Minks v. Polaris Industries, 2008 WL 4601732 (Fed.Cir.(Fla.) 2008)

Summary: Patent marking issues and the district court reduced damages awarded to a plaintiff in the Middle Destrict of Florida for infringement of a patent claim by a long time purchaser of the plaintiff’s patented products. In a decision rendered Oct. 17, 2008, The Court of Appeals for the Federal Circuit opined on the state of law in the Eleventh Circuit, including the Middle District of Florida. When based on a factual analysis about the reasonableness of jury award of compensatory damages in a patent infringement lawsuit, such as determining damages based on a reasonable royalty, a reduction in damages award must be accompanied by an offer for a new trial. “In the Eleventh Circuit, the district court's decision to reduce the jury's damages award without offering Minks a new trial is a matter of law reviewed de novo. See Johansen, 170 F.3d at 1335; see also Tronzo II, 236 F.3d at 1351 (identifying issue as a matter of law).” The Federal Circuit used the law of the 11th Circuit and found that the exception for reducing an award without a new trial based solely on an error of law did not apply to the reasonableness of juries calculation of compensatory damages for patent infringement.

Excerpts from the decision follow.

The Reexamination Clause of the Seventh Amendment states that "no fact tried by a jury, shall be otherwise re-examined in any Court of the United States, than according to the rules of common law." U.S. Const. amend. VII. "[T]he Reexamination Clause does not inhibit the authority of a trial judge to grant new trials 'for any of the reasons for which new trials have heretofore been granted in actions at law in the courts of the United States.' " Gasperini v. Ctr. for Humanities, Inc., 518 U.S. 415, 433, 116 S.Ct. 2211, 135 L.Ed.2d 659 (1996). This authority extends to "overturning verdicts for excessiveness and ordering a new trial without qualification, or conditioned on the verdict winner's refusal to agree to a reduction (remittitur)." Id. (citing Dimick v. Schiedt, 293 U.S. 474, 486-87, 55 S.Ct. 296, 79 L.Ed. 603 (1935)). Nevertheless, the Supreme Court has long interpreted the Seventh Amendment as requiring that the exercise of a district court's discretion to set aside an excessive jury award be accompanied by an offer of a new trial. In Kennon v. Gilmer the [Supreme] Court stated: [I]n a case in which damages for a tort have been assessed by a jury at an entire sum, no court of law, upon a motion for a new trial for excessive damages and for insufficiency of the evidence to support the verdict, is authorized, according to its own estimate of the amount of damages which the plaintiff ought to have recovered, to enter an absolute judgment for any other sum than that assessed by the jury. 131 U.S. 22, 29, 9 S.Ct. 696, 33 L.Ed. 110 (1889). The Court reaffirmed this principle in Hetzel v. Prince William County, holding that the entry of judgment for a lesser amount than that awarded by the jury, without the offer of a new trial, "cannot be squared with the Seventh Amendment" when the reduction is premised on a finding that the evidence does not support the award. 523 U.S. 208, 211, 118 S.Ct. 1210, 140 L.Ed.2d 336 (1998).

[The] Eleventh Circuit held in Johansen that when a jury's award is premised on "legal error," a court may reduce the award and enter an absolute judgment in an amount sufficient to correct the legal error without offering the plaintiff the option of a new trial. Compare Johansen, 170 F.3d at 1328, 1331 (stating that "the Seventh Amendment prohibits reexamination of a jury's determination of the facts, which includes its assessment of the extent of plaintiff's injury," and analyzing Hetzel), with id. at 1330-31 ("The Seventh Amendment is not offended by this reduction because the issue is one of law and not fact."). Johansen considered whether a federal court may reduce a punitive damages award by an amount required by the Due Process Clause of the Fourteenth Amendment without offering the plaintiff a new trial. In its analysis, the court identified two types of legal error that permit the reduction of a jury award without the offer of a new trial. First, "where a portion of a verdict is for an identifiable amount that is not permitted by law, the court may simply modify the jury's verdict to that extent and enter judgment for the correct amount." Id. at 1330 (citing N .Y., L.E. & W.R. Co. v. Estill, 147 U.S. 591, 13 S.Ct. 444, 37 L.Ed. 292 (1893)). [FN4] Second, a court may reduce a jury's punitive damages award when the award "enter[s] that 'zone of arbitrariness that violates the Due Process Clause of the Fourteenth Amendment.' " Id. at 1331, 1334 (quoting BMW of N. Am., Inc. v. Gore, 517 U.S. 559, 568, 116 S.Ct. 1589, 134 L.Ed.2d 809 (1996)). Importantly, both types of error derive from the operation of legal principles without regard to the evidence presented by the plaintiff. That is, legal errors permitting the reduction of a jury award without the offer of a new trial arise without regard to whether the jury's award is or is not supportable as an evidentiary matter. [FN5]

Under the Eleventh Circuit's analysis of Supreme Court precedent, we conclude that the district court's reduction of the jury's compensatory damages award in this case is governed squarely by Hetzel.

In its analysis of this award, the district court identified no legal principle--such as was present in Estill (state law prohibition on awarding interest) or Johansen (Due Process Clause of the Fourteenth Amendment)--that would limit the amount of a reasonable royalty in this case. Rather, the district court examined the evidence in the record with respect to the components of a reasonable royalty--number of infringing sales, royalty base, and royalty rate--and found that the evidence could not support the jury's damages award. Damages Reduction Order at 25-28. The court further found that "at most the legally competent evidence in the record supported a jury award based on a price per reverse speed limiter of $6.11, a reasonable royalty of 4 percent, and total infringing sales of 116,270, for a total compensatory damage award of $27,904.80." Id. at 33. Despite its effort to cast this decision as one of law rather than fact, the court necessarily engaged in an independent review of the evidence and substituted its conclusion for that of the jury on the factual issue of compensatory damages. Cf. Cooper Indus., Inc. v. Leatherman Tool Group, Inc., 532 U.S. 424, 437, 121 S.Ct. 1678, 149 L.Ed.2d 674 (2001) (" 'Unlike the measure of actual damages suffered, which presents a question of historical or predictive fact, the level of punitive damages is not really a "fact" "tried" by the jury.' " (quoting Gasperini, 518 U.S. at 448, 459 (1996) (Scalia, J., dissenting))); see also Micro Chem. ., Inc. v. Lextron, Inc., 317 F.3d 1387, 1394 (Fed.Cir.2003) ("The amount of damages based on a reasonable royalty is an issue of fact.").

A comparison of the Georgia-Pacific factors and the standard of a hypothetical negotiation to the evidence of record in this case makes clear that the district court's reduction of compensatory damages necessarily amounted to an assessment of the sufficiency of the evidence, and as such, the option of a new trial was required.


NOTICE INSTRUCTION

As an interesting aside, the Federal Circuit sided with Minks on an improper jury instruction about actual notice.

Title 35 U.S.C. § 287(a) of the patent marking statute provides that where a patentee has failed to mark its patented product, "no damages shall be recovered by the patentee in any action for infringement, except on proof that the infringer was notified of the infringement and continued to infringe thereafter, in which event damages may be recovered only for infringement occurring after such notice." The plaintiff, Minks, did not mark its products; therefore, damages are limited by the date that the defendant received actual notice satisfying the requirements of § 287(a). The date of actual notice can be critical to a damages calculation in any case that includes a successful patent marking defense, because sales of infringing articles are not counted towards a damages award until proper notice under 287(a) is provided.

Excerpts of the decision follow.

The district court gave the following instruction on actual notice:

“The date notice was given is the date on which Minks communicated to Polaris a specific charge that one of its products may infringe claim two of the '080 patent.”

Minks objected to this instruction on the grounds that it precludes a jury from finding notice prior to discovery of Polaris' infringement. Minks thus requested the following instruction:

“The date notice was given is the date on which Minks communicated to Polaris a specific charge that one of its products infringed or would infringe claim two of the '080 Patent.”

Minks argues that the proposed instruction indicates that a patentee can provide sufficiently specific notice to an accused infringer before the patentee discovers the actual infringement by the accused. We agree with Minks that the given instruction does not fairly and correctly state the issues and the law; the jury should have been more clearly instructed that it was permitted to find notice prior to the date Minks discovered Polaris' infringement.

Section 287(a) requires actual notice to the accused "to assure that the recipient knew of the adverse patent during the period in which liability accrues, when constructive notice by marking is absent." SRI Int'l, Inc. v. Adv. Tech. Labs., Inc., 127 F.3d 1462, 1470 (Fed.Cir.1997). "[I]n SRI we explained that as long as the communication from the patentee provides sufficient specificity regarding its belief that the recipient may be an infringer, the statutory requirement of actual notice is met. Thus, the requirement of 'a specific charge of infringement' set forth in Amsted does not mean the patentee must make an 'unqualified charge of infringement.' " Gart v. Logitech, Inc., 254 F.3d 1334, 1345-46 (Fed.Cir.2001) (internal citation omitted). Under this standard, general letters referring to the patent and including an admonishment not to infringe do not constitute actual notice. See Amsted Indus. Inc. v. Buckeye Steel Casting Co., 24 F.3d 178, 187 (Fed.Cir.1994). Conversely, letters that specifically identify a product and offer a license for that product do constitute actual notice. See Gart, 254 F.3d at 1346.

As a long time customer of Minks Engineering, Polaris knew of the '080 patent. Moreover, as early as 1997, Minks specifically communicated his belief that reverse speed limiters sensing engine speed and a DC input infringe the '080 patent. Similarly, on September 24, 2001, Minks sent Polaris a letter confirming that a third party vendor was refusing to build a quoted reverse speed limiter for Polaris because the quoted part would infringe the '080 patent. During this time period, Polaris misrepresented the nature of its substitute reverse speed limiter, employed since 1996, as sensing ground speed rather than engine speed. Although it is not for us to determine whether, as a factual matter, any of these exchanges were sufficient actual notice under § 287(a), the court's instruction to the jury should have more clearly articulated that, in the context of this ongoing relationship between the parties, knowledge of a specific infringing device is not a legal prerequisite to such a finding.