American Medical Systems, Inc. v. Medical Engineering Corp.
| Citation | 28 USPQ2d 1321,6 F.3d 1523 |
| Decision Date | 04 October 1993 |
| Docket Number | 92-1555,Nos. 92-1538,s. 92-1538 |
| Parties | AMERICAN MEDICAL SYSTEMS, INC., Plaintiff/Cross-Appellant, v. MEDICAL ENGINEERING CORPORATION, Defendant-Appellant. |
| Court | United States Courts of Appeals. United States Court of Appeals for the Federal Circuit |
Rudolf E. Hutz, Connolly, Bove, Lodge & Hutz, Wilmington, DE, argued, for plaintiff/cross-appellant. With him on the brief, were George Pazuniak and R. Eric Hutz. Of counsel, was C. Thomas Sylke.
Mark T. Banner, Allegretti & Witcoff, Ltd., Chicago, IL, argued, for defendant-appellant. With him on the brief, were Jerry A. Riedinger, Grantland G. Drutchas and A. Blair Hughes.
Before NIES, Chief Judge, MICHEL and RADER, Circuit Judges.
American Medical Systems, Inc. (AMS) 1 brought suit in the United States District Court for the Eastern District of Wisconsin against Medical Engineering Corporation (MEC) 2 for willful infringement of United States Patent No. 4,597,765, issued to Klatt (the '765 patent). MEC counterclaimed for declaratory judgment of invalidity and noninfringement, for an alleged breach of warranty, and for intentional, negligent and fraudulent misrepresentation by AMS.
After a bench trial, the district court issued its Decision and Order, No. 87-C-1236(JPS), 3 on June 25, 1992, rejecting each of MEC's counterclaims and holding that the '765 patent was not invalid and was infringed. The court further found that MEC's infringement was willful and that AMS was entitled to an award of enhanced damages of 1.5 times its proven lost profits and reasonable royalties. The court limited AMS's recoverable damages to those incurred after the filing date of the lawsuit, however, due to AMS's initial failure to mark its patented articles under 35 U.S.C. Sec. 287(a) (1988). On September 1, 1992, the district court entered judgment in accord with its decision and permanently enjoined MEC from any further infringement of the '765 patent.
On appeal, MEC concedes validity and infringement, but challenges the district court's finding of willfulness and its award of enhanced damages. MEC also argues error in the denial of its counterclaim for breach of warranty and additionally alleges a violation of its Seventh Amendment right to a jury trial. 4 AMS cross-appeals the district court's limitation of its recoverable damages under 35 U.S.C. Sec. 287(a).
Because the district court's finding of willfulness is not clearly erroneous, we affirm the court's finding on this aspect. Because no abuse of discretion has been shown, we also affirm the court's enhancement of the actual damages by 1.5 times. Finding no error, we also affirm the district court's holding
that there was no breach of warranty. Furthermore, we hold that MEC's alleged violation of its Seventh Amendment right to a jury trial is without merit. On AMS's cross-appeal, however, because the district court improperly construed 35 U.S.C. Sec. 287(a) in limiting AMS's recoverable damages to those incurred after the suit was filed, we reverse and remand to the district court for a new determination of damages consistent with this decision.
AMS and MEC were vigorous competitors in the area of penile prostheses. 5 Each company had its own commercial version of a fluid-filled prosthetic device. AMS's prosthesis was called the "Hydroflex" and MEC's equivalent device was the "Flexi-Flate." Both devices were initially sold unfilled in a "dry pack" configuration.
AMS and MEC were previously involved in two interference proceedings and one arbitration concerning this prosthesis technology. All of these prior actions were settled by agreement of the parties.
One of the interference actions, Interference No. 100,779 (the '779 interference), was settled by an agreement known as the "Hakky agreement." 6 All of the counts of the '779 interference were directed solely to the prosthetic devices themselves.
The Hakky agreement contained a warranty provision which was set out in two paragraphs of the settlement agreement as follows:
17.7. AMS and MEC each represent that their respective current technical disclosures to each other are accurate and complete with respect to the patent issues in the '779 interference.
17.8. AMS and MEC each warrant that there are no other issued patents, nor any pending applications for letters patent, reissue, continuation, continuation-in-part, or divisions with respect to any device disclosed to the warranting party by the other party which would result in any infringement or other potential litigation issue.
The Hakky agreement was signed by both parties in March of 1985. 7 The disclosures made by both parties pursuant to the Hakky agreement were limited to technology involving the actual devices. At the time of this agreement, neither party discussed nor implicated matters beyond the actual devices themselves, such as the concept of pre-filling the devices during manufacture, sterilization of the devices, or packaging of the devices for implantors.
The present appeal involves AMS's '765 patent, which claims an apparatus and method for packaging a fluid-containing penile prosthesis in a pre-filled, sterile state. The prosthesis itself comprises a hydraulic, inflatable, fluid-permeable silicone cylinder with a fluid reservoir and pump contained in the cylinder, which is self-contained such that the entire prosthesis is implanted into the penis. Both the Hydroflex and the Flexi-Flate are this type of device. The packaging comprises a sterile, fluid-filled inner package that holds the pre-filled prosthesis and a non-sterile outer package that contains the inner package in a sterile state. This packaging configuration is referred to in the industry as the "wet pack."
AMS filed its application claiming the combination of a prefilled prosthesis stored in the double layer packaging on December 27 The prior art unfilled prosthesis, such as the dry-pack Hydroflex or dry-pack Flexi-Flate, required filling in the operating room prior to implantation. This was undesirable because it increased the operating time required to implant the prosthesis and could lead to certain problems due to improper filling or leaking.
1984. The '765 patent issued from this application on July 1, 1986. Claims 1-12 and 21-24 of the '765 patent are directed to the apparatus comprising the prefilled and presterilized packaged prosthesis. Claims 14-15 and 18-20 of the '765 patent are directed to the method of making and sterilizing a packaged pre-filled and presterilized prosthesis.
The subject matter of the '765 patent solved the problems of the prior art dry-pack configuration devices by pre-filling the prosthesis with a saline solution and immersing it in a foil pouch filled with a saline solution having the same osmotic properties as the solution within the prosthesis. This allowed the liquid level within the device to be maintained at a precise level while in storage prior to implantation. This inner foil pouch was then sterilized and stored inside an outer non-sterile container. The two layer packaging configuration allowed for a non-sterile nurse to open the non-sterile outer package and present the sterile inner package containing the pre-filled prosthesis to a sterile nurse to open in the operating field. Because of these asserted advantages, there was a much greater demand in the market for a pre-filled, pre-sterilized prosthesis over an unfilled device.
MEC began to work on the problem of marketing a pre-filled, sterilized packaged version of its Flexi-Flate prosthesis in early 1984. MEC's original packaging concept involved placing the pre-filled prosthesis in a rigid vapor impermeable tube containing saline of the same osmolarity as that within the device. The rigid tube was then enclosed in a slightly larger tube or pouch. MEC also attempted reversing the relationship of the tube and the pouch. None of these attempts to design a pre-filled packaged prosthesis proved to be successful, however, due to problems with leaking and sterilization.
In May of 1985, MEC personnel saw AMS's pre-filled, sterilized Hydroflex prosthesis in the wet pack packaging configuration at the annual American Urological Association trade show. The AMS package at the trade show was not marked with any patent pending notice, and no representations were made at that time that any patent applications had been filed. MEC abandoned its previous packaging configurations after it obtained a sample of the Hydroflex device and packaging, which it referred to in creating its own double foil pouch wet pack packaging. MEC then introduced its own wet pack "Flexi-Flate" prosthesis in the market in May 1985. MEC also filed a patent application on its pre-filled product and package, but the application was later abandoned.
MEC became aware of the '765 patent shortly after it issued in late July 1986, through the efforts of its in-house patent counsel, Stuart Krieger. 8 AMS's patent counsel, James Elacqua, also called Krieger twice in August 1986, to advise MEC of the existence of the '765 patent. No accusation of infringement was made by AMS at that time, however. Krieger immediately contacted MEC's vice president for scientific affairs, Garry Carter, to advise him of the patent. Krieger also testified that he authorized performance of several patent validity searches on the '765 patent. These opinions were withheld at trial, however. At the end of August or the beginning of September of 1986, Krieger informed MEC's president, Robert Helbling, in an oral opinion that the '765 patent was invalid for obviousness and that MEC's wet pack Flexi-Flate fell literally within the scope of the '765 patent claims.
Shortly after learning of AMS's '765 patent, MEC began work on an alternative packaging configuration for its pre-filled device, known as the ...
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