Fujitsu Ltd. v. Tellabs, Inc.
| Decision Date | 23 May 2013 |
| Docket Number | No. 09 C 4530,09 C 4530 |
| Parties | FUJITSU LIMITED, Plaintiff, v. TELLABS, INC., TELLABS OPERATIONS, INC., and TELLABS NORTH AMERICA, INC., Defendants. |
| Court | U.S. District Court — Northern District of Illinois |
GRANTING TELLABS' MOTION FOR
Defendants Tellabs, Inc., Tellabs Operations, Inc., and Tellabs North America, Inc. (hereinafter collectively referred to as a singular group, "Tellabs") have moved, pursuant to Federal Rule of Civil Procedure 56, for summary judgment on the issue of whether plaintiff Fujitsu Limited can recover under the patent damages theory of lost profits if Tellabs' patent infringement liability were to be established in this case. [593].
Tellabs contends in its motion "that (1) Fujitsu Limited is not entitled to damages in the form of the lost profits because it sells no products in the United States and (2) Fujitsu Limited cannot claim the lost profits of its North American subsidiary and non-exclusive licensee, Fujitsu Network Communications, Inc." Id. Fujitsu Limited filed a Memorandum of Law in Opposition [683] and a Response to Tellabs' Statement of Material Facts [684] for itself and purportedly for Fujitsu Network Communications, Inc. ("FNC"). FNC does not own any of the patents-in-suit, and FNC is not a party to this case, having been dismissed more than four years ago pursuant to an agreed order entered on August 14, 2008 [42]. Consequently, Fujitsu Limited's references indocket entries 683 and 684 to FNC as though FNC were a party to this case are stricken. Additionally, a brief statement regarding the background of this matter is in order.
Fujitsu Limited, a Japanese corporation, is the sole owner of the rights in the two United States patents that Fujitsu Limited continues to assert in this litigation, U.S. Patent No. 5,521,737 ("'737 Patent") and U.S. Patent No. 5,526,163 ("'163 Patent"). Although Fujitsu Limited owns those United States patents, which relate to telecommunications systems, Fujitsu Limited does not sell any telecommunications systems in the United States. Sales of Fujitsu Limited's patented telecommunications systems in the United States are made by a non-exclusive licensee, its wholly-owned United States subsidiary FNC, which is a California corporation and headquartered in Richmond, Texas.
Fujitsu Limited commenced this litigation on January 29, 2008 when it filed a complaint against Tellabs, Inc. and Tellabs Operations, Inc. in the United States District Court for the Eastern District of Texas ("Texas Action") alleging infringement of four of Fujitsu Limited's United States patents. The four initial patents-in-suit were the '737 Patent and the '163 Patent, as well as U.S. Patent No. 5,386,418 ("'418 Patent") and U.S. Patent No. 6,487,686 ("'686 Patent"). The Texas Action was transferred to this court on July 29, 2009 and was assigned Northern District of Illinois Case No. 09 C 4530. Fujitsu Limited's allegations regarding its '686 Patent were dismissed from this litigation pursuant to settlement on November 4, 2010 [249]. Fujitsu Limited's '418 Patent was determined to be invalid on September 26, 2012 [950].
On June 11, 2008, Tellabs Operations, Inc. filed Case No. 08 C 3379 against Fujitsu Limited and FNC in the United States District Court for the Northern District of Illinois("Illinois Action") alleging infringement of Tellabs Operations, Inc.'s U.S. Patent No. 7,369, 772 ("'772 Patent'"). Fujitsu Limited filed a counterclaim in the Illinois Action against all three Tellabs entities alleging Tellabs' infringement of two other of Fujitsu Limited's U.S. Patents, Nos. 5,533,006 ("'006 Patent") and 7,227,681 ("'681 Patent") [61]. Tellabs in the Illinois Action, 08 C 3379, sought a declaratory judgment determination that Fujitsu Limited's '006 Patent and Fujitsu Limited's '681 Patent were invalid. This court on March 31, 2011 ruled in the Illinois Action that Fujitsu Limited's '006 Patent was invalid [Case No. 08 C 3379, 369]. Fujitsu Limited's allegations of Tellabs' infringement of the '681 Patent, along with Tellabs' assertion of the '681 Patent's invalidity, were tried to a jury in late August and early September 2012. The jury returned a verdict on September 7, 2012 finding that Tellabs did not infringe the '681 Patent and that the '681 Patent was not invalid [Case No. 08 C 3379, 564].
Although the Illinois Action, No. 08 C 3379, and Texas Action, No. 09 C 4530, were consolidated for discovery purposes, FNC's involvement is limited only to the Illinois Action that was brought by Tellabs Operations, Inc. accusing FNC, along with FNC's parent, Fujitsu Limited, of infringing Tellabs Operations, Inc's '772 Patent. FNC has asserted no claims and has sought no damages whatsoever from Tellabs, because FNC owns none of the patents-in-suit. The Illinois Action was bifurcated pursuant to Federal Rule of Civil Procedure 42(b) and proceeded to a jury trial on Fujitsu Limited's '681 Patent as stated above. Beyond that, the Illinois action was stayed as to any issue related to the '772 Patent, pending that patent's reexamination. [478; 929].
The lost profits damages issue relates only to the Texas Action, No. 09 C 4530, to which FNC is not a party.
In March 2012, Fujitsu Limited pursuant to Federal Rule of Civil Procedure 26(a)(2) submitted an expert report of its damages expert Christopher J. Bokart to Tellabs. That report includes damage calculations using the theory of lost profits regarding two contracts Tellabs obtained instead of FNC: the 2005 Verizon contract and the 2006 Qwest contract. Tellabs disputes that lost profits, in any form, are a proper measure of Fujitsu Limited's recoverable damages if patent infringement liability were proven against any of the Tellabs entities. Tellabs further asserts that Fujitsu Limited cannot recover lost profits of its wholly-owned subsidiary and non-exclusive licensee, FNC. Fujitsu Limited contends that its lost profits damages legal theory is proper if Tellabs' patent infringement liability were to be proven.
Under Federal Rule of Civil Procedure 56(a), summary judgment is appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). The court's role in reviewing a motion for summary judgment is simply "to determine based on the record whether there is a genuine issue of material fact requiring trial." Costello v. Grundon, 651 F.3d 614, 636 (7th Cir. 2011). In performing this analysis, the court views the evidence in the light most favorable to Fujitsu Limited, the non-movant. Berry v. Chicago Transit Authority, 618 F.3d 688, 691 (7th Cir. 2010).
Title 35, United States Code, Section 284 states:
Upon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court.
The availability of lost profits damages under 35 U.S.C. § 284 to a patent owner as a result of infringement is a question of law. Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1544 (Fed. Cir. 1995) (en banc); see also Poly-America, L.P. v. GSE Lining Tech., Inc., 383 F.3d 1303, 1311 (Fed. Cir. 2005) ().
Traditionally, patent owners seeking compensatory damages under § 284, "tend to fit their damages cases into the 'lost profits' framework or else fall back on the statutory grant of a reasonable royalty." Mars, Inc. v. Coin Acceptors, Inc., 527 F.3d 1359, 1366 (Fed. Cir. 2008). The Federal Circuit has held that the damages theory of lost profits "is not limited to the situation in which the patentee is selling the patented device." Poly-America, 383 F.3d at 1365. The patent owner is required, however, "to have been selling some item, the profits of which have been lost due to infringing sales." Id. As noted above, "[w]hether lost profits are legally compensable in a particular situation is a question of law." Id. The standard of review is de novo. Id. The Federal Circuit has recognized that a court's analysis of the correct measure of damages, however, is "highly case-specific and fact-specific." Mars, 527 F.3d at 1366.
As noted above, Fujitsu Limited also seeks to recover as damages the profits that were allegedly lost by its domestic subsidiary, FNC, due to Tellabs' sales of the allegedly infringing systems pursuant to the 2005 Verizon and 2006 Quest contracts that Tellabs obtained.
The issue governing whether a parent company patent owner may be compensated under the damages theory of lost profits for its wholly-owned subsidiary's lost sales turns on whetherthe subsidiary's profits "flowed inexorably" to the patent-owner parent. Mars, 527 F.3d at 1367. The mere fact that the subsidiary's lost sales "may have caused harm" to the parent company is not sufficient, by itself, to establish lost profits damages. Id. at 1365.
Judge Richard Linn's 2008 opinion in Mars, which was joined by Judges Clevenger and Prost, applied the reasoning of Judge Alan Lourie's 2004 opinion in Poly-America, which was joined by former Chief Judge Michel and current Chief Judge Rader. These cases are precedent that this court must follow in evaluating the undisputed material facts here.
In the Mars case, the corporate relationship was the same as here. Mars was the parent corporation of MEI, a wholly-owned subsidiary licensee of the patents-in-suit owned by Mars. The patents dealt with technology for coin changers. Mars...
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