Poly-America, L.P. v. Gse Lining Technology, Inc.

Citations: 383 F.3d 1303; 72 U.S.P.Q. 2d (BNA) 1685; 2004 U.S. App. LEXIS 19234; 2004 WL 2034081Docket: 04-1022

Court: Court of Appeals for the Federal Circuit; September 14, 2004; Federal Appellate Court

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GSE Lining Technology, Inc. (GSE) appeals a post-trial ruling from the district court that denied its motion for judgment as a matter of law (JMOL) regarding the invalidity of two patents owned by Poly-America, L.P. (Poly-America), which pertain to landfill liner technology. The patents in question are U.S. Patent 5,763,047, a three-layered textured liner, and U.S. Patent 5,804,112, which details the manufacturing method for such liners. Both patents were filed on April 3, 1996, and issued in 1998.

The district court's claim construction was upheld, and the jury's verdict was supported by sufficient evidence, leading to the affirmation of the JMOL denial. However, the court found that Poly-America improperly included lost profits from its related corporation, Poly-Flex, in its damages claims. Consequently, the appellate court reversed the denial of GSE's motion for a new trial on damages and remanded the case for the district court to reassess Poly-America's lost profits.

Poly-America's patents describe a blown-film liner featuring a smooth inner layer bonded to textured outer layers, achieved through a specialized blown-film process that contrasts with traditional methods thought to require balanced thermoplastic flow. Poly-America contended that skilled artisans would avoid obstructing channels in the die due to the potential for costly damage and production loss. The legal proceedings began in July 2000 when Poly-America sued Serrot International, Inc. for infringement, with Serrot countering the validity of the patents.

Serrot claimed that a machine sold in 1987 constituted anticipatory prior art under 35 U.S.C. § 102(b) and argued that the '047 and '112 patent claims were invalid due to anticipation and obviousness based on an existing product, Friction Seal. The district court rejected these invalidity claims and denied Serrot's motion for summary judgment. Following Serrot's concession of infringement, a jury trial addressed Serrot's invalidity defenses, willfulness, and damages, resulting in a December 2002 verdict favoring Poly-America, Inc., affirming the patents' validity and finding willful infringement. The jury awarded $7.15 million in lost profits and a reasonable royalty of $5.08 million. GSE subsequently filed a post-trial motion for judgment as a matter of law (JMOL), arguing the patents were invalid and seeking a new trial on damages, which the district court denied but found the reasonable royalty award excessive. The court conditioned its denial of a new trial on Poly-America accepting a reduced royalty amount of $266,502. Poly-America accepted the remittitur, and GSE appealed the denials of its JMOL and new trial motions, not challenging the willfulness finding or infringement. The appellate court reviewed the district court's decisions de novo for JMOL and applied Fifth Circuit standards for the new trial motion, noting that such decisions are only overturned for abuse of discretion.

GSE contends that Poly-America's '112 method patent is invalid due to an alleged on-sale bar stemming from the sale of the Gundle die, which GSE argues was capable of performing the claimed process. GSE believes the district court incorrectly interpreted In re Kollar, suggesting that a sale of a method does not trigger a § 102(b) on-sale bar until the method is commercially practiced. GSE cites Minton v. National Ass'n of Securities Dealers, Inc. to assert that the sale of the Gundle die constitutes a statutory bar, regardless of whether it was used before the critical date of Poly-America's patent application. GSE also challenges the jury's finding that "choker slides" in the Gundle die were distinct from the claimed "plugs" in the '112 patent.

In response, Poly-America argues that the district court correctly denied GSE's motion for judgment as a matter of law (JMOL), asserting that the process claimed in the '112 patent was not ready for patenting at the time of the Gundle die's sale in 1987, which negates any on-sale bar. Poly-America maintains that GSE has not demonstrated that the jury's instructions were erroneous or prejudicial and contends that the jury could have reasonably found a material distinction between the "choker slides" and the claimed "plugs."

The court agrees with Poly-America, affirming the denial of GSE's JMOL motion. It emphasizes that whether an invention is "on sale" under § 102(b) involves legal interpretation based on factual findings. The presumption of patent validity requires GSE to provide clear and convincing evidence to support its claim of invalidity due to an on-sale bar. The court distinguishes the cases of Kollar and Minton, noting that Kollar involved an uncommercialized process requiring further development, while Minton involved a fully operational program, which constituted a commercial offer for sale.

The district court determined that the Gundle die was not utilized to create a textured blown-film liner with a smooth edge until April 2002, which was after the critical date of Poly-America's '112 patent. Evidence indicated that the potential of the Gundle die to perform Poly-America's process was not recognized and that its use of blocked channels contradicted established practices. The Gundle die included choker slides, unlike the "plugs" specified in the '112 patent claims. GSE's claim that the Gundle die could execute the method was based on hindsight related to the choker slides’ capabilities, which were not their intended function.

The cases of Kollar and Minton were not directly applicable, as they dealt with licensing and leasing by inventors rather than a third-party sale of a device claimed to be usable in a method after the critical date. The case did not address the policy against inventors commercializing their inventions prior to patent filings, focusing instead on the device's differences from the patented method. Substantial evidence indicated that the Gundle die's choker slides served a throttling function rather than acting as plugs as required by the '112 patent claims. Consequently, the jury could reasonably conclude that GSE did not meet the burden of proof to establish the patent's invalidity based on the on-sale bar, leading to the affirmation of the district court's denial of GSE's motion for judgment as a matter of law (JMOL) concerning invalidity.

Regarding the '047 patent, GSE contended that it was invalid due to anticipation or obviousness based on a similar liner called Friction Seal, manufactured by the National Seal Company in 1991. GSE argued that the district court improperly construed the term "blown-film" in the preamble as a substantive limitation, which, if correct, would prevent invalidation by the Friction Seal liner. Poly-America defended the district court's interpretation, citing its analysis of intrinsic evidence. Claim construction is a legal question reviewed without deference, allowing courts to consider specifications, prosecution history, and other relevant materials in determining claim scope.

Determining whether a preamble limits claim scope requires a thorough review of the entire patent to understand the inventors' intentions. No definitive test exists for this determination; however, a preamble may constitute a limitation if it describes essential structures or steps or is necessary to provide meaning to the claim. Conversely, it does not limit the claim if it merely states the purpose or intended use when the claim body is structurally complete. In this case, the term "blown-film" is deemed a claim limitation for the '047 patent, as it is consistently referenced throughout the patent's specification and claims, indicating its significance to the invention. The district court's conclusion that "blown-film" represents a fundamental characteristic and not merely a purpose is affirmed.

Regarding lost profits, GSE contends that Poly-America should not claim lost profits from Poly-Flex's sales, arguing that Poly-Flex lacks exclusive rights. Poly-America counters that it operates with Poly-Flex as a single economic unit for production and sales, sharing a unity of interest that justifies the loss allocation. Poly-America asserts that Poly-Flex holds substantive rights, including the right to enforce claims for damages, which were assigned to Poly-America. The license agreement supports Poly-America’s claim to collect damages for Poly-Flex's sales, leading the court to deny GSE's motion for a new trial, affirming the jury's decision supported by substantial evidence.

Poly-America's claim for lost profits based on Poly-Flex's sales is not legally valid. Under Section 284 of Title 35, a patentee is entitled to damages sufficient to compensate for infringement, with a minimum of a reasonable royalty. The Supreme Court's ruling in General Motors Corp. v. Devex Corp. emphasizes that patent owners should receive full compensation for damages suffered due to infringement. The determination of whether lost profits are compensable is a legal question reviewed de novo.

While a patentee can recover lost profits even if not directly selling the patented item, they must have been selling something whose profits were lost due to infringement. Poly-America has not demonstrated that it has suffered lost profits from GSE's infringement. Although Poly-America and Poly-Flex collaborate in the manufacture and sale of products, their separate corporate identities prevent Poly-America from claiming Poly-Flex's lost profits. Both entities, despite having a common parent corporation, retain distinct corporate statuses that impose limitations on claims for damages.

The license agreement's provision allowing Poly-America to collect damages for Poly-Flex does not alter the legal landscape. Generally, a licensee must possess exclusive rights to sue for damages, which Poly-Flex does not have as a non-exclusive licensee. Consequently, Poly-Flex holds only a "bare license" and cannot claim lost profits damages from infringement. Although parties may agree on the division of damages, they cannot manufacture lost profits where none exist. Awarding such profits to Poly-America based on its arrangement with Poly-Flex would improperly create profits for Poly-America, potentially disadvantaging GSE.

The district court incorrectly interpreted the legal standards regarding damages and lost profits, leading to the improper denial of GSE's motion for a new trial on damages. As a result, the appellate court reversed this aspect of the district court's judgment and remanded the case to evaluate whether Poly-America incurred any lost profits due to GSE's infringement. If lost profits are not established, the court will determine the appropriate reasonable royalty owed to Poly-America. The appellate court upheld the district court's denial of judgment as a matter of law (JMOL) regarding the invalidity of Poly-America's '112 and '047 patents. The final ruling affirms in part, reverses in part, and remands for further proceedings, with each party responsible for its own costs. Notably, Poly-America, L.P. is the successor of Poly-America, Inc., and GSE is the successor of Serrot International, Inc., reflecting changes in the parties during the litigation process.