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Halo Electronics, Inc. v. Pulse Electronics

May 28, 2013

HALO ELECTRONICS, INC., PLAINTIFF,
v.
PULSE ELECTRONICS, INC. AND PULSE ELECTRONICS CORPORATION, DEFENDANTS.



The opinion of the court was delivered by: Philip M. Pro, District Judge.

ORDER

Before the Court is Defendants Pulse Electronics, Inc. and Pulse Electronics Corporation's (collectively "Pulse") Motion for Entry of Findings of Fact and Conclusions of Law Under Rule 52 (Doc. # 514), filed January 11, 2013. Plaintiff Halo Electronics, Inc. ("Halo") filed a Response (Doc. # 517) on January 25, 2013. Pulse filed a Reply (Doc. # 518) on February 1, 2013.

This patent infringement case was tried before a jury beginning on November 6, 2012. (Mins. of Proceedings (Doc. # 427).) On November 26, 2012, the jury returned a verdict finding all, except one, of Pulse's accused products directly infringed the asserted patent claims, and that Pulse induced others to infringe the asserted patent claims with respect to all, except one, of Pulse's accused products. (Jury Verdict (Doc. # 482) at 1–8.) The jury also found Halo had proven it was highly probable Pulse's infringement was willful. ( Id. at 9.) The jury further found Pulse had not proven the asserted patent claims were invalid for obviousness or for failing to name all inventors. ( Id. at 9–10.) Finally, the jury determined the date Halo began marking its products, a reasonable royalty rate, and an adequate amount of damages to compensate Halo for Pulse's infringement. ( Id. at 11.)

The issues remaining for the Court are the legal determinations of Pulse's obviousness defense and the objective element of Halo's willfulness claim. Additionally, the Court must rule on the equitable determinations of Pulse's inequitable conduct, equitable estoppel, and laches defenses. Based upon the testimony of the witnesses at trial and other evidence in the record, the Court hereby enters the following Findings of Fact and Conclusions of Law on these remaining legal and equitable issues. The Court first addresses Pulse's obviousness, inequitable conduct, equitable estoppel, and laches defenses, and then considers Halo's willfulness claim.

I. OBVIOUSNESS

Pulse argues it has proven by clear and convincing evidence that the asserted patent claims are obvious. According to Pulse, its infringement expert demonstrated that each element of the asserted patent claims was well known in the prior art before Halo filed its patent application and that the elements were combined in a predictable way. Pulse further argues that the secondary considerations of obviousness weigh in favor of obviousness. Pulse contends the commercial success of the patented design was due to litigation-driven licenses and not the products themselves. Pulse further argues there was no long-felt need for or initial skepticism of Halo's design because Pulse had been selling the open header design that solved the problem of cracking under high pressure for years before Halo filed its patent applications. Pulse also argues there was no unexpected result because it was obvious to combine the prior art to create Halo's design. Pulse additionally asserts that the evidence of copying or acceptance by others is due only to Halo's litigation-driven licenses. Finally, Pulse contends Halo produced no evidence Halo was proceeding contrary to conventional wisdom.

Halo responds that because Pulse failed to file a pre-verdict Motion for Judgment as a Matter of Law on obviousness, Pulse waived its right to challenge the factual basis underlying the jury's implicit findings on obviousness. Halo further argues that Pulse has not proven the asserted claims were obvious. Specifically, Halo argues that after resolving all factual disputes on obviousness in Halo's favor, the result is the conclusion that the asserted patent claims are not obvious.

The ultimate question of obviousness is a question of law based on the jury's factual findings. i4i Ltd. P'ship v. Microsoft Corp., 598 F.3d 831, 845 (Fed.Cir.2010), aff'd ––– U.S. ––––, 131 S.Ct. 2238, 180 L.Ed.2d 131 (2011). "The extent to which [the Court] may review the jury's implicit factual findings depends on whether a pre-verdict [Judgment as a Matter of Law] was filed on obviousness." Id. When a party fails to file a pre-verdict Motion for Judgment as a Matter of Law under Rule 50(a) on obviousness, that party waives its right to challenge the jury's factual findings on obviousness for substantial evidence. Id. When the jury makes no explicit factual findings and returns a verdict finding only that the claims were not obvious, courts presume the jury resolved the underlying factual disputes in the patentee's favor when analyzing the ultimate legal question of obviousness. Id. at 845–46; see also Jurgens v. McKasy, 927 F.2d 1552, 1558 (Fed.Cir.1991) ("In the absence of a proper motion for directed verdict during the trial below, the sole question for review is whether the factual story told to the jury by the verdict winner (we must assume that the jury correctly believed it) supports the legal conclusion of nonobviousness.").

A patent is invalid for obviousness "if the differences between the claimed invention and the prior art are such that the claimed invention as a whole would have been obvious before the effective filing date of the claimed invention to a person having ordinary skill in the art to which the claimed invention pertains." 35 U.S.C. § 103. Thus, when a patent "simply arranges old elements with each performing the same function it had been known to perform and yields no more than one would expect from such an arrangement, the combination is obvious." KSR Int'l Co. v. Teleflex Inc., 550 U.S. 398, 417, 127 S.Ct. 1727, 167 L.Ed.2d 705 (2007) (quotation omitted). Underlying factual considerations in an obviousness analysis include the scope and content of the prior art; teaching, suggestion, or motivation to combine elements from different prior art references; and any relevant secondary considerations. Allergan, Inc. v. Sandoz Inc., ––– F.3d ––––, 2013 WL 1810852, at *4 (Fed.Cir. May 1, 2013). However, although evidence of teaching, suggestion, or motivation to combine elements from different prior art references "is useful in an obviousness analysis, the overall inquiry must be expansive and flexible." Kinetic Concepts, Inc. v. Smith & Nephew, Inc., 688 F.3d 1342, 1360 (Fed.Cir.2012). Secondary considerations of obviousness include commercial success, a long-felt but unsolved need, failure of others to solve the problem, initial skepticsm, copying and praise by others, and licensing. Allergan, 2013 WL 1810852, at *4; Transocean Offshore Deepwater Drilling, Inc. v. Maersk Drilling USA, Inc., 699 F.3d 1340, 1350–54 (Fed.Cir.2012). The defendant bears the burden of proving by clear and convincing evidence that the patent is obvious. Kinetic Concepts, 688 F.3d at 1360.

Here, the Court makes no factual findings on obviousness, which was the province of the jury, and considers only whether the jury's factual findings on obviousness show by clear and convincing evidence that the asserted patent claims were obvious. Pulse did not file a pre-verdict Motion for Judgment as a Matter of Law on obviousness, and thus waived the right to challenge the jury's factual findings on obviousness for substantial evidence. The jury found Pulse had not proven the patent claims were obvious, but returned no specific factual findings. (Jury Verdict (Doc. # 482) at 9.) The Court therefore presumes the jury resolved all factual disputes in Halo's favor in considering whether the asserted patent claims were obvious.

A. The Prior Art

As to the scope of the prior art and its similarity to the asserted patent claims, Pulse introduced four prior art references at trial, Western Electric, Rockwell, Valor, and Akachi, which Pulse's infringement expert testified disclosed all of the asserted patent claim elements. Halo's infringement expert disagreed with Pulse's infringement expert's opinion regarding whether two of the prior art parts contained certain of the asserted patent claims' elements. (Jury Trial Tr.-Day 9 (Doc. # 468) at 246–50; Jury Trial Tr.-Day 10 (Doc. # 479) at 116–23.) However, Halo's infringement expert ultimately agreed with Pulse's infringement expert that each of the elements present in the asserted patent claims also were present in the prior art, except the standoff element in claim 7 of the ?985 patent and claim 48 of the ?785 patent. (Halo's Opp'n to Pulse's Mot. For Entry of Findings of Fact & Conclusions of Law under Rule 52 (Doc. # 517), Ex. A at 4–12.) Thus, even with the presumption that all factual disputes are resolved in favor of Halo, Pulse demonstrated that the prior art contained the elements for all but two of the asserted patent claims.

However, the fact that each of the elements of the asserted patent claims was independently present in the prior art does not in itself prove obviousness because the combination of elements within the prior art may not be obvious. See KSR Int'l, 550 U.S. at 418 ("A patent composed of several elements is not proved obvious merely by demonstrating that each of its elements was, independently, known in the prior art"). Further, the prior art relied on by Pulse at trial was similar to the content of the prior art before the United States Patent and Trademark Office ("PTO") during the Halo patents' original prosecution and reexamination. (Jury Trial Tr.-Day 9 (Doc. # 468) at 229–35.) This weighs in favor of nonobviousness. See Jurgens, 927 F.2d at 1560 (finding the prior art the PTO considered was similar to the prior art the PTO did not consider when the parties disputed this fact, because the presumption of resolving all factual disputes in favor of the patentee applied).

Thus, that all the elements of the asserted claims, save two, were present in the prior art weighs in favor of obviousness. However, the fact that the PTO considered similar prior art weighs in favor of nonobviousness.

B. Motivation to Combine and Teaching Away

For motivation to combine, Pulse's infringement expert testified that it would have been obvious and logical to combine the elements of the four prior art references Pulse presented at trial to create the asserted patent claims' elements, specifically referencing the Western Electric and Akachi parts. (Jury Trial Tr.-Day 7 (Doc. # 466) at 108.) Halo's infringement expert did not specifically address whether there would have been a motivation to combine the Akachi and Valor parts together or with the Western Electric or Rockwell parts. However, Halo's infringement expert testified generally that he disagreed with Pulse's infringement expert's conclusion that it would have been obvious to combine the prior art to create the asserted patent claims, and that Pulse's infringement expert was going through "a lot of contortions to combine things." (Jury Trial Tr.-Day 9 (Doc. # 468) at 251–52.) Halo's infringement expert also testified that there was nothing obvious he would have pulled from the Western Electric and Rockwell parts in defining the accused parts. ( Id. at 226–28.)

Additionally, a Pulse engineer testified that he did not see why the Western Electric and Rockwell parts were relevant to Pulse's accused parts.*fn1 (Jury Trial Tr.-day 8 (Doc. # 467) at 256.) Based on this testimony by Pulse's engineer, Halo's infringement expert testified that if the Western Electric and Rockwell parts were "not relevant to someone who was on the ground at the time," the parts "can't form the basis of an obviousness combination" for that person. (Jury Trial Tr.-Day 9 (Doc. # 468) at 228–29.) The jury found the accused products, except one, met the elements of the asserted patent claims. (Jury Verdict (Doc. # 482) at 1–5.) Therefore, if the Western Electric and Rockwell parts were not relevant to the accused products, they were not relevant to the asserted patent claims that those products infringed, and there would be no motive to combine those parts to create the asserted patent claims. Halo presented evidence that there was no motivation to combine the prior art to create the asserted patent claims, so the Court presumes the jury resolved this fact in favor of Halo. See i4i Ltd. P'ship, 598 F.3d at 846 (finding the presumption that the jury resolved factual disputes in favor of the patentee applies to disputes about the existence of motivation to modify prior art references). Therefore, the evidence on motivation to combine the prior art to create the patented design weighs in favor of nonobviousness.

As to whether the prior art taught away from the asserted patent claims, Halo's infringement expert testified that "the work that other people were doing, the solutions that they were pursuing" was "that they were working on other things." (Jury Trial Tr.-Day 9 (Doc. # 468) at 258.) Halo's infringement expert also testified that Pulse was "working on different things as opposed to the solution that ultimately was determined." ( Id. at 258–59.) Therefore, presuming the jury resolved this factual issue in favor of Halo, the prior art taught away from the Halo patents. See Spectralytics, Inc. v. Cordis Corp., 649 F.3d 1336, 1343 (Fed.Cir.2011) ("Whether the prior art teaches away from the claimed invention is a question of fact."). Consequently, teaching away also weighs in favor of nonobviousness.

C. Objective Factors of Obviousness

1. Commercial Success

Pulse argues that the commercial success of its accused products was not due to the patented design. Pulse's Director of Marketing testified there were cases where customers preferred open header or transfer molded, but the majority of customers had no preference and made a decision based on cost. (Jury Trial Tr.-Day 7 (Doc. # 466) at 318–20.) Pulse presented evidence that the costs for open header parts and transfer molded parts were similar, but sometimes one type could be more expensive than the other. ( Id. at 326–27.)

However, Halo presented evidence of the accused products' commercial success, and the accused products embodied Halo's invention. (Jury Trial Tr.-Day 8 (Doc. # 467), at 186 (Pulse did "$250 million worth of sales 10 over ten years" of the accused products); Jury Trial Tr.-Day 9, at 256 (once Pulse "began to ship accused parts, they shipped $257,000,000 worth of accused parts").) Therefore, Halo triggered the presumption that the commercial success of the accused products is due to Halo's patented invention. See J.T. Eaton & Co. v. Atl. Paste & Glue Co., 106 F.3d 1563, 1571 (Fed.Cir.1997) ("When a patentee can demonstrate commercial success, usually shown by significant sales in a relevant market, and that the successful product is the invention disclosed and claimed in the patent, it is presumed that the commercial success is due to the patented invention."); Brown & Williamson Tobacco Corp. v. Philip Morris Inc., 229 F.3d 1120, 1130 (Fed.Cir.2000) ("[I]f the marketed product embodies the claimed features, and is coextensive with them, then a nexus is ...


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