Zenith Electronics v. Pdi Communication Systems

• Decision Date: 16 April 2008
• Docket Number: No. 2007-1288.,No. 2007-1321.,2007-1288.,2007-1321.
• Citation: 522 F.3d 1348
• Parties: ZENITH ELECTRONICS CORPORATION, Plaintiff-Appellant, v. PDI COMMUNICATION SYSTEMS, INC., Defendant-Cross Appellant.
• Court: U.S. Court of Appeals — Federal Circuit

522 F.3d 1348

ZENITH ELECTRONICS CORPORATION, Plaintiff-Appellant, v. PDI COMMUNICATION SYSTEMS, INC., Defendant-Cross Appellant.

No. 2007-1288.

No. 2007-1321.

United States Court of Appeals, Federal Circuit.

April 16, 2008.

Robert E. Browne, Neal Gerber & Eisenberg LLP, of Chicago, Illinois, argued for plaintiff-appellant. With him on the brief were Michael A. Carrillo, Thomas C. McDonough, William J. Lenz, and Hillary A. Mann.

Gregory F. Ahrens, Wood, Herron & Evans, L.L.P, of Cincinnati, Ohio, argued for defendant-appellee. With him on the brief was John P. Davis.

Before NEWMAN, LOURIE, and SCHALL, Circuit Judges.

SCHALL, Circuit Judge.

This is a patent infringement case. Two patents are at issue: United States Patent No. 5,495,301 (the "'301 patent") and United States Patent No. 5,502,513 (the "'513 patent"). Both patents are owned by Zenith Electronics Corporation ("Zenith"). The '301 and '513 patents generally relate to televisions and wired remote control devices used in hospital rooms.

Zenith appeals from the final judgment of the United States District Court for the Northern District of Illinois in favor of PDI Communications Systems, Inc. ("PDI") in Zenith's suit against PDI for infringement of the '301 and '513 patents. The district court entered judgment in favor of PDI after granting summary judgment of (1) invalidity of claim 1 of the '301 patent and claim 1 of the '513 patent by reason of anticipation; (2) noninfringement of the '301 patent; and (3) noninfringement of claim 1 of the '513 patent. Zenith Elecs. Corp. v. PDI Commc'n Sys., Inc., No. 04-C-4796, slip op. at 1 (N.D.Ill. Mar. 21, 2007) ("Order Entering Judgment"); Zenith Elecs. Corp. v. PDI Commc'n Sys., Inc., No. 04-C-4796, slip op. at 39-40 (N.D.Ill. Jan. 18, 2007) ("Summary Judgment Order"). For its part, PDI cross-appeals the district court's (1) dismissal without prejudice of PDI's counterclaim of inequitable conduct with respect to the '301 patent and claim 1 of the '513 patent and (2) dismissal with prejudice of PDI's counterclaim of inequitable conduct with respect to claims 2-8 of the '513 patent. Order Entering Judgment at 2; Summary Judgment Order at 39-40. PDI also cross-appeals the district court's denial of its motion for costs. Zenith Elecs. Corp. v. PDI Commc'n Sys., Inc., No. 04-C-4796 (N.D.Ill. Mar. 28, 2007).

For the reasons set forth below, we affirm the district court's (1) grant of summary judgment of invalidity of claim 1 of the '301 patent; (2) grant of summary judgment of noninfringement of the '301 patent; and (3) dismissal with prejudice of PDI's counterclaim of inequitable conduct with respect to claims 2-8 of the '513 patent. However, we vacate the district court's (1) grant of summary judgment of invalidity of claim 1 of the '513 patent; (2) grant of summary judgment of noninfringement of claim 1 of the '513 patent; (3) dismissal without prejudice of PDI's counterclaim of inequitable conduct with respect to the '301 patent and claim 1 of the '513 patent; and (4) denial of PDI's motion for costs. As far as these matters are concerned, we remand the case to the district court for further proceedings. In sum, we affirm-in-part, vacate-in-part, and remand.

BACKGROUND

I.

Due to various safety and business considerations, wireless remote control devices are not used to control televisions in hospital rooms. First, the electrostatic discharge associated with wireless remote controls cannot be risked near supplies of oxygen. Second, the signals transmitted by wireless remote controls are susceptible to interference from fluorescent lights. Finally, there are increased costs associated with battery replacement and lost wireless remote controls. For these reasons, hospital televisions are typically controlled using hardwired remote control devices placed near the patient. These devices also include internal speakers by which television audio is delivered to the patient and, thus, are interchangeably referred to as "pillow speakers."

By the late 1980s, pillow speakers were generally connected to televisions in hospital rooms via three wires. Over these three wires (1) power was supplied to the pillow speaker, (2) audio signals were transmitted to the pillow speaker, and (3) control signals were transmitted to the television. However, control functionality was limited due to the fact that existing systems utilized analog control signals. The invention of the patents-in-suit enabled the transmission of encoded digital control signals from the pillow speaker to the television receiver over the existing three-wire interfaces installed in hospital rooms. Advantageously, the improved digital pillow speakers — like their analog precursors-continued to receive power from the television and did not require an internal source of power (i.e., a battery). Claim 1, which is representative of the method claims of the '301 patent, provides:

1. A method of operating a television receiver wired to a remote housing including a speaker and a multi function control signal encoder comprising:

supplying operating power to said multi function control signal encoder from the television receiver over first and second wires;

supplying audio signals to said speaker from said television receiver over said first wire and a third wire; and

supplying encoded control signals from said multi function encoder to said television receiver over said first and second wires.

Claim 1 of the '513 patent, which is representative of the method claims of that patent, provides:

1. A method of controlling a television receiver in response to a key closure or data pulses received from a remote location over a pair of wires, the key closure having a substantially longer duration than the data pulses, comprising:

receiving said key closure and said data pulses;

decoding said data pulses with a microprocessor programmed to ignore said key closure;

detecting said key closure with a timing circuit; and

operating key closure identification circuitry in response to said timing circuit.

II.

By 1997, three companies — Curbell Electronics ("Curbell"), MedTek, Inc. ("MedTek"), and Crest Electronics ("Crest") — manufactured and distributed digital pillow speakers pursuant to licenses of the '301 patent obtained from Zenith. The pillow speakers were specifically designed to operate Zenith televisions using Zenith control codes.

In 2003, PDI began marketing a new 20-inch LCD television (model no. "P20LCD") for use in the healthcare industry. PDI designed the P20LCD television for compatibility with digital pillow speakers that used Zenith control codes-i.e., the digital pillow speakers manufactured by Curbell, MedTek, and Crest. On July 21, 2004, Zenith filed a complaint against PDI in the United States District Court for the Northern District of Illinois, alleging infringement of claims 1-4 of the '301 patent¹ and claims 1-8 of the '513 patent. Zenith maintained that PDI directly infringes by testing and operating its P20LCD televisions with pillow speakers and that PDI indirectly infringes by supplying P20LCD televisions and encouraging its customers to operate the televisions using pillow speakers. In addition to pursuing affirmative defenses, PDI counterclaimed for a declaration that the '301 and '513 patents are invalid due to anticipation, unenforceable because of inequitable conduct, and not infringed by the P20LCD.

III.

After the close of discovery, both parties filed motions for summary judgment. Zenith moved for summary judgment that (1) claim 1 of the '301 patent and claim 1 of the '513 patent are infringed and that (2) Zenith did not commit inequitable conduct during prosecution of the '301 and '513 patents. Zenith asserted that there was no genuine issue of material fact that the P20LCD television, when used in combination with a digital pillow speaker, performs every step of claim 1 of the '301 patent and claim 1 of the '513 patent. Zenith also urged that, under the evidence presented, PDI could not possibly meet its burden of establishing inequitable conduct.

PDI cross-moved for summary judgment that (1) claim 1 of the '301 patent and claim 1 of the '513 patent are invalid due to anticipation and that (2) claims 1-4 of the '301 patent are not infringed. With respect to validity, PDI argued that there was no genuine issue of material fact that claim 1 of the '301 patent and claim 1 of the '513 patent were anticipated by the public use of a television (model no. "J20525") manufactured by Radio Corporation of America ("RCA") in combination with a digital pillow speaker (model no. "205-E") manufactured by Curbell prior to December 27, 1993-the critical date corresponding to both patents. PDI also argued that, under the undisputed facts, the implied license and exhaustion defenses precluded Zenith's claims that the use of pillow speakers manufactured by Curbell, MedTek, and Crest — in conjunction with P20LCD televisions — infringes the '301 patent.

Subsequently, Zenith moved to disqualify PDI's technical expert, Willliam Mengel, and to strike the April 6, 2006, declaration of Mr. Mengel used by PDI to support its summary judgment motion. Zenith complained that Mr. Mengel's deposition testimony, expert reports, and declaration contained certain factual errors and incorrect statements of law. Zenith further argued that Mr. Mengel's declaration added new testimony, improperly supplementing his prior reports in an untimely manner.

The district court issued its Summary Judgment Order on January 18, 2007. The court denied — at least for purposes of summary judgment — Zenith's motion to disqualify Mr. Mengel as a technical expert and to strike his declaration. Summary Judgment Order at 20. On the issue of validity, the court held that PDI was entitled to summary judgment that claim 1 of the '301 patent and claim 1 of the '513 patent were anticipated by the public use of the J20525/205-E combination prior to the critical date. Id. at 8-18. On...