United States: Willfulness Can Be Predicated On Brief Between Declaratory Judgment Filing And Counterclaim

In a complex 42-page decision, the US Court of Appeals for the Federal Circuit addressed issues of assignor estoppel, claim indefiniteness, subject matter eligibility, claim preclusion, willfulness and lost profits damages (apportionment). Mentor Graphics Corp. v. EVE USA, Inc., Case Nos. 15-1470; -1554; -1556 (Moore, J). 

Synopsys purchased EVE, a company founded by the inventors of Mentor's patents on debugging software. EVE had previously acquired a license to the Mentor patents through a settlement of litigation between EVE and Mentor. Mentor informed Synopsys that EVE's license to the patents would terminate upon the purchase. Upon closing the purchase of EVE, Synopsys filed for a declaratory judgment for non-infringement and invalidity of Mentor's patents and infringement of Synopsys's patents by Mentor. Mentor counterclaimed for infringement of the previously licensed patent.

The district court found that Synopsys's validity challenge was barred by assignor estoppel, and it also barred Mentor from introducing evidence of willfulness. Only the Mentor patent made it to trial. The case was tried by a jury, and Mentor was awarded $36 million in damages. Synopsys appealed the district court's assignor estoppel rulings and the damages award. Mentor cross-appealed on the district court's willfulness ruling.

Infringement

The Mentor patent is directed to the use of test probes to track program results to indicate program statements for debugging. Synopsys argued that its system did not infringe because it indicated a programming region instead of a specific line. But the Court found that Mentor's expert had provided sufficient evidence for the jury to conclude that individual line statements could be located from the information that Synopsys's system provided.

Assignor Estoppel

Assignor estoppel is a judge-made rule that prohibits an assignor from later challenging the validity of the patent he or she assigned. The doctrine applied here because the inventors (founders of EVE) assigned the patent to Mentor. Synopsis asked the Federal Circuit to eliminate the doctrine based on the Supreme Court of the United States' decision in Lear v. Adkins (1969). The Federal Circuit declined the invitation, citing its own post-Lear precedent, including its 2016 decision in MAG Aerospace Industries ( IP Update, Vol. 19, No. 4). 

Damages

Synopsys challenged the jury's damages verdict for Mentor's lost profits because it had not been apportioned, but the Federal Circuit explained that Synopsys did not deny that the evidence supported the Panduit factors for lost profits, that Synopsys was the only alternative product on the market, or that customers would not have purchased Synopsys's product but for the infringing features. However, the Court found that the Panduit factors tied lost profit damages to the specific claim limitations and thereby incorporated apportionment in its analysis and insured that damages match the value of the patented features. Here, the evidence probative of the Panduit factors also demonstrated the need to apply principles of apportionment.

Synopsys argued that if apportionment for just the infringing features was used, multiple patentees could sue on the same product for full lost profits. The Federal Circuit disagreed, noting that there were no alternative products, so only Mentor could have sold a product with all of the features the customer wanted, and therefore no other patentee could meet all the Panduit factors.

Validity (Indefiniteness and Written Description)

The district court ruled that one of Mentor's patents was invalid for indefiniteness and lacked written description support for a claimed "signal routing clock." The Federal Circuit reversed, concluding that the written description demonstrated that the inventors were "in possession" of the claimed invention. 

Regarding indefiniteness, the Court concluded that the term "near" did not render a claim of one of Synopsys's patents indefinite under the standard announced by the Supreme Court in Nautilus (2014) ( IP Update, Vol. 17, No. 6). The patent required that results of circuit analysis be displayed near the corresponding Hardware Description Language. The Court found that, based on the figures in the patent, a skilled artisan would understand "near" to require that the information be displayed close enough to physically associate the two, and that other incongruous examples in the patent represented embodiments other than those claimed. 

The district court also concluded that the claimed independent clocking mechanisms lacked sufficient written description because the specification suggested that two clocking systems were related. However, the original patent claim language claimed independent clocking systems, which the Federal Circuit concluded taught that the patentee was in possession of the claimed feature at the time of filing. 

Patent-Eligible Subject Matter

The Federal Circuit affirmed the district court's summary judgment ruling that the Synopsys patent was not directed to patent-eligible subject matter, explaining that the patent claimed a "machine readable medium," which the specification defined to include carrier waves. Carrier waves are unpatentable transitory propagating signals in accordance with In re Nuijten ( IP Update, Vol. 10, No. 10). Although the definition of "machine readable medium" also included other patentable embodiments, the inclusion of carrier waves rendered the entire phrase and claim unpatentable.

Willfulness

The Federal Circuit vacated the district court's order preventing Mentor from providing evidence of Synopsys's willfulness because of two errors. First, the district court erred by finding that Mentor only claimed post-suit willfulness because it used the date of Synopsys's filing rather than Mentor's counterclaims. As the Court noted, Synopsys began its infringement after it filed for declaratory judgment but before Mentor filed its counterclaims of infringement. Therefore, the claimed willfulness did not rely exclusively on post-suit conduct. Second, not seeking a preliminary injunction did not exclude Mentor's later claim of willfulness. The Court noted that there is no rigid rule and a patentee must seek a preliminary injunction to later seek enhanced damages.

Claim Preclusion

The Federal Circuit also found that the district court had erred by finding that Mentor was precluded from litigating the same claims as those previously litigated against the EVE license that was now owned by Synopsys. The Court explained that Mentor was now litigating acts of infringement that occurred after the expiration of the EVE license and could not have been litigated at the time of its case against EVE. This cause of action did not exist at the time of the previous litigation and therefore was not precluded. The Court further noted that Synopsys had voluntarily ended the EVE license by purchasing EVE and it should not be able to use a terminated license as a shield against further infringement liability. 

Willfulness Can Be Predicated On Brief Between Declaratory Judgment Filing And Counterclaim

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