Aat Bioquest, Inc. v. Tex. Fluorescence Labs., Inc., Case No. 14-cv-03909-DMR
| Decision Date | 30 November 2015 |
| Docket Number | Case No. 14-cv-03909-DMR |
| Court | U.S. District Court — Northern District of California |
| Parties | AAT BIOQUEST, INC., Plaintiff, v. TEXAS FLUORESCENCE LABORATORIES, INC., Defendant. |
AAT BIOQUEST, INC., Plaintiff,
v.
TEXAS FLUORESCENCE LABORATORIES, INC., Defendant.
Case No. 14-cv-03909-DMR
UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA
November 30, 2015
FINDINGS OF FACT AND CONCLUSIONS OF LAW
This is a patent infringement action. The court determined on summary judgment that Defendant Texas Fluorescence Laboratories ("TEFLABS") had infringed United States Patent No. 8,779,165, to which Plaintiff AAT Bioquest ("AAT") holds all rights, title, and interest. See Docket No. 46 ("MSJ Order"). In reaching this determination, the court rejected TEFLABS's arguments that the patent was invalid and/or unenforceable due to inequitable conduct.
The remaining issues relate to AAT's claims for damages, interest, costs, and attorneys' fees.1 The court held a bench trial on damages and entitlement to attorneys' fees. Pursuant to Federal Rule of Civil Procedure 52(a), the court makes the following findings of fact and conclusions of law.
A. Background
1. AAT and TEFLABS are direct competitors in the business of making, marketing, and
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selling fluorescent ion indicators.2 They have competed in this market since at least January 2011.
2. Dr. Zhenjun Diwu is the President of AAT. Dr. Diwu has worked in the research and development of calcium ion indicators for over 20 years. He is a named inventor on 47 issued patents and a number of pending patent applications. AAT has 19 employees. In 2014, AAT's revenue was between $4 and $5 million.
3. Dr. Akwasi Minta is the founder, chairman, and chief scientist of TEFLABS. Dr. Minta has 40 years of experience in the field of fluorescent ion indicators. TEFLABS has two directors—Dr. Minta and Mr. Rick Yeager, whose role is discussed further below—and three other employees. Dr. Minta and Mr. Yeager are responsible for managing and making decisions on behalf of TEFLABS. TEFLABS's revenue in 2014 was about $400,000. Roger Tsien and Dr. Minta were the named inventors in United States Patent No. 5,049,673 (the "Tsien Patent"), which issued in 1991 and is also in the field of fluorescent calcium ion indicators.
4. At trial, both parties called the same witnesses: Dr. Diwu, Dr. Minta, and Mr. Yeager.
B. The '165 Patent and AAT's Fluo-8 Product
5. On July 15, 2014, the United States Patent and Trademark Office ("USPTO") issued Patent No. 8,779,165 ("the '165 Patent"), entitled "Fluorescent Ion Indicators and Their Applications." AAT holds all rights, title, and interest in the '165 Patent. AAT manufactures a product called Fluo-8 AM MA ("Fluo-8"), which is an embodiment of the invention claimed in Claim 1 of the '165 Patent.
6. Fluo-8 is a desirable product among fluo indicators. It has improved loading and brightness as compared to Fluo-4, another popular product. Fluo-8 also has less temperature sensitivity, which means that tests can be performed easily at room temperature. Ample evidence supports that TEFLABS recognized and advertised Fluo-8's advantageous qualities to its customers. TEFLABS asked Dr. Joseph Kao to analyze Fluo-8 and compare it with Fluo-3 and Fluo-4. Dr. Kao acknowledged that Fluo-8 is a better, higher intensity indicator than those two
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products. TEFLABS's own marketing materials and customer communications tout Fluo-8's superiority. See, e.g., Joint Statement of Undisputed Facts ("JSUF") 20 ("TEFLABS advertised Fluo-8 "'the brightest and easiest loading Fluo indicator, and its long wavelength, high sensitivity, affinity, and fluorescent enhancement (.100x) make Fluo-8 an ideal indicator for the measurement of cellular calcium.'"); TEFLABS products list (Ex. 3) (Fluo-8 is "the brightest Fluo Dye available!"); marketing letter from Dr. Minta (Ex. 7) ("Fluo-8 is enjoying popularity over Fluo-4 owing to its better brightness and easier loading"); article on TEFLABS's website (Ex. 18) ("Fluo-2 MA (the same molecule as Fluo-8) has become a very cost effective replacement for screeners and researchers currently using Fluo-3, Fluo-4 or Fluo-8.").
7. AAT is not aware of any Fluo-8 customer that has switched back to another fluo indicator after using Fluo-8. There are no acceptable non-infringing substitutes to Fluo-8, (that is, no unpatented product with the same properties as Fluo-8), because only Fluo-8 has its improved qualities of loading, brightness, and less temperature sensitivity.
8. Fluo-8 has been commercially successful for AAT, becoming its best-selling product within six months of its first commercial release in 2007. Similarly, TEFLABS's Fluo-8 product became its best-selling calcium indicator until it ceased selling the product in May 2015 as a result of this lawsuit.
9. Beginning on July 15, 2014, the issuance date for the '165 Patent, AAT put the patent number on its online product information sheet for Fluo-8 and also on the printed product materials. Even before the patent issued, TEFLABS understood that AAT marked its Fluo-8 product as patent pending.
C. TEFLABS's Manufacture and Sale of Fluo-8
10. TEFLABS concedes that it made and sold a product with the same structure as Fluo-8, which TEFLABS initially called Fluo-2 MA AM. TEFLABS eventually re-named its product Fluo-8 MA, because customers were asking for Fluo-8.3 It is undisputed that AAT and TEFLABS
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are the only manufacturers of Fluo-8.
11. There is also no dispute that TEFLABS intentionally copied Fluo-8 and began to manufacture and sell it. During the relevant time period, AAT maintained the confidentiality of Fluo-8's molecular structure. In order to manufacture the product, TEFLABS instructed Dr. Kao (an individual not associated with AAT) to obtain a sample of Fluo-8, because TEFLABS did not think AAT would sell to TEFLABS directly. Once TEFLABS obtained the structure, it began making the product.
12. In 2011, AAT asked TEFLABS how it had determined the structure of Fluo-8, including how TEFLABS obtained a source for Fluo-8. TEFLABS refused to provide that information.
13. TEFLABS informed its customers that what it called "Fluo-2 MA AM" was the same product as AAT's Fluo-8. For example, TEFLABS knew that Scripps Florida was an AAT customer. TEFLABS told Scripps Florida that its Fluo-2 MA AM was the same as Fluo-8, and sent Scripps Florida a sample to confirm that fact. TEFLABS then lowered its price of Fluo-8 below AAT's price so that TEFLABS could get Scripps Florida as a customer.
D. TEFLABS's Awareness of '165 Patent
14. TEFLABS first became aware of the patent application that later resulted in the '165 Patent in 2009 or 2010.
15. On January 18, 2011, AAT sent TEFLABS a notice letter that included a copy of the patent application. The letter indicated that the then-pending application was relevant to TEFLABS's Fluo-2 MA AM product. TEFLABS did not consider ceasing its manufacture or sale of Fluo-8 after receiving the letter.
16. TEFLABS also chose not to obtain an independent opinion of counsel. Instead, it relied on the opinion of Mr. Yeager, who is the President of TEFLABS and is also a patent attorney. He has been licensed by the USPTO for twenty years, and his practice involves the preparation and analysis of patents, particularly patents that relate to TEFLABS's core business.
17. Mr. Yeager is TEFLABS's counsel of record in this case, and he has not received compensation for his work. TEFLABS did not hire counsel to defend this action because it believed the legal issues in this lawsuit, and in the pre-litigation review of the patent and patent
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application, were straightforward enough that TEFLABS did not need outside counsel. In any event, TEFLABS did not have the ability to pay outside counsel.
18. On March 3, 2011, Mr. Yeager responded to the January 18, 2011 letter on behalf of TEFLABS. TEFLABS knew when it copied Fluo-8 that the product would be covered by AAT's patent if it issued. However, TEFLABS was convinced that the USPTO would not issue a patent. As it asserted in its March 3, 2011 response to AAT, TEFLABS believed that Fluo-8 was in the public domain because it was covered by the claims in the Tsien patent, which had expired. Dr. Minta believed that the structure of the Fluo-8 compound was the same as the Fluo-2 compound that he had co-invented in the Tsien Patent. However, Dr. Minta conceded that he had never made a compound with the specific structure of Fluo-8 until TEFLABS copied Fluo-8.
19. The March 3, 2011 letter is the only written document reflecting Mr. Yeager's (and thus TEFLABS's) assessment of the validity of Claim 1 of the '165 Patent. Thus, before this lawsuit, TEFLABS's only basis for believing that AAT's patent application should not issue was based on the defenses of obviousness and anticipation in light of the Tsien Patent. As discussed below, in issuing the '165 patent, the patent examiner considered but rejected arguments about the Tsien patent during the course of patent prosecution.
20. TEFLABS did not monitor the prosecution of AAT's patent application. After the '165 Patent issued on July 15, 2014, AAT sent TEFLABS an August 28, 2014 cease and desist letter, enclosing the '165 Patent and demanding that TEFLABS stop its infringement. AAT also informed TEFLABS that if it ceased its infringing activities immediately, AAT would not pursue litigation or seek damages.
21. At this point, TEFLABS understood that its accused Fluo-8 product was covered by a claim of the issued '165 Patent. Nonetheless, TEFLABS did not cease its manufacture and sale of its Fluo-8 product, nor did it attempt to design around the invention claimed in the patent. Once again, TEFLABS opted not to obtain an independent opinion of counsel as to the validity of Claim 1 of '165 Patent claim after the patent issued.
22. Among the reasons TEFLABS did not stop making and selling its Fluo-8 product was because it represented $60,000 in annual sales. TEFLABS also hoped to win over AAT's
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customer, Molecular Devices, and grow those sales to $500,000 per year. In addition, TEFLABS was exploring the...
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