Presidio v American Technical Ceramics

PRESIDIO COMPONENTS, INC. v. AMERICAN TECHNICAL CERAMICS CORP.

2016-2607, 2016-2650

Presidio filed suit against American Technical Ceramics Corp. (“ATC”) for patent infringement. The Federal Circuit affirmed the district court’s holdings that the claims of the patent are not indefinite and that ATC is entitled to absolute intervening rights because a substantive amendment was made during reexamination. The Federal Circuit reversed the award of lost profits and remanded for determination of a reasonable royalty, while concluding that the district court did not abuse its discretion in declining to award enhanced damages. The Federal Circuit vacated the district court’s issuance of permanent injunction.

The claims of the reexamined patent-in-suit cover multilayer capacitors. During reexamination, Claim 1 was amended to require fringe-effect capacitance between external contacts that is “capable of being determined by measurement in terms of a standard unit.” The Court found that “the patent discloses a method of measuring capacitance called insertion loss testing.” However, the Court also stated that “it was not well known as a method to measure the comparative contributions from different capacitances within the multilayer capacitor. Nor does the patent specification describe how to apply the insertion loss method to determine the portion of the overall capacitance that is attributable to the fringe-effect capacitance.”

The Court found that claims of the reexamined patent were enabled, applying Nautilus, Inc v. Biosig Instruments, Inc., 134 S. Ct. 2120 (2014), and stating that a “patent need not explicitly include information that is already well known in the art.” The Court was satisfied that a person of skill in the art would know how to utilize a standard measurement method, such as insertion loss, to make the necessary measurement, based upon Presidio’s expert’s testimony. The Court rejected ATC’s argument that the expert developed a new test methodology rather than using an established test methodology or one for which the patent provided necessary guidance. The Court made this finding in spite of the fact that the “specific steps performed by Dr. Huebner had not been published in any industry publications or peer-reviewed articles.”

Presidio argued that intervening rights did not apply since the amendment in reexamination was made “to incorporate and make explicit the interpretation of the independent claims that was established in litigation.” The original and amended claims were therefore substantially identical as the statute required. The Court disagreed, stating that “the patentee’s intent in making the amendment is not determinative or controlling in determining claim scope.”

“To determine whether an amended claim is narrower in scope, ‘we determine whether there is any product or process that would infringe the original claim, but not infringe the amended claim.’ R+L Carriers, 801 F.3d at 1350.” At trial, Presidio’s expert testified that ATC’s products infringed using a purely theoretical calculation of fringe-effect capacitance, rather than measuring capacitance with actual instruments. During reexamination, the examiner rejected the original claims in light of a prior art reference teaching applying the same theoretical calculation method that Presidio’s expert used. Presidio amended the claims to overcome this rejection, adding the words “by measurement,” and explaining that the prior art disclosed only an arrangement where fringe-effect capacitance could be determined “by way of theoretical computations” and not actual measurement. The Court found the amendment to be “a substantive change in claim scope,” affirming the district court’s grant of the affirmative defense of intervening rights.

“To recover lost profits, the patentee bears the burden of proof to show a ‘reasonable probability that, ‘but for’ infringement, it would have made the sales that were made by the infringer.’ Crystal Seminconductor Corp. v. TriTech Microelecs. Int’l, Inc., 246 F.3d 1336, 1353 (Fed. Cir. 2001).” With regard to “but for” causation, the Court applied the four factor Panduit test. The issue was “the second prong of Panduit analysis — the absence of an acceptable, non-infringing alternative.” “The correct inquiry under Panduit is whether a non-infringing alternative would be acceptable compared to the patent owner’s product, not whether it is a substitute for the infringing product.”

The four-factor Panduit test requires the patentee to show:

(1) demand for the patented product;
(2) an absence of acceptable, noninfringing substitutes;
(3) manufacturing and marketing capability to exploit the demand; and
(4) the amount of profit that would have been made.

The Court held that the district court erred by relying on evidence about sales of another ATC capacitor model in competition with the currently infringing product, rather than comparing the other ATC capacitor to Presidio’s capacitor in a hypothetical market without the infringing capacitor. There was insufficient evidence in the record for a jury to conclude that the other ATC capacitor was not an acceptable, non-infringing alternative for Presidio’s capacitors. Presidio’s arguments that the other ATC capacitor was unavailable to the market because it was not widely advertised and that sales were to a single customer did not persuade the Court.

Despite the jury’s finding of willfulness, the district court declined to award enhanced damages. “Enhanced damages are generally only appropriate in egregious cases of misconduct, such as willful, wanton, or malicious behavior.” Halo Elecs., Inc. v. Pulse Elecs., Inc., 136 S. Ct. 1923 (2016). “Discretion remains with the court to determine whether the conduct is sufficiently egregious to warrant enhanced damages,” while considering “the overall circumstances of the case.”

The district court “appropriately analyzed ATC’s culpability only during the period beginning when the reexamination certificate issued.” At that point, ATC and Presidio were involved in litigation, and ATC had been selling the accused capacitors for almost six years without a finding of infringement. After ATC received the district court’s claim construction order, it developed defense theories and succeeded in causing Presidio to narrow the scope of its claims during reexamination proceedings. The district court noted that ATC’s invalidity defense at trial was not meritless even though the jury rejected it. The district court concluded that the case was a “garden-variety,” hard-fought patent case, not an egregious case of misconduct. The Court found that the district court had not abused its discretion.

The Court applied the four factor test of eBay Inc. v. MercExchange, LLC, 547 U.S. 388 (2006) in reviewing the lower court’s grant of a permanent injunction. The element of irreparable injury may be based on lost sales, but due to the reversal of the lost profits award, the injunction was vacated and the issue remanded. The Court noted that the “district court has discretion to determine whether other evidence could support a finding of irreparable injury,” while pointing out that due to the injunction the “district court should consider” whether consumers have turned to non-infringing alternatives to the Presidio capacitor after the ATC capacitors became unavailable or whether Presidio’s sales of its capacitor have increased because the ATC series is no longer on the market.

Read more: Federal Bar member attorneys may access the full case summary by registered patent attorney B.C. “Bill” Killough in the December 2017 issue of Federal Circuit Case Digest.

B.C. Killough is a registered patent attorney based in Charleston, SC. On behalf of his clients, Bill has obtained more than 300 United States patents, participated in prosecuting more than 100 foreign patent applications and he has filed more than 1000 trademark applications with the US Patent and Trademark Offices.

Additionally, you may read the full opinion here.