Scroll Top

Estoppel, Invalid Signal Claims and No Apportionment for Patent Infringement Profits

The Court of Appeals for the Federal Circuit in Mentor Graphics Corp. v. Eve-USA, Inc. was called upon to review litigation wherein Mentor asserted several patents against Synopsys, including U.S. Patent Nos. 6,240,376 (“the ‘376 patent”), 6,947,882 (“the ‘882 patent”), 6,009,531 (”the ‘531 patent”), and 5,649, 176 (“the ‘176 patent”) and Synopsys asserted two patents against Mentor – U.S. Patent Nos. 6,132,109 (“the ‘109 patent”) and 7,069,526 (”the ‘526 patent”).  The jury found in favor of Mentor and found damages of approximately $36,000,000 ($36M).  Mentor Graphics Corp. v. Eve-USA, Inc., case no. 2015-1470 (Fed. Cir. March 16, 2017) (Available Here).  

The Court held (a) that there was substantial evidence to support the jury’s infringement verdict regarding the ‘376 patent and affirmed the district court’s denial of judgment as a matter of law; (b) affirmed the $36M damages award; ( c) affirmed the summary judgment that assignor estoppel bars Synopsys from  challenging the validity of the ‘376 patent; (d) reversed the summary judgment that Synopsys’ ‘109 patent is indefinite; (e) affirmed the summary judgment that Synopsys’ ‘526 “signal” patent lacks patent-eligible subject matter; (f) vacated the motion in limine precluding Mentor from presenting evidence of post-filing willful infringement; (g) reversed the summary judgment that Mentor’s ‘882 patent lacks written description support; and (h) reversed the summary judgment that Mentor’s infringement allegations regarding the ‘531 and ‘176 patents are barred by claim preclusion.

Every patent in this case involves simulation/emulation technology.  The ‘376 patent relates to debugging source code after synthesis. Synthesis is the process of transforming Hardware Description Language (“HDL”) into gate-level “netlists.” ‘376 patent. Much of the patent’s disclosure addresses Register Transfer Level (“RTL”) source code, which is a subset of HDL.  The ‘376 patent seeks to solve these problems by allowing developers to insert test probes at various stages of a netlist to monitor intermediate values.

The ‘376 Patent Claim 1 recites: “A method comprising the steps of: (a)  identifying at least one statement within a register transfer level (RTL) synthesizable source code; and (b) synthesizing the source code into a gate-level netlist including at least one instrumentation signal, [c] wherein the instrumentation signal is indicative of an execution status of the at least one statement.”

The Synopsys ZeBu emulators output the test results to a waveform viewer. Mentor’s expert Dr. Sarrafzadeh testified that each probe signal shown in the waveform viewer identifies a portion of RTL by name, and the RTL name can be used to locate the corresponding source code.

Synopsys argues it does not infringe because its ZeBu emulators do not “indicate” an RTL statement but rather merely provide the name of a block of RTL that a developer can use to locate corresponding code… neither party asked the district court to construe ”indicative,” and the parties agreed the plain and ordinary meaning of the term governs.

The Court held that there was substantial evidence to support the jury’s infringement verdict and affirmed infringement and damages.

Assignor Estoppel: Synopsys challenged the district court’s grant of summary judgment that it was barred from challenging the validity of Mentor’s ‘376 patent because of assignor estoppel.  The ‘376 inventors left Mentor and formed a new company, EVE, which was later bought by Synopsis. Prior to the buyout, Mentor and EVE signed a ‘376 License.  Synopsys did not dispute that assignor estoppel applies to the facts of this case, but argued the Supreme Court “demolished the doctrinal underpinnings of assignor estoppel in the decision that abolished the comparable licensee estoppel in Lear, Inc. v. Adkins, 395 U.S. 653 (1969).”

The Court disagreed. In Diamond Scientific, the Court emphasized the continued vitality of the doctrine of assignor estoppel after Lear. Diamond Sci. Co. v. Ambico, Inc., 848 F.2d 1220, 1222-26 (Fed. Cir. 1988); see also MAG Aerospace Indus., Inc. v. BIE Aerospace, Inc., 816 F.3d 1374, 1380-81 (Fed. Cir. 2016). The district court’s grant of summary judgment that assignor estoppel and that Synopsys’ challenge to the validity of the ‘376 patent was barred by estoppel.

Damages: At trial, Mentor argued it was entitled to obtain lost profit damages for lost sales of its Veloce emulators resulting from Synopsys’ infringing sales of its ZeBu emulators because Mentor would have made additional Veloce sales but for Synopsys’ infringing ZeBu sales.  Compensatory damages under 35 U.S.C. § 284, are defined as “compensation for pecuniary loss he (the patentee) has suffered from the infringement, without regard to the question whether the defendant has gained or lost by his unlawful acts.” Coupe v. Royer, 155 U.S. 565, 582 (1895). Section 284 damages ”have been said to constitute ‘the difference between his pecuniary condition after the infringement, and what his condition would have been if the infringement had not occurred.”‘ (quoting Yale Lock Mfg. Co. v. Sargent, 117 U.S. 536, 552 (1886).  Put simply, “[t]he question to be asked in determining damages is ‘how much had the Patent Holder and Licensee suffered by the infringement. And that question (is) primarily: had the Infringer not infringed, what would Patent Holder-Licensee have made?”‘

There is no particular required method to prove “but for” causation. One “useful, but non-exclusive” method to establish the patentee’s entitlement to lost profits is the Panduit test first articulated by the Sixth Circuit. RiteHite Corp. v. Kelley Co., 56 F.3d 1538, 1545 (Fed. Cir. 1995) (en banc) (citing Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152 (6th Cir. 1978)). When a patentee proves it would have made additional sales but for a defendant’s infringement, the patentee is entitled to be made whole for the profits it proves it lost. See, e.g., Asetek Danmark A/S v. CMI USA Inc., 842 F.3d 1350, 1361 (Fed. Cir. 2016); Versata Software, Inc. v. SAP Am., Inc., 717 F.3d 1255, 1263-64 (Fed. Cir. 2013); Grain Processing Corp. v. Am. Maize-Prods. Co., 185 F.3d 1341, 1352-53 (Fed. Cir. 1999); Photo Elecs. Corp. v. England, 581 F.2d 772, 784 (9th Cir. 1978); Livesay Window, 251 F.2d at 471. The goal of lost profit damages is to place the patentee in the same position it would have occupied had there been no infringement.  In this regard, lost profit patent damages are no different than breach of contract or general tort damages. Thus, the fact finder’s job is to determine what would the patent holder have made (what would his profits have been) if the infringer had not infringed.

Under the Panduit test, a patentee is entitled to lost profit damages if it can establish four things: (1) demand for the patented product; (2) absence of acceptable non-infringing alternatives; (3) manufacturing and marketing capability to exploit the demand; and (4) the amount of profit it would have made.  Panduit, 575 F.2d at 1156.

Together, requiring patentees to prove demand for the product as a whole and the absence of non-infringing alternatives ties lost profit damages to specific claim limitations and ensures that
damages are commensurate with the value of the patented features. See Presidio Components, Inc. v. Am. Tech. Ceramics Corp., 702 F.3d 1351, 1361 (Fed. Cir. 2012).  Standard Haven Prods., Inc. v. Gencor Indus., Inc., 953 F.2d 1360, 1373 (Fed. Cir. 1991) (“If purchasers are motivated to purchase because of particular features available only from the patented product, products without such features-even if otherwise competing in the marketplace-would not be acceptable noninfringing substitutes.”).

The second factor, absence of acceptable non-infringing alternatives, often proves the most difficult obstacle for patent holders. Under this factor, if there is a noninfringing alternative which any given purchaser would have found acceptable and bought, then the patentee cannot obtain lost profits for that particular sale.  For example, if the customer would have bought the infringing product without the patented feature or with a different, non-infringing alternative to the patented feature, then the patentee cannot establish entitlement to lost profits for that particular sale. And this determination is made on a customer-by-customer basis.

The relevant market (in this case, the suppliers of emulators to Intel) contained two parties, Synopsys and Mentor.

Apportionment: Synopsys advocated for a two-step process for calculating lost profits. First, Synopsys argued a patentee must calculate the amount of profits it lost as a result of the infringement using the Panduit factors. Second, Synopsys argued a patentee must further apportion its lost profits to cover only the patentee’s inventive contribution.  According to Synopsys, Mentor is not entitled to recover what it lost, the amount necessary to make it whole for the sales it lost, but rather the value attributable to its patented features.

The jury found, and Synopsys did not dispute, there were only two acceptable alternatives to Intel: Mentor’s emulator and Synopsys’ infringing emulator. The jury was properly instructed that if there were any other acceptable, non-infringing emulation system or if there were prototypes that may have been acceptable or if there was any acceptable non-infringing alternative that could have been made available (even if they did not already exist), then Mentor could not receive lost profits on those particular sales.

With such multi-component products, it may often be the case that no one patentee can obtain lost profits on the overall product-the Panduit test is a demanding one. A patentee cannot obtain lost profits unless it and only it could have made the sale-there are no non-infringing alternatives or, put differently, the customer would not have purchased the product without the infringing feature.

Indefiniteness: The district court granted summary judgment that claim 1 of Synopsys’ ‘109 patent is indefinite.  Claims reciting terms of degree ”ha[ve] long been found definite” if they provide reasonable certainty to a skilled artisan when read in the context of the patent. Biosig Instruments, Inc. v. Nautilus, Inc., 783 F.3d 1374, 1378 (Fed. Cir. 2015) (quoting Interval Licensing LLC v. AOL, Inc., 766 F.3d 1364, 1370 (Fed. Cir. 2014))…  “spaced relationship” definite … “visually negligible” definite … “look and feel” definite.  The ‘109 patent discloses “a method for displaying the results of synthesized circuit analysis visually near the HDL source specification that generated the circuit.”  A skilled artisan viewing Figures 11 and 19 would readily understand which HDL code corresponds to which timing result, based on the way the information is displayed on the screen.

The very language of claim 1 which the court held was not supported by the specification was
present in the originally-filed claims. Original claims are part of the original specification and in many cases will satisfy the written description requirement. Ariad, 598 F.3d at 1349; see ScriptPro  LLC v. Innovation Assocs., Inc., 833 F.3d 1336, 1341 (Fed. Cir. 2016); Crown Packaging, 635 F.3d at 1381.

Ineligible Patent Subject Matter – Signal Claims:  The district court granted summary judgment that certain claims in the ‘526 patent lack patentable subject matter, holding the “claims embrace unpatentable electromagnetic carrier waves.” The Court affirmed.

The ‘526 specification establishes that the claims are invalid under In re Nuijten, 500 F.3d 1346 (Fed. Cir. 2007).  In Nuijten, the Court addressed whether a claim covering a signal was eligible for patenting under 35 U.S.C. § 101. The claimed signal in Nuijten was not limited to a particular medium or carrier but rather covered “any tangible means of information carriage.” Id. at 1353. The Court held that a “transitory, propagating signal” did not fall within any statutory category of subject matter: process, machine, manufacture, or composition of matter. Id. Therefore, because the claims covered “the signal itself,” they are not patent eligible subject matter. Id. at 1357.

Post-filing Willfulness: The Court held that Mentor was precluded from presenting evidence of willfulness because it relied exclusively on post-suit willful conduct, and it had not first sought a preliminary injunction. The District Court stated, “I think Synopsys is right about what the court will call the Seagate rule, which is if you don’t seek an injunction, you can’t seek willful infringement for post-filing conduct.” In re Seagate Tech., LLC, 497 F.3d 1360, 1374 (Fed. Cir. 2007) (“[W]hen an accused infringer’s post-filing conduct is reckless, a patentee can move for a preliminary injunction, which generally provides an adequate remedy for combating post-filing willful infringement.”

On route to this conclusion, the district court made two errors. First, it erred in determining that the alleged conduct was post-suit conduct because it erred in determining the filing date of the relevant suit. Second, it erred in concluding that Synopsys could not present evidence of post-filing willful infringement because Synopsys did not seek a preliminary injunction.

The relevant date for determining which conduct is pre-suit is the date of the patentee’s affirmative allegation of infringement, in this case the date of Mentor’s counterclaim. See Seagate, 497 F.3d at 1374 (explaining that ”in ordinary circumstances, willfulness will depend on an infringer’s prelitigation conduct” because “a patentee must have a good faith basis for alleging willful infringement”).

There is “no rigid rule” that a patentee must seek a preliminary injunction in order to seek
enhanced damages. Aqua Shield v. Inter Pool Cover Team, 774 F.3d 766, 773-74 (Fed. Cir. 2014); see Halo Elecs., Inc. v. Pulse Elecs., Inc., 136 S. Ct. 1923, 1934 (2016) (“[W]e eschew any rigid formula for awarding enhanced damages under § 284 …. “).

Claim Preclusion: The Mentor ‘176 and ‘531 patents are two of the three patents earlier litigated in the 2006 lawsuit between Mentor and EVE.  This suit resulted in the Mentor and EVE signed a ‘376 License.  In the Ninth Circuit, claim preclusion applies when the prior suit: (1) involved the same claim or cause of action as the later suit; (2) reached a final judgment on the merits; and (3) involved the same parties or privies. Id. (citing Mpoyo v. Litton Electro-Optical Sys., 430 F.3d 985, 987 (9th Cir. 2005).

In Aspex Eyewear, Inc. v. Marchan Eyewear, Inc., 672 F.3d 1335 (Fed. Cir. 2012), the court explained that claim preclusion does not bar later infringement allegations ”with respect to accused products that were not in existence at the time of the [previous actions] for the simple reason that [claim preclusion] requires that in order for a particular claim to be barred, it is necessary that the claim either was asserted, or could have been asserted, in the prior action.”

Claim preclusion does not bar the present allegations because Mentor could not have previously
brought them. See Brain Life, 746 F.3d at 1054. The present lawsuit is based on post-license conduct, so the alleged infringement did not exist during the previous action.

Related Posts