This case is primarily about the Daubert standard as applied to expert testimony on damages. The Federal Circuit reversed the Northern District of California’s admission of expert testimony on damages, which relied on calculations that failed to differentiate between infringing products and non-infringing products. The Federal Circuit also reiterated the standards for a judgment as a matter of law (“JMOL”) of non-obviousness, and clarified that “by means of” claim language does not limit to but-for causation, i.e., it does not mean “by the exclusive means of.”

Background

Cyntec Company, Ltd. (“Cyntec”) owns patents directed to electronic components for automobiles known as chokes. Chokes are generally fabricated by wrapping a magnetic core with insulated wire. Prior art chokes were molded by annealing a mixture of magnetic powder and adhesive around the insulated wire. This molding process could heat the wire insulation to its melting point and damage the choke. Cyntec’s patents sought to solve this issue by claiming chokes with a combination of two different magnetic powders. The grains of the first powder are harder and larger than the grains of the second powder. According to Cyntec, using this type of two-powder configuration improves the performance of the magnetic core and allows the molding process to anneal the mixture at lower temperatures, resulting in fewer incidents of melted wire insulation, and lowers the probability of damaging the chokes.

The Federal Circuit cited the following claim as representative:

• An electronic device, comprising:
  • a first magnetic powder;
  • a second magnetic powder, wherein the mean particle diameter of the first magnetic powder is larger than the mean particle diameter of the second magnetic powder, the Vicker’s Hardness of the first magnetic powder is greater than the Vicker’s Hardness of the second magnetic powder by a first hardness difference, and the first magnetic powder mixes with the second magnetic powder; and
  • a conducting wire buried in the mixture of the first magnetic powder and the second magnetic powder, wherein the conducting wire comprises an insulating encapsulant and a conducting metal encapsulated by the insulating encapsulant;
  • wherein by means of the first hardness difference of the first magnetic powder and the second magnetic powder, the mixture of the first magnetic powder and the second magnetic powder and the conducting wire buried therein are combined to form an integral magnetic body at a temperature lower than the melting point of the insulating encapsulant.

Cyntec sued Chilisin Electronics Corp. (“Chilisin”) for patent infringement, alleging that Chilisin willfully manufactured and sold infringing chokes.

Chilisin argued that the “by means of” language in the last claim limitation requires the difference in powder grain hardness be the sole reason for the lowered annealing temperature. The district court rejected this construction and eventually instructed the jury that the “by means of” language requires only that the difference in powder grain hardness contribute to the lowered annealing temperature.

Before trial, Chilisin moved to exclude the testimony of Cyntec’s damages expert, arguing that the expert’s calculations relating to the importation of accused products sold by Chilisin were speculative and unreliable. But the court allowed the testimony because “[the expert’s] opinions rely on data sources that are sufficiently reliable that a jury can determine whether the assumptions made in his calculations were valid.”

At trial, Chilisin presented evidence to the jury on invalidity and Cyntec presented expert testimony in rebuttal. Cyntec moved for JMOL of nonobviousness before Chilisin could cross-examine Cyntec’s expert, and the district court granted Cyntec’s motion. The district court agreed with Cyntec that the cited prior art combination was missing claim elements and that Chilisin failed to meet the clear and convincing standard regarding motivation to combine.

To prove damages at trial, Cyntec presented a market-share lost profits theory, alleging that 27 companies purchased Chilisin’s accused chokes outside the United States and then imported devices including the chokes into the United States. Cyntec’s expert calculated $1,552,493 in lost profits and $320,463 in reasonable royalties. The jury awarded Cyntec the full amount and also found that Chilisin willfully infringed the patents. After denying Chilisin’s motion for a new trial, the court granted Cyntec’s motion for enhanced damages, resulting in a total lost profits award of $4,602,671 and reasonable royalties award of $950,573.

Chilisin then appealed to the Federal Circuit.

Issue(s)

Did the district court err in granting Cyntec’s JMOL of non-obviousness before underlying factual disputes were given to the jury?

Was the court’s construction of the “by means of” claim term erroneous?

Was there substantial evidence to support the jury’s finding of infringement?

Did the district court err in denying Chilisin’s motion to exclude Cyntec’s expert testimony on damages under Daubert, where such testimony was based on an unsupported assumption that sales revenue for purchasing companies’ products as a whole reflected sales of infringing products they had purchased from Chilisin?

Holding(s)

The district court erred in granting Cyntec’s JMOL of non-obviousness before factual disputes were given to the jury. The JMOL for non-obviousness was reversed and remanded.

The court’s construction of the “by means of” claim term was not erroneous. The plain language of the “by means of” limitation requires only that the difference in powder grain hardness contribute to the lowered annealing temperature.

There was substantial evidence to support the jury’s finding of infringement. The judgment of infringement was affirmed.

The district court abused its discretion in admitting Cyntec’s unreliable expert testimony on damages. The district court’s denial was reversed and the damages award is vacated.

Reasoning

Regarding the NDCA’s erroneous granting of JMOL of non-obviousness: Factual underpinnings of non-obviousness, e.g., the Graham factors for obviousness and a POSITA’s motivation to combine prior art references, are issues of fact ordinarily for the jury. These factual issues may be excluded from the jury by JMOL of non-obviousness where, after viewing all the evidence and reasonable inferences in light of the non-moving party, no reasonable juror could find the asserted claims obvious.

The Federal Circuit held that Chilisin presented evidence sufficient for a reasonable juror to find the asserted claims obvious. Chilisin presented a first prior art reference disclosing chokes comprising a two-powder configuration and a second prior art reference disclosing electronic devices with two-powder configurations having one powder larger and harder grained than the other. Chilisin also presented expert testimony that a POSITA would be motivated to combine the two prior art references to improve the permeability of the magnetic core in the first prior art reference.

Regarding the NDCA’s construction of the “by means of” claim term: The Federal Circuit acknowledged that “by means of” is broad enough to include but-for causation, but pointed out that it is also broad enough to include mere contribution. Further, if the patentee had intended to limit to the difference in powder grain hardness being the sole reason for the reduction in annealing temperature, the patentee would have either indicated as much in the spec or used more explicit language, e.g., “by exclusive (or primary) means of.”

Regarding whether there was substantial evidence for the jury’s finding of infringement: Cyntec presented expert testimony explaining how the differences in hardness and size between the constituent powder grains affected the annealing temperatures. Cyntec also presented testimony from its vice-president that these differences affected the accused product’s reliability. The Federal Circuit concluded this was enough for a juror to reasonably reach its infringement finding given the plain meaning of the “by means of” limitation discussed above.

Regarding the exclusion of Cyntec’s expert testimony on damages: The Federal Circuit citedtwo precedential cases regarding excluding unreliable damages expert testimony. In the first case, Power Integrations v. Fairchild Semiconductor International, Inc., 711 F.3d 1348, 1357 (Fed. Cir. 2013), the Federal Circuit threw out expert testimony on damages because it relied on calculations that assumed, without evidence, that all shipments of certain mobile phones included an infringing power circuit, even though the power circuits were found in chargers and not phones. Similarly, in the second case, Niazi Licensing Corporation v. St. Jude Medical S.C., Inc., 30 F.4th 1339, 1343–44 (Fed. Cir. 2022), the Federal Circuit threw out expert testimony on damages because it relied on calculations that included all of the defendant’s sales of catheters and related components, even though it was undisputed that not all of the catheters and components practiced the claimed method.

Here, Cyntec’s expert calculated an “importation rate” for each of 27 companies that allegedly bought infringing products from Chilisin. Cyntec’s expert calculated this importation rate based on the purchasing company’s United States revenue divided by its worldwide revenue. Cyntec’s expert then multiplied the importation rate for a given purchasing company by Chilisin’s revenue collected outside the United States from that purchasing company to determine the infringement revenue subject to damages. Cyntec’s expert treated the result of these calculations as Chilisin’s revenue for indirect sales to the United States via that purchasing company. He then applied Cyntec’s market share to this revenue to yield an estimate of Cyntec’s lost sales.

The Federal Circuit held that the district court’s denial of Chilisin’s Daubert motion—based on the court’s finding that Cyntec’s expert’s opinions relied on data sources that are sufficiently reliable that a jury can determine whether the assumptions made were valid—was an abuse of discretion. The expert’s calculations assumed, without evidence, that the sales revenue for the purchasing companies’ products as a whole reflected sales of infringing products they had purchased from Chilisin. Like the flawed calculations in Power Integrations and Niazi Licensing, the expert’s testimony here relied on data that failed to differentiate between infringing products and non-infringing products. The Federal Circuit found the expert’s opinion was derived from unreliable data and built on speculation and, therefore, the district court abused its discretion when it allowed the expert’s opinion.