Odetics, Inc. v. Storage Technology Corp.

• Decision Date: 05 June 1998
• Docket Number: No. CIV. A. 95-881-A.,CIV. A. 95-881-A.
• Citation: 14 F.Supp.2d 785
• Court: U.S. District Court — Eastern District of Virginia
• Parties: ODETICS, INC., Plaintiff, v. STORAGE TECHNOLOGY CORP., et al., Defendants.

14 F.Supp.2d 785

ODETICS, INC., Plaintiff, v. STORAGE TECHNOLOGY CORP., et al., Defendants.

No. CIV. A. 95-881-A.

United States District Court, E.D. Virginia, Alexandria Division.

June 5, 1998.

Richard A. Simpson, Ross, Dixon & Masback, LLP, Washington, DC, Vincent J. Belusko, Graham & James LLP, Los Angeles, CA, for Plaintiff.

Craig C. Reilly, Richards McGettigan Reilly & West, P.C., Alexandria, VA (Nanda K. Alapati, E. Bradley Gould, Pennie & Edmonds LLP, Washington, DC, Jon R. Stark, Mark R. Scadini, Pennie & Edmonds LLP, Palo Alto, CA, George C. Summerfield, Rader Fishman & Grauer PLLC, Bloomfield Hills, MI, Herbert F. Schwartz, Mark H. Bloomberg, Fish & Neave, New York, NY, of Counsel), for Storage Technology.

Craig C. Reilly, Richards McGettigan Reilly & West, PC, Alexandria, VA (Ron E. Shulman, Nina F. Locker, Roger J. Chin, Wilson Sonsini Goodrich & Rosati, PC, Palo Alto, CA, of Counsel), for Visa International.

Thomas J. Scott, Jr., Scott L. Robertson, Hunton & Williams, Washington, DC, for Crestar Bank.

MEMORANDUM OPINION

ELLIS, District Judge.

Can a patentee who is guilty of laches and barred from recovering past infringement damages obtain an injunction prohibiting future use of infringing products manufactured and sold during the laches period?

This is the central remedies question presented in this case following a jury verdict of infringement. And surprisingly, the question appears to be one of first impression in the reported case law, notwithstanding the frequency with which one might reasonably expect it to arise.¹ Also presented are the questions whether an injunction should issue in any form and, if so, whether the injunction should be stayed pending appeal.

I

Plaintiff Odetics, Inc. is the owner of United States Letters Patent No. 4,779,151, issued on October 18, 1988. The '151 patent teaches a system for transporting cassette tapes from a storage library to a tape player. By way of example, the preferred embodiment contains an octagonal housing (often referred to as a silo) inside of which are seven columns of tapes and one column of tape drives, or tape players. Within this housing is a robotic arm that retrieves the tapes from their storage bins and places them into the tape drives. Claims 9 and 14 of the '151, the claims-in-suit, describe a "rotary means" that (i) allows a cassette to be loaded from outside the library, for example by a human operator, and (ii) then rotates to allow the cassette to be accessed by the robotic manipulator located inside the silo.

Storage Technology Corp. ("STK") manufactures and sells certain library systems that Odetics alleged infringed the '151 patent. STK's systems are used to store and play computer data tapes. The accused STK systems contain "pass-thru ports," devices that connect multiple libraries or silos to each other so that tapes can be passed from one silo to another. Specifically, the tapes are placed in the pass-thru port in one library, and the pass-thru port then translates and rotates to deliver the tape to a second, adjacent library. The pass-thru ports thus have the extra advantage of allowing a tape to be inserted into a tape player in another silo if, for example, all of the tape players in the silo in which the tape is housed are in use. In essence, then, the pass-thru port facilitates rapid access to the information stored on the tapes. STK's systems using the pass-thru ports have enjoyed considerable commercial success over the last decade, with numerous systems being sold to a wide range of customers, including defendants Visa International and Crestar Bank.²

On June 29, 1995, Odetics filed this patent infringement action seeking damages from the date the '151 patent issued to the present. The crux of Odetics's infringement allegation was that STK's pass-thru ports infringed the rotary means element of claims 9 and 14.³ Early in the litigation, defendants filed a motion for summary judgment on the ground of laches, which was granted. Accordingly, Odetics was precluded from recovering damages for any infringement occurring before June 29, 1995, the date this action was filed. See Odetics, Inc. v. Storage Technology Corp., 919 F.Supp. 911 (E.D.Va.1996).

Thereafter, the case was tried twice. The first jury found that STK's accused devices did not infringe the '151 patent. Odetics appealed this finding,⁴ and the Federal Circuit vacated the jury's verdict on the ground that this Court's original claim construction was erroneous. See Odetics, 1997 WL 357598. Thus, the matter was tried to a second jury using the claim construction mandated in the Federal Circuit's opinion. This jury found infringement by STK, Visa, and Crestar, concluded that a 4% running royalty rate was reasonable, and awarded Odetics $70.6 million in damages for STK's manufacture and sale of the infringing products since June 29, 1995.⁵ The jury further found that STK, but not Visa and Crestar, wilfully infringed the patent. It awarded no damages for Visa's and Crestar's use of the infringing devices.

Based on the jury's finding of infringement, Odetics seeks a permanent injunction against STK, Visa, and Crestar. Specifically, it seeks to bar STK from making, using, selling, maintaining, or repairing all infringing systems, whether purchased before or after the laches period, and to prohibit Visa and Crestar from using all infringing systems they have purchased, again whether before or after the laches period. Defendants have objected to the issuance of an injunction and have moved conditionally for a stay of the injunction, should one issue.⁶

The parties filed numerous briefs on various remedies issues, and oral argument was heard over two days. Thus, the issues are now ripe for disposition.

II

Section 283 of Title 35 authorizes district courts to impose a permanent injunction upon a finding of infringement. Indeed, it is "the general rule that an injunction will issue when infringement has been adjudged, absent a sound reason for denying it." Richardson v. Suzuki Motor Co., 868 F.2d 1226, 1247 (Fed.Cir.1989). The issuance of an injunction following a verdict of infringement is not automatic, however; district courts must instead follow the traditional equitable principles that guide the decision whether to enjoin certain conduct. See 35 U.S.C. § 283 (stating that courts "may grant injunctions in accordance with the principles of equity"). Thus, district courts enjoy "considerable discretion in determining whether the facts of a situation require it to issue an injunction." Roche Prods., Inc. v. Bolar Pharm. Co., 733 F.2d 858, 865 (Fed.Cir.1984).⁷ With these general principles as background, analysis turns next to the specific issues presented.

A. Enjoining Visa and Crestar

1. Infringing Systems Purchased After the Laches Period

The law is well settled that an injunction shall not issue with respect to any infringing product for whose infringement the patentee has been awarded full compensation. See Union Tool Co. v. Wilson, 259 U.S. 107, 113, 42 S.Ct. 427, 66 L.Ed. 848 (1922); Stickle v. Heublein, Inc., 716 F.2d 1550, 1562-63 (Fed.Cir.1983). Once a patentee has received the compensation it sought for a defendant's infringement, there arises an implied license in law for those products subject to the damages award, and this license frees the infringer from the monopoly of the patent as to those products. Thus, a purchaser of an infringing device for which a damages award has been paid may use it to the extent it could lawfully have done so had the infringing manufacturer originally been licensed to make and sell the product in question. See Stickle, 716 F.2d at 1563; Amstar Corp. v. Envirotech Corp., 823 F.2d 1538, 1549 (Fed.Cir.1987) ("Having been awarded full compensation for the making and using of existing infringing thickeners, therefore, Amstar is not entitled to enjoin their use.").

Visa bought thirty infringing systems from STK after the date the complaint was filed, which, as a result of the laches ruling, is the date the damages period began. The jury's verdict clearly reflects that Odetics has been awarded full compensation for these thirty systems.⁸ Once the jury required STK to pay damages for the sale of these thirty systems, there arose an implied license as to them. Accordingly, Odetics is not now entitled to an injunction prohibiting Visa's use of those infringing systems.⁹

2. Infringing Systems Purchased During the Laches Period

During the laches period, Visa purchased eleven infringing systems, and Crestar purchased three.¹⁰ As to these systems, Visa and Crestar contend that no injunction should issue as a matter of equity, because Odetics has unclean hands by virtue of its laches conduct,¹¹ and, as a matter of policy under recent Federal Circuit precedent, because issuance of an injunction would effectively erase the laches penalty by allowing Odetics to recoup through an injunction what it lost through the application of laches. Odetics counters chiefly by arguing that the application of the laches defense serves only to cut off past damages, nothing more. These arguments merit close scrutiny, as the Federal Circuit has not yet squarely addressed whether a successful laches defense precludes a patentee from obtaining an injunction against future use of an infringing product manufactured and sold during the laches period.

The analysis of the arguments properly begins with A.C. Aukerman Co. v. R.L. Chaides Construction Co., 960 F.2d 1020 (Fed.Cir.1992) (en banc), and numerous other decisions in which the Federal Circuit has emphasized that laches looks only to the past, whereas estoppel, a separate and distinct equitable remedy, forecloses all relief, past and future.¹² As Aukerman states, "laches bars damages for a patent defendant's pre-filing infringement but not for post-filing damages or injunctive relief unless elements of estoppel are established." 960 F.2d at 1040 (emphasis added); see also Leinoff v. Louis...