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No damages for convoyed sales when no functional relationship between patented and unpatented goods

January 29, 2008
Post by Blog Staff

In a decision today, the Federal Circuit affirmed a district court's decision setting aside the portion of a jury verdict awarding convoyed sales to a patentee, and sustaining the portion of the verdict finding the alleged infringer had not shown invalidity via public use. There was no evidence of a functional relationship between the patented and unpatented goods, instead the two were sold together as a matter of "convenience or business advantage." As such, damages for convoyed sales were unavailable.

Regarding the alleged public use, the court held that the absence of a written confidentiality agreement did not mandate the conclusion that the pre-critical date uses were public. Instead, based on the circumstances, it was proper for the jury to imply an "understanding of confidentiality." The pre-critical date uses were for a select group of individuals and involved a series of evolving prototypes, permitting the jury to conclude that there was no invalidating public use.

American Seating is the owner of a patent relating to a wheelchair restraint system that complies with the Americans with Disabilities Act (ADA) for use in mass transit vehicles. The invention uses a combination of belts and moving arms to secure wheelchairs and held them in place while buses and trains are in motion. USSC manufactures wheelchair tie-down devices, the VPRo I and VPRo II.

American Seating sued USSC and others for infringement of the patent. The district court initially held that neither the VPRo I nor VPRo II literally infringes the '038 patent. American Seating appealed, and the Federal Circuit reserved the finding as to the VPRo I, affirmed as to the VPRo II, and remanded because of claim construction error to determine whether the VPRo I literally infringed and whether the VPRo II infringed under the doctrine of equivalents. On remand, the trial court granted summary judgment to American Seating on the claim that the VPRo I literally infringed the patent, and left for the jury the issues of public use and infringement by the VPRo II. The jury concluded that USSC failed to show that American Seating's tie-down restraint system was in public use before the critical date, and awarded American Seating damages totaling $2,326,129 in lost profits. Of this amount, $676,850 was attributable to sales of the VPRo I and VPRo II, and the remaining $1,649,279 was for collateral sales of "ordinary" passenger seats not related to the patent.

Following the jury verdict, USSC moved for judgment as a matter of law, a new trial, or remittitur. The district court granted USSC's motion in part, setting aside the portion of the verdict relating to convoyed sales, thereby reducing the overall award to $676,850. American Seating appealed, and USSC cross-appealed on the issue of public use.

On appeal, USSC contended that American Seating's patent was invalid based on prior public use. In order for an invention to be in public use, the use must be (1) accessible to the public; or (2) commercially exploited. An example of such a public use is when the invention is shown to a non-inventor under no limitation, restriction, or confidentiality obligation. The application that led to the patent was filed December 2, 1996, and later assigned their patent to American Seating to commercialize the product. As the inventors developed and improved the invention during 1994, on several occasions the inventors placed evolving prototypes in an out-of-service bus for the purpose of soliciting feedback from friends and colleagues who to varying degrees assisted in the invention's development.

There was no dispute in the record but that the inventors revealed the prototype to a group of individuals prior to the critical date without a written confidentiality agreement. The court did not find this to be dispositive, however noting that when access to an invention is clearly limited and controlled by the inventor, depending upon the relationships of the observers and the inventor, an understanding of confidentiality can be implied. Here, the court held the jury was entitled to conclude that the inventors and the limited number of people permitted to view the tie-down restraint system prototype shared a general understanding of confidentiality. The court therefore held that the district court properly confirmed the jury verdict that the patent was not invalid based on the alleged public use.

Turning to the damages award, the court further agreed with the district court's conclusions that American Seating failed as a matter of law to meet its burden of establishing a functional relationship between passenger seats and the patented restraint system necessary for an award of lost profits on convoyed sales, and that the jury properly awarded damages for lost profits on USSC's deliveries of the VPRo II predicated upon offers to sell the infringing VPRo I.

In reviewing the district court's grant of USSC's motion to set aside the verdict for convoyed sales of passenger seats and tie-down wheelchair restraint systems, the court noted that it is not sufficient to demonstrate patented and unpatented products are purchased as a package solely because of customer demand or convenience. Instead, a "convoyed sale" can only be established by demonstrating a relationship between the sale of a patented product and a functionally associated non-patented product. In this case, American Seating's evidence was insufficient as a matter of law to establish that the patented tie-down system and the unpatented passenger seats were part of a single functional unit. There as no mention of passenger seats in the claims, and there was no functional relationship between the passenger seats and the wheelchair tie-downs.

In order to receive damages for lost profits, the patentee must show a reasonable probability that it would have made the infringing sales but for the infringement. If such a showing is made, the infringer must then rebut the causation showing by proving the causation is unreasonable in the particular circumstances. In reviewing the trial court's granting of damages for lost profits on USSC's deliveries of the VPRo II, the court held that it was reasonable for the jury to conclude that American Seating met its initial burden of showing that "but for" USSC's infringement it would have made sales of the patented product for customers who were initially offered the VPRo I but were ultimately delivered the VPRo II, and that USSC failed to rebut this showing. In this regard, USSC did not prove that its customers specifically consented to receive the VPRo II rather than the VPRo I for the sales in question and/or that the buyers viewed the VPRo II as a substitute as equivalent to the patented device. In fact, there was evidence that at least some customers did not find the VPRo II to be an acceptable substitute for the VPRo I. As a result, the court affirmed the award of lost profits on sales where the customer was initially offered the VPRo I but ultimately sold the VPRo II.

To read the full decision in Am. Seating Co. v. USSC Group, Inc., click here.


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