Appeal from the United States District Court for the Eastern District of Texas in No. 07-CV-0341, Magistrate Judge Charles Everingham.
Mark S. Werbner, Syles Werbner, P.C., of Dallas, Texas, argued for plaintiff-appellee. With him on the brief were Richard A. Sayles and Mark D. Strachan. Of counsel on the brief were Leslie V. Payne, Nathan J. Davis and Miranda Y. Jones, Heim, Payne & Chorush, of Houston, Texas.
William F. Lee, Wilmer Cutler Pickering Hale and Dorr LLP, of Boston, Massachusetts, argued for defendant-appellant. With him on the brief were Mark C. Fleming, Jonathan W. Andron and Felicia H. Ellsworth; and William G. McElwain, of Washington, DC. Of counsel on the brief were Henry B. Gutman, Simpson Thacher & Bartlett LLP, of New York, New York; and Jeffrey E. Ostrow, Harrison J. Frahn, IV, Patrick E. King and Jonathan Sanders, of Palo Alto, California.
Before Newman, Prost, and O'Malley, Circuit Judges.
PROST, CIRCUIT JUDGE.
Cisco Systems, Inc. appeals from the final judgment of the United States District Court for the Eastern District of Texas, which was based on the findings of two separate jury verdicts finding that: Cisco directly and indirectly infringed specified claims of Commil USA, LLC's U.S. Patent No. 6, 430, 395 ("'395 patent"); the specified claims of the '395 patent are not invalid as indefinite, for lack of enablement, or as lacking adequate written description; and that Cisco was liable for $63, 791, 153 in damages as well as pre-judgment interest and costs. We find that the district court gave the jury a legally erroneous instruction with respect to indirect infringement. Additionally, we find that Cisco's evidence of a good-faith belief of invalidity may negate the requisite intent for induced infringement. However, we find that the district court did not err in granting a partial new trial. Thus, we affirm-in-part, vacate-in-part, and remand for further proceedings consistent with this opinion.
A. The Patent and Accused Products
In a wireless system, mobile devices such as phones and laptop computers communicate with fixed "base stations" according to standardized procedures that govern the way in which data exchanged between devices is formatted, ordered, maintained, and transmitted. These procedures are referred to as "protocols." Effective wireless communication requires that the transmitting device and the receiving device follow the same protocol.
The '395 patent relates to a method of providing faster and more reliable handoffs of mobile devices from one base station to another as a mobile device moves throughout a network area. The '395 patent teaches that the communication protocol is divided based on time sensitivity. The portions of the protocol requiring accurate time synchronization—"real-time capabilities"—are performed at the base station. This part of the protocol is called the "low-level protocol." Other parts of the protocol that are not time-sensitive comprise the "high-level protocol, " which is performed on another device called a switch. The base station and switch cooperate to handle a connection with a mobile unit. To implement the full communications protocol, the base station runs an instance of the low-level protocol for the connection and the switch runs a corresponding instance of the high-level protocol.
Cisco is a major supplier of WiFi access points and controllers. Commil alleges that certain Cisco access points and controllers infringe claims 1, 4, and 6 of the '395 patent. Claim 1, the patent's sole independent claim, provides:
In a wireless communication system comprising at least two Base Stations, at least one Switch in communication with the Base Stations, a method of communicating between mobile units and the Base Stations comprising:
dividing a short-range Communication protocol into a low-level protocol for performing tasks that require accurate time synchronization and a high-level protocol which does not require accurate time synchronization; and
for each connection of a mobile unit with a Base Station, running an instance of the low-level protocol at the Base Station connected with the mobile unit and running an instance of the high-level protocol at the Switch.
B. The District Court Proceedings
A jury trial commenced on May 10, 2010. On May 17, 2010, the jury returned a verdict rejecting Cisco's invalidity contentions, finding Cisco liable for direct infringement, and awarding Commil $3.7 million in damages. The jury also found that Cisco was not liable for induced infringement. Commil filed a motion for a new trial on the issues of induced infringement and damages, which the court granted on December 29, 2010.
On April 5, 2011, a second trial was held with respect to indirect infringement and damages. On April 8, 2011, the jury returned a verdict in favor of Commil on both issues and this time awarded $63.7 million in damages. On September 28, 2011, the district court entered an amended final judgment granting $63.7 million in actual damages, $10.3 million in prejudgment interest, and $17, 738 in costs. This appeal followed.
Cisco appeals the district court decision on several grounds. First, Cisco contends that an erroneous instruction allowed the jury to find inducement based on mere negligence. Second, Cisco argues that the district court erroneously precluded Cisco from presenting evidence of its good-faith belief of invalidity to show that it lacked the requisite intent to induce infringement of the asserted claims. Third, Cisco argues that the district court abused its discretion in granting a new trial and that the district court violated the Seventh Amendment by granting a new trial on certain issues, but not others. Fourth, Cisco claims the court erred in construing the term "short-range communication protocol." Fifth, Cisco argues that there is not substantial evidence to sustain the jury verdict on infringement. Sixth, Cisco contends the claims are indefinite, not enabled, and lacking adequate written description. Finally, Cisco objects to the damages award on the grounds that Commil's royalty base violates the entire market value rule. We take each of these issues in turn.
A. The Jury Instruction
Before the district court and on appeal, Cisco challenged the second trial's jury instruction on induced infringement. The district court denied Cisco's motion for a new trial on the jury instruction issue. We review the denial of a motion for a new trial under the law of the regional circuit. Riverwood Int'l Corp. v. R.A. Jones & Co., 324 F.3d 1346, 1352 (Fed. Cir. 2003). In the Fifth Circuit, the denial of a motion for a new trial "will not be disturbed absent an abuse of discretion or a misapprehension of the law." Prytania Park Hotel v. Gen. Star Indem. Co., 179 F.3d 169, 173 (5th Cir.1999). Whether a jury instruction on an issue of patent law is erroneous is a matter of Federal Circuit law that is reviewed de novo. Sulzer Textil A.G. v. Picanol N.V., 358 F.3d 1356, 1363 (Fed. Cir. 2004) (citing Advanced Display Sys., Inc. v. Kent State Univ., 212 F.3d 1272, 1282 (Fed. Cir. 2000)). We will set aside the jury verdict, "if the movant can establish that 'those instructions were legally erroneous, ' and that 'the errors had prejudicial effect.'" Id. (citations omitted). In reviewing jury instructions, we review the trial record and the jury instructions in their entirety. Id.
At the second trial, the court instructed the jury that it could find inducement if "Cisco actually intended to cause the acts that constitute direct infringement and that Cisco knew or should have known that its actions would induce actual infringement." J.A. 6389 (98:24-99:2). The "knew or should have known" language is a verbatim recitation of the standard for showing induced infringement we originally set forth in Manville Sales Corp. v. Paramount Sys., Inc., 917 F.2d 544, 553 (Fed. Cir. 1990). This court, sitting en banc, again approved this language in DSU Medical Corp. v. JMS Co., Ltd., 471 F.3d 1293, 1306 (Fed. Cir. 2006) (en banc). Cisco alleges that this instruction allowed the jury to find inducement on the showing of mere negligence and, as such, is legally erroneous in view of the Supreme Court's recent decision in Global-Tech Appliances, Inc. v. SEB S.A., 131 S.Ct. 2060 (2011).
The Global-Tech Court held that induced infringement "requires knowledge that the induced acts constitute patent infringement." Id. at 2068. The knowledge requirement of Global-Tech may be satisfied by showing actual knowledge or willful blindness. Id. at 2072. In reaching this conclusion the Court expressly distinguished actual knowledge and willful blindness from recklessness and negligence explaining that:
[A] willfully blind defendant is one who takes deliberate actions to avoid confirming a high probability of wrongdoing and who can almost be said to have actually known the critical facts. By contrast, a reckless defendant is one who merely knows of a substantial and unjustified risk of such wrongdoing and a negligent defendant is one who should have known of a similar risk but, in fact, did not.
Id. at 2070-71 (citations omitted). The Court acknowledged that the facts that must be adduced to find willful blindness prevent such a finding on facts that support only recklessness or negligence. Id. Moreover, the Court rejected the standard set forth by this court, in part, because it permitted "a finding of knowledge when there is merely a 'known risk' that the induced acts are infringing." Id. at 2071.
Commil contends that the jury instruction in this case merely allowed the jury to find knowledge based upon circumstantial evidence. Circumstantial evidence can, of course, support a finding of actual knowledge or willful blindness just as it did in Global-Tech. Id. at 2071-72. The jury instruction in this case, however, was not so limited. While the court did instruct the jury that certain circumstantial evidence could support a finding of inducement, the present jury instruction plainly recites a negligence standard, which taken literally, would allow the jury to find the defendant liable based on mere negligence where knowledge is required. J.A. 6389 (98:19-99:15). Therefore, to the extent our prior case law allowed the finding of induced infringement based on recklessness or negligence, such case law is inconsistent with Global-Tech and no longer good law. It is, therefore, clear that the jury instruction in this case was erroneous as a matter of law. This finding, however, does not end our inquiry.
In order to set aside a jury verdict, we must find not only that the jury instruction was legally erroneous, but also that the instruction had a prejudicial effect. Sulzer Textil, 358 F.3d at 1364 ("[I]t is not enough to merely show that a jury instruction is erroneous; [petitioner] also must show that the erroneous jury instruction was prejudicial."). If the erroneous jury instruction "could not have changed the result, the erroneous instruction is harmless." Environ Prods., Inc. v. Furon Co., 215 F.3d 1261, 1266–67 (Fed. Cir. 2000). Commil contends that when viewed as a whole, the jury instruction required the jury to find facts that satisfy the Global-Tech standard and, therefore, there is no prejudicial effect. We cannot agree.
A finding of inducement requires both knowledge of the existence of the patent and "knowledge that the induced acts constitute patent infringement." Global-Tech, 131 S.Ct. at 2068; see also DSU Med. Corp., 471 F.3d at 1306 (explaining that an "alleged infringer must be shown . . . to have knowingly induced infringement, " not merely knowingly induced the acts that constitute direct infringement" (citation omitted)). Here, the jury was clearly instructed that Cisco could not be liable for induced infringement if it was not aware of the '395 patent. The jury was also instructed that Cisco must have actively and knowingly aided and abetted direct infringement. The jury, however, was not instructed that in order to be liable for induced infringement, Cisco must have had knowledge that the induced acts constitute patent infringement. On the contrary, the jury instruction allowed Cisco to be held liable if "Cisco knew or should have known that its actions would induce direct infringement." J.A. 6389 (99:10-11). With respect to whether the induced acts constitute patent infringement, it is clear that the jury was permitted to find induced infringement based on mere negligence where knowledge is required. This erroneous instruction certainly could have changed the result. Facts sufficient to support a ...