United States: Exclusion Of Patentee's Damages Evidence Is Insufficient To Justify SJ Of No Damages

In Info-Hold, Inc. v. Muzak LLC, No. 14-1167 (Fed. Cir. Apr. 24, 2015), the Federal Circuit reversed the grant of SJ of no damages for infringement, vacated the grant of SJ of no induced infringement, and affirmed the district court's construction of the sole claim term in dispute.

Info-Hold, Inc. ("Info-Hold") is the owner of U.S. Patent No. 5,991,374 ("the '374 patent"), which is directed to systems, apparatuses, and methods for playing music and messages through telephones and public speaker systems. During ex parte reexamination of the '374 patent, Info-Hold amended several independent claims by adding the term "when a caller is placed on hold" to overcome prior art. Prior to the suit at the district court, Info-Hold contacted Muzak LLC ("Muzak") on at least two occasions regarding the possibility that Muzak's products infringe the '374 patent.

Following claim construction, the district court granted Muzak's motion for SJ of no induced infringement. The district court also held that Info-Hold was not entitled to either lost profits or reasonable royalty damages due to a lack of damages evidence. Info-Hold appealed (1) the entry of SJ of no reasonable royalty damages, (2) the construction of the claim term "when a caller is placed on hold," and (3) the grant of SJ of no induced infringement.

"[A] patentee's failure to show that its royalty estimate is correct is insufficient grounds for awarding a royalty of zero. By extension, the exclusion of the patentee's damages evidence is not sufficient to justify granting summary judgment." Slip op. at 11 (citing Apple Inc. v. Motorola, Inc., 757 F.3d 1286, 1328 (Fed. Cir. 2014)).

First, the Federal Circuit affirmed the district court's exclusion of Info-Hold's expert report on damages, noting that Info-Hold did not appeal the district court's finding that "Info-Hold's reliance on the entire market value rule, without presenting evidence that the patented features drove customer demand, was 'improper' and itself sufficient to strike [the report]." Slip op. at 10 (citation omitted). The Court further noted that the expert's analysis was deficient due to his reliance on the 25-percent rule, which the Court "discredited as 'fundamentally flawed' in Uniloc." Id. at 10-11 (quoting Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292, 1315 (Fed. Cir. 2011)).

Relying on the analysis in Apple Inc. v. Motorola, Inc., 757 F.3d 1286, 1328 (Fed. Cir. 2014), the Court explained that the district court should consider other record evidence that could be used as a basis for determining a reasonable royalty after the exclusion of the expert report. Extending the reasoning in Apple that "a patentee's failure to show that its royalty estimate is correct is insufficient grounds for awarding a royalty of zero," the Court noted that "the exclusion of the patentee's damages evidence is not sufficient to justify granting summary judgment." Slip op. at 11. The Court reasoned that "35 U.S.C. § 284 requires the district court to award damages 'in an amount no less than a reasonable royalty' even if the plaintiff[] has no evidence to proffer." Id. at 11-12 (quoting Dow Chem. Co. v. Mee Indus., Inc., 341 F.3d 1370, 1381 (Fed. Cir. 2003)). The Court thus reversed the district court's grant of SJ of zero damages and remanded for further proceedings.

Second, the Court vacated the district court's grant of SJ of no induced infringement, holding that "the record raises the issue of whether Muzak willfully blinded itself to whether it acted to induce infringement after becoming aware of the existence and alleged functionality of the '374 patent." Id. at 14. The Court explained that "[w]illful blindness is a high standard, requiring that the alleged inducer (1) subjectively believe that there is a high probability that a fact exists and (2) take deliberate actions to avoid learning of that fact." Id. at 13 (citing Global-Tech Appliances, Inc. v. SEB S.A., 131 S. Ct. 2060, 2070 (2011)). The Court noted that Info-Hold repeatedly contacted Muzak in an effort to put Muzak on notice of the '374 patent and Muzak's patent infringement. Specifically, the Court pointed out that in one conversation with Info-Hold's counsel, Muzak's counsel admitted that Muzak had "a system where there was probably some control of the music," and stated he would "look again at [Info-Hold's] patent," but there was no evidence that Muzak did so. Id. at 13-14 (alteration in original) (citation omitted). The Court thus held that the record raised issues of material fact as to whether Muzak may have subjectively believed there was a high probability it infringed the '374 patent and took deliberate actions to avoid learning whether it actually did.

Third, the Federal Circuit affirmed the district court's construction of the claim term "when a caller is placed on hold" to mean "at the moment the caller is placed on hold," as proposed by Muzak, rather than "during the period the caller was on hold," as proposed by Info-Hold. Id. at 16. The Court held that the construction is supported by both the claim language and the prosecution history. Specifically, the Court noted that in the claims, every instance of the words "on hold" is preceded by the word "placed," and that Info-Hold's arguments during reexamination further supported the district court's construction. Id. at 15-16.

Accordingly, the Federal Circuit reversed the grant of SJ that Info-Hold could not prove damages, vacated the grant of SJ that Muzak did not induce infringement, affirmed the district court's construction of "when a caller is placed on hold," and remanded the case for further proceedings.

Judges: Reyna (author), Wallach, Taranto

[Appealed from S.D. Ohio, Judge Black]

This article previously appeared in Last Month at the Federal Circuit, May, 2015.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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