Federal Circuit Finds Reduction of Compensatory Damages Requires New Trial By Jury and that Actual Notice of Infringement Can Occur With a Qualified Charge of Infringement

In Minks v. Polaris Industries, Inc., 546 F.3d 1364 (Fed. Cir. 2008), Floyd M. Minks (“Minks”) designs electronic components for all-terrain vehicles.  Minks holds U.S. Patent No. 4,664,080 (“the ‘080 patent”), which is drawn to an electric governor system for internal combustion engines which uses a circuit to limit the reverse speed of an all-terrain vehicle (“ATV”). When the ATV is shifted into reverse gear, the reverse speed limiter circuit senses the direct current (DC) voltage.  Once activated, the circuit also senses the alternator’s alternating current (AC) output to thereby sense engine speed. If the alternator’s AC voltage output exceeds a predetermined limit, the circuit emits a control signal to interrupt the ignition of the engine.

Polaris Industries (“Polaris”) is a manufacturer of ATV’s and a purchaser of Mink’s electrical components since about 1970. In 1996, Polaris engaged Minks in discussions regarding the ‘080 patent and its ability to purchase reverse speed limiters from different manufacturers. Minks responded by informing Polaris that reverse speed limiters based on engine speed and a DC input were covered by the ‘080 patent. Polaris then began implementing a new speedometer in its ATVs that had an integrated reverse speed limiter that sensed engine speed, and when Minks confirmed that the new Polaris ATV infringed the ’080 patent, he sent Polaris a letter to this effect on November 23, 2004.

When Minks did not get a positive response to the November 23, 2004 letter, Minks then filed suit against Polaris on December 22, 2005, alleging that Polaris infringed apparatus claim 2 of the ‘080 patent. After a trial, the jury found that Polaris infringed the ‘080 patent.  Moreover, the jury found that since Polaris received actual notice of infringement for purposes of 35 U.S.C. §287(a) on November 23, 2004 such that all damage calculations are relative to November 23, 2004.  The jury also found that Polaris willfully infringed claim 2 of the ‘080 patent, and that Minks was entitled to $1,294,620.91 in royalty damages.

The jury did not find that the discussions prior to November 23, 2004 were sufficient to find notice had been given prior to this date.  Specifically, the District Court instructed the jury on actual notice that “[t]he date notice was given is the date on which Minks communicated to Polaris a specific charge that one of its products may infringe claim two of the ’080 patent.” The jury found that Minks’s November 23, 2004 letter to Polaris satisfied 35 U.S.C. §287(a)’s notice requirement.

Additionally, Polaris filed a JMOL motion for noninfringement, contenting that claim 2 included a means plus function element for which there was no corresponding part in Polaris’s speed limiter.  However, the District Court denied the motion because Figure 2 in the ‘080 patent is the only structure linked or associated with the functions required by claim 2.  Thus, the District Court concluded that “the means-plus-function limitations of claim 2 are limited to the structures set forth in Figure 2 (and their equivalents).” Based on this, the District Court denied Polaris’s JMOL motion of noninfringement, ruling that “to one skilled in the art of circuit design/electrical engineering, [the amplitude and the frequency of the AC voltage] are equivalent for purposes of determining speed.” Therefore, the jury “could reasonably conclude that the methods employed in the ‘080 Patent and in the accused devices were equivalent or interchangeable.”

The District Court judge did, however, grant Polaris’s Motion for a Reduction in Damages and came to a final award of $117,316.50. The District Court judge further reduced the damages award as a matter of law under Federal Rule of Civil Procedure 50 without offering Minks a new trial on damages.

As for enhanced damages and attorney fees under 35 U.S.C. § 285, the District Court determined that a “reasonable fee” would be $234,633.00 after all deductions. However, the District Court only awarded half this amount as it found Minks to have wasted a great deal of trial time with his “economic nonsense” damages theory.

The court denied Minks’s motion for reconsideration, so Minks filed a notice of appeal on July 25, 2007, challenging (1) the District Court’s reduction of the damages award, (2) the amount of attorney fees awarded, and (3) the jury instruction on actual notice.

Reduction of Compensatory Damages Without New Trial

The first issue on appeal before the Federal Circuit was whether the Seventh Amendment required the District Court to offer Minks the option of a new trial in lieu of accepting the reduced damages award. The Reexamination Clause of the Seventh Amendment states that “no fact tried by a jury, shall be otherwise re-examined in any Court of the United States, than according to the rules of the common law.” The Supreme Court’s interpretation history of the Seventh Amendment has required that the exercise of a District Court’s discretion to set aside an excessive jury award be accompanied by an offer of a new trial. See e.g., Kennon v. Gilmer, 131 U.S. 22, 29 (1889), Hetzel v. Prince William County, 523 U.S. 208, 211 (1998). However, the Eleventh Circuit held in Johansen that when a jury’s award is premised on “legal error,” a court may reduce the award and enter an absolute judgment in an amount sufficient to correct the legal error without offering the plaintiff the option of a new trial in two situations—“where a portion of a verdict is for an identifiable amount that is not permitted by law” or when the award “enter[s] that ‘zone of arbitrariness that violates the Due Process Clause of the Fourteenth Amendment.’” N.Y., L.E. & W.R. Co. v. Estill, 147 U.S. 591 2007-1490, -1491 (1893), Johansen v. Combustion Eng’g, Inc., 170 F.3d 1320, 1330-31 (11th Cir. 1999).

The District Court examined the evidence in the record with respect to the components of a reasonable royalty—number of infringing sales, royalty base, and royalty rate—and found that the evidence could not support the jury’s damages award. However, in determining a reasonable jury award, the Federal Circuit found that the District Court necessarily engaged in an independent review of the evidence and substituted its conclusion for that of the jury on the factual issue of compensatory damages. The District Court’s decision amounted to an exercise of discretion subject to Hetzel’s requirement that Minks be offered a new trial.  Thus, the Federal Circuit vacated the District Court’s order reducing the jury’s compensatory damages award and remanded for a new trial on damages.

Reduction of Enhanced Damages

In the second issue on appeal, the Federal Circuit discussed the District Court’s award of enhanced damages and attorney fees to Minks under 35 U.S.C. § 285. The Federal Circuit detected no abuse of discretion in the District Court’s reduced award of attorney fees seeing as even on appeal, Minks did not articulate a coherent damages theory. The Federal Circuit, therefore, affirmed the award of attorney fees but noted that the trial judge could exercise discretion to modify the award if it warranted further consideration on remand.

Actual Notice under 35 U.S.C. §287

In the third issue on appeal, the Federal Circuit addressed the jury instruction on the issue of notice. Under 35 U.S.C. § 287(a), where a patentee has failed to mark its patented product, “no damages shall be recovered by the patentee in any action for infringement, except on proof that the infringer was notified of the infringement and continued to infringe thereafter, in which event damages may be recovered only for infringement occurring after such notice.” Minks Engineering did not mark its products, so damages recoverable by Minks were limited by the date that Polaris received notice satisfying the requirements of 35 U.S.C. § 287(a).

Minks argued that the District Court’s jury instruction on actual notice was inadequate because a patentee can provide sufficiently specific notice to an accused infringer before the patentee discovers the actual infringement by the accused. Thus, a patent owner can give notice both by a positive charge of infringement as well as by a qualified charge of infringement.  The Federal Circuit agreed with Minks that the given instruction did not fairly and correctly state the issues and the law, and that the jury should have been more clearly instructed that it was permitted to find notice prior to the date Minks discovered Polaris’s infringement. Minks made a qualified charge of infringement when he informed Polaris that reverse speed limiters that sensed engine speed and a DC input infringe the ‘080 patent, and as a long time customer of Minks, Polaris knew of the ‘080 patent.  Moreover, as early as 1997, Minks specifically communicated his belief that reverse speed limiters sensing engine speed and a DC input infringed the ‘080 patent. Therefore, the Federal Circuit found that the District Court’s instruction to the jury should have more clearly articulated that in this context, knowledge of a specific infringing device was not a legal prerequisite to a finding of actual notice.   Thus, the Federal Circuit also required a new trial on this issue.

Infringement of Means Plus Function Element

Additionally, Polaris cross-appealed from the District Court’s denial of its JMOL motion on noninfringement. On appeal, the Federal Circuit noted that claim 2 is a means plus function claim whose bounds are construed by identifying the claim’s function then identifying the corresponding structure in the written description necessary to perform that function. Texas Digital Sys., Inc. v. Telegenix, Inc., 308 F.3d 1193, 1208 (Fed. Cir. 2002). It is undisputed that the circuitry of the accused devices differs and has different components than that taught by Figure 2 of the ‘080 patent. However, based on expert testimony and the teachings of the ‘080 patent, the Federal Circuit found that the functions of the accused device and the claim were identical, that the two devices had equivalent structures (noting that difference in physical structure alone is not determinative of § 112 ¶ 6 equivalents), and that the structures performed in substantially the same way. The Federal Circuit, therefore, agreed with the District Court that the jury’s verdict of infringement was supported by substantial evidence that the accused devices met claim 2 of the ‘080 patent and affirmed that the District Court’s denial of Polaris’s JMOL motion.

Willfulness

Lastly, the Federal Circuit addressed Polaris’s second cross appeal that the jury instruction on willful infringement constituted plain error based on the Federal Circuit’s decision in In re Seagate Technology, LLC, 174 F.3d 1360 (Fed. Cir. 2007) (en banc). The Federal Circuit did not decide this issue because Polaris made no argument and cited no evidence to establish two of the elements for plain error as outlined by In re Seagate. Furthermore, because in the order granting Minks’s request for enhanced damages the trial court concluded that “it is fairly clear” that Polaris deliberately copied Minks’s patented reverse speed limiter “and the case was not close,” the Federal Circuit said it appeared that error in the jury instruction was not prejudicial because the jury probably would have arrived at the same result nevertheless. The Federal Circuit found that Polaris did not demonstrate plain error in the jury instruction on willfulness and affirmed the jury’s finding of willful infringement.

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