Drone Techs., Inc. v. Parrot S.A., Parrot, Inc.

• Decision Date: 29 September 2016
• Citation: 838 F.3d 1283,120 U.S.P.Q.2d 1336
• Parties: Drone Technologies, Inc., Plaintiff–Appellee v. Parrot S.A., Parrot, Inc., Defendants–Appellants
• Court: U.S. Court of Appeals — Federal Circuit

838 F.3d 1283

120 U.S.P.Q.2d 1336

Drone Technologies, Inc., Plaintiff–Appellee

v.Parrot S.A., Parrot, Inc., Defendants–Appellants

United States Court of Appeals, Federal Circuit.

Decided: September 29, 2016

Gene A. Tabachnick , Beck & Thomas, P.C., Pittsburgh, PA, argued for plaintiff-appellee. Also represented by Richard T. Ting .

Jeffrey A. Lamken , MoloLamken LLP, Washington, DC, argued for defendants-appellants. Also represented by Sarah Justine Newman, Eric Richard Nitz ; James E. Hopenfeld , Singer Bea LLP, San Francisco, CA; Tammy J. Terry , Osha Liang LLP, Houston, TX; John M. Whealan , Chevy Chase, MD.

Before Newman, Schall, and Chen, Circuit Judges.

Opinion concurring in the judgment filed by Circuit Judge Newman

.

Schall

, Circuit Judge.

Parrot, S.A. and Parrot, Inc. (collectively, “Parrot”) appeal from the final judgment of the United States District Court for the Western District of Pennsylvania that awarded Drone Technologies, Inc. (“Drone”) damages for Parrot's infringement of two patents owned by Drone as assignee and that also awarded Drone attorney fees pursuant to 35 U.S.C. § 285

and Rule 37 of the Federal Rules of Civil Procedure. Drone Techs., Inc. v. Parrot S.A. , No. 14CV0111, 2015 WL 3756318, at *1, *14 (W.D. Pa. June 12, 2015). The awards of damages and attorney fees came after the district court entered a default judgment against Parrot as a sanction for Parrot's failure to comply with two discovery orders issued by the court. The default judgment struck Parrot's answer and counterclaims and made Parrot liable for infringement of the two patents. Drone Techs., Inc. v. Parrot S.A. , 303 F.R.D. 254, 266 (W.D. Pa. 2014)

. For the reasons set forth below, we hold that the district court abused its discretion in issuing the two discovery orders and in entering a default judgment against Parrot for its failure to comply with the orders. We therefore vacate the final judgment and the awards of damages and attorney fees and remand the case to the district court for further proceedings consistent with this opinion.

Parrot also appeals the district court's denial of its motion to dismiss Drone's complaint for lack of standing. As discussed below, the basis for the motion was Parrot's contention that the assignments to Drone were invalid because the person named on the patents and who assigned the patents to Drone was not the true inventor. Parrot also raised the affirmative defense of improper inventorship under 35 U.S.C. § 102(f)

, which the district court struck as part of its default judgment. We affirm the district court's denial of Parrot's motion to dismiss for lack of standing. However, on remand, Parrot will have the opportunity to reassert its invalidity defense based on alleged incorrect inventorship. The district court will be in a position to resolve the issue of inventorship; a successful challenge to inventorship may invalidate the patents-in-suit.

BACKGROUND

I.

Drone is a Taiwanese corporation and the assignee of U.S. Patent Nos. 7,584,071 (“the '071 patent”)

and 8,106,748 (“the '748 patent”) (collectively, “the patents-in-suit”). The patents-in-suit are generally directed to systems for remotely controlled machines. '071 patent, Abstract; '748 patent, Abstract.¹ According to the '071 patent, at the time of the invention, conventional remote-control systems included two main components: a remote-controlled device (e.g., a model airplane) and a handheld device with a control stick. Id. at 1:22–36. To control the movement of the airplane once in flight, a user would alter the position of the stick to cause an associated change in the flight angle of the plane. See id. at 1:36–47. Such systems had drawbacks, though, as they only controlled movement in two directions. See id. at 1:48–51. Other systems existed that enabled users to control three directions of movement. The handheld devices in those systems, however, incorporated multiple control elements, which required simultaneous use of both hands and thus made controlling the airplane's flight path difficult. See id. at 1:52–60. The patents-in-suit purport to overcome these deficiencies by providing a system that enables a user to synchronize the movement of a remote-controlled device with the movement of a remote controller. See id. at 1:64–2:2, 2:62–3:3. In other words, moving the handheld control itself causes a synchronous movement of the airplane. For example, if the handheld control is tilted downward and to the left, the plane moves down and to the left.

The claims of the patents-in-suit recite systems with “a remote controller” and “a remote-controlled device,” each having a set of “modules.” Id. at 7:63–8:24. Independent claim 1 of the '071 patent

is representative of the claimed subject matter and provides as follows:

1. A remote control system, comprising:

a remote controller , comprising:

a motion detecting module, which detects the remote controller's motion and outputs a motion detecting signal; and a first communication module, which connects to the motion detecting module and receives the motion detecting signal, and transmits a target motion signal according to the motion detecting signal; and

a remote-controlled device, which is controlled by the remote controller , comprising:

a second communication module, which receives the target motion signal from the remote controller;

a terrestrial magnetism sensing module, which detects the remote-controlled device's terrestrial magnetism and outputs a terrestrial magnetism sensing signal;

a processing module, which has a first input connected to the terrestrial magnetism sensing module and receives the terrestrial magnetism sensing signal, and a second input connected to the second communication module and receives the target motion signal, and processes the terrestrial magnetism sensing signal and the target motion signal to output a driving control signal; and

a driving module, which connects to the processing module and receives the driving control signal, and adjusts the remote-controlled device's motion according to the driving control signal.

'071 patent

, 7:63–8:24 (emphases added).

Parrot, S.A. is based in Paris, France. Its wholly owned subsidiary, Parrot, Inc., is a New York corporation headquartered in Michigan. Parrot is a designer, developer, and marketer of hobby aircraft, i.e., “drones.” When this lawsuit was initiated, Parrot offered the AR.Drone and the AR.Drone 2.0 in the United States. Parrot also had two other types of drones: the Bebop Drone, which was still under development, and its Jumping Sumo and Rolling Spider MiniDrones (the “MiniDrones”), which had not yet been released in the United States. Parrot also offered software—the “FreeFlight” application—that consumers could download and install on a touchscreen device (e.g., a smartphone) to pilot a Parrot drone. Pertinent to this case, Parrot's drones require source code for their operation.² Parrot uses source code for the FreeFlight application (the “off-board source code”) and separate source code in the drone itself (the “on-board source code”).

II.

On January 24, 2014, Drone sued Parrot in the Western District of Pennsylvania, alleging that Parrot (by virtue of its customers' actions) indirectly infringed the '071 patent

and the '748 patent. In particular, Drone contended that Parrot instructed customers who purchased the AR.Drone or AR.Drone 2.0 to download and use the FreeFlight application to pilot their aircraft.³ Once the customers followed Parrot's instructions and implemented Parrot's remote-controlled system, Drone alleged, they directly infringed the systems claimed in the patents-in-suit.

Parrot answered the complaint on May 7, 2014, denying infringement and asserting various counterclaims and affirmative defenses, based on its view that the patents-in-suit were neither infringed nor valid. As more fully discussed below, after discovery was underway, the parties began to dispute whether Parrot should be required to produce all source code used in operating its drones. Eventually, Drone filed a motion to compel. In an order dated July 1, 2014, the district court granted Drone's motion, compelling Parrot to produce, inter alia , its on-board source code. Unsatisfied with Parrot's subsequent productions, Drone filed another motion to compel Parrot to produce its on-board source code, which the court granted on July 25, 2014. Subsequently, on November 3, 2014, the district court sanctioned Parrot for its failure to comply with its two prior discovery orders. In imposing sanctions, the court struck Parrot's counterclaims and defenses and entered a default judgment against it as to liability.

III.

Having found Parrot liable for infringement, the court scheduled proceedings on damages. In due course, the issue of damages was tried before a jury, with the jury finding that Drone was entitled to $7.8 million in damages for Parrot's infringement. Thereafter, the court entered judgment in favor of Drone in the amount of $7.8 million and awarded Drone roughly $1.7 million in attorney fees pursuant to 35 U.S.C. § 285

and Fed. R. Civ. P. 37. Parrot now appeals. We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(1).

DISCUSSION

Parrot raises three issues on appeal. First, it contends that Drone did not have standing to sue and that, therefore, the district court should have dismissed Drone's suit for lack of jurisdiction. Second, Parrot argues that the court abused its discretion in directing Parrot to turn over its on-board source code and then sanctioning Parrot by entering a default judgment against it when it failed to do so. Finally, Parrot urges that, even if the default judgment of liability is allowed to stand, the award of damages should be vacated because the district court misapplied the law on damages and abused its discretion in allowing the jury to consider certain evidence on damages. We turn first to the matter of standing.

I.

A.

Following the district court's entry of default judgment, but before...