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Infringement finding and denial of permanent injunction in favor of ongoing royalty affirmed

October 18, 2007
Post by Blog Staff

In a decision today, the Federal Circuit affirmed a jury verdict finding infringement under the doctrine of equivalents of a patent relating to hybrid engines used in motor vehicles. The court also affirmed the district court's denial of a permanent injunction and its award of an ongoing royalty on infringing vehicles, rejecting the argument that the "compulsory license" would prevent the patent holder from granting an exclusive license to practice the infringed patent. The court did vacate the amount of the royalty on future sales of infringing vehicles, as the district court did not provide the basis for the royalty amount, but rejected the patent holder's contention that it was entitled, under the Seventh Amendment, to have a jury decide the amount of the royalty.More detail of Paice LLC v. Toyota Motor Corp. after the jump.

The three patents at issue in the case (the '970, '672, and '088 patents) relate to drive trains for hybrid electric vehicles. In hybrid vehicles, the wheels are driven using torque supplied by an internal combustion engine (ICE), an electric motor, or a combination of the two. These features add a layer of complexity to hybrid vehicles versus conventional automobiles as the relative torque contributions of the ICE and the electric motor must be combined and controlled. To this end, the drive train disclosed in the '970 patent employs a microprocessor and a controllable torque transfer unit (CTTU) that accepts torque input from both the ICE and the electric motor.

The drive train of the '672 and '088 patents differs from that of the '970 patent in that it employs a clutch, rather than a CTTU, to combine the torque contributions from the ICE and the electric motor.

At issue in the appeal were hybrid vehicles sold by Toyota. Paice initiated a patent infringement action against Toyota on June 8, 2004 in the Eastern District of Texas alleging three counts of infringement, one for each of the '970, '672, and '088 patents, and requesting compensatory damages and a permanent injunction. Paice's theory of the case, put before the jury largely through the testimony of its expert Dr. Steven Nichols, was that the planetary gear unit, the chain/sprocket arrangement, and the shaft leading to the counter drive gear of Toyota's drive train satisfied the CTTU limitation of the '970 patent. The jury concluded that while Toyota's drive train lacked a literal CTTU, it infringed claims 11 and 39 of the '970 patent under the doctrine of equivalents. The jury found no infringement of the other asserted claims. Based on these findings, the jury awarded $4,269,950 to Paice as a reasonable royalty. The court also imposed an "ongoing royalty" of $25 per Prius II, Toyota Highlander, or Lexus RX400h sold by Toyota during the remaining life of the '970 patent.

The district court denied both parties' motions for a JMOL on the issue of infringement. Paice's motion was based on the jury's finding of no literal infringement of the claims of its other patents. Paice also moved for a permanent injunction to prevent Toyota from making, using, or offering for sale, and selling within the U.S. the accused vehicles, which the court denied. The parties both appealed the respective denials of their JMOL motions, and Paice further appealed the "ongoing royalty" imposed by the district court and the denial of the injunction.

The Federal Circuit first addressed Toyota's appeal of the district court's denial of its JMOL motion for noninfringement of claims 11 and 39 of the '970 patent under the doctrine of equivalents. Toyota asserted that the testimony of Dr. Nichols with respect to infringement under the doctrine of equivalents did not provide "particularized testimony and linking argument" with respect to the function, way, result test, and that Dr. Nichols generalized testimony as to the overall similarity between the claims and Toyota's accused product was insufficiently specific. The court disagreed, finding that the expert's testimony was not limited to the issue of literal infringement, and that the court's "particularized" standard did not require Dr. Nichols to "re-start his testimony at square one when transitioning to a doctrine of equivalents analysis." Toyota further argued that Dr. Nichols "fail[ed] to acknowledge any differences between the CTTU claim limitation and any component or components alleged to be equivalent." The court dismissed this argument, noting that no such "acknowledgement" requirement existed in the context of the function/way/result test.

The second reason Toyota contended that the jury's equivalence verdict should not stand because of Paice's criticism of two patents assigned to TRW, Inc.. The written description of the '970 patent pointed to certain disadvantages of the TRW design compared to the invention of the '970 patent. Toyota characterized this as a "disavowal" of the TRW patents, upon which Toyota argued was what its drive trains were allegedly based, and therefore could not be captured by Paice's invocation of the doctrine of equivalents. Here, the court distinguished its prior holdings in disavowal cases as the Toyota drive trains differentiated from the TRW design in the same manner as described by Paice in the written description of the '970 patent, namely by the replacement of a human operator with a microprocessor. Toyota further attempted to argue that certain extrinsic evidence consisting in part of a business plan and handwritten notes by Paice further gave rise to a disavowal of subject matter. The court refused to address the issue of whether extrinsic evidence may give rise to a disavowal of subject matter, and simply rejected Toyota's contention that Paice's statements equating the TRW design to Toyota's design amounted to a complete disavowal of the accused transaxle units.

Toyota's final basis for overturning the infringement finding was an alleged admission made by Paice's attorney during his opening statement, whereby he stated that Toyota could "cut off damages tomorrow" by "going back to the Prius I." Toyota asserted that this statement was a binding judicial admission by Paice that the Prius I did not infringe any of the patents in suit. While the district court agreed with Toyota that this was an admission that the Prius I did not infringe, it ultimately concluded that there was sufficient evidence underlying the jury's verdict and "that verdict should not be overturned based on the conclusory admission by Plaintiff's counsel." The Federal Circuit determined that the district court acted well within the confines of its discretion with its ruling.

In addressing Paice's cross-appeal of the district court's denial of its motion for JMOL of no literal infringement of its other claims, the court held that the district court did not err in denying Paice's motion, finding that the jury had substantial evidence upon which to base its finding of no literal infringement of claim 15 of the '672 patent or claims 1 and 2 of the '088 patent.

The more hotly contested issue was Paice's appeal of the district court's ongoing-royalty order, which all


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