SRI Intern., Inc. v. Advanced Technology Laboratories, Inc.

• Decision Date: 23 October 1997
• Docket Number: No. 96-1437,96-1437
• Citation: 44 USPQ2d 1422,127 F.3d 1462
• Parties: SRI INTERNATIONAL, INC., Plaintiff-Appellee, v. ADVANCED TECHNOLOGY LABORATORIES, INC. and ATL Washington, Inc., Defendants-Appellants.
• Court: U.S. Court of Appeals — Federal Circuit

Page 1462

127 F.3d 1462

44 U.S.P.Q.2d 1422

SRI INTERNATIONAL, INC., Plaintiff-Appellee, v. ADVANCED TECHNOLOGY LABORATORIES, INC. and ATL Washington Inc., Defendants-Appellants.

No. 96-1437.

United States Court of Appeals, Federal Circuit.

Oct. 23, 1997.

Harold J. McElhinny, Morrison & Foerster, LLP, San Francisco, CA, argued for plaintiff-appellee. With him on brief were Tamu K. Sudduth, San Francisco, CA, and Jana G. Gold, Palo Alto, CA.

Paul C. Saunders, Cravath, Swaine & Moore, New York City, argued for defendants-appellants. With him on briefs were Stephen B. Judlowe and William G. Todd, Hopgood, Calimafde, Kalil & Judlowe.

Before NEWMAN, MICHEL, and LOURIE, Circuit Judges.

PAULINE NEWMAN, Circuit Judge.

This is the damages phase of litigation between SRI International ("SRI") and Advanced Technology Laboratories and its subsidiary ATL Washington (together "ATL"). This court had sustained the validity and enforceability of United States Patent No. B1-4,016,750 (the '750 patent) and affirmed that certain claims were infringed by ATL. SRI Int'l, Inc. v. Advanced Tech. Lab., Inc., 45 F.3d 443 (Fed.Cir.1994) (Table). Following trial of the remaining issues, the district court assessed compensatory damages at a royalty rate of 3% of infringing sales, found that the infringement was willful, trebled the damages award in accordance with 35 U.S.C. § 284, and awarded attorney fees under 35 U.S.C. § 285. ¹ ATL appeals the judgment, challenging the finding of willful infringement, the enhancement of damages, and the sufficiency of the notice of infringement under 35 U.S.C. § 287(a). We affirm the judgment of the district court.

I

35 U.S.C. § 284 of the Patent Act authorizes the court to "increase the damages up to three times the amount found or assessed." The statute prescribes no standards for such increase, but precedent establishes that a person having knowledge of an adverse patent has an affirmative duty to exercise due care to avoid infringement of a presumptively valid and enforceable patent. The statute thus recognizes the tortious nature of patent infringement and the public interest in a stable patent right, for enhanced damages are not compensatory but punitive. See Beatrice Foods Co. v. New England Printing and Lith. Co., 923 F.2d 1576, 1580, 17 USPQ2d 1553, 1556 (Fed.Cir.1991) (enhanced damages are a penalty for culpable conduct).

Although various criteria have been stated for determining "willful infringement," which is the term designating behavior for which enhanced damages may be assessed, the primary consideration is whether the infringer, acting in good faith and upon due inquiry, had sound reason to believe that it had the right to act in the manner that was A factor to be considered is whether the adjudged infringer relied on legal advice. When this defense is raised the court may consider the nature of the advice, the thoroughness and competence of the legal opinion presented, and its objectivity. The court will determine whether the advice of noninfringement or invalidity or unenforceability could have reasonably been relied on, and whether, on the totality of the circumstances, exculpatory factors avert a finding of willful infringement. The totality of the circumstances may include not only such aspects as the closeness or complexity of the legal and factual questions presented, but also commercial factors that may have affected the infringer's actions. Aspects in mitigation, such as whether there was independent invention or attempts to design around and avoid the patent or any other factors tending to show good faith, should be taken into account and given appropriate weight.

found to be infringing. The law of willful infringement does not search for minimally tolerable behavior, but requires prudent, and ethical, legal and commercial actions. Thus precedent displays the consistent theme of whether a prudent person would have had sound reason to believe that the patent was not infringed or was invalid or unenforceable, and would be so held if litigated. See, e.g., Hoechst Celanese Corp. v. BP Chem. Ltd., 78 F.3d 1575, 1583, 38 USPQ2d 1126, 1132 (Fed.Cir.1996); American Med. Sys. v. Medical Eng'g Corp., 6 F.3d 1523, 1530, 28 USPQ2d 1321, 1325 (Fed.Cir.1993); Ryco, Inc. v. Ag-Bag Corp., 857 F.2d 1418, 1428, 8 USPQ2d 1323, 1331-32 (Fed.Cir.1988); Yarway Corp. v. Eur-Control USA, Inc., 775 F.2d 268, 277, 227 USPQ 352, 358 (Fed.Cir.1985); Stickle v. Heublein, Inc., 716 F.2d 1550, 1565, 219 USPQ 377, 388 (Fed.Cir.1983).

Willful infringement is a question of fact, American Med. Sys., 6 F.3d at 1530-31, 28 USPQ2d at 1325-26, and must be established by clear and convincing evidence, for "the boundary between unintentional and culpable acts is not always bright." Pall Corp. v. Micron Separations, Inc., 66 F.3d 1211, 1221, 36 USPQ2d 1225, 1232 (Fed.Cir.1995). Since the issue of willfulness not only raises issues of reasonableness and prudence, but is often accompanied by questions of intent, belief, and credibility, appellate review requires appropriate deference to the special role of the trial court in making such determinations. Sensonics, Inc. v. Aerosonic Corp., 81 F.3d 1566, 1571, 38 USPQ2d 1551, 1555 (Fed.Cir.1996); S.C. Johnson & Son, Inc. v. Carter-Wallace, Inc., 781 F.2d 198, 201, 228 USPQ 367, 369 (Fed.Cir.1986). Thus a finding of willful infringement will be sustained unless the reviewing court has a definite and firm conviction that the trier of fact erred. Electro Med. Sys., S.A. v. Cooper Life Sciences, Inc., 34 F.3d 1048, 1057, 32 USPQ2d 1017, 1024 (Fed.Cir.1994).

A

The district court discussed the opinions of counsel in evidence on behalf of ATL, and the five years of correspondence between ATL and SRI. The court observed that ATL had knowledge of possible infringement of the '750 patent since at least April 1984, when two in-house engineers expressed their concerns in separate memoranda stating, for example, "I believe that we probably are infringing on Patent # 4,016,750 ... [explaining technology and models]." The court discussed the written opinions of three lawyers for ATL: (1) a letter dated June 30, 1986 written to SRI by Sanford Asman, house patent counsel for ATL's then parent company Squibb; (2) an opinion dated December 13, 1988 of outside patent counsel Michael Toner; and (3) a letter dated May 23, 1990 and an opinion of July 15, 1991 of W. Brinton Yorks, ATL's house counsel.

1. The Asman Letter

Mr. Asman responded to a letter of May 15, 1986 from Urban Faubion of SRI to Dale Conrad, president of ATL. Mr. Faubion wrote that ATL's Ultramark 4 and 8 models may infringe the '750 patent, and offered a nonexclusive license. Mr. Asman replied It is not disputed that this technologic information in the Asman letter was incorrect. The evidence at trial and the later legal opinion of Mr. Toner made clear that ATL's Ultramark 4 did indeed use a unitary, continuously variable, passband filter. ATL states that such misstatement was excusable because ATL need not "volunteer proprietary information to SRI." The district court did not view this explanation as converting the Asman letter into a good faith statement of non-infringement advice on which ATL could rely.

that ATL does not require a license because "[it does] not make use of a unitary, continuously variable, passband filter. Instead, our units make use of a pair of filters which act in series, each of which is made up of four discrete filters which are individually selected."

The district court described the Asman letter as "conclusory and woefully incomplete" as an opinion of counsel, lacking both legal and factual analysis. The court found the Asman letter insufficient to meet the standard of due care appropriate to serve as an exculpatory opinion of counsel. We do not discern clear error in this finding.

2. The Toner Opinion

Some eighteen months later SRI again contacted ATL, questioning the technology used by ATL and again offering a license to the '750 patent. Of record is the opinion of Michael G. Toner, who advised ATL that "we have concluded that the Ultramark 4 system may infringe the patent" but that the patent is invalid for obviousness and unenforceable for inequitable conduct.

Mr. Toner's conclusion of invalidity was based on a patent to Weighart, that SRI had presented to the patent office with an earlier request for reexamination, and upon which the patent examiner had reconfirmed the '750 patent. The district court discussed at length whether ATL could justifiably have relied on this advice of invalidity. The court observed that Toner simply repeated the examiner's arguments concerning Weighart, which during reexamination had been resolved in SRI's favor. The court found the Toner conclusion of invalidity to be lacking in both substance and analysis.

The district court also discussed Toner's comment that SRI had made a "material misrepresentation," during reexamination, of the technical content of the Weighart reference. The court observed that "Toner gives no evidence whatsoever to support this allegation, other than the mere fact that his interpretation of the Weighart art differs from that propounded by SRI and accepted by the examiner at the reexamination proceeding. Such a difference of opinion is a slender reed on which to hang a very serious allegation." The court called Toner's statement "offhand," and found Toner's allegation insufficient to support a reasonable belief that the '750 patent would be held unenforceable for inequitable conduct.

In connection with Toner's opinion that there may be infringement of the '750 patent by the Ultramark 4 system, Toner stated that a more extensive engineering study was needed concerning the "tracking" limitation in the claims. He stated that "use of the ULTRAMARK 4 system comes within the language of steps 1-3 of claim 20," and that "in general, the dependent claims will be infringed by the ULTRAMARK 4 to the same extent as the...