Glenayre Electronics, Inc. v. Jackson

• Decision Date: 11 April 2006
• Docket Number: No. 04-1568.,04-1568.
• Parties: GLENAYRE ELECTRONICS, INC., Plaintiff-Appellee, v. Phillip JACKSON and PMJ Family Limited Partnership, Defendants-Appellants.
• Court: U.S. Court of Appeals — Federal Circuit

Page 851

443 F.3d 851

GLENAYRE ELECTRONICS, INC., Plaintiff-Appellee, v. Phillip JACKSON and PMJ Family Limited Partnership, Defendants-Appellants.

No. 04-1568.

United States Court of Appeals, Federal Circuit.

April 11, 2006.

Douglas D. Salyers, Troutman Sanders, LLP, of Atlanta, Georgia, argued for plaintiff-appellee.

Mark D. Roth, Orum & Roth LLC, of Chicago, Illinois, argued for defendants-appellants. With him on the brief was Keith H. Orum. Of counsel was Catherine L. Gemrich.

Before NEWMAN, BRYSON, and PROST, Circuit Judges.

Opinion for the court filed by Circuit Judge PROST.

Dissenting opinion filed by Circuit Judge NEWMAN.

PROST, Circuit Judge.

Phillip Jackson and PMJ Family Limited Partnership (collectively, "Jackson") appeal from the order of the United States District Court for the Northern District of Illinois denying Jackson's motion to set trial on the issue of indirect infringement of United States Patent No. 4,596,900 ("the '900 patent") by Glenayre Electronics, Inc. ("Glenayre"). See Glenayre Elecs., Inc. v. Jackson, No. 02-CV-256 (N.D.Ill. June 29, 2004) "(June 29th Order"). We conclude that, as a matter of law, Jackson has been fully compensated for infringement of the '900 patent by the manufacture and sale of Glenayre's products and the use of the same products by Glenayre's customers. Jackson may not collaterally challenge the district court's previous judgment that he is entitled to only $2.65 million rather than $12 million in damages for the manufacture, sale, and use of Glenayre's products that infringe the '900 patent, because that judgment, which was affirmed in a previous appeal, disposed of his current argument that he should be awarded greater damages based on the benefits Glenayre's customers enjoyed by using products sold by Glenayre. Furthermore, Jackson is not entitled to a second trial as a matter of right simply because the district court stayed his counterclaims of indirect infringement. We therefore affirm the district court's denial of the motion to set trial.

BACKGROUND

The '900 patent discloses and claims an apparatus for producing control signals in response to receiving predetermined tone signals from remote telephones over a telephone line. Glenayre utilizes this technology in its voicemail server systems, which it manufactures and sells to wireless telephone service companies. These companies in turn incorporate the systems into their networks for further sale and the provision of services to end users.

While the present appeal requires us to review the district court's denial of Jackson's motion to set trial on the issue of indirect infringement by Glenayre, the entire procedural history of this case, in all its complexity, provides necessary context.

Jackson originally filed a patent infringement suit against Glenayre's customers, alleging direct infringement of the '900 patent. Thereafter, Glenayre filed a separate declaratory judgment action. Glenayre sought a judgment of noninfringement with respect to the voicemail server systems that it manufactured and sold to its customers. The district court stayed the suit against the customers pending resolution of the declaratory judgment suit.

In response to the stay of the suit against the customers, Jackson filed several counterclaims in the declaratory judgment suit. Jackson filed counterclaims against Glenayre for indirect infringement of the '900 patent, and counterclaims against several of Glenayre's customers, named and unnamed in Glenayre's amended complaint, for direct infringement of the '900 patent. The district court first enjoined the counterclaims against the unnamed customers and stayed the counterclaims against the named customers. The court then stayed the counterclaims against Glenayre, reasoning that "Glenayre's liability as an alleged contributory infringer/inducer depends, as a matter of law, on the logically prior determination of liability against one or more direct infringers (i.e., Glenayre's customers)." Glenayre Elecs., Inc. v. Jackson, No. 02-CV-256, slip op. at 2 (N.D.III. Sept. 27, 2002) ("Sept. 27th Order"). Because the court had already enjoined and stayed the counterclaims of direct infringement against the customers, the court reasoned that the question of the measure of damages against Glenayre as an alleged contributory infringer/inducer did not present itself at that time. The court therefore stayed the counterclaims of indirect infringement against Glenayre. Jackson then filed a counterclaim against Glenayre for direct infringement of the '900 patent.

The district court ultimately conducted a jury trial on the issue of Glenayre's alleged direct infringement. During the trial, Jackson introduced and relied on evidence of the benefits Glenayre's customers enjoyed by infringing the '900 patent. Furthermore, during closing arguments, Jackson pointed to this evidence and asked the jury to return a verdict that assessed damages in the range of $6.2 million to $15 million based on a reasonable royalty calculation. The jury returned a verdict in favor of Jackson in the amount of $12 million. After the jury verdict, Jackson voluntarily withdrew an interlocutory appeal in this court seeking reversal of two of the district court's orders enjoining Jackson from pursuing infringement actions against Glenayre's customers. See Glenayre Elecs., Inc. v. Jackson, 66 Fed. Appx. 875 (Fed.Cir.2003) ("May 29th Order") (granting Jackson's unopposed motion to voluntarily dismiss his appeal).

Glenayre then submitted a post-trial motion requesting that the district court remit the jury award. In response to Glenayre's motion, Jackson argued that the jury's damages award was reasonable based on the evidence that he adduced at trial showing the benefits Glenayre's customers enjoyed by infringing the '900 patent. Despite Jackson's arguments, the district court granted the motion for remittitur, finding the jury's damages award to be "grossly excessive." Glenayre Elecs., Inc. v. Jackson, No. 02-CV-256, slip op. at 11-17 (N.D.Ill. July 8, 2003) ("Remittitur Order"). The court identified license agreements related to similar technology that Jackson and Glenayre separately negotiated with third parties as constituting the most cogent, probative basis for determining a reasonable royalty for infringement of the '900 patent. These license agreements included various royalty rates calculated as percentages of sales, lump-sum payments, or combinations of these two methods of payment. Furthermore, the court characterized these license agreements as "broadly grant[ing] the right to use every aspect of the '900 Patent"; "conferr[ing] an unrestricted right to use patents covering a complete, complex voicemail system"; or conveying "unbounded rights to use every aspect of the patents" that were the subject of the licenses. Id. at 15. The court then noted that neither party contested that Glenayre's overall sales of the infringing products during the damages period totaled approximately $40 million. Based on this information, the court determined that "the jury's $12,000,000 damages award reflects a whopping royalty rate of 30%, a rate five times greater than the very highest rate disclosed in any license agreement offered into evidence." Id. at 16. The court concluded that "[t]here is absolutely no support in the record for such an extravagantly high royalty percentage." Id. It ruled that the maximum reasonable royalty would be 6% of sales plus a $250,000 lump-sum payment, and proposed a remittitur to $2.65 million as an alternative to a new trial.

Rather than refuse the remittitur or request a new trial, Jackson accepted the district court's decision to award him the remitted damages award plus prejudgment interest. In response, the court entered judgment under Federal Rule of Civil Procedure 54(b), stating that "additional claims, dependent upon the finality and affirmance of the patent infringement claim against Glenayre, remain for adjudication. . . ." Glenayre Elecs., Inc. v. Jackson, No. 02-CV-256, slip op. at 2 (N.D.III. July 22, 2003) ("July 22nd Order"). Glenayre, but not Jackson, appealed. This court summarily affirmed the district court's judgment without issuing an opinion. See Glenayre Elecs., Inc. v. Jackson, 95 Fed.Appx. 344 (Fed.Cir.2004). After the judgment was affirmed, Jackson voluntarily dismissed his counterclaims against Glenayre's customers without prejudice, and Glenayre subsequently paid the remitted damages award.

Jackson then filed a motion to set trial on the stayed counterclaims of indirect infringement by Glenayre. The district court denied the motion, stating that the judgment completely compensated Jackson for direct infringement and therefore there was nothing else owed to Jackson. June 29th Order, slip op. at 2.

In connection with its response to Jackson's motion to set trial, Glenayre filed a motion for sanctions against Jackson and his attorneys for seeking to continue the litigation. The district court denied the motion. In doing so, the court noted that its "previous orders carried some ambiguity as to the continuing viability of Jackson's counterclaims . . . . That said, the Court has also made clear in oral comments and by previous rulings from the bench that no counterclaims survive." Glenayre Elecs., Inc. v. Jackson, No. 02-CV-256, slip op. at 5 (N.D.III. Sept. 8, 2004) ("Sept. 8th Order").

Jackson appeals the denial of his motion to set trial on the issue of indirect infringement by Glenayre. We have jurisdiction over the appeal under 28 U.S.C. § 1295(a)(1).

DISCUSSION

I.

As a preliminary matter, the parties disagree as to what standard of review we should apply in this case. Jackson, comparing the denial of the motion to set trial with a grant of a motion for summary judgment or a motion to dismiss for failure to state a claim, submits that we should review the district court's action de novo. See Weinberger v. Wisconsin, 105 F.3d 1182, 1186 (7th Cir.19...