Hayes Microcomputer Products, Inc. Patent Litigation, In re

• Decision Date: 23 December 1992
• Docket Number: 91-1302,VEN-TE,Nos. 91-1301,INC,s. 91-1301
• Citation: 25 USPQ2d 1241,982 F.2d 1527
• Parties: , 25 U.S.P.Q.2d 1241 In re HAYES MICROCOMPUTER PRODUCTS, INC. PATENT LITIGATION., Plaintiff-Appellant, v. HAYES MICROCOMPUTER PRODUCTS, INC., Defendant/Cross-Appellant. HAYES MICROCOMPUTER PRODUCTS, INC., Plaintiff/Cross-Appellant, v., Defendant-Appellant
• Court: U.S. Court of Appeals — Federal Circuit

Page 1527

982 F.2d 1527

61 USLW 2451, 25 U.S.P.Q.2d 1241

In re HAYES MICROCOMPUTER PRODUCTS, INC. PATENT LITIGATION.

VEN-TEL, INC., Plaintiff-Appellant, v. HAYES MICROCOMPUTER PRODUCTS, INC., Defendant/Cross-Appellant.

HAYES MICROCOMPUTER PRODUCTS, INC., Plaintiff/Cross-Appellant, v. VEN-TEL, INC., Defendant-Appellant.

Nos. 91-1301, 91-1302.

United States Court of Appeals Federal

Dec. 23, 1992.

Thomas E. Schatzel, Law Office of Thomas E. Schatzel, of Santa Clara, CA, argued for plaintiff-appellant, Ven-Tel, Inc., M. Scott Donahey, Holtzmann, Wise & Shepard, of Palo Alto, CA, argued for defendant-appellant, Omintel, Inc., with him on the brief were James M. Smith and David N. Schachter. Also on the brief was Robert Charles Hill, of San Francisco, CA.

James W. Hawkins, Powell, Goldstein, Frazer & Murphy, of Atlanta, GA, argued for Hayes Microcomputer Products, Inc., with him on the brief was Jerry B. Blackstock. Of counsel was William M. Ragland, Jr.

Before PLAGER, LOURIE, and RADER, Circuit Judges.

LOURIE, Circuit Judge.

This appeal and cross-appeal are from the April 22, 1991 judgment and the April 23, 1991 amended judgment of the United States District Court for the Northern District of California, In re Hayes Microcomputer Products, Inc. Patent Litigation, 766 F.Supp. 818, 20 USPQ2d 1836 (N.D.Cal.1991). On January 25, 1991, a jury returned a verdict in favor of Hayes Microcomputer Products, Inc., the assignee of U.S. Patent 4,549,302 (the '302 patent), against Ven-Tel, Inc., Omnitel, Inc., and Everex Systems, Inc. The jury found that the patent was not invalid and was willfully infringed by each defendant, and it awarded Hayes damages. The district court subsequently denied the defendants' motion for judgment notwithstanding the verdict (JNOV). Ven-Tel appeals on the issues of validity, infringement, and willful infringement. Hayes cross-appeals from the district court's denial of enhancement of royalties payable during pendency of this appeal and denial of sanctions under Fed.R.Civ.P. 11. ¹ We affirm the judgment in all respects.

BACKGROUND

The '302 patent, entitled "Modem with Improved Escape Sequence Mechanism to Prevent Escape in Response to Random Occurrence of Escape Character in Transmitted Data," was issued in the name of Dale Heatherington on October 22, 1985. The application was a division of a division of a parent application filed on June 19, 1981, from which it claims priority. The invention relates to a mechanism for controlling the mode of operation of a modem. A modem is used for modulating and demodulating signals, both analog and digital, over telephone lines. ² It has two modes: (1) a transparent mode, in which the modem performs the modulation-demodulation function ³, and (2) a command mode, in which the modem responds to predetermined commands and performs operations by executing a set of instructions stored in Read-Only-Memory (ROM) or firmware. A predetermined command or escape command tells the modem when to switch between transparent and command modes.

The patent claims an improved mechanism for detecting an escape command by a modem. It contains five claims, claims 1, 2, 4, and 5 being in independent form. Claim 1 is representative of the claims in suit, and reads as follows:

1. In a modem including a data input port for connecting said modem to a utilization device, and a telephone port for connecting said modem to a telephone line, said modem being of the type having two distinct modes of operation:

(a) a transparent mode of operation for which said modem provides modulated signals to said telephone port in response to data signals provided to said data input port; and

(b) a command mode of operation for which said modem responds to said data signals provided to said data input port as instructions to said modem;

said modem including means defining a predetermined sequence of said data signals as an escape character; the improvement comprising:

timing means for detecting each occurrence of a passage of a predetermined period of time after provision of one of said data signals to said data input port; and

means, operative when said modem is in said transparent mode of operation, for detecting provision of said predetermined sequence of said data signals, and for causing said modem to switch to said command mode of operation, if and only if said predetermined sequence of data signals occurs contiguous in time with at least one said occurrence of said passage of said predetermined period of time during which none of said data signals are provided to said data input port.

(Emphasis added). Each claim includes "timing means" and "means, operative."

The specification discloses that a microprocessor used in the invention is preferably a Z-8 type as manufactured by Zilog Inc., but states that "other microprocessors or other collections of memory, registers, counter timers and an arithmetic logic unit providing equivalent functions could be used." ' 302 patent, col. 4, lines 20-25. The preferred processor includes a central processing unit (CPU) and a program ROM for storing instructions for the functions to be executed by the processor. Id. at col. 5, lines 14-17. The ROM is programmed to include instructions which are used to control the mode in which the modem operates. Id. at col. 5, lines 58-61. In the transparent mode, all data coming into the computer's data port are treated as data to be modulated and then transmitted over telephone lines. The preferred embodiment will switch from the transparent mode to the command mode when it receives a predetermined sequence of data bits, the escape Ven-Tel manufactures and markets a modem for use with personal computers that detects the escape code signal "-+++-", wherein "-" represents one second of guardtime and "+++" is the industry standard escape signal. Ven-Tel first marketed its modems in 1983, designed to be compatible with commercially available software by using the standard escape code signal. In October 1986, Hayes sent approximately 125 manufacturers, including Ven-Tel, notices of potential infringement of the '302 patent and offered licensing arrangements. In May 1987, at the direction of the Modem Patent Defense Group (MPDG), a consortium of such manufacturers, Charles Call, a patent attorney, prepared a written validity opinion on the patent and opined that it was invalid. This letter became known as the "green light letter." Potential members of MPDG were asked to contribute $10,000 each to fund litigation against Hayes' patent. Ven-Tel paid its membership fee and, in return, received a copy of the green light letter.

                command.   The specification recites the escape sequence as one full second of no data, followed by the predetermined escape command, followed by another full second of no data.   Id. at col. 6, lines 24-29.   The periods of no data have been commercially referred to as "guardtime."
                

On January 7, 1988, Ven-Tel filed suit under the Declaratory Judgment Act, 28 U.S.C. § 2201 (1988), for a declaration of invalidity and non-infringement. Hayes counterclaimed that Ven-Tel was infringing the '302 patent and violating the antitrust laws. On January 25, 1991, a jury returned a general verdict that the '302 patent was not invalid and was willfully infringed. The jury awarded as past damages a reasonable royalty of 1.75% of net sales of Ven-Tel's infringing products, totalling $1,010,116.50. The court entered judgment accordingly and reserved judgment on the issues of permanent injunction, prejudgment interest, enhancement of damages, and attorney fees. Ven-Tel filed motions under Fed.R.Civ.P. 50(b) for JNOV ⁴ and for a stay of injunction pending appeal. Hayes moved for sanctions, enhanced damages, attorney fees, and an accounting of infringing sales.

The district court denied Ven-Tel's motion for JNOV on all grounds, granted Hayes' motion for an injunction, and granted Ven-Tel's motion for a stay of the injunction pending appeal. The court also granted Hayes' motion for prejudgment interest, awarded enhanced damages of twice the amount found and assessed by the jury, and awarded attorney fees. The court agreed to Hayes' requested accounting of infringing sales subsequent to December 31, 1990, and denied Hayes' motion for Rule 11 sanctions.

DISCUSSION

I. Standard of Review from Denial of JNOV on Issues of Infringement and Validity

This case is highly fact-specific and evidence-oriented. It is an excellent illustration of the difficulty appellants face in attempting to persuade a court to reverse a jury verdict involving questions of fact.

On appeal of a judgment entered on a verdict after denial of a motion for JNOV, Ven-Tel

must show that the jury's findings, presumed or express, are not supported by substantial evidence or, if they were, that the legal conclusion(s) implied from the jury's verdict cannot in law be supported by those findings.

Perkin-Elmer Corp. v. Computervision Corp., 732 F.2d 888, 893, 221 USPQ 669, 673 (Fed.Cir.) (citation omitted), cert. denied, 469 U.S. 857, 105 S.Ct. 187, 83 L.Ed.2d 120 (1984). Fact findings reviewed under the substantial evidence standard require affirmance unless appellant shows that no reasonable juror could have reached such a result. ⁵ Id.; see Railroad

Dynamics, Inc. v. A. Stucki Co., 727 F.2d 1506, 1512-13, 220 USPQ 929, 936 (Fed.Cir.), cert. denied, 469 U.S. 871, 105 S.Ct. 220, 83 L.Ed.2d 150 (1984).

II. Adequacy of the Disclosure

Ven-Tel argues that the '302 patent is invalid for failure to meet the written description requirement of 35 U.S.C. § 112. Specifically, Ven-Tel argues that the "timing means" and the "means, operative" were not described in the specification, and that Hayes maintained the timing means as a trade secret. According to Ven-Tel, Hayes attempted to benefit from the filing date of the 1981 parent application by claiming the escape mechanism without a written description of it in the divisional application filed in 1983...