Insituform Techs. v. Cat Contracting

• Citation: 385 F.3d 1360
• Decision Date: 04 October 2004
• Docket Number: No. 99-1584.,No. 00-1005.,99-1584.,00-1005.
• Parties: INSITUFORM TECHNOLOGIES, INC., Insituform (Netherlands) B.V., and Insituform Gulf South, Inc., Plaintiffs-Cross Appellants, v. CAT CONTRACTING, INC., Firstliner U.S.A., Inc., and Giulio Catallo, Defendants-Appellants, and Michigan Sewer Construction Company, Defendant-Appellant, and Kanal Sanierung Hans Mueller GmbH & Co. KG, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals for the Federal Circuit

Page 1360

385 F.3d 1360

INSITUFORM TECHNOLOGIES, INC., Insituform (Netherlands) B.V., and Insituform Gulf South, Inc., Plaintiffs-Cross Appellants, v. CAT CONTRACTING, INC., Firstliner U.S.A., Inc., and Giulio Catallo, Defendants-Appellants, and Michigan Sewer Construction Company, Defendant-Appellant, and Kanal Sanierung Hans Mueller GmbH & Co. KG, Defendant-Appellee.

No. 99-1584.

No. 00-1005.

United States Court of Appeals, Federal Circuit.

DECIDED: October 4, 2004.

Appeal from the United States District Court for the Southern District of Texas, Lynn N. Hughes, J.

Harold James, Epstein Drangel Bazerman & James LLP, of New York, NY, for plaintiffs-cross appellants.

Arnold Anderson Vickery, of Houston, TX, for CAT Contracting, Inc., et al.

N. Elton Dry, Dry & Tassin, LLP, of Houston, TX, for defendant-appellant Michigan Sewer Construction Company.

Richard L. Stanley, Howrey Simon Arnold & White, LLP, of Houston, TX, for defendant-appellee Kanal Sanierung Hans Mueller GmbH & Co., KG. With him on the brief was Albert B. Deaver, Jr.

Before MAYER, Chief Judge, MICHEL, and SCHALL, Circuit Judges.

SCHALL, Circuit Judge.

Defendants Cat Contracting, Inc. ("CAT"), Firstliner U.S.A., Inc. ("Firstliner"), Giulio Catallo (sometimes referred to as "Catallo"), and Michigan Sewer Construction Company ("MSC") ("defendants") appeal the judgment of the United States District Court for the Southern District of Texas holding them liable for infringement of United States Patent No. 4,366,012 ("the' 012 patent") and awarding plaintiffs Insituform Technologies, Inc. ("Insituform Technologies"), Insituform (Netherlands) B.V. ("Insituform Netherlands"), and Insituform Gulf South, Inc. ("Insituform Gulf") ("plaintiffs") damages for that infringement. Insituform Techs., Inc. v. Cat Contracting, Inc., No. H-90-1690, slip op. (S.D.Tex. Aug. 31, 1999) ("District Court Opinion"). Defendants also appeal the joinder of Insituform Netherlands as a plaintiff. Id. at 21-22. In addition, CAT, Firstliner, and Catallo appeal the district court's joinder of Catallo as a defendant. Insituform Techs., Inc. v. Cat Contracting, Inc., No. H-90-1690, slip op. at 9 (Aug. 30, 1999) ("Joinder Order"). For their part, plaintiffs cross-appeal the ruling of the district court declining to hold defendant Kanal Sanierung Hans Mueller GmbH & Co. KG ("KS") vicariously liable to plaintiffs under an alter-ego theory of induced infringement. District Court Opinion, slip op. at 44-45.

We affirm the judgment of infringement with respect to all defendants. We also affirm the district court's joinder of Insituform Netherlands as a plaintiff, its joinder of Giulio Catallo as a defendant, and its ruling declining to hold KS vicariously liable for induced infringement. However, we vacate the judgment that the infringement of CAT and Firstliner was willful and remand for further proceedings on the issue of willful infringement. We also vacate the district court's damages award and remand for further proceedings to determine damages based on when defendants ceased selling the pipe repair process that was found to infringe the '012 patent. Accordingly, we affirm-in-part, vacate-in-part, and remand.

BACKGROUND

I.

Underground pipes, such as sewer pipes, are often subject to great stress. As a result, over time, the pipes develop cracks and other structural defects, which can result in leakage. In the past, the only way to rehabilitate a section of underground pipe was to dig up the broken section and replace it. Eric Wood, the sole inventor named on the '012 patent, pioneered a process for rehabilitating underground pipe without digging it up.

The '012 patent discloses Wood's invention. The patent relates to a method for performing pipe repair without removing the damaged pipe from the ground. The method involves installing a liner into the pipe. Claim 1 of the patent, the only claim at issue, claims a process for impregnating a flexible tube liner with resin prior to insertion of the liner into a damaged pipe. The liner has an impermeable film on the outside and a resin-absorbent, felt layer on the inside. A vacuum is applied to the inside of the liner by cutting a window into the outer, impermeable film, applying a cup (a "vacuum cup") to the outside of the window, and connecting the other end of the cup to a vacuum source. Using the created vacuum, a section of the inside of the liner is impregnated with resin, which is drawn through the liner. The vacuum cup is then moved to another section of the liner while the previously used window is sealed. This process for impregnating the liner with resin allows for impregnation at the jobsite, eliminating the need to transport a heavier, already impregnated liner to the site.

II.

This case has a lengthy procedural history. The issues before us arise from a complex series of trials, appeals, and cross-appeals that now span nearly fourteen years. We briefly review each significant decision in turn.

A. Plaintiffs' suit for patent infringement

The original defendants in this action were CAT, Inliner U.S.A., Inc. ("Inliner"), MSC, and KS. Inliner subsequently changed its name to Firstliner U.S.A., Inc., and we refer to this defendant as Firstliner throughout. Firstliner and CAT are in the business of rehabilitating and restructuring various types of pipes, including sanitary, storm sewer, water main, conduit, and industrial pipe. District Court Opinion, slip op. at 5. Firstliner oversees the marketing of its trenchless procedure for pipe rehabilitation to potential licensees. Id. In addition, Firstliner manufactures pipeliners and related materials, which it sells to CAT and its licensees. Id. CAT is responsible for marketing, bidding for, and negotiating contracts with customers and managing its pipeline rehabilitation contracts. Id. Giulio Catallo, who was subsequently added as a defendant, is the individual principal of both CAT and Firstliner. MSC is also in the pipe rehabilitation business. CAT was involved in a joint venture with MSC for performing the accused processes.

KS is a German sewer rehabilitation company owned by Hans Mueller. After reading about KS's proprietary sewer rehabilitation technology in a trade magazine, Giulio Catallo contacted KS to obtain a license for that technology. Id. Catallo subsequently acquired the rights to use the accused processes from Kanal Mueller Gruppe International GmbH & Co. ("Gruppe"), a German export licensing company also owned by Hans Mueller. Although KS stated in a letter written on November 10, 1989, that CAT was a "qualified Licensee for our KM-INLINER sewer relining process for the territories of the USA," there was no formal license agreement executed by the parties. Id. at 6. An actual license agreement, however, was later executed between Gruppe and Firstliner, permitting CAT's use of the accused process. Id. This license agreement stated that "[t]he licensee has been informed of a threat of a possible claim for infringing the INSITUFORM method." Id.

The original accused process used by defendants — referred to as the "Multiple Cup Process" or "Process 1" — was a method of tube liner impregnation involving the serial application of vacuum cups. In Process 1, from four to six cups were used to draw a vacuum from a corresponding number of slits in the tube liner. As a result, when the cup closest to the advancing resin was removed, and its slit was sealed, the remaining downstream cups continued to draw a vacuum in the tube liner.

At some point in either 1991 or early 1992, on the advice of counsel, defendants switched to an alternate process. In the alternate process — referred to as the "Multiple Needle Process" or "Process 2" — the multiple cups were replaced with multiple metal tubes, known as needles. In Process 2, the needles are inserted through the layers of the impregnated tube liner, rather than merely placed over holes in the wall of the liner. Defendants did not develop Process 2 until after the first phase of the case had already been tried to a jury.

The original action for infringement of the '012 patent was brought in February 1990. The original plaintiffs were Insituform of North America, Inc.; Insituform Licensees, B.V.; and Insituform Gulf. Insituform Licensees, B.V. was the owner of the '012 patent at the commencement of the suit. As explained more fully below, Insituform Licensees, B.V. subsequently assigned the '012 patent to Insituform Netherlands, along with the right to sue for past infringement. Insituform Netherlands was thus eventually substituted for Insituform Licensees, B.V. as a plaintiff. Insituform Technologies, Inc. ("ITI") is the parent company and administrative headquarters for the Insituform organization, including Insituform Gulf. Id. at 4. Insituform Gulf is authorized to do business in Louisiana, Mississippi, and Texas and licensed to perform Insituform technology in designated regions throughout the United States.¹ Id. at 5. Insituform of North America, Inc. is no longer a party to the suit.

Only claim 1 of the '012 patent was asserted at trial. It recites

1. A method of impregnating with a curable resin an inner layer of resin absorbent material disposed in an elongate flexible tube having an outer layer formed by an impermeable film, the method comprising the steps of

(1) introducing into one end of the elongate tube a mass of the curable resin sufficient to impregnate the entire resin absorbent inner layer of the tube,

(2) forming a window in the impermeable outer layer of the tube at a distance from said one end of the tube,

(3) drawing through the window a vacuum in the interior of the tube downstream of said one end by disposing over the window a cup connected by a flexible hose to a vacuum source which cup prevents ingress of air into the interior of the tube while the tube is being evacuated, the outer layer of the tube being substantially impermeable to air,

(4) beginning at or near the end at...