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Federal Circuit Reverses District Court Ruling As To Nonobviousness And Damages
11/01/2023On October 16, 2023, the United States Court of Appeals for the Federal Circuit (“CAFC”) issued an opinion that (i) reversed the District Court for the Northern District of California’s pre-verdict judgment as a matter of law (JMOL) of nonobviousness, (ii) affirmed the district court’s decision to deny defendant’s pre-verdict and post-trial motions for JMOL regarding noninfringement, (iii) reversed the district court’s denial of defendant’s pre and post-trial motions to exclude the testimony of patent owner’s damages expert, (iv) vacated the lost profits award, and (v) remanded the case for further consistent proceedings. Cyntec Co. v. Chilisin Electronics Corp., No. 2022-1873, --F.4th.--, 2023 WL 6798376 (Fed. Cir. Oct. 16, 2023).
Cyntec Company Ltd. (“Cyntec”) owns two patents—U.S. Patent No. 8,922,312 (the “312 Patent”) and U.S. Patent No. 9,481,037 (the “037 Patent”)—directed to the mitigation of melting wire insulation, oxidizing components, and short circuits. The patents claim an electronic device comprised of a mixture of two magnetic powders and a conducting wire, “wherein by means of” the hardness difference of the powders, the entire mixture combines to form “an integral magnetic body at a temperature lower than the melting point of the insulating encapsulant.”
Cyntec sued Chilisin Electronics Corp. (“Chilisin”) for patent infringement, alleging that Chilisin willfully manufactured and sold infringing chokes. Pre-verdict, the district court granted Cyntec’s JMOL that the asserted claims are not invalid as obvious. Post-verdict, the district court entered judgment upon that verdict finding infringement and awarding the full amount of damages requested, and granted Cyntec’s motion for enhanced damages. Meanwhile, the district court denied Chilisin’s pretrial motion to exclude testimony from Cyntec’s damages expert, as well as Chilisin’s pre-verdict motion for JMOL regarding noninfringement and damages and Chilisin’s post-trial renewed motion for JMOL and motion for new trial.
Chilisin raised three main issues on appeal. First, it contended that the district court erred in granting JMOL that the asserted claims are not invalid as obvious because there were factual disputes that should have been given to the jury. Second, it alleged that the jury verdict of infringement rested on an erroneous construction of the “by means of” limitation. Last, it argued that, even under the district court’s claim construction, the jury’s finding of infringement was not supported by substantial evidence.
Regarding the issue of obviousness, the district court had agreed with Cyntec’s view that prior art references Shafer and Nakamura were missing claim elements and that Chilisin was unable to meet the clear and convincing standard as to why Shafer and Nakamura would be combined. Specifically, it noted that Shafer does not disclose the hardness or size of the claimed magnetic powders, and that a combination of Shafer and Nakamura does not make the patent obvious, because Chilisin’s evidence was neither clear nor convincing.
The CAFC, however, disagreed with the district court, emphasizing that Chilisin did not rely on Shafer to teach the hardness or size limitations, but rather provided expert testimony that a skilled artisan would have been motivated to “improve the performance” of Shafer by looking to Nakamura for guidance on the desired characteristics of the powders. As a result, the CAFC reasoned that a reasonable jury could have found the asserted claims obvious in view of Shafer as modified by Nakamaura and reversed the previous JMOL of nonobviousness.
Regarding infringement, the CAFC conducted a two-part analysis in which it considered claim construction of the relevant term and the jury’s finding of infringement itself. With respect to claim construction, Chilisin argued that the “by means of” limitation should be construed as a “but for.” The district court had disagreed, broadly construing “by means of” essentially to mean “having an impact on.”
On appeal, the CAFC agreed with the district court, finding that “by means of” includes but-for causation, but is also broad enough to include mere contribution. The CAFC emphasized that, if the patent drafter had intended to limit the claims to but-for causation, narrower language could have been used. Furthermore, the specification does not require the hardness differences between the magnetic powders to be the primary or only cause of reduced formation temperature. And, in fact, Chilisin had conceded in its renewed motion for JMOL that hardness and size may impact the formation temperature.
Regarding the jury’s finding of infringement, Chilisin argued that there was not enough evidence to support the finding because the evidence of record failed to answer the question of whether differences in particle size or hardness of the accused magnetic powders impacted the formation temperature. The CAFC disagreed and concluded that there was substantial evidence of infringement, citing to (i) Cyntec’s expert testimony that explained how differences in hardness impacted the accused chokes’ formation temperature and (ii) testimony from Cyntec’s vice-president that there were business motivations to mix different powders of different sizes and hardness.
Last, the CAFC considered damages. The district court had denied Chilisin’s motion to exclude importation calculations from Cyntec’s damages expert, stating that the calculations were derived from sufficiently reliable data sources.
The CAFC disagreed with the district court and found that it had abused its discretion in allowing the importation calculations, emphasizing that the damages expert included irrelevant products and services in his calculations that he failed to account for. Cyntec argued that the expert testimony was reliable because the expert estimated and corroborated third party sales data with respect to importation calculations. The CAFC was not convinced, finding that the “estimations” the expert made were instead “erroneous assumptions” that proved to be unreliable and speculative.
Thus, the CAFC affirmed the judgment of infringement, reversed the district court’s ruling on nonobviousness, and reversed the denial of Chilisin’s motion to exclude the damage expert’s testimony. Consequently, the lost profits award was vacated and the case was remanded for proceedings consistent with the CAFC’s opinion.
