IP Law Daily Presidio’s $2.2 million lost profit award vacated; case remanded for royalty determination
Tuesday, November 21, 2017

Presidio’s $2.2 million lost profit award vacated; case remanded for royalty determination

By Cheryl Beise, J.D.

Substantial evidence did not support a jury’s $2.16 million award of lost profits damages to Presidio Components for competitor American Technical Ceramic’s infringement of Presidio’s broadband capacitator array patent, the U.S. Court of Appeals for the Federal Circuit has decided. The case was remanded for determination of a reasonable royalty and for further proceedings regarding whether a permanent injunction was warranted. The appeals court affirmed other rulings by the district court, including patent validity, denial of enhanced damages, and summary judgment to the defendant on its intervening rights defense as to alleged infringement prior to reexamination of the patent-in-suit (Presidio Components, Inc. v. American Technical Ceramics Corp., November 21, 2017, Dyk, T.).

Presidio Components, Inc., owns U.S. Patent No. 6,816,356 ("the ’356 patent"), entitled "Integrated Broadband Ceramic Capacitor Array." The ’356 patent claims a multilayer capacitor design and teaches a multilayer integrated network of capacitors electrically connected in series and in parallel.

In 2014, Presidio sued American Technical Ceramics Corp. ("ATC") for infringement of the ’356 patent. In 2015, ATC sought an ex parte reexamination of the claims of the ’356 patent in light of new prior art. After the patent examiner rejected the’356 patent claims as anticipated and obvious, Presidio amended and narrowed the scope of the claims, and on December 8, 2015, the USPTO issued a reexamination certificate for the ’356 patent. Presidio amended its complaint to assert infringement of the amended claims (independent claim 1 and dependent claims 3, 5, 16, 18, and 19). The district court granted ATC’s motion for summary judgment on the affirmative defense of absolute intervening rights, barring damages for the period before December 8, 2015.

A jury trial was held in April 2016. The jury found ATC liable for willful direct infringement and induced infringement of all asserted claims as to all accused capacitator products (ATC’s 550 line of capacitators) and awarded Presidio $2,166,654 in lost profit damages. The district court subsequently decided all remaining issues, including indefiniteness, equitable intervening rights, equitable estoppel, and laches, in favor of Presidio. On August 17, 2016, the court issued an order: (1) denying ATC’s post-trial motions for judgment as a matter of law and new trial; (2) granting Presidio’s motion for a permanent injunction; (3) denying Presidio’s motion for enhanced damages and attorney fees; and (4) granting Presidio’s motion for supplemental damages.

ATC appealed the district court’s indefiniteness ruling, lost profits award, and permanent injunction. Presidio cross-appealed, challenging the district court’s intervening rights ruling and its denial of enhanced damages. On October 21, 2016, the Federal Circuit partially stayed the injunction until March 17, 2017, with respect to ATC’s customers that purchased infringing capacitors before June 17, 2016.

Indefiniteness. A patent is indefinite "if its claims, read in light of the specification delineating the patent, and the prosecution history, fail to inform, with reasonable certainty, those skilled in the art about the scope of the invention." Nautilus, Inc. v. Biosig Instruments, Inc., 134 S.Ct. 2120, 2124 (2014).

The ’356 patent claims cover multilayer capacitors with a fringe-effect capacitance between external contacts that is "capable of being determined by measurement in terms of a standard unit." The patent specification references insertion loss testing as a method to measure the performance of capacitors. Although industry standards for insertion loss testing had not been published at the time the patent was filed, Presidio’s expert testified that insertion loss testing had been "well known for many decades."

ATC argued that the methodology used by Presidio’s exert was not an established methodology to measure fringe-effect capacitance. However, post-Nautilus, the Federal Circuit has held that a claim is not indefinite if a person of skill in the art would know how to utilize a standard measurement method, such as insertion loss, to make the necessary measurement. Even assuming that a new method could in some circumstances render the claims indefinite, this was not such a situation, according to the court. The evidence supported that insertion loss testing method referenced in the patent was well established and the general approach of making modifications to a capacitor to isolate the impact of discrete capacitances was within the knowledge of someone skilled in the art. Thus, the district court could properly conclude that such measurement was within the skill of a skilled artisan based on an established method.

Intervening rights. Presidio appealed the district court’s grant of summary judgment to ATC on its defense of absolute intervening rights, which barred damages prior to issuance of the reexamination certificate. If an amendment during reexamination makes a substantive change to an original claim, the patentee is only entitled to infringement damages for the changed claim for the period following issuance of the reexamination certificate. The defense turned on whether the original and reexamined claims were "substantially identical." The district court compared the scope of the original claims, as construed by the district court in a prior lawsuit between the parties, with the interpretation of the claims as amended in the reexamination. The Federal Circuit agreed that the original claims and the amended claims were materially different. It was clear that to overcome prior art, the amended claims excluded capacitors with fringe-effect capacitance that could be determined purely through theoretical calculation. This amounted to a substantive change in claim scope, and the district court properly held that ATC was entitled to absolute intervening rights.

Lost profits. The district court found that the jury verdict awarding lost profits was supported by substantial evidence. The parties disputed whether Presidio had established its right to recover profits for the sales of its BB capacitors that were lost to ATC’s sales of infringing 550 capacitors. To recover lost profits, the patentee bears the burden of proving "but for" causation, including the absence of acceptable, non-infringing substitutes.

At the time of infringement, ATC sold two types of capacitors: the 550 series capacitors, which were found to infringe, and the 560L capacitor, which was never accused of infringement. The district court found that sufficient evidence supported the jury’s finding that the 560L capacitor was not an acceptable and available substitute, pointing out that ATC’s own expert had testified that the 560L product did not perform as well as the infringing 550 capacitor.

However, the district court erred by relying on evidence about sales of the 560L capacitor in competition with the 550 capacitator, rather than comparing the 560L capacitor to Presidio’s BB capacitor in a hypothetical market without the infringing 550 capacitor. The record did not support the conclusion that the 560L was not an acceptable, noninfringing alternative for Presidio’s BB capacitors, according to the Federal Circuit. Undisputed evidence showed that the 560L capacitor was less expensive and performed better than Presidio’s BB capacitor. In addition, contrary to the district court’s finding, the fact that the 560L capacitor was not widely advertised and was sold to a single customer did not establish that it was unavailable in the market.

Presidio’s failure to provide evidence that the 560L capacitor was either not an acceptable or available substitute to Presidio’s BB capacitor meant that Presidio could only recover a reasonable royalty award. Because the jury did not consider a reasonable royalty award in the alternative, the case was remanded for the determination of reasonable royalty damages.

Enhanced damages. Despite the jury’s finding of willfulness, the district court declined to award enhanced damages. The Federal Circuit noted that a district court has discretion to determine whether a party’s conduct is sufficiently egregious, in view of the overall circumstances of the case, to warrant enhanced damages. In this case, it was appropriate for the district court to analyze ATC’s culpability after issuance of the reexamination certificate. The district court did not clearly err in concluding that the present case was a "garden-variety" hard-fought patent case, rather than an egregious case of misconduct. Contrary to Presidio’s assertion, the district court was not required to address each of the factors set forth in Read Corp. v. Portec, Inc., 970 F.2d 816 (Fed. Cir. 1992). The Supreme Court’s Halo test merely requires the district court to consider the particular circumstances of the case to determine whether it is egregious. Halo Electronics, Inc. v. Pulse Electronics, Inc., 136 S.Ct. 1923, 1934 (2016).

Permanent injunction. Since March 17, 2017, ATC has been enjoined from selling any 550 capacitators. In light of the reversal of the lost profits award for lack of proof of past lost sales, the Federal Circuit also vacated the injunction, but remanded the matter for further consideration of whether an injunction is warranted. The appeals court directed the district court on remand to reopen the record and consider current evidence of irreparable harm. In particular, the district court was advised to consider whether consumers have turned to non-infringing alternatives to the BB capacitor, such as the 560L capacitor, after the 550 series capacitors became unavailable, or whether Presidio’s sales of the BB capacitor have increased because the 550 series is no longer on the market.

The case is Nos. 2016-2607, 2016-2650.

Attorneys: Brett A. Schatz (Wood, Herron & Evans, LLP) for Presidio Components, Inc. Ronald E. Cahill (Nutter McClennen & Fish LLP) for American Technical Ceramics Corp.

Companies: Presidio Components, Inc.; American Technical Ceramics Corp.

MainStory: TopStory Patent TechnologyInternet FedCirNews

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