Breach of Confidentiality Agreement Required Transfer for Resulting Patents

In Sionyx, LLC, v. Hamamatsu Photonics KK, [2019-2359, 2020-1217] (December 7, 2020), the Federal Circuit affirmed the district court’s judgment that (1) Hamamatsu breached its Non-Disclosure Agreement SiOnyx”; (2) Hamamatsu willfully infringed U.S. Patent 8,080,467; (3) SiOnyx is entitled to $796,469 in damages and $1,091,481 of pre-judgment interest for breach of the NDA; (4) SiOnyx is entitled to $580,640 in damages and $660,536 of pre-judgment interest for unjust enrichment; (5) SiOnyx is entitled to post-judgment interest at the statutory rate for its breach of contract and unjust enrichment claims; (6) Dr. James Carey is a co-inventor of U.S. Patents 9,614,109; 9,293,499; 9,190,551; 8,994,135; 8,916,945; 8,884,226; 8,742,528; 8,629,485; and 8,564,087; (7) SiOnyx is entitled to sole ownership of the Disputed U.S. Patents; (8) SiOnyx is entitled to an injunction prohibiting Hamamatsu from practicing the Disputed U.S. Patents for breach of the NDA; and (9) SiOnyx is entitled to an injunction prohibiting Hamamatsu from practicing the ’467 patent for infringement; and rreversed the district court’s denial of SiOnyx’s motion to compel Hamamatsu to transfer ownership of the corresponding foreign patents to SiOnyx.

Eric Mazur discovered a process for creating “black silicon” by irradiating a silicon surface with ultra-short laser pulses. In addition to turning the silicon black, the process creates a textured surface, and the resulting black silicon has electronic properties different from traditional silicon. After discovering the process for making the material, Mazur worked with his students, including Carey, to study its properties and potential uses. Based on this work, Mazur and Carey filed patent applications which resulted in the issuance of several patents, including U.S. Patent No. 8,080,467.

Mazur and Carey founded SiOnyx to further develop and commercialize black silicon. SiOnyx met with Hamamatsu, a producer of silicon-based photodetector devices, enteringg an NDA to allow the parties to share confidential information relating to “evaluating applications and development opportunities of pulsed laser process doped photonic devices.

After the NDA was terminated, Hamamatsu continued to develop new photodetector devices, filing patent applications and introducing products,. SiOnyx met with Hamamatsu to discuss ownership of the disputed U.S. and Foreign patents, but the parties did not reach an agreement, so SiOnyx sued Hamamatsu claiming (1) breach of contract; (2) unjust enrichment; (3) infringement of the ’467 patent; and (4) change of inventorship of the Disputed U.S. Patents.

After a jury verdict in SiOnyx’s favor, Hamamatsu appealed. Hamamatsu first argued that the claim was barred by the statute of limitations, which Hamamatsu argued was triggered by its failure to return confindential information as required by the NDA, and by Hamamatsu emailing SiOnyx a diagram of a photodiode that SiOnyx perceived to be identical to the parties’ 2007 work. SiOnyx argued that Hamamatsu’s failure to return SiOnyx’s confidential information was an immaterial breach that did not begin the limitations period, or that Hamamatsu concealed its later use of SiOnyx’s confidential information through its repeated assurances that its new products did not infringe SiOnyx’s intellectual property. The Federal Circuit agreed with the district court that a reasonable juror could have determined that SiOnyx was not harmed by Hamamatsu’s failure to return the confidential information and that the breach was therefore immaterial and did not cause SiOnyx’s claims to accrue, as to the email disclosures, the Federal Circuit perceived no reason to upset the jury’s verdict here.

Hamamatsu also argued that the district court erred in awarding pre-judgment interest for unjust enrichment and breach of contract claims. The Federal Circuit agreed with the district court that pre-judgment interest was avaialble for both claims.

Hamamatsu challenged the injunction against infringement of SiOnyx’s ‘467 patent, arguing that SiOnyx argues primarily that SiOnyx failed to demonstrate irreparable harm and an inadequate remedy at law. SiOnyx responded that its products compete with Hamamatsu’s, and that it will suffer irreparable harm from Hamamatsu’s continued sales. The Federal Circuit was not convinced that the district court clearly erred in finding that the accused products are competitive with SiOnyx’s products, and Hamamatsu did not refute the demonstration of irreparable harm.

Hamamatsu also challenged the injunction for breach of contract. However, due to the similarity of the legal standard, the parties’ arguments were substantially similar to those made with respect to the injunction for patent infringement, and the Federal Circuit reached the same conclusion.

Hamamatsu filed a post-trial motion for judgment as a matter of law that SiOnyx is not owed damages for the breach of contract and unjust enrichment claims after the confidentiality period of the NDA expired. SiOnyx responded that the jury reasonably could have inferred that Hamamatsu continued to benefit from its breach beyond the expiration of the confidentiality period. The Federal Circuit agreed that the jury’s verdict could be reasonably construed to incorporate a finding that Hamamatsu continued to reap the benefit of their earlier breach by selling products that it had designed using SiOnyx’s confidential information, and declined .” Id. slip op. at 3. We agree that such an inference is reasonable, and we de-cline to alter the jury’s damages award.

On appeal, Hamamatsu argues that the district court erred in granting SiOnyx sole ownership of the disputed U.S. Patents because the jury’s finding of co-inventorship necessarily implied that the jury found that Hamamatsu also contributed to the patents. The NDA provided that “a party receiving confidential information acknowledges that the disclosing party claims ownership of the information and all patent rights “in, or arising from” the information.” Thus the Federal Circuit found that the district court’s decision transferring ownership of the patents according to the terms of the NDA was an equitable remedy which is reviewed for abuse of discretion (under Massachusetts law). The Federal Circuit said that absent evidence that Hamamatsu contributed confidential information to the patents under the NDA, it was not entitled to co-ownership of the patents under the agreement.

On appeal, Hamamatsu maintained that its infringement was not willful, challenging the adequacy of the evidence presented at trial to support the jury’s finding. However, the Federal Circuit said that given that the district court awarded no enhanced damages based on willfulness, it is not apparent what effect the jury’s finding of willfulness had on the district court’s judgment, and it is likewise not apparent what the effect a reversal by this court would be. Hamamatsu was in effect requesting an advisory opinion, which the Federal Circuit lacks the authority to provide.

On SiOnyx’s cross appeal, SiOnyx aruged that the district court should have granted it ownership of the corresponding foreign patents as well. The Federal Circuit agree with SiOnyx that the evidence that established SiOnyx’s right to sole ownership of the disputed U.S. Patents also applied to the disputed foreign patents. Because the district court erroneously perceived that it lacked authority to compel the transfer of ownership, the Federal Circuit said it was an abuse of discretion to distinguish between the two groups of patents. The Federal Circuit stated that the district court had authority to transfer foreign patents owned by the parties before it.

Intervening Rights Apply When There Is a Product that Infringes the Original Claim that Does Not Infringe the Amended Claim

Presidio Components, Inc. v. American Technical Ceramics Corp., [2016-2607, 2016-2650] (November 21, 2017) the Federal Circuit affirmed the district court’s holdings that the claims are not indefinite and that ATC is entitled to absolute intervening rights because a substantive amendment was made during reexamination, but reversed the award of lost profits and remanded for determination of a reasonable royalty.
The case involved U.S. Patent No. 6,816,356 on a multilayer capacitor.

1. A capacitor comprising:
a substantially monolithic dielectric body;
a conductive first plate disposed within the dielectric body;
a conductive second plate disposed within the dielectric body and forming a capacitor with the first plate;
a conductive first contact disposed externally on the dielectric body and electrically
connected to the first plate; and
a conductive second contact disposed externally on the dielectric body and electrically connected to the second plate, and
the second contact being located sufficiently close to the first contact in an edge to
edge relationship in such proximity as to form a first fringe-effect capacitance with
the first contact that is capable of being determined by measurement in terms of a
standard unit.

Regarding indefiniteness, the claim required “first fringe-effect capacitance with
the first contact that is capable of being determined by measurement in terms of a
standard unit.”  Although industry standards for insertion loss testing had not been published at the time the patent was filed, Presidio’s expert testified that insertion loss testing had been well known for many decades and that a person of ordinary skill could use insertion loss measurements to measure capacitance in terms of Farads, the standard unit of measurement for capacitance.   Presidio’s expert further testified that a person of skill in the art would know how to measure fringe-effect capacitance by using insertion loss measurements. The Federal Circuit said that a claim is not indefinite if a person of skill in the art would know how to utilize a standard measurement method, such as insertion loss, to make the necessary measurement, adding that a patent need not explicitly include information that is already well
known in the art.  The Federal Circuit noted that if a skilled person would choose an established method of measurement, that may be sufficient to defeat a claim of indefiniteness, even if that method is not set forth in haec verba in the patent itself.

On the issue of intervening rights, Presidio contested the application of absolute intervening rights.  The Federal Circuit observed that the owner of a patent that survives reexamination is not entitled to infringement damages for the time period between the date of issuance of the original claims and the date of issuance of the reexamined claims if the original and amended claims are not “substantially identical.  In other words, the Federal Circuit said, if an amendment during reexamination makes a substantive change to an original claim, the patentee is only entitled to infringement damages for the changed claim for the period following issuance of the reexamination certificate.  The Federal Circuit reviewed the district court’s assessment of the scope of the original and reexamined claims de novo, and agreed that the scope had changed.  Presidio argued that the scope of the claims did not change because its stated goal in amending the claims was to adopt the district court’s construction in prior litigation.  However, the Federal Circuit said that the patentee’s intent in making the
amendment is not determinative or controlling in determining claim scope.  The relevant inquiry is whether the scope of the amended claims is actually identical to the scope of
the original claims based on normal claim construction analysis, articulated in Phillips. To determine whether an amended claim is narrower in scope, one determines whether there is any product or process that would infringe the original claim, but not infringe the amended claim. The Federal Circuit found that while the construction of the prior claim required that the fringe capacitance be determined, it did not specify it be determined by testing, as the amended claim required, so the claims did in fact have different scopes.

On the issue of lost profits, Presidio claimed lost profits for its sales of the BB capacitors, which Presidio claimed were adversely affected by the sale of ATC’s infringing 550 line of capacitors.  To recover lost profits, the Presidio had to show a reasonable probability that, “but for” infringement, it would have made the sales that were made by the infringer.  “But-for” causation can be proven using the four factor test in Panduit, which requires the patentee to show: (1) demand for the patented product; (2) an absence of acceptable, noninfringing substitutes; (3) manufacturing and marketing capability to exploit the demand; and (4) the amount of profit that would have been made.  A patentee can recover lost profits even if its product does not practice
the claimed invention, where the product directly competes with the infringing device.  Although the BB capacitor does not practice the ’356 patent, Presidio could still recover lost profits because the BB capacitor competes directly with the infringing 550
capacitors.  However the correct inquiry under Panduit is whether a non-infringing alternative would be acceptable compared to the patent owner’s product, not whether it is a substitute for the infringing product.  Thus while defendant’s 560L product was not a an adequate substitute for the accused 550 product, it might be an adequate non-infringing substitute for Presidio’s BB.  The Federal Circuit found that Presidio failed to prove that the 560L was not an acceptable substitute for its BB product, and reversed the award of lost profits, and remanded for a determination of a reasonable royalty.

The Federal Circuit found no abuse of discretion in the district court’s refusal to award increased damages despite the finding of willfulness.  The Federal Circuit also vacated the injunction in view of its reversal of the lost profits award, and remanded the case for the district court to redetermine the propriety of a permanent injunction.


Lack of Clarity for Reason for Denying Permanent Injunction Results in Remand

In Genband US LLC v. Metaswitch Networks Corp., [2017-1148] (July 1-, 2017), the Federal Circuit vacated the denial of a permanent injunction, and remanded for reconsideration.

The jury found U.S. Patent Nos. 6,772,210; 6,791,971; 6,885,658; 6,934,279; 7,995,589; 7,047,561; 7,184,427; and 7,990,984 not invalid and infringed, and awarded $8,168,400 in damages, but the district court denied a permanent injunction.  The district court rested its denial entirely on the determination that Genband failed to show that it would suffer irreparable harm from continued infringement.  The court declared that Genband had to prove that “the patented features drive demand for the product.],” but the Federal Circuit could not be sure that the district court applied the proper nexus, i.e. whether the district court required that the patented feature be “the driver” or simply “a driver.”  The Federal Circuit said it is sufficient that the record established that the patented features  influence consumers’ perceptions of and desire for these products.  Based upon the district court’s opinion, the Federal Circuit had no basis for inferring that the district court actually used the correct standard, rather than an unduly stringent test, to interpret and apply the “drive demand” standard.

The Federal Circuit said that a patentee may be able to make the causal connection between infringement and the relevant lost sales through evidence of various kinds, e.g., that the infringing features significantly
increased the product’s desirability, that soundly supports an inference of causation of a significant number of purchasers’ decisions.

The Federal Circuit determined that remand was needed for the district court to clarify its how Genband’s evidence was not sufficient.

Lack of Proof That Infringement was But For Cause of Lost Sales or Price Erosion Defeats Permanent Injunction

In Nichia Corp. v. Everlight Americas, Inc., [2016-1585, 2016-1618] (April 28, 2017), the Federal Circuit affirmed the district court’s judgment that U.S. Patent Nos. 8,530,250, 7,432,589, and 7,462,870, directed to LED devices, were valid and infringed, as well as the district court’s denial of a permanent injunction.

The Federal Circuit affirmed the district court’s construction of “lead,” rejecting the argument that it should have been construed to mean “the conductive portion of the device that makes an electrical connection to a structure outside of the device” rather than “the portion of the device that conducts electricity.”  The Federal Circuit also affirmed the district court’s construction of “planar,” rejecting the argument that it should have been construed to mean “no measurable surface variation,” rather than “in a substantially same plane.” Thus the Federal Circuit affirmed the finding of infringement.

With respect to validity, the Federal Circuit found substantial evidence supported the district court’s conclusion that some of the references asserted were not analogous, that claim elements were missing from other references, and that there was a lack of motivation to combine,  and thus that the patents were not proven obvious.

As to Nichia’s appeal, the district court held that Nichia failed to show that it had suffered irreparable harm and that remedies at law provided Nichia inadequate compensation.  The Federal Circuit agreed that Nichia failed to show irreparable harm, and thus did not reach the adequacy of compensation issue.  The Federal Circuit said that an injunction in patent law must be justified like any other: the moving party must satisfy the court that relief is needed. Applying “well established principles of equity” the Federal Circuit found the showing of irreparable harm lacking.

The district court noted the absence of meaningful competition between the parties.  The district court also found that Nichia had failed to establish past irreparable harm, or the likelihood of irreparable harm in the future based on lost sales” or “based on price erosion.”  The district court further found that Nichia’s licensing of the patents to major competitors suggested that harm from “infringement of the patents-in-suit is not irreparable.”  Finally, the district court found that Nichia’s licensing practices have made multiple low-priced non-infringing alternatives from competitors available to replace the accused Everlight products if such products were not available.

The Federal Circuit deferred to the district court because the court heard these arguments as the original finder of fact and concluded to the contrary, carefully weighing both parties’ evidence.  The Federal Circuit agreed that that parties sold in different markets, and Nichia failed to prove that any competition between the parties was meaningful.  The Federal Circuit noted that Nichia failed to show the infringement was the “but for” cause of even one lost sale, or the “but for” cause of price erosion.

The Federal Circuit rejected a rule that the patentee’s licensing activities automatically barred injunctive relief, but had no problem with considering licensing activities as a factor.  Because Nichia failed to establish one of the four equitable factors, the court did not abuse its discretion in denying Nichia’s request for an injunction.

It is interesting that principles of equity can defeat the Constitutionally established “exclusive rights” to inventions and discovery, yet principals of equity are insufficient to extend laches to patent cases.