IP Law Daily Railroad inspection company fails to avoid $2.5 million award for infringement of competitor’s patent
Wednesday, August 16, 2017

Railroad inspection company fails to avoid $2.5 million award for infringement of competitor’s patent

By Cheryl Beise, J.D.

A provider of railroad inspection services failed to show that the federal district court in Texarkana, Texas, erred in entering judgment in favor of a competitor following a jury’s finding of willful patent infringement and award of lost profit damages, the U.S. Court of Appeals for the Federal Circuit has held. The record also supported the district court’s claim construction and its award of $1 million in enhanced damages on top of the jury’s $1.54 million award (Georgetown Rail Equipment Company v. Holland L.P., August 16, 2017, Wallach, E.).

Georgetown Rail Equipment Company and Holland L.P. provide track inspection services and compete for the business of seven major railroad companies that maintain railroads for shipping goods in the United States. In 2013, Georgetown filed suit against Holland, L.P., accusing it of infringing claim 16 of U.S. Patent No. 7,616,329 (the ’329 patent). The ’329 patent generally relates to a system and method for inspecting railroad track tie plates using digital technology (lasers, cameras, and a processor). Tie plates are steel plates that connect the steel rail tracks to wooden ties. The preamble of claim 16 discloses system mounted on a vehicle that moves along the railroad track.

Following a five-day trial in April 2015, the jury found Holland willfully infringed claim 16 of the ’329 patent and awarded Georgetown lost profits in the amount of $1.54 million. In an opinion and order dated June 16, 2016, the court denied Holland’s renewed motion for judgment as a matter of law (JMOL) and granted Georgetown’s motions for a finding of willful infringement, enhanced damages, attorney fees, and a permanent injunction. The court awarded Georgetown $1 million in enhanced damages and $1.57 million in attorney fees. Holland appealed the district court’s 2014 claim construction order and certain post-trial rulings.

Claim construction. Holland first argued that the district court erred in finding that the term "mounted on a vehicle for movement along the railroad track" in the preamble of claim 16 was not a claim limitation. The Federal Circuit disagreed. When viewed in the context of the entire patent, it was apparent that the term described the principal intended use of the invention, and was not meant to import a structural limitation or fundamental required characteristic of any part of the claims. The court explained that the location of the system was not an essential feature of the invention. Contrary to Holland’s assertion, the system described in the claim body and in the specification was structurally complete without the disclosure of how the technology moved over the tracks. To hold otherwise would put "the caboose before the locomotive," the court said. A structural limitation also could not imposed by ambiguous statements made during prosecution that did not distinguish prior art based on the vehicle mounting feature.

Infringement. Holland argued that it could not have infringed because it did not "use" or "offer to sell" the purported infringing technology. The Federal Circuit, however, found that Holland had "used" the infringing system. Holland collected and gathered data by its system platform on the front-end and then sent the gathered information on the back-end to a third-party European company with instructions to process and analyze the information. A reasonable jury could find that Holland had ultimate control of, and derived benefit from, use of the infringing system, the court said.

Lost profits damages. The jury awarded Georgetown $1,541,333 in profits that it would have made but for Holland’s infringement of the ’329 patent. The damages were based on lost services to potential customer Union Pacific Railroad. Georgetown chose to calculate damages based on the lost profits model under the four-factor Panduit test: (1) the demand for the patented product; (2) the absence of acceptable noninfringing substitutes; (3) the manufacturing and marketing capability to exploit the demand; and (4) the amount of profit that would have been made.

Holland maintained that substantial evidence did not support Panduit factors one and four. The Federal Circuit disagreed. Regarding factor one, Georgetown was not required to show that Union Pacific demanded its technology, but only that demand existed in the marketplace for the patented product, the court explained. Georgetown submitted evidence that its Aurora System had generated millions in revenue and was contracted out to four U.S. railroad companies in long-term contracts, exhibiting strong evidence of demand.

As to factor four, contrary to Holland’s assertion, Georgetown submitted adequate evidence to show its lost profits. Georgetown presented evidence that the market for its laser-based track inspection services was a two-supplier market and Georgetown’s expert made reasonable assumptions supported by historical record and using comparable contracts already entered into between Georgetown and the other four railway companies. The evidence was adequate to support the jury’s verdict.

Willfulness and enhanced damages. The district court determined that the jury’s finding of willful infringement was supported by the evidence and that "the totality of the circumstances" warranted an award of enhanced damages based, in part, on the fact that "Holland continued to rely on arguments through trial that were substantially weak and rejected time and again." The Federal Circuit, determined that there was substantial evidence in the record to support the jury’s willfulness finding. The record did not show that the district court abused its discretion by awarding enhanced damages. The district court considered the jury’s findings, conducted an analysis of all relevant factors, and chose to award $1 million in enhanced damages, significantly less than the maximum award of $4.5 million.

The district court’s final judgment was affirmed.

The case is No. 2016-2297.

Attorneys: Dana M. Herberholz (Parsons Behle & Latimer) for Georgetown Rail Equipment Company. Daniel J. Schwartz (Faegre Baker Daniels LLP) for Holland, L.P.

Companies: Georgetown Rail Equipment Company; Holland, L.P.

MainStory: TopStory Patent FedCirNews

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