Infringement and royalty rate affirmed; dismissal of willful infringement claim reversedSeptember 6, 2007

In a recent decision, the Federal Circuit affirmed-in part a district court's grant of summary judgment of infringement of a patent, finding that the claims were properly held to include measuring devices that either directly or indirectly compare two signals to determine the proper measurement. The court reversed-in part the district court's damages award. The district court properly determined the reasonable royalty rate, but improperly included sales from a company with no corporate relationship to the defendant in the royalty base. Additionally, the Federal Circuit reversed the district court's dismissal of the plaintiffs' willful infringement claim, finding the dismissal for failure to prosecute improper, as the district court's grounds for the dismissal was just that the plaintiff did not move for summary judgment on the issue. Finally, the court affirmed the dismissal of a licensee of the patent as a party, as it did not have standing.More details of Mitutoyo Corp. v. Cent. Purchasing, L.L.C. after the jump.Plaintiff Mitutoyo alleged defendant Central Purchasing infringed U.S. Patent No. 4,743,902, both literally and willfully, by selling competing digital calipers. Validity was not at issue, as the parties had litigated this patent previously, with the issue decided in favor of the plaintiff. Accordingly, Central Purchasing was barred by res judicata from raising the issue of validity in this litigation.

The infringement dispute revolved around whether Central Purchasing's device met the "phase position identification" limitation of the '902 patent. The construction of "phase position" was stipulated to by the parties during the district court litigation as "The amount by which the received signal is displaced or shifted in time relative to a supply electrode signal. This is commonly referred to as 'phase angle' in the art."Central Purchasing argued that it did not infringe the '902 patent on the basis that the signal which the receiving electrode in its devices records is a sinusoidal wave versus the signal generated by supply electrode, which is a square wave. Because, Central Purchasing argued, the sinusoidal and square waves cannot be directly compared so as to determine the phase angle between them, the accused devices do not contain the "phase position identification" limitation. The district court disagreed, and found that using an indirect comparison did not take the device outside the claims. As a result, the district court found that Central Purchasing's calipers infringed the '902 patent. However, the district court dismissed Plaintiffs' willful infringement claim on the basis that Plaintiffs had insufficiently pled and failed to properly prosecute the willfulness claim, insofar as it did not move for summary judgment on the issue.With respect to damages, the district court found that Plaintiffs were not entitled lost profits, but did award damages based on a reasonable royalty. In calculating the royalty base, the district court used both Central Purchasing's sales of the accused calipers as well as the sales of another independent corporate entity, HFTUSA. The Federal Circuit agreed with the district court on infringement. As stated by the court, "[n]either the stipulated claim construction nor the language of claim 1 require calculation of the phase angle by direct comparison of the supply signal and the received signal. Instead, they merely require the phase angle to be calculated based on some comparison of those two signals, even an indirect one." Based on Central Purchasing's admission that its accused devices determine the phase angle "by using a reference signal generated by the same clock as the supply signal, which does not undergo any phase shifting, and comparing the reference signal to the received signal," the Federal Circuit affirmed the district court's finding of infringement. The Federal Circuit reversed the district court's dismissal of Plaintiffs' willful infringement claim. The court noted that because the grounds of dismissal were procedural, not pertaining to patent law, they are reviewed under regional circuit law, here the Seventh Circuit. Applying this law, the court noted that the information contained in Plaintiffs' complaint was "plainly more than sufficient to meet the requirements of Rule 8(a)(2) for pleading a willful infringement claim and avoid dismissal under Rule 12(b)(6)." The court also ruled that the district court abused its discretion in dismissing the willful infringement claim under Rule 41(b) for failure to prosecute. The court noted that the district court's reliance on the fact that Plaintiffs failed to move for summary judgment of willfulness was improper since summary judgment is only appropriate where there is no genuine issue of material fact. Accordingly, it was more likely that the Plaintiffs' failure to move for summary judgment was an indication that it believed there were issues of material fact, not that it intended to abandon its willful infringement claim. Further, the Plaintiffs had kept the district court appraised of its willfulness claim throughout the litigation, including in the parties' joint pretrial order. The Federal Circuit thus reversed the district court's dismissal of Plaintiffs' willful infringement claim, reinstated the claim, and remanded in order for the district court to hold a trial on the issue.Turning to damages, the Federal Circuit initially stated that it reviews the district court's royalty determinations "for erroneous conclusions of law, clearly erroneous factual findings, and clear errors of judgment amounting to an abuse of discretion." The court noted that based on Central Purchasing's admission that its anticipated profit margin was 70%, that Mitutoyo's profit margin was 29.2%, and the contentious history between the parties, the 29.2% royalty rate used by the district court was not an abuse of discretion. However, with respect to the royalty base, the Federal Circuit held the district court committed clear error by including sales of an independent corporate entity. The court stated that "[h]ere, there is no corporate relationship between Central and HFTUSA, and there are no courses of dealing or other evidence to suggest that Central would have agreed to pay royalties based on both its sales and HFTUSA's sales." The Federal Circuit thus reversed the district court's damages award "insofar as it includes HFTUSA's sales in the royalty base" and remanded for a proper accounting of the royalty base.Finally, there was an issue with regard to an additional plaintiff's standing. One of Mitutoyo's licensees, Mitutoyo America Co. (MAC), was originally party to the suit. MAC is the exclusive distributor of Mitutoyo's products in the United States. The district court held that this was insufficient to confer standing, as it was undisputed that other parties had permission to sell products embodying the patent as well. The Federal Circuit affirmed. Because MAC did not have the exclusive right to sell any products made according to the patent in the United States (which is the pertinent question for licensee standing), but only the exclusive right to sell Mitutoyo products embodying the patent in the United States, MAC was properly dismissed for lack of standing.To read the full decision in Mititoyo Corp. v. Cent. Purchasing, LLC, click here.

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