble is limiting, both before the district court and on appeal, the Federal Circuit disagreed with the district court’s claim construction. Generally, every apparatus may be described as "designed, configured, or made," and Chrimar did not explain how that construction in any way limits the scope of claim 31. The specification is consistent with giving "adapted" a meaning tied to existing equipment to avoid stripping the concededly limiting claim language of meaning. The specification describes the invention generally as designed to operate on a preexisting network connected to pieces of networked terminal equipment. As the district court noted, moreover, the specification states that "[t]his invention is particularly adapted to be used with an existing Ethernet communications link or equivalents thereof," and that "[t]he communication system 15 and 16 described herein is particularly adapted to be easily implemented in conjunction with an existing computer network 17 while realizing minimal interference to the computer network."

Chrimar did not dispute that the specification describes embodiments that require modification of a preexisting piece of Ethernet data terminal equipment. Nor did it dispute that "adapted" appears only in the claims of the ’012 patent, not the other patents involving essentially the same specification, suggesting that the claim scope chosen for the asserted claims in this patent is only a subset of what the specification may support. It is hardly unknown for one set of claims to use language that picks out one among several embodiments, especially where other claims (perhaps in the same or related patents) claim more broadly or focus on other embodiments. The claim language here, to be meaningful, requires such a construction of "adapted." The appellate court therefore adopted ALE’s proposed construction of "adapted" to mean "modified."

ALE also objected to the constructions of the infinitive phrases "to detect," "to control," "to provide," and "to distinguish" in the relevant claims of the ’838 patent; "to draw," "to result," and "to convey" in the relevant claims of the ’107 patent; and "to draw," "to detect," "to control," and "to distinguish" in the relevant claims of the ’760 patent. ALE argued that those terms should have been construed as means-plus-function elements subject to 35 U.S.C. § 112, ¶ 6 because they do not recite sufficient structure to perform the required function. The district court did not err in rejecting that argument, according to the Federal Circuit.

The district court properly recognized the presumption against application of § 112, ¶ 6 where, as here, the word "means" is not used in the claim and properly asked whether the terms preceding the infinitive phrases—"central piece of equipment," "Ethernet terminal equipment" (or "BaseT Ethernet terminal equipment"), and "end device"—identify structures or instead are, like "means," essentially place-holder nonce words. ALE therefore did not meet its burden to overcome the presumption against applying § 112, ¶ 6 for those infinitives. A claim term that has an understood meaning in the art as reciting structure is not a nonce word triggering § 112, ¶ 6.

ALE also argued that the district court erred in construing "physically connect"—as used in claim 1 of the ’760 patent (on which claims 59, 69, and 72 depend) and claim 73 of the ’760 patent (on which claim 145 depends). The district court considered dependent claim 71 (not asserted in this case), in which the only additional limitation is that "the first and second pairs are physically connected between the piece of BaseT Ethernet terminal equipment and the piece of central BaseT Ethernet equipment." In light of that dependent claim and the presumption of claim differentiation, the district court stated that the term "physically connect" in claim 1 requires only that the components be configured (have the ability) to physically connect, rather than actually be physically connected (as in claim 71).

ALE argued that the district court’s construction rendered the term "physically connect" meaningless and that, without an actual physical connection, the system would be inoperable. But requiring that a system be configured to physically connect is a meaningful limitation (it imports a meaningful capability), and such a system is operable (upon action by a user, the system makes the physical connection needed for actual operation), the appellate court reasoned. Chrimar cited no authority barring a claim to a component "configured to" work and capable of operation by a user, where the user’s actual operation is unclaimed. Thus, ALE provided no reason that overcame the presumption in favor of claim differentiation.

The judgment of infringement of the ’107, ’838, and ’760 patents was affirmed. Because the appellate court agreed with ALE as to the term "adapted" in the ’012 patent, it vacated the district court’s claim construction order as to that term and remanded for further proceedings on infringement of the ’012 patent under the proper construction of "adapted." Given the (affirmed) judgment of infringement of the ’107 and ’760 patents, the absence of an infringement judgment on the ’012 patent was immaterial to damages because any damages that would result from the alleged infringement of the ’012 patent also results from the infringement of the ’107 and ’760 patents.

Damages. ALE challenged the damages award by attacking the testimony of Mr. Mills, Chrimar’s damages expert.

There was no reversible error based on Mr. Mills’s reliance on certain licenses to come to a range for a reasonable royalty rate and his selection of a rate in the low end of that range—i.e., $2.50 per PoE port, the court held. To the extent that ALE argued that those licenses were not sufficiently comparable to be reliable indicators of what would have occurred in a hypothetical negotiation between it and Chrimar, ALE failed to make that challenge when seeking to exclude Mr. Mills’s testimony or when that testimony was presented at trial. In addition, ALE was able to—and did—attack any discrepancies in the license-comparison approach by presenting extensive contrary testimony from its expert.

ALE also failed to show reversible error regarding Mr. Mills’s testimony as to apportionment—separating the patented features’ value from other elements of value in the accused products. Mr. Mills explained at trial that he accounted for the products’ non-PoE functionality (nonpatented functionality outside the PoE standard), the products’ nonpatented PoE functionality (two nonpatented features of the PoE standard: operating power and removal of power), and the value of standardization (generally requiring practice of a standard-essential patent rather than noninfringing alternatives).

Finally, ALE contended that the lower court erred in allowing Mr. Mills to refer to ALE’s total revenue and profit, a reference that, according to ALE, "skewed" the damages inquiry. The district court, however, allowed that testimony only after concluding that ALE had opened the door to it by soliciting testimony from its own witness. There was no basis for disturbing the district court’s determination that ALE opened the door and that the now-challenged reference was accordingly permissible, the appellate court held.

Fraud. ALE challenged the district court’s instruction to the jury on the law of fraud under Texas law, arguing that the instruction improperly excluded the possibility that Chrimar’s alleged misrepresentations or omissions to the IEEE, in failing to submit a Letter of Assurance regarding the four asserted standard-essential patents, could support ALE’s fraud claim. ALE relied on Exxon Corp. v. Emerald Oil & Gas Co., 348 S.W.3d 194 (Tex. 2011), for the proposition that common-law fraud under Texas law "does not require proof that the entity committing the fraud—here, Chrimar—intended to defraud the specific party that is making the fraud allegation."

It is true that Texas law "does not require proof that a misrepresentation be made to the defrauded party" in the sense that ALE suggested—in substance, directly to. ALE, the Federal Circuit noted. But the jury instructions did not require that the misrepresentation or omission be made "directly to" ALE. The instructions permitted liability if the misrepresentation or omission was made to ALE, whether directly or indirectly. ALE lacked a meritorious argument on appeal for vacatur of the fraud verdict based on erroneous instructions.

Attorney fees. Chrimar cross-appealed the district court’s denial of its motion for attorney fees under 35 U.S.C. § 285. Chrimar’s argument relied chiefly on the ground that ALE pressed a large number of defenses and counterclaims for years, only to drop most of them (e.g., concerning antitrust, inequitable conduct, and some invalidity grounds) late in the litigation, even during trial.

The district court did not abuse its discretion in making what here was a case-specific judgment that it was distinctively well-positioned to make, the appellate court ruled. The district court denied summary judgment as to a number of the claims ALE later dropped, allowing them to proceed and determined that ALE’s litigation decisions fell within the range of ordinary practices involving the narrowing of claims for trial.

This case is Nos. 17-1848 and 17-1911.

Attorneys: Justin S. Cohen (Thompson & Knight LLP) for Chrimar Holding Co., LLC and Chrimar Systems, Inc. d/b/a CMS Technologies, Inc. Christopher N. Cravey (Jackson Walker LLP) for ALE USA Inc. f/k/a Alcatel-Lucent Enterprise USA, Inc.

Companies: Chrimar Holding Co., LLC; Chrimar Systems, Inc. d/b/a CMS Technologies, Inc.; ALE USA Inc. f/k/a Alcatel-Lucent Enterprise USA, Inc.

MainStory: TopStory Patent FedCirNews

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