IP Law Daily Verdict that captioned phone system was nonobvious reinstated; $5.4M damages award upheld
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Friday, May 18, 2018

Verdict that captioned phone system was nonobvious reinstated; $5.4M damages award upheld

By Thomas Long, J.D

A jury’s verdict that a patent for a method of providing captioned telephone calls was not invalid and should not have been tossed by a district court, the U.S. Court of Appeals for the Federal Circuit has held. The appellate court reversed the district court’s judgment as a matter of law that the asserted patent claims were invalid as obvious because substantial evidence supported the jury’s factual finding that competitors of the patent owner failed to demonstrate by clear and convincing evidence that a skilled person would have had the motivation to combine prior art references to achieve the patented invention. The appellate court affirmed, however, the district court’s determination that infringement of the patent by the competitors was not willful, as a matter of law, because the patent owner waived its right to appeal this issue by failing to raise it in the district court. The court also denied the defendant’s request for judgment as a matter of law or a new trial on damages, letting stand the jury’s award of a royalty payment of over $5.4 million (Ultratec, Inc. v. Sorenson Communications, Inc., May 18, 2018, Prost, S.).

Patent-in-suit. Plaintiffs Ultratec, Inc. and CapTel, Inc. (collectively, "Ultratec") created technologies to help deaf and hearing-impaired people use the public telephone system, in particular telephone relay service (TRS) systems. Ultratec owned U.S. Patent No. 7,660,398 ("the ‘398 patent"), titled "Captioned Telephone Service," which it licensed it to its sister company, CapTel. Defendants Sorenson Communications, Inc. and CaptionCall, LLC (collectively, "Sorenson") also developed and provided TRS Systems. TRS systems involved connecting a hearing-impaired user to a "relay," typically a call center at which a call assistant transcribed speech into text so that the assisted user could read the words of the other caller.

The ’398 patent claimed a method of providing captioned telephone calls using a two-line captioned telephone device. The captioned telephone device connected by one telephone line to the remote user, and by a second telephone line to a relay, where a call assistant listened to the call and provided captioning of the remote user’s speech. The claimed method required the use of a signal processing technique called "echo cancellation" to cancel the voice of the assisted user. With the voice of the assisted user cancelled from the conversation as heard at the relay, the call assistant heard only the voice of the remote user.

Infringement trial. Ultratec asserted before the district court that Sorenson infringed the ’398 patent by providing captioned telephone services using its devices. Sorenson contended that the ’398 patent was invalid for obviousness. After the validity phase of an eight-day trial, the jury returned a general verdict rejecting the obviousness defense. Prior to starting the damages phase of the trial, the district court determined that Sorenson was entitled to judgment as a matter of law on the issue of willful infringement because Ultratec could not meet the objective prong of the Seagate willfulness test. The jury awarded a total running royalty payment of approximately $5,443,485.

Sorenson filed renewed motions for judgment as a matter of law with regard to obviousness and damages. The district court granted Sorenson’s motion for judgment as a matter of law that the three asserted claims of the ’398 patent were invalid as obvious. The district court upheld the damages verdict.

Obviousness. The Federal Circuit noted that Sorenson had the burden of overcoming the presumption of validity of the ’398 patent by clear and convincing evidence. The question of whether there was a reason to combine prior art references was a question of fact, the court also noted. By finding the patent claims nonobvious, the jury presumably found that Sorenson failed to demonstrate by clear and convincing evidence that a person of ordinary skill in the art would have been motivated to combine the prior art teachings to achieve the claimed invention. This presumed finding must be left undisturbed if it was supported by substantial evidence, the court explained.

The parties agreed that the independent claim at issue (from which the other two claims depended) essentially disclosed a two-line captioned telephone that used echo cancellation to prevent the voice of the assisted user from reaching the call assistant. The parties focused on two prior art references: U.S. Patent Application No. US 2002/0085685 ("the ’685 publication") and the CapTel Trials. There was no dispute that the ’685 publication disclosed the two-line arrangement and the CapTel Trials disclosed a one-line arrangement that used echo cancellation on the voice of the assisted user. The disputed issue was whether a person of ordinary skill in the art would have been motivated to use an echo canceller, which had been used in one-line captioned telephone systems, to prevent the voice of the assisted user from reaching the call assistant in a two-line arrangement.

In the court’s view, substantial evidence supported the jury’s finding that Sorenson failed to demonstrate motivation to combine by clear and convincing evidence. For example, the jury heard evidence that, while the environment of the one-line CapTel was "well controlled," the two-line environment had a great deal more variability, so engineers for a number of years did not consider using echo cancellation in a two-line device, but attempted to develop other methods instead. There was no reason to use echo cancellation in a two-line system other than to cancel the assisted user’s voice. According to the Federal Circuit, no reasonable jury could have found a motivation to combine these elements. Therefore, the jury’s finding should have been left undisturbed, and the district court erred by failing to defer to the jury’s factual findings and granting judgment as a matter of law on obviousness. That judgment was reversed, and the jury’s verdict was reinstated.

Willfulness. Ultratec asked the appellate court to vacate the district court’s judgment of no willful infringement, in light of the Supreme Court’s holding in Halo Electronics, Inc. v. Pulse Electronics., Inc., 136 S. Ct. 1923 (2016). In assessing the issue of willful infringement, the district court had applied the two-part test set forth by In re Seagate Tech., LLC, 497 F.3d 1360 (Fed. Cir. 2007). The district court granted Sorenson’s motion based on Seagate’s objective prong, which required a patentee to "show by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent." In Halo, the Supreme Court overturned the two-part Seagate test and rejected Seagate’s requirement of "a finding of objective recklessness in every case."

Sorenson argued—and the Federal Circuit agreed—that Ultratec waived its right to appeal this issue by failing to raise it in the district court. When there is a relevant change in the law before entry of final judgment, a party generally must notify the district court. Failure to do so constitutes waiver of arguments on appeal that are based on that change in law. Ultratec failed to notify the district court about the change in the willfulness test set forth in Halo despite the fact that Halo was issued over three months before the district court resolved the parties’ post-trial motions and entered final judgment. Accordingly, the Federal Circuit concluded that Ultratec waived the issue, and it affirmed the district court’s judgment as a matter of law that Sorenson’s infringement was not willful.

Damages. Sorenson cross-appealed the district court’s denial of its motion for judgment as matter of law or for a new trial on damages. The appellate court reviewed the jury’s determination of the amount of damages—an issue of fact—for substantial evidence. The primary issue with respect to arriving at a royalty figure was the jury’s finding of the total number of infringing minutes in calls made using the accused systems. In the Federal Circuit’s view, evidence supported the jury’s finding that the majority of Sorenson’s calls infringed. The jury heard evidence that Sorenson designed and built its phones to have no audible words from the assisted user at the relay and, thus, to practice the infringing methods. In addition, Ultratec’s expert witness presented direct evidence that the vast majority of Sorenson’s captioned telephone calls he analyzed infringed the asserted claims. Therefore, the district court’s denial of Sorenson’s motion was affirmed.

The case is No. 2017-1161 and 2017-1225.

Attorneys: Kristin Graham Noel (Quarles & Brady LLP) for Ultratec, Inc. and CapTel, Inc. Pratik A. Shah (Akin, Gump, Strauss, Hauer & Feld, LLP) for Sorenson Communications, Inc. and CaptionCall, LLC.

Companies: Ultratec, Inc.; CapTel, Inc.; Sorenson Communications, Inc.; CaptionCall, LLC

MainStory: TopStory Patent FedCirNews

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