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Recent Cases
United
States Court of Appeals for the Federal
Circuit
99-1584, 00-1005
INSITUFORM
TECHNOLOGIES, INC.,
INSITUFORM (Netherlands)
B.V.,
and INSITUFORM
GULF SOUTH, INC.,
Plaintiffs-Cross
Appellants,
v.
CAT CONTRACTING,
INC.,
FIRSTLINER U.S.A.,
INC., and GUILIO CATALLO,
Defendants-Appellants,
and
MICHIGAN SEWER
CONSTRUCTION COMPANY,
Defendant-Appellant,
and
KANAL SANIERUNG
HANS MUELLER GmbH & CO. KG,
Defendant-Appellee.
Harold
James, Epstein Drangel Bazerman & James LLP, of New
York, New York, for
plaintiffs-cross appellants.
Arnold
Anderson Vickery,
of Houston, Texas,
for CAT Contracting, Inc., et al.
N.
Elton Dry, Dry & Tassin, LLP, of Houston,
Texas, for defendant-appellant Michigan
Sewer Construction Company.
Richard
L. Stanley, Howrey Simon Arnold & White, LLP, of Houston, Texas,
for defendant-appellee Kanal Sanierung Hans Mueller GmbH & Co.,
KG. With him on the brief was Albert
B. Deaver, Jr.
On remand from the Supreme Court of the United
States
United States
Court of Appeals for the Federal Circuit
99-1584, 00-1005
INSITUFORM
TECHNOLOGIES, INC.,
INSITUFORM (NETHERLANDS)
B.V.,
and INSITUFORM
GULF SOUTH, INC.,
Plaintiffs-Cross Appellants,
v.
CAT CONTRACTING,
INC.,
FIRSTLINER U.S.A.,
INC., and GIULIO CATALLO,
Defendants-Appellants,
and
MICHIGAN SEWER
CONSTRUCTION COMPANY,
Defendant-Appellant,
and
KANAL SANIERUNG
HANS MUELLER GmbH & CO. KG,
Defendant-Appellee.
__________________________
DECIDED: October 4, 2004
__________________________
Before MAYER, Chief Judge, MICHEL, and SCHALL, Circuit
Judges.
SCHALL, Circuit Judge.
Defendants
Cat Contracting, Inc. (“CAT”), Firstliner U.S.A., Inc.
(“Firstliner”), Giulio Catallo (sometimes referred to as
“Catallo”), and Michigan Sewer Construction Company
(“MSC”) (“defendants”) appeal the judgment of the
United States District Court for the Southern District of Texas holding them
liable for infringement of United States Patent No. 4,366,012 (“the
‘012 patent”) and awarding plaintiffs Insituform Technologies,
Inc. (“Insituform Technologies”), Insituform (Netherlands) B.V.
(“Insituform Netherlands”), and Insituform Gulf South, Inc.
(“Insituform Gulf”) (“plaintiffs”) damages for that
infringement. Insituform
Techs., Inc. v. Cat Contracting, Inc., No. H-90-1690, slip op. (S.D.
Tex. Aug. 31, 1999) (“District Court Opinion”). Defendants also appeal the joinder
of Insituform Netherlands
as a plaintiff. Id.
at 21-22. In addition, CAT,
Firstliner, and Catallo appeal the district court’s joinder of
Catallo as a defendant. Insituform
Techs., Inc. v. Cat Contracting, Inc., No. H-90-1690, slip op. at 9 (Aug. 30, 1999) (“Joinder
Order”). For their
part, plaintiffs cross-appeal the ruling of the district court declining to
hold defendant Kanal Sanierung Hans Mueller GmbH & Co. KG
(“KS”) vicariously liable to plaintiffs under an alter-ego
theory of induced infringement.
District Court Opinion, slip op. at 44-45.
We affirm the judgment of infringement
with respect to all defendants.
We also affirm the district court’s joinder of Insituform Netherlands
as a plaintiff, its joinder of Giulio Catallo as a defendant, and its
ruling declining to hold KS vicariously liable for induced
infringement. However, we
vacate the judgment that the infringement of CAT and Firstliner was willful
and remand for further proceedings on the issue of willful infringement. We also vacate the district court’s damages award and
remand for further proceedings
to determine damages based on when defendants ceased selling the pipe
repair process that was found to infringe the ‘012 patent. Accordingly, we affirm-in-part, vacate-in-part, and remand.
BACKGROUND
I.
Underground pipes,
such as sewer pipes, are often subject to great stress. As a result, over time, the pipes
develop cracks and other structural defects, which can result in
leakage. In the past, the only
way to rehabilitate a section of underground pipe was to dig up the broken
section and replace it. Eric
Wood, the sole inventor named on the ‘012 patent, pioneered a process
for rehabilitating underground pipe without digging it up.
The ‘012
patent discloses Wood’s invention. The patent relates to a method for
performing pipe repair without removing the damaged pipe from the
ground. The method involves
installing a liner into the pipe.
Claim 1 of the patent, the only claim at issue, claims a process for
impregnating a flexible tube liner with resin prior to insertion of the
liner into a damaged pipe. The
liner has an impermeable film on the outside and a resin-absorbent, felt
layer on the inside. A vacuum
is applied to the inside of the liner by cutting a window into the outer,
impermeable film, applying a cup (a “vacuum cup”) to the
outside of the window, and connecting the other end of the cup to a vacuum
source. Using the created
vacuum, a section of the inside of the liner is impregnated with resin,
which is drawn through the liner.
The vacuum cup is then moved to another section of the liner while
the previously used window is sealed.
This process for impregnating the liner with resin allows for
impregnation at the jobsite, eliminating the need to transport a heavier,
already impregnated liner to the site.
II.
This case has a lengthy procedural history. The issues before us arise from a
complex series of trials, appeals, and cross-appeals that now span nearly
fourteen years. We briefly
review each significant decision in turn.
A. Plaintiffs’
suit for patent infringement
The original
defendants in this action were CAT, Inliner U.S.A.,
Inc. (“Inliner”), MSC, and KS. Inliner subsequently changed its
name to Firstliner U.S.A.,
Inc., and we refer to this defendant as Firstliner throughout. Firstliner and CAT are in the
business of rehabilitating and restructuring various types of pipes,
including sanitary, storm sewer, water main, conduit, and industrial
pipe. District Court Opinion,
slip op. at 5. Firstliner
oversees the marketing of its trenchless procedure for pipe rehabilitation
to potential licensees. Id. In addition, Firstliner manufactures
pipeliners and related materials, which it sells to CAT and its
licensees. Id. CAT is responsible for marketing,
bidding for, and negotiating contracts with customers and managing its
pipeline rehabilitation contracts.
Id. Giulio Catallo, who was subsequently
added as a defendant, is the individual principal of both CAT and
Firstliner. MSC is also in the
pipe rehabilitation business.
CAT was involved in a joint venture with MSC for performing the
accused processes.
KS is a German sewer
rehabilitation company owned by Hans Mueller. After reading about KS’s
proprietary sewer rehabilitation technology in a trade magazine, Giulio
Catallo contacted KS to obtain a license for that technology. Id. Catallo subsequently acquired the
rights to use the accused processes from Kanal Mueller Gruppe International
GmbH & Co. (“Gruppe”), a German export licensing company
also owned by Hans Mueller.
Although KS stated in a letter written on November 10, 1989, that CAT was a
“qualified Licensee for our KM-INLINER sewer relining process for the
territories of the USA,”
there was no formal license agreement executed by the parties. Id.
at 6. An actual license
agreement, however, was later executed between Gruppe and Firstliner,
permitting CAT’s use of the accused process. Id. This license agreement stated that
“[t]he licensee has been informed of a threat of a possible claim for
infringing the INSITUFORM method.” Id.
The original accused
process used by defendants—referred to as the “Multiple Cup
Process” or “Process 1”—was a method of tube liner
impregnation involving the serial application of vacuum cups. In Process 1, from four to six cups
were used to draw a vacuum from a corresponding number of slits in the tube
liner. As a result, when the
cup closest to the advancing resin was removed, and its slit was sealed,
the remaining downstream cups continued to draw a vacuum in the tube
liner.
At some point in
either 1991 or early 1992, on the advice of counsel, defendants switched to
an alternate process. In the
alternate process—referred to as the “Multiple Needle
Process” or “Process 2”—the multiple cups were
replaced with multiple metal tubes, known as needles. In Process 2, the needles are
inserted through the layers of the impregnated tube liner, rather than
merely placed over holes in the wall of the liner. Defendants did not develop Process 2
until after the first phase of the case had already been tried to a jury.
The original action
for infringement of the ‘012 patent was brought in February
1990. The original plaintiffs
were Insituform of North America, Inc.; Insituform Licensees, B.V.; and Insituform
Gulf. Insituform Licensees, B.V. was the
owner of the ‘012 patent at the commencement of the suit. As explained more fully below,
Insituform Licensees, B.V. subsequently assigned the ‘012 patent to
Insituform Netherlands,
along with the right to sue for past infringement. Insituform Netherlands
was thus eventually substituted for Insituform Licensees, B.V. as a
plaintiff. Insituform
Technologies, Inc. (“ITI”) is the parent company and
administrative headquarters for the Insituform organization, including Insituform
Gulf. Id.
at 4. Insituform
Gulf is authorized to do
business in Louisiana, Mississippi,
and Texas and licensed to
perform Insituform technology in designated regions throughout the United
States. Id.
at 5. Insituform of North
America, Inc. is no longer a party to the suit.
Only claim 1 of the
‘012 patent was asserted at trial. It recites
1. A method of impregnating with a
curable resin an inner layer of resin absorbent material disposed in an
elongate flexible tube having an outer layer formed by an impermeable film,
the method comprising the steps of
(1) introducing into one end of the
elongate tube a mass of the curable resin sufficient to impregnate the
entire resin absorbent inner layer of the tube,
(2) forming a window in the impermeable
outer layer of the tube at a distance from said one end of the tube,
(3) drawing through the window a vacuum
in the interior of the tube downstream of said one end by disposing over
the window a cup connected by a flexible hose to a vacuum source which cup
prevents ingress of air into the interior of the tube while the tube is
being evacuated, the outer layer of the tube being substantially
impermeable to air,
(4) beginning at or near the end at
which the curable resin mass was introduced, passing the tube between
squeezing members which force the resin to flow towards the region of
vacuum application as the tube progresses through the squeezing members,
(5) when the resin reaches the vicinity
of the region of vacuum application, removing the cup and sealing the
window,
(6) providing another window in the
impermeable layer of the tube downstream of the previously formed window,
(7) drawing through the new window a
vacuum in the interior of the tube while progressively moving the tube
through the squeezing members to force the resin to flow toward the new
region of vacuum application, and
(8) repeating steps 5, 6, and 7, where
necessary to impregnate the entire resin absorbent inner layer of the
flexible tube.
‘012 patent, col. 6, l. 37 –
col. 7, l. 6.
The case was first
tried to a jury in June 1991.
The jury returned a verdict that the ‘012 patent was not
invalid and was infringed, both literally and via equivalents, by Process
1, the only accused process then at issue. The district court granted defendants’
motion for judgment notwithstanding the verdict (“JNOV”) with
respect to literal infringement and ordered a new trial as to infringement
under the doctrine of equivalents.
In June 1994, the case was reassigned to a different judge. A bench trial was held in February
1995, and in November of that year the court held that Process 1 and
Process 2 (which had been introduced after the 1991 trial) infringed the
‘012 patent under the doctrine of equivalents. The court held defendants CAT,
Firstliner, and MSC liable for direct infringement. The court also found CAT and
Firstliner liable for induced infringement. Additionally, the court found that
KS also had induced infringement of the ‘012 patent. Defendants appealed.
B. Insituform
I
On appeal, we ruled
that claim 1 of the ‘012 patent, which recites use of a single cup
moved to different windows along the tube to draw a vacuum, did not
encompass the accused methods of using several cups or several needles
attached at different points along the tube, and thus was not literally
infringed by either Process 1 or Process 2. Insituform Techs., Inc. v. Cat
Contracting, Inc., 99 F.3d 1098, 1106-07 (Fed. Cir. 1996) (“Insituform
I”). We also ruled
that plaintiffs were not barred by prosecution history estoppel from
asserting infringement under the doctrine of equivalents. Id.
at 1107-08. Finally, we ruled
that the district court had erred in construing claim 1. We therefore vacated the judgment of
infringement with respect to both processes under the doctrine of
equivalents and remanded the case for new findings regarding infringement
under the doctrine of equivalents under the correct claim
construction. Id. Because we vacated the judgment of
direct infringement, we did not reach the issue of whether KS had induced
infringement of the ‘012 patent.
C. Insituform
II
On remand, the
district court again held that claim 1 of the ‘012 patent was
infringed by both Process 1 and Process 2 under the doctrine of
equivalents. Insituform
Techs., Inc. v. Cat Contracting, Inc., CA No. H-90-1690 (S.D. Tex. Dec.
31, 1996). The court
subsequently enjoined defendants from practicing those processes. In addition, the court ruled again
that KS had induced infringement of the ‘012 patent. Defendants again appealed.
On the second appeal
to us, we reaffirmed that prosecution history estoppel did not bar
plaintiffs from asserting infringement under the doctrine of
equivalents. Insituform
Techs., Inc. v. Cat Contracting, Inc., 166 F.3d 688, 692 (Fed. Cir.
1998) (“Insituform II”). On the infringement issue, insofar
as Process 1 was concerned, we affirmed the district court’s holding
that the process infringed claim 1 of the ‘012 patent under the
doctrine of equivalents. Id.
at 693. However, with respect
to Process 2, we held that there were substantial differences between the claimed
single cup process and the accused multiple needle process. Id.
at 694. Accordingly, we
reversed the court’s holding that Process 2 infringed. Id.
Turning to the
liability of KS
for induced infringement, we noted that “a separate corporation related
to [KS] licensed the infringing technology to [Firstliner] after [KS]
received notice of the ‘012 patent.” Id.
at 695. That corporation was
Gruppe. Because Gruppe was not
a party to the case, and because “there were no findings that this
affiliate was [KS]’s alter ego,” we vacated the district
court’s holding and remanded for further proceedings on the
inducement issue. Id.
D. Insituform
III
On remand, the
district court determined that Gruppe was not the alter ego of KS and that
KS, therefore, was not liable for induced infringement. District Court Opinion, slip
op. at 45. Additionally, the
district court joined Giulio Catallo in his personal capacity as a
defendant, and held him jointly liable for damages. Joinder Order, slip op. at
9. With both the liability and
damages trials now concluded, the court awarded damages for infringement of
the ‘012 patent by Process 1 under the doctrine of equivalents. District Court Opinion, slip
op. at 62. Additionally, the
court found CAT and Firstliner’s infringement to be willful and thus
enhanced the actual damages award by fifty percent, id. at 55, and
awarded Insituform attorney fees, id. at 57.
Defendants appealed,
raising a number of different issues.
These included (1) whether Insituform Netherlands, the new assignee
of the ‘012 patent, had been improperly joined as a plaintiff; (2)
whether Giulio Catallo, as president of CAT, had been improperly joined as
an individual defendant jointly and severally liable for damages; (3)
whether the district court had properly assessed damages following our
decision in Insituform II; (4) whether the district court had erred
in holding that the infringement that was found in the case was willful;
and (5) whether the district court had erred in determining the extent to
which accused infringers CAT and Firstliner instructed, and therefore
induced, their licensees to use the infringing process. For their part, plaintiffs
cross-appealed the district court’s ruling that Gruppe was not the
alter ego of KS and that KS therefore was not vicariously liable for
induced infringement.
After oral argument
in the appeal, defendants filed motions asking us to apply our holding in Festo
Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co., Ltd., 234 F.3d 558 (Fed.
Cir. 2000) (en banc) (“Festo I”). In Festo I, we ruled that a
narrowing amendment to a claim limitation made for a substantial reason
related to patentability completely bars the application of the doctrine of
equivalents to that amended claim limitation. Id.
at 569. Because our Festo I
decision represented an intervening change in controlling authority, we
revisited our infringement holdings in Insituform I and II. Insituform Techs., Inc. v. Cat
Contracting, Inc., 10 Fed. Appx. 871, 877 (Fed. Cir. 2001)
(unpublished) (“Insituform III”).
After reexamining
the prosecution history of the ‘012 patent, we determined that, under
Festo I, Insituform had made a narrowing amendment to claim 1 of the
‘012 patent. Insituform
III, 10 Fed. Appx. at 879-80.
The claim was narrowed, we pointed out, because claim 1 in its
original form did not limit the number of cups that could be used to create
a vacuum, whereas claim 1 in its amended form was limited to the use of one
cup. Id. Accordingly, we held that
“Insituform cannot assert any range of equivalents for this claim
limitation [and] Process 1, which uses multiple cups, cannot infringe under
the doctrine of equivalents, the only finding of infringement affirmed by
this court.” Id.
at 880. We therefore reversed
the district court’s final judgment of liability and damages, and
remanded the case with instructions “(i) to vacate all orders entered
after the finding of infringement as moot, including those relating to
damages and Catallo’s joinder as defendant; and (ii) to dismiss the
case as to all parties.” Id. We thus did not address the several
remaining issues noted above that originally were on appeal to us in Insituform
III. Plaintiffs petitioned
the Supreme Court for a writ of certiorari, as did the plaintiff in Festo
I.
E. Remand
from the Supreme Court
The Supreme Court
vacated and remanded our decision in Festo I. Festo Corp. v. Shoketsu Kinzoku
Kogyo Kabushiki Co., Ltd., 525 U.S.
722 (2002) (“Festo II”). In Festo II, the Court
overruled the complete bar we established in Festo I, establishing a
flexible bar instead. Id.
at 738 (“[W]e have consistently applied the doctrine [of equivalents]
in a flexible way, not a rigid one.”). The Court also held, inter alia,
that where the equivalent was “unforeseeable at the time of the
amendment” or the rationale underlying the amendment bore “only
a peripheral relation” to the equivalent, the patentee could rebut
the so-called “Festo-presumption.” Id.
at 740. That presumption is
that a narrowing amendment made for a reason of patentability surrenders
the entire territory between the original and the amended claim
limitation. Id. Accordingly, the Court vacated our
decision in Insituform III and remanded the case to us for further
proceedings in light of its decision in Festo II. Insituform Techs., Inc. v. Cat
Contracting, Inc., 535 U.S.
1108 (2002).
F. Festo
III
After the Supreme
Court remanded Festo to us, we rendered our second en banc
decision in the case. Festo
Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co., Ltd., 344 F.3d 1359
(Fed. Cir. 2003) (“Festo III”). In Festo III, we summarized
the three ways in which the Supreme Court stated that the Festo
presumption could be rebutted. Id.
at 1369. First, the patentee
may demonstrate that “the alleged equivalent would have been unforeseeable
at the time of the narrowing amendment.” Id. Second, the patentee may demonstrate
that “the rationale underlying the narrowing amendment bore no more
than a tangential relation to the equivalent in question.” Id. Finally, there may be
“‘some other reason’ suggesting that the patentee could
not reasonably have been expected to have described the alleged
equivalent.” Id.
(citing Festo II, 535 U.S.
at 740-41).
ANALYSIS
The following issues
are now before us on direct appeal:
(1) whether plaintiffs are barred from asserting infringement under
the doctrine of equivalents by reason of prosecution history estoppel in
light of Festo II and Festo III; (2) whether Insituform
Netherlands, the new assignee of the ‘012 patent, was improperly
joined as a plaintiff; (3) whether Giulio Catallo, president of CAT, was
improperly joined as an individual defendant and held jointly and severally
liable for damages; (4) whether the district court properly assessed
damages following our decision in Insituform II; (5) whether the
district court erred in holding that the infringement that was found in
this case was willful; and (6) whether the district court erred in
determining the extent to which accused infringers CAT and Firstliner
instructed their licensees to use the infringing process. On cross-appeal, we consider whether
the district court erred in ruling that Gruppe was not the alter ego of KS,
and that KS therefore was not vicariously liable for induced infringement. We address the parties’
contentions in turn, beginning with the Festo issue.
I.
With the complete
bar of Festo I overturned, we asked the parties to give us their
views as to how we should decide the case in light of Festo II and Festo
III. In response, both
plaintiffs and defendants urged us to decide the Festo issue on the
record now before us. We of
course are not bound by the wishes of the parties on a question such as
this. However, because
resolution of the issue turns on whether Insituform’s rationale
underlying the narrowing amendment bore no more than a tangential relation
to accused Process 1, and because the record has been fully developed on
this point, we agree that we can decide the issue. See Festo III, 344
F.3d at 1370 (“[W]hether the patentee has established a merely tangential
reason for a narrowing amendment is for the court to determine from the
prosecution history record without the introduction of additional evidence,
except, when necessary, testimony from those skilled in the art as to the
interpretation of that record.”).
Plaintiffs urge that
nothing in either Festo II or Festo III invalidates Insituform
II, where we determined that plaintiffs were not barred by prosecution
history estoppel from asserting infringement under the doctrine of
equivalents. Plaintiffs contend
that any presumption of surrender is rebutted because the rationale
underlying the amendment narrowing claim 1 to a single cup process bears at
most a tangential relation to the infringing equivalent—the
multiple-cup method of Process 1.
Specifically, plaintiffs assert that the reason for the amendment
was to overcome the prior art teaching of a single vacuum source at the far
end of the tube liner. As such,
plaintiffs argue, the amendment is, at most, only tangentially related to
Process 1, which places multiple cups near the resin front.
For their part,
defendants note that claim 1, as originally filed, covered a process using
single or multiple cups at any location downstream of the resin front. See Insituform I, 99
F.3d at 1108. They also note
that we construed claim 1, as amended, to cover a single vacuum cup, which
inherently creates a discontinuous vacuum. Id.
at 1106. Defendants thus argue
that accused Process 1 falls squarely within the territory surrendered by
the narrowing amendment.
For the reasons which follow, we hold
that plaintiffs have rebutted the Festo presumption that a narrowing
amendment made for a reason of patentability surrenders the entire
territory between the original claim limitation and the amended claim
limitation. See Festo
II, 535 U.S.
at 740-41. We reach this
conclusion because we conclude that the prosecution history establishes
that “the rationale underlying” the amendment narrowing the
scope of literal claim coverage from multiple cups to a single cup bears
“no more than a tangential relation to the equivalent in
question,” accused Process 1.
Id. Therefore, application of the
doctrine of equivalents in this case was not barred. Accordingly, we again affirm the
judgment of the district court that Process 1 infringed claim 1 of the ‘012 patent under the doctrine of
equivalents.
In
Insituform I, we construed claim 1 of the ‘012 patent as
limited to “a process using only one vacuum cup which inherently
creates a discontinuous vacuum.”
Id. at 1106. Based upon
that construction, we affirmed the district court’s JNOV that
Firstliner’s Process 1, employing multiple cups beyond the resin, did
not literally infringe claim 1.
Id. As noted, we also held,
however, that Insituform was not barred by prosecution history estoppel
from asserting that Process 1 infringed claim 1 under the doctrine of
equivalents. Id. at 1109. In so holding, we first looked at
the original claims in Insituform’s application. Of those, only the first four are
relevant to this appeal. Those
claims recited:
1. A method of
impregnating a flexible tube comprising an inner layer of resin absorbent
material and an outer layer in the form of an impermeable film, wherein the
resin absorbent layer is impregnated with a curable resin by applying a
vacuum to the inside of a flexible tube whilst the resin is brought into
impregnation contact with the resin absorbent material, the impermeable
film serving as a means to prevent ingress of air into the interior of the
tube, whilst the impregnation process is taking place.
2. A method
according to claim 1, wherein the resin is introduced into one end of the
tube in a quantity calculated effectively to impregnate all of the resin
absorbent material of the tube, and the vacuum is applied to the interior
of the tube, downstream of the resin mass, so that the resin will tend to
flow towards the vacuum application region.
3. A method
according to claim 2, wherein the lining tube containing the mass of resin
is fed through a pressure applying nip, such as may be defined by a nip
roller, which, together with the movement of the tube, squeezes the resin
in a direction towards the region of the application of the vacuum, at the
same time flattening the tube and assisting in the even distribution of the
resin.
4. A method
according to claim 2, wherein the vacuum is applied through a window in the
film in the wall of the tube by means of a cup applied to said window and
connected to a source of vacuum by means of a flexible hose, whereby the
cup can move with the tube during its movement relative to said nip, the
cup being moved and applied to a position spaced downstream from the
previous window, said previous window being sealed by means of a patch or
the like, whereby the process is repeated for respective lengths of the
tube until the entire tube length has been impregnated.
As can be seen,
the position and number of vacuum cups were not specified in independent
claim 1. Neither did claim 1
specify the location of the vacuum source. Dependent claim 2 referred to the
vacuum being applied to the interior of the tube, “downstream of the
resin mass,” while dependent claim 3 stated that the resin is
squeezed “in a direction towards the region of the application of the
vacuum.” It was only in
dependent claim 4 that the inventor recited application of the vacuum
through a window in the wall of the tube by means of a cup applied to the
window, as well as repositioning of the cup. All four claims were rejected over
United States Patent No. 4,182,262 to Everson (“Everson”).
We
stated in Insituform I that the original four claims “were
rejected over Everson, which discloses both the use of a continuous vacuum
and the creation of that vacuum from only a single vacuum source at the far
end of the tube opposite the resin source.” Id. at 1108. The objection was overcome by
amending claim 1 to include, in a different form, the limitations of
original dependent claims 2-4.
Further examining the prosecution history, we determined that
Insituform had stated to the examiner that the problem with Everson was
that Everson’s method was ineffective when dealing with a long length
of tube because it required an exceedingly large suction compressor. We pointed out that Insituform solved
this problem by placing the suction source closer to the resin front, thus
allowing the use of a smaller suction compressor. Id.
Based on our examination of the prosecution history, we concluded
that Insituform was not estopped from asserting that Inliner’s
multiple cup process infringed claim 1 of the ‘012 patent under the
doctrine of equivalents:
[I]t cannot be
said that a reasonable competitor could conclude that Insituform
relinquished coverage of processes using either multiple vacuum sources or
a continuous vacuum. At no
point did Insituform indicate that the Everson problem could be solved only
in the manner used by Insituform, i.e., Insituform never stated that
the problem could not be solved by using more than one vacuum source or a
continuous vacuum. Rather, the
only express limitation put on the invention by Insituform was the use of a
vacuum source close to the resin.
Id. at 1109. We remanded
the case to the district court for further proceedings on whether Process 1
infringed claim 1 under the doctrine of equivalents.
On
remand, the district court held that Process 1 infringed claim 1 under the
doctrine of equivalents, and the case returned to us on appeal in Insituform
II. On appeal, Firstliner
argued that Warner-Jenkinson Co. v. Hilton Davis Chemical Co., 520
U.S. 17 (1997), issued after Insituform I, limited the doctrine of
equivalents so that it could not apply in the case. Firstliner pointed to Warner-Jenkinson’s
holding that where no explanation is given for an amendment made during
prosecution of a patent, a presumption is to be applied against the
patentee that the amendment was made for purposes of patentability. Firstliner asserted that when
Insituform amended claim 1 in response to the examiner’s 35 U.S.C.
§ 103 rejection over Everson, it necessarily gave up coverage of any process
in which the vacuum was created at multiple vacuum sources because it
provided no explanation for that narrowing amendment. Insituform II, 161 F.3d at
691. We rejected this argument, pointing out that, during prosecution,
Insituform had explained the reason for the amendment of claim 1:
The stated reason
. . . for Insituform’s amendment to overcome the Everson reference
was to avoid the need to use a large compressor when the vacuum is created
a significant distance from the resin source. The Warner Jenkinson
presumption, therefore, which comes into play only when no explanation
is given for a claim amendment, is not applicable to this case because
Insituform made clear that the reason for the amendment was to overcome the
prior art teaching creation of a single source vacuum at the far end of the
liner.
Id. at 692 (citation omitted, emphasis in original). Having rejected Inliner’s
prosecution history estoppel argument, we went on to affirm the district
court’s judgment of infringement under the doctrine of
equivalents. Id. at 692-93. As noted above, however, we
subsequently reversed the judgment of infringement in Insituform III
based on our short-lived complete bar rule arising out of Festo I.
In
our view, Insituform has rebutted the Festo presumption. The prosecution history and our
discussion of that history in Insituform I and II compel the
conclusion that the amendment limiting the literal scope of claim 1 to a
single cup process bears “only a tangential relation,” if that,
“to the equivalent in question,” a process using multiple
cups. The question we must
address is “whether the reason for the narrowing amendment was
peripheral, or not directly relevant, to the alleged equivalent.” Festo III, 344 F.3d at
1365. As the discussion above indicates,
the narrowing amendment in this case was for the purpose of distinguishing
the invention over Everson.
Insituform made it clear that the difference between its process and
Everson was that its process did not have the disadvantage of the Everson
process of a large compressor at the end of the liner. There is no indication in the
prosecution history of any relationship between the narrowing amendment and
a multiple cup process, which is the alleged equivalent in this case. Thus, we hold that plaintiffs have
successfully rebutted the Festo presumption by establishing that the
amendment narrowing the claimed invention from multiple cups to a single
cup was tangential to accused Process 1, which used multiple cups attached
at different points along the liner tube. We therefore affirm the judgment of
infringement under the doctrine of equivalents.
Because we have
sustained the judgment of infringement, we must consider the several
additional issues that were mooted when we reversed the judgment of infringement
under the short-lived complete bar rule arising out of Festo I.
II.
We consider first
the issues raised by defendants in their direct appeal. Defendants appeal (1) the joinder of
Insituform Netherlands,
(2) the joinder of Catallo in his individual capacity, (3) the damages
award for infringement by Process 1, (4) the district court’s
willfulness determination, and (5) the extent to which CAT/Firstliner
induced infringement by their licensees.
A. Joinder of Insituform Netherlands
Defendants
appeal the joinder of Insituform Netherlands. According to defendants, the current
owner of the ‘012 patent, Insituform Netherlands, never filed suit
and was named to this litigation only because of a misrepresentation to the
district court in 1994, after the case was reassigned to a new judge. They assert that the district
court’s 1994 decision adding Insituform Netherlands
as a party was in error and that no properly named party has standing to
sue for damages. Plaintiffs
respond that the district court acted well within its discretion (i) in
granting the joint 1994 motion that Insituform Netherlands be added as a
party, and (ii) in refusing to alter that decision in 1999.
The
original corporate plaintiff, and owner of the ‘012 patent, was Insituform Licensees B.V. Insituform Licensees B.V. filed this
lawsuit in 1990. In 1992, the
case went to trial. At that
time, the plaintiffs were Insituform Licensees B.V.; Insituform of North
America, Inc.; and Insituform Gulf South, Inc. The defendants were CAT, MSC,
KS, and Firstliner.
Following
a jury trial, a verdict, and after a new trial was ordered, Insituform
Licensees B.V. assigned the ‘012 patent to Insituform Netherlands. The assignment included the right to
sue for past infringement. At
the time of the assignment, Insituform Netherlands
was not a party to the lawsuit, and it did nothing to join the suit for two
years. On November 30, 1994, the parties entered a
joint motion asking the court to make Insituform Netherlands
a party. The motion stated that
“legal title to the patent in suit has been transferred from
Insituform Licensees B.V. to Insituform (Netherlands)
BV.” Plaintiffs also
represented to defendants and to the district court that Insituform
Licensees B.V. had changed its name to Insituform Netherlands. This was not technically true. While ownership of the patent had,
indeed, changed hands, Insituform Licensees B.V. was still an existing
corporate entity at the time of the motion. After the motion to join Insituform Netherlands
was granted, defendants discovered the alleged misrepresentation and, on
that basis, now challenge Insituform Netherlands’
standing.
Probably
to remedy what they perceived to be a potential defective parties problem,
plaintiffs, in 1999, sought leave to amend their pleadings to include
Insituform North America, Inc.
and, if necessary, Insituform Netherlands as parties under Fed. R. Civ. P.
15(a) and 21. The district
court stated that “[Insituform Netherlands]
was made a party to this suit by order of this court on November 30, 1994.” District Court Opinion, slip
op. at 21. The court also
stated that “the rights of the legal patent owner have been at issue
since the inception of this case and . . . [Insituform Netherlands]
has presented evidence of recoverable monetary damages that Defendants have
been able to rebut at trial.
Therefore, Defendants would not be prejudiced if [Insituform Netherlands]
is recognized as a party plaintiff in this suit.” Id.
at 21-22. In other words, the
district court ruled that it had already joined Insituform Netherlands
as a party in November 1994, and it refused to change that decision in
1999, despite the arguments of defendants.
Because
the joinder issue is not unique to patent law, we apply the law of the
regional circuit. McGinley
v. Franklin Sports, Inc., 262 F.3d 1339, 1357 (Fed. Cir. 2001)
(“A district court’s decision to grant or deny a motion for
leave to join a party involves a procedural question that raises no special
issues relating to patent law, and therefore [regional circuit] law
applies.”); Datascope Corp. v. SMEC, Inc., 962 F.2d 1043, 1045
(Fed. Cir. 1992) (Regional circuit law determines “the standard for
determining whether the district court abused its discretion in denying
[the patentee] leave to amend” its complaint to add a new
party.). Rule 15(a) provides
that a party may amend its pleadings “only by leave of court or by
written consent of the adverse party; and leave shall be freely given when
justice so requires.”
Fed. R. Civ. P. 15(a).
Rule 21 states that “parties may be dropped or added by order
of the court on motion of any party or of its own initiative at any stage
of the action and on such terms as are just.” Fed. R. Civ. P. 21. In applying Rule 21, the court is
governed by the liberal amendment standards of Rule 15(a). See McLellan v. Miss.
Power & Light, 526 F.2d 870, 873 (5th Cir. 1976). The decision to grant or deny a
motion for leave to amend thus lies within the sound discretion of the
trial court. Jacobsen v.
Osborne, 133 F.3d 315, 318 (5th Cir. 1998); Datascope Corp., 962
F.2d at 1045. The Fifth Circuit
has stated that leave should be granted “in the absence of any
apparent or declared reason—such as undue delay, bad faith or
dilatory motive on the part of the movant, repeated failure to cure
deficiencies by amendments previously allowed, undue prejudice to the
opposing party by virtue of allowance of the amendment, [or] futility of
amendment.” Jacobsen,
133 F.3d at 318.
The district court
exercised its discretion in this case fully aware of plaintiffs’
alleged misrepresentation in the 1994 joint motion and determined that
defendants would suffer no prejudice were Insituform Netherlands
joined as a party. District
Court Opinion, slip op. at 21-22.
We discern no abuse of discretion in this decision, and thus affirm
the district court’s ruling. We have considered the
defendant’s other arguments on this point and find them not
persuasive.
B. Joinder of Giulio Catallo
Defendants appeal
the joinder of Giulio Catallo as a defendant in his individual
capacity. According to
defendants, the addition of Catallo as a party to this suit violated due
process and was contrary to the Supreme Court’s decision in Nelson
v. Adams U.S.A., Inc., 529 U.S. 460 (2000). For their part, plaintiffs
distinguish Nelson and rely on our decision in Fromson v.
Citiplate, Inc., 886 F.2d 1300 (Fed. Cir. 1989). Plaintiffs assert that Catallo is
the main executive officer of both CAT and Firstliner and (1) had
controlling authority of their day-to-day operations, (2) was directly and
actively involved in all aspects of the litigation, and (3) was
individually responsible for all of the conduct that led the district court
to increase damages and award attorney’s fees. As explained below, the district
court’s ruling on this point is supported by our decision in Fromson,
and we see no clear error in the court’s interpretation of the
facts. We accordingly affirm
the court’s decision on this point.
Giulio
Catallo is the sole owner of defendants CAT and Firstliner. He also is president of both
corporations. Plaintiffs first
attempted to join Catallo in his individual capacity in January of 1991,
before the first infringement trial in the case. That motion was denied without
prejudice and without opinion.
Plaintiffs renewed their motion after the infringement trial (the
trial for damages was bifurcated) in July 1991. This motion also was denied without
prejudice and without opinion.
In each case, the reason asserted for the joinder of Catallo was
that he was “directly responsible for all of the activities of CAT
and INLINER [and] was clearly the moving force behind infringement [and]
personally financially benefited from the payments made [under one of the
contracts found to be infringing.]” Additionally, plaintiffs asserted
that Catallo was personally a licensee of the accused process because he
signed a license agreement twice, on behalf of himself and as President of
Firstliner.
The
damages portion of the case was tried in September 1997. After trial, the court found that
defendants’ infringement had been willful. In July 1999, plaintiffs moved again
to add Giulio Catallo as a defendant.
In so doing, they argued that Catallo’s corporations were a
“real credit risk.”
They also argued that Catallo was a personal tortfeasor. Finally, they urged that in the
intervening years (1991-1999) many facts had come to light that weighed in
favor of making Catallo personally liable as an individual party.
Defendants
acknowledge that a corporate entity may be disregarded if doing so will
prevent fraud, illegality, injustice, a contravention of public policy, or
prevent the corporation from shielding someone from criminal liability. See Manville Sales Corp.
v. Paramount Sys., Inc., 917 F.2d
544, 552 (Fed. Cir. 1990). They
argue, however, that none of these reasons were present in this case. They state that Catallo “was
merely acting in accordance [with] the duties and scope of his
position” and that he “had a good faith belief and basis that
the Firstliner process did not infringe any Insituform patents when the
contracts were performed.”
In short, defendants contend that there was no reason to pierce the
corporate veil in this case.
In
an August 30, 1999
order, the district court granted plaintiffs’ motion to join Giulio
Catallo. Joinder Order,
slip op. at 9. In granting this
third request to add Catallo as a defendant, the district court recognized
that it was faced “with the uncommon situation where an individual is
sought to be added as a party after the conclusion of trial.” Id.
at 5. With respect to the
propriety of adding Catallo as a defendant, the district court relied on
our decision in Ohio Cellular Products Corp. v. Adams, U.S.A., Inc.,
175 F.3d 1343 (Fed. Cir. 1999), rev’d sub nom. Nelson v.
Adams, U.S.A., Inc., 529 U.S. 460 (2000), which was, at that time,
pending before the Supreme Court.
The court also pointed to our decision in Fromson. With respect to the personal
liability of Catallo, the court relied on Walker v. Federal Deposit
Insurance Corp., 970 F.2d 114, 122 (5th Cir. 1992), where the Fifth
Circuit stated that “[a]n officer is individually liable for any
tortious conduct that he committed in connection with his corporate duties
. . . . If a corporate officer
knowingly participates in a tortious act, there is no need to pierce the
corporate veil in order to impose liability.” In light of the facts that led to a
finding of willful infringement, and because the court believed that
Catallo “was personally responsible for many, if not all, of the
aggravating facts which led this court to award attorney’s fees and
enhanced damages,” Joinder Order, slip op. at 7, it granted
the motion to add Catallo as a defendant in his individual capacity, id.
at 9.
As
noted above, because the amendment of a pleading to add a party is not
unique to patent law, we apply the law of the regional circuit. McGinley, 262 F.3d at
1357. We thus review a district
court’s decision to add a party pursuant to Rules 15 and 21 of the
Federal Rules of Civil Procedure for an abuse of discretion. Jacobsen, 133 F.3d at
318. Our decision in Ohio
Cellular, upon which the district court relied, was subsequently
overturned by the Supreme Court.
Nelson, 529 U.S.
at 472. Resolution of this
issue thus turns on whether the facts of this case fall more closely under
the Supreme Court’s decision in Nelson, or our decision in Fromson,
which the Supreme Court distinguished in Nelson. If the facts are closer to Nelson,
then the district court decision is incorrect as a matter of law, and
Catallo was improperly joined.
If the facts are closer to Fromson, then the district court
decision should be affirmed.
In
Nelson, Ohio Cellular
Products Corp. (“OCP”) sued Adams,
U.S.A., Inc.
(“Adams”) for patent infringement. Eventually, the action was dismissed
and Adams was awarded costs and attorney fees. Nelson, 529 U.S.
at 462. Adams,
fearful that OCP would be unable to pay, moved to amend its pleadings
pursuant to Fed. R. Civ. P. 15 to include Nelson, the sole shareholder of
OCP, as a party. Id. The district court granted the
motion and simultaneously subjected Nelson to the judgment, a decision we
subsequently affirmed in Ohio Cellular.
The
Supreme Court reversed our decision in Ohio Cellular on due process
grounds. The Court determined
that Nelson was never afforded a proper opportunity to respond to the claim
against him. Id.
at 467. He was never served
with an amended pleading, nor was any such pleading actually composed and
filed in the court. Id.
at 466. Nor, after the
amendment naming him as a party, was Nelson accorded ten days to state his
defenses against personal liability for costs and fees. Id. Instead, judgment was entered
against him the moment permission to amend the pleading was granted. Id. The Court stated that “appeal
after judgment, in the circumstances this case presents, did not provide an
adequate opportunity to defend against the imposition of liability.” Id. Finally, the Court noted that Adams
never once sought to sue Nelson individually until after judgment was
entered against Ohio Cellular. Id.
at 467.
In
Fromson, Citiplate, Inc. (“Citiplate”) was sued by
Howard A. Fromson (“Fromson”) for patent infringement. Fromson moved before trial to
add the individual owners of Citiplate as parties, because he suspected
that the defendant corporation might not be able to pay a judgment against
it. Fromson, 886 F.2d at
1301. The district court
initially denied the motion because of defendant Citiplate’s
assurances that its financial condition was sound. Id. These assurances turned out to be
false. After judgment had been
entered, the court allowed Fromson to amend its original complaint to add
the individual owners of Citiplate as parties pursuant to Fed. R. Civ. P.
15(c). Id.
at 1302.
We
affirmed the district court’s decision. In so doing, we relied upon the test
articulated by the Supreme Court in Schiavone v. Fortune, Inc., 477
U.S. 21 (1986), to determine whether the requirements of Rule 15(c) had
been met. In Schiavone,
the Court articulated a four-part test:
Relation back is dependent upon four factors, all of which
must be satisfied: (1) the basic claim must have arisen out of the conduct
set forth in the original pleading; (2) the party to be brought in must
have received such notice that it will not be prejudiced in maintaining its
defense; (3) that party must or should have known that, but for a mistake
concerning identity, the action would have been brought against it; and (4)
the second and third requirements must have been fulfilled within the
prescribed limitations period.
Schiavone, 477 U.S.
at 29. Based on this test, we
determined that the “identity of interests between Citiplate and [its
individual owners] is virtually complete and that [the individual owners]
should have known all along that joinder was a possibility.” Fromson, 886 F.2d at
1304. We concluded that the
owners of Citiplate “themselves created the ‘mistake’
respecting the identity of the proper party rightfully to be sued and
capable of responding to damages.” Id.
The
original 1991 motions to add Giulio Catallo presumably were denied because
the district court believed defendants’ assertions that Catallo
“was merely acting in accordance [with] the duties and scope of his
position” and that he “had a good faith belief and basis that
the Inliner process did not infringe any Insituform patents when the
contracts were performed.”
When all the facts were determined following the 1997 damages trial,
the court concluded that these assertions were not true, finding that
Catallo “was personally responsible for many, if not all, of the
aggravating facts which led this court to award attorney’s fees and enhanced
damages.” Joinder
Order, slip op. at 7.
Furthermore, the court found that “Catallo diligently acted to
protect his interests at every stage of the proceedings.” Id. The court subsequently exercised its
discretion and granted the motion requesting that Catallo be added as a
defendant.
Applying
the Fifth Circuit’s abuse of discretion standard, we cannot say that
the district court abused its discretion in adding Catallo as a defendant
in his individual capacity. In
our view, the controlling case is Fromson, which the Supreme Court
distinguished in Nelson.
As in Fromson, plaintiffs in this case sought from the very
beginning to add Catallo as a defendant in his individual capacity on the
theory that he was liable as an individual tortfeasor. We have stated that “it is
well settled that corporate officers who actively aid and abet their
corporation’s infringement may be personally liable for inducing
infringement under § 271(b) regardless of whether the corporation is
the alter ego of the corporate officer.” Orthokinetics, Inc. v. Safety
Travel Chairs, Inc., 806 F.2d 1565, 1579 (Fed. Cir. 1986). The facts of this case are closer to
Fromson than to Nelson.
Accordingly, we affirm the decision of the district court.
C. Damages
The
overarching issue with respect to damages is the propriety of the district
court’s procedure in reassessing damages in light of our decision in Insituform
II. The issues of
infringement and damages were bifurcated in the case. The damages trial concluded while
the appealed infringement decision still was pending before us in Insituform
II. The damages trial was
conducted under the assumption that Process 1 (using cups) and Process 2
(using needles) both infringed the ‘012 patent. We determined, however, that only
Process 1 infringed and that Process 2 did not. Insituform II, 161 F.3d at
694. Not knowing that the
damages trial had already concluded, we stated that “the bifurcated
damages trial will determine for what amount [defendants are] actually
responsible . . . .” Id.
at 695.
Following
our decision in Insituform II, the district court, over the
objection of defendants, chose to allow only limited discovery to address
the issue of damages, instead of again opening up trial proceedings. District Court Opinion, slip
op. at 3-4. The primary issue
on which the final damages award turned was one of fact. Specifically, the district court had
to determine the date on which defendants stopped using infringing Process
1 and started using the non-infringing Process 2. Id.
at 35-36. To that end, the
court turned to the June 1991 trial testimony of Giulio Catallo, which
indicated that defendants switched to Process 2 “sometime after June
of 1991.” Id.
at 35. Defendants urged the court to rely
instead on Catallo’s February 1995 trial testimony, where he
indicated that defendants had shifted to needles exclusively by March of
1991. Id. During the discovery period,
defendants presented deposition testimony of two additional witnesses to
support their assertion that February
14, 1991, was the actual date by which they had stopped using
Process 1. This testimony was
offered to establish a specific date and to buttress Catallo’s
February 1995 testimony. Id. |