Court: District Court, N.D. California; October 17, 2014; Federal District Court
Turner's motion for summary judgment in the patent infringement case brought by Nalco regarding United States Patent No. 6,255,118, which pertains to methods for testing industrial water systems, has been denied. The Court identified three key issues: 1) whether Turner induced third parties to infringe the patent, 2) whether Turner is liable for contributory infringement, and 3) whether the patent is invalid due to obviousness. Nalco claims that Turner sells the "Little Dipper" device, which infringes the patented process when used by customers. A critical aspect is whether end users of the Little Dipper directed or controlled water treatment companies to carry out steps of the patented method. The Court found that a reasonable jury could conclude that such direction or control exists, allowing Nalco's inducement claims to proceed. Furthermore, genuine disputes regarding contributory infringement and patent validity exist, supported by conflicting expert testimonies, leading to the denial of summary judgment on those issues as well. The Court opted not to address Turner's arguments regarding the patent's expiration date, as it does not affect the infringement claims. The background outlines that Nalco brought the infringement complaint against Turner on June 13, 2013, asserting that Turner induced infringement through the sale of the Little Dipper and engaged in contributory infringement by facilitating its use in a manner that infringes the patent's five-step method. Turner's defense includes claims that certain steps of the method were not executed, but the Court accepted Nalco's expert testimony for the summary judgment review.
End users are responsible for providing the industrial water system in the ongoing dispute between Turner and Nalco regarding the steps performed by various entities. Turner has counterclaimed against Nalco, seeking declarations of non-infringement and invalidity of the '118 patent, citing prior art, specifically U.S. Pat. No. 4,992,380 ('380 patent), which references a "fluorometer." Turner is also pursuing summary judgment on Nalco’s inducement and contributory infringement claims, asserting the '118 patent is invalid due to obviousness and that its expiration date is September 23, 2016.
Summary judgment is only granted when no genuine issues of material fact exist, and the moving party is entitled to judgment as a matter of law. A material fact is one that could affect the case's outcome, while a genuine dispute exists when reasonable evidence could lead a jury to favor the nonmoving party. The burden lies with the moving party to demonstrate the absence of genuine issues, after which the nonmoving party must present specific facts to counter. The court must interpret evidence in favor of the nonmoving party.
In the discussion on inducement, Turner claims Nalco has not shown evidence of Turner inducing end users to infringe the '118 patent. Under 35 U.S.C. § 271(b), liability for inducement requires proof of direct infringement and that the alleged infringer knowingly aided this infringement with specific intent.
Direct infringement claims fall under 35 U.S.C. § 271(a), which defines infringement as making, using, offering to sell, or selling a patented invention without authority during the patent's term. For method patents, direct infringement requires that a party performs or uses every step of the claimed method. If multiple entities perform the steps, one party can be held liable if it exercises "control or direction" over the entire process, even for steps it did not directly perform. Courts assess control by examining whether the accused infringer provided instructions, contracted out steps, had vicarious liability, or maintained a principal-agent relationship with another party.
In the current case, Nalco contends that the end user either performed or directed others to perform all steps of the claimed method related to the '118 patent, which includes five specific steps. However, Turner argues that Nalco did not demonstrate that the end user directed or controlled the performance of two steps: (a) providing the claimed fluorometer, and (d) programming it. Turner interprets "providing" as "furnishing or supplying," asserting that since the end user hired a water treatment company to supply the fluorometer, it cannot satisfy this limitation. The Court counters this narrow interpretation, referencing Meyer Intellectual Properties Ltd. v. Bodum, Inc., which defined "providing" more broadly as "furnishing, supplying, making available, or preparing." The court in that case determined that both a manufacturer and an end user could fulfill the "providing" limitation, as nothing in the claim restricted this step to a specific party. Thus, a jury could reasonably conclude that the end user could "make available" the fluorometer for the claimed method.
Turner argues that end users cannot satisfy the requirement of "direction or control" over water treatment companies, as merely hiring these companies does not imply such control. Two key points support this claim. First, Turner asserts that end users lack the "specific expertise" needed to service and maintain the Little Dipper, relying on expert testimony from Dr. Vaughn Astley. Dr. Astley noted that end users hire water treatment companies precisely because they lack this expertise, raising the question of how end users could direct these companies without it. However, Turner fails to provide legal authority establishing that specific expertise is necessary for directing or controlling another party.
Second, Turner posits that no agency or joint venture relationship exists between the end users and the water treatment companies, which, according to legal precedent, means the end users do not exercise direction or control. While the cited case, Aristocrat, indicates that vicarious liability requires an agency relationship, it also recognizes that direction or control can occur in a principal-agent or similar contractual arrangement, which the court finds unresolved in Turner’s argument. The cases Turner references to support his claims are distinguishable due to the absence of ongoing contractual obligations; in contrast, there is a continuous contractual relationship between the end users and the water treatment companies here, leading to obligations that establish a basis for potential direction or control.
Garratt-Callahan had a contractual obligation to perform periodic analyses of Americold Logistics' water treatment systems and provide recommendations, in exchange for 36 monthly payments of $824. The contract suggests a potential principal-agency relationship, as Garratt-Callahan entered Americold's premises and made regular operational calls. A reasonable jury could determine that Americold contracted out a step of a patented process by allowing Garratt-Callahan to provide the Little Dipper on its property.
Additionally, an indemnification clause in the contract between Idaho Milk and ChemTreat indicates that Idaho Milk would be vicariously liable for injuries arising from the use of equipment provided by ChemTreat, including the Little Dipper. The legal standard of control supports the notion that a party can be held liable for infringement if it contracts out steps of a patented process.
There exists a genuine dispute regarding whether the contractual relationships between end users and water treatment companies establish direction or control over the performance of the patented method. The Court concludes that a reasonable jury could find that some end users satisfy the requirements through their contractual agreements.
Regarding limitation (d) of the '118 patent, there is contention about whether end users program the fluorometer. Nalco argues that end users perform this step during calibration, while Turner asserts that there is no evidence that end users directed water treatment companies to program the Little Dipper. Turner claims end users lack the expertise to perform this step and denies the existence of a principal-agent relationship with any water treatment company.
A genuine issue of material fact exists regarding whether the water treatment companies acted under the direction or control of end users, which could lead a jury to determine that limitation (d) was fulfilled by the water treatment company at the end user's direction. Turner seeks summary judgment for all Little Dipper sales against unidentified end users, arguing that evidence of direction or control must be specific and cannot rely on a few examples. Citing *Cardiac Pacemakers Inc. v. St. Jude Medical, Inc.*, Turner contends that infringement claims must be limited to devices that can demonstrate actual execution of the claimed method. In *Cardiac*, it was ruled that a patentee could not recover for devices merely capable of infringement without actual practice of the patented method. However, Nalco asserts that evidence shows that purchases of Little Dipper by end users led to the performance of the infringed method, distinguishing it from the *Cardiac* case, where the alleged infringer's devices were not programmed to execute the claimed method. Therefore, the requirement from *Cardiac* does not apply in this situation, as Nalco does not argue for damages based on capability alone.
The Court agrees with Turner that establishing whether end users directly infringed the '118 patent requires a fact-specific inquiry but disagrees with Nalco's conclusions. Turner concedes that Nalco conducted such an inquiry regarding end users Americold, AMVAC, Idaho Milk, and MLK. The Court rules that Nalco is not required to produce additional direct evidence of infringement for unnamed end users beyond the four examples provided. The Federal Circuit has upheld infringement claims based on circumstantial evidence from unidentified parties, as seen in *Lucent Technologies, Inc. v. Gateway, Inc.*, where a single instance of the claimed method being performed was sufficient for a finding of infringement.
Nalco presented evidence of four instances of direct infringement, and the Court rejects the notion that separate evidence is needed for each sale of the Little Dipper to unnamed parties. Dr. Astley's testimony indicates that other customers use the Little Dipper similarly to the identified entities, allowing a reasonable jury to infer circumstantial evidence of infringement by other users.
Regarding inducement under 35 U.S.C. § 271(b), the plaintiff must show that the defendant had specific intent to encourage infringement, which requires proof that the defendant's actions induced infringing acts and that they knew or should have known their actions would lead to actual infringements. A good faith belief that the acts do not infringe or that the patent is invalid can negate specific intent. The determination of good faith is a factual issue, and the accused infringer's belief is insufficient for summary judgment. The Court emphasizes that drawing inferences related to intent is the responsibility of the fact finder.
Turner’s cited cases, Commil and Ecolab, emphasize that intent to induce must be determined by the fact finder, not through a legal conclusion that inducement is foreclosed. The Federal Circuit allows juries to use circumstantial evidence to establish intent, indicating that direct evidence is not a prerequisite. Turner argues it believed in good faith that its product, the Little Dipper, did not infringe the '118 patent due to the absence of a flow cell, which it communicated to customers. Evidence supporting this includes emails from Sales Engineer Tom Brumett, who differentiated the Little Dipper from competitors’ products based on the flow cell feature. Although Brumett asserted that the distinction was crucial to avoiding infringement, he did not investigate the definition of “flow cell,” read the '118 patent thoroughly, or consult legal counsel. Nalco argues that this lack of due diligence could lead a jury to conclude that Turner did not genuinely believe in non-infringement. Additionally, contributory infringement claims under 35 U.S.C. § 271(c) require proof of direct infringement, knowledge of the patent, and that the components sold have no substantial non-infringing uses.
A non-infringing use is considered substantial if it is not “unusual, far-fetched, illusory, impractical, occasional, aberrant, or experimental” as established in Vita-Mix Corp. v. Basic Holding, Inc. The presence of substantial non-infringing uses negates a claim for contributory infringement under 35 U.S.C. § 271(c). Turner claims that the NT model of the Little Dipper can be used without a mounting tee, which he argues is a substantial non-infringing use since it does not fulfill a specific functional limitation. However, Nalco counters that customers typically provide their own tees for the NT model, suggesting that its use may be “unusual, illusory, and impractical.” Additionally, while Turner asserts that the Little Dipper is used for leak detection, he fails to provide concrete examples, leading to a material factual dispute.
In his reply brief, Turner introduces a new example of a substantial non-infringing use with the Enviro-T version of the Little Dipper, which measures algae levels in municipal water systems. Nalco objects to this new evidence, arguing it violates Local Rule 7-3(d)(1) and Federal Rules of Civil Procedure 26(a) and (e) due to a lack of prior disclosure in response to interrogatories. Nalco requests the Court to exclude this evidence, emphasizing that failure to comply with discovery obligations prevents its use unless justified. Turner did not mention the Enviro-T in prior responses to discovery inquiries concerning non-infringing uses, raising further issues regarding his claims.
The Court denies Nalco's request to strike Turner’s new evidence while also denying Turner’s motion for summary judgment regarding Nalco’s contributory infringement claim due to inconsistencies in Turner’s statements about the Enviro-T. These inconsistencies create a factual dispute over whether the Enviro-T qualifies as a substantial non-infringing use of the Little Dipper. Turner claimed the Enviro-T is "physically identical" to the Little Dipper, yet during a prior deposition, a sales engineer from Turner stated that while the electronics are the same, the optics differ significantly. Additionally, Turner’s CEO previously denied that any materials referred to the Enviro-T as a Little Dipper, and Turner acknowledged that the two products are not substitutes. The sales figures also highlight a disparity: approximately 2,000 Little Dippers were sold compared to only 10 Enviro-T units to eight customers. Considering these facts in favor of the nonmoving party, a jury could reasonably conclude that the Enviro-T is sufficiently different from the Little Dipper to not be classified as a substantial non-infringing use.
Regarding patent validity, a patent may be deemed invalid for obviousness under Section 103 if the differences between the claimed invention and prior art would have been obvious to a skilled artisan at the time of the invention. To prove obviousness, clear and convincing evidence is required to show that a skilled artisan would have had reasons to combine prior art references and a reasonable expectation of success in doing so. A court can resolve the issue of obviousness on summary judgment, although it is considered a legal question based on four factual considerations: the scope and content of prior art, the differences between the prior art and the claims, the level of ordinary skill in the art, and objective nonobviousness factors.
The '118 patent's specification acknowledges that its sole advancement over prior art is the combination of two known elements: a solid-state fluorometer and a chemical monitoring system for industrial water. Experts for both parties dispute whether this combination renders the invention obvious. Dr. Astley, representing Nalco, argues that although combining known elements can lead to predictable results, the technical challenges of integrating a solid-state fluorometer for chemical monitoring were unresolved at the time of the prior art, thus undermining Turner's claim of obviousness. Conversely, Turner points to the "invention story," citing testimony from inventor Martin Godfrey about a conference where relevant fluorometers were discussed, but the actual testimony suggests that the presentation was about diode lasers, not fluorometry, indicating that Turner's narrative lacks clear support.
Additionally, Turner asserts that the combination of the '380 patent with the '118 patent specification indicates obviousness, although the '380 patent does not specifically mention solid-state fluorometers. The term "any fluorometer" in the '380 patent is subject to differing interpretations by the experts: Dr. Russell believes it encompasses solid-state options, while Dr. Astley argues it does not include technologies that were not available at the time. Finally, the Court will assess whether a person of ordinary skill in the art would have been motivated to combine the prior art references in question.
Motivation to combine prior art can stem from various sources, including market forces, design incentives, interrelated teachings from multiple patents, and the knowledge and common sense of a skilled artisan. In this case, expert opinions diverge regarding the motivation to combine the '380 and '118 patents. Dr. Russell argues that a skilled artisan would find it straightforward to combine these patents to achieve predictable results, while Turner claims the invention of the '118 patent merely required accessible components and basic assembly. Conversely, Dr. Astley contends that it was uncertain at the time of the '118 patent invention whether an LED could serve as an excitation source in industrial water systems.
The Federal Circuit mandates that all evidence relating to objective indicia of non-obviousness—such as commercial success and unmet needs—be considered before concluding on obviousness. Turner emphasizes commercial success but claims no other relevant secondary considerations exist, asserting the '118 patent is obvious based on the '380 patent. However, Dr. Astley identifies five objective indicia of non-obviousness: the industry's demand for improved fluorometers, Nalco's deviation from established practices, expert surprise at Nalco's invention, instances of copying, and accolades received for the invention.
Considering the evidence and expert disagreements, a reasonable fact finder might determine that Turner has not met the clear and convincing standard of proof necessary to invalidate the '118 patent due to obviousness.
Regarding the '118 patent's expiration, both parties agree it claims priority from application No. 08/719,507, filed on September 23, 1996. Under 35 U.S.C. § 154(a)(2), a patent term lasts 20 years from issuance unless an earlier application is referenced, which would start the term from that earlier filing date. The '118 patent claims priority from two applications, including the earlier 1996 application. Nalco attempted to disclaim the earlier application, asserting its priority claim was erroneous, despite the PTO's records reflecting the correct information regarding the '118 patent's priority.
The patent in question references only the 1997 application, with no amendments reflected in the issued patent, prompting Nalco to request a Certificate of Correction from the PTO. Under 35 U.S.C. 254, such certificates can correct mistakes caused by the PTO if clearly disclosed. Nalco asserts that this correction should establish the patent's expiration date as June 11, 2017, or 20 years post the 1997 application. In contrast, Turner argues that the expiration should be September 23, 2016, based on the 1996 application, citing that corrections made after filing a lawsuit are not retroactively effective according to Southwest Software, Inc. v. Harlequin, Inc. Turner claims the certificate of correction cannot alter the expiration date since it was filed after Nalco initiated litigation. The Southwest Software case supports this stance, as the Federal Circuit ruled that certificates of correction do not apply to causes of action arising before their issuance. Turner believes it is entitled to summary judgment based on this precedent. However, the context of Nalco's infringement claims does not hinge on the issuance of the certificate, distinguishing it from the issues in Southwest Software.
The determination of whether the '118 patent refers to either the 1996 or 1997 application, affecting its expiration in 2016 or 2017, does not impact Nalco’s lawsuit or the validity of its method patent. The Court can choose to consider the certificate of correction, but this choice does not affect the infringement claims. Unlike in Southwest Software, where the absence of a certificate of correction invalidated a claim, Turner’s motion for summary judgment on the '118 patent's expiration is irrelevant to the infringement and validity issues at hand. Consequently, the Court will not rule on this motion.
Additionally, the Court denies Turner’s motion for summary judgment on induced infringement, as a reasonable jury could find a principal-agent relationship between end users and water treatment companies. The motion for summary judgment on contributory infringement is also denied due to an existing factual dispute regarding substantial non-infringing uses of the Little Dipper. Furthermore, there is a genuine dispute regarding the issue of obviousness, so the motion asserting the invalidity of the '118 patent is denied. Ultimately, the expiration issue will not be addressed since it does not influence the underlying infringement claims.
