Patent Watch: Presidio Components, Inc. v. Am. Tech. Ceramics Corp.

by BakerHostetler
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[A] finding of no competition for the purpose of irreparable harm conflicts with the clear finding of competition for the purpose of awarding damages.

On December 19, 2012, in Presidio Components, Inc. v. Am. Tech. Ceramics Corp., the U.S. Court of Appeals for the Federal Circuit (Rader,* Plager, Wallach) affirmed-in-part, vacated-in-part and remanded the district court judgment entering the jury verdict that ATC infringed U.S. Patent No. 6,816,356, which related to integrated broadband ceramic capacitor arrays. The Federal Circuit stated:

ATC challenges the district court's denial of JMOL on lost profit damages. At trial, Presidio presented both lost profits and reasonable royalty damages theories. Presidio asserted that ATC's infringing sales of 545L capacitors caused it to lose profits that it otherwise would have made from the BB capacitors. The jury awarded Presidio $1,048,677 in lost profits while finding a reasonable royalty not applicable.

Presidio advanced its lost profits theory under the four-factor Panduit test, which requires Presidio to show: (1) demand for the patented product; (2) absence of acceptable noninfringing substitutes; (3) manufacturing and marketing capability to exploit the demand; and (4) the amount of profit that would have been made. ATC argues Presidio did not establish the first two Panduit factors. With respect to the first factor -- demand for the patented product -- ATC contends Presidio's BB capacitors are neither covered by the asserted patent, nor in direct competition with the infringing 545L capacitors.

As an initial matter, the demand in question in the first Panduit factor is not limited to demand for the patented products. Rather, demand may also arise from a product that "directly competes with the infringing device." Because Presidio conceded that the '356 patent does not cover its BB capacitors, this record must show that the BB capacitors directly competed with ATC's 545L capacitors. ATC argues that the record does not link market demand with the claimed fringe-effect capacitance limitation. This argument fails because the first Panduit factor "does not require any allocation of consumer demand among the various limitations recited in a patent claim." [S]ubstantial evidence supports the jury's finding that demand existed for Presidio's BB capacitors and that they directly competed with the infringing 545L capacitor. This court therefore affirms the district court's finding that Presidio satisfied the first Panduit factor.

With respect to the second Panduit factor -- absence of acceptable noninfringing substitutes -- ATC argues the prior art ATC 540L capacitors and DLI's Opticap capacitors were available substitutes for the BB capacitors during the relevant period. . . . "A patentee need not negate every possibility that the purchaser might not have purchased a product other than its own, absent the infringement." Here, Presidio "need only show that there was a reasonable probability that the sales would have been made 'but for' the infringement." Moreover, the "[m]ere existence of a competing device does not make that device an acceptable substitute." In some instances, as is true in this case, products lacking the advantages of the patented invention "can hardly be termed a substitute acceptable to the customer who wants those advantages." The record shows that the proposed non-infringing substitutes are not adequate substitutes in the same market at all. [T]wo-piece capacitors had inferior reliability and performance results compared to one-piece capacitors. . . . The record contains substantial evidence to support the market's migration away from a two-piece design, thus supporting the jury's finding of no acceptable noninfringing substitutes. This court therefore affirms the district court's finding that Presidio satisfied the second Panduit factor. In sum, the record supports the jury's lost profits verdict with substantial evidence. . . .

On cross-appeal, Presidio contends the district court erred in denying a permanent injunction in light of its finding that the '356 patent is not invalid and infringed by ATC's 545L capacitors. . . . Equity sets forth the four-factor test for removal of a trespasser from property infringement. This analysis proceeds with an eye to the "long tradition of equity practice" granting "injunctive relief upon a finding of infringement in the vast majority of patent cases." This historical practice of protecting the right to exclude through injunctive relief is not surprising given the difficulties of protecting this right solely with monetary relief. Indeed, a calculating infringer may thus decide to risk a delayed payment to obtain use of valuable property without prior negotiation or the owner's permission. While a patentee is not entitled to an injunction in every case, "it does not follow that courts should entirely ignore the fundamental nature of patents as property rights granting the owner the right to exclude." This court reviews the district court's decision to impose an ongoing royalty, in light of its denial of a permanent injunction, for abuse of discretion.

As noted, the district court's finding of no competition for the purpose of irreparable harm conflicts with the clear finding of competition for the purpose of awarding damages. Indeed the record shows direct and substantial competition between the parties. The trial court found that ATC and Presidio shared some of the same customers, that the two products occupy the same markets, and that Presidio was at times seen as ATC's only true competitor. Indeed, in its damages award the jury also found this direct competition. As discussed above, the record contains substantial evidence to support these findings. To briefly recount, the record shows that Presidio and ATC were competing for the same customers in the same markets. In fact, ATC considered Presidio the most significant, if not the only, competitor for the 545L capacitors. . . . In addition to the jury's implicit finding of direct competition, Presidio showed that it was unwilling to license the '356 patent. The district court correctly found Presidio's unwillingness to license favored finding irreparable injury. In light of the record evidence of direct competition, the district court placed too much weight on Presidio's failure to practice the '356 patent. While Presidio conceded during this litigation that its BB capacitors do not practice the '356 patent, this does not prevent Presidio from receiving injunctive relief, as the district court properly noted. Even without practicing the claimed invention, the patentee can suffer irreparable injury. Direct competition in the same market is certainly one factor suggesting strongly the potential for irreparable harm without enforcement of the right to exclude. . . .

The jury also awarded lost profit damages, while expressly finding a reasonable royalty not applicable. Thus, the jury necessarily found ATC's 545L capacitor sales caused Presidio to lose BB capacitor sales. This squarely supports a finding of irreparable harm. The record shows that ATC did not present sufficient evidence to overcome Presidio's showing of irreparable injury inflicted by ATC's entry into the market. These findings, combined with Presidio's unwillingness to license the '356 patent, reveal that the district court clearly erred in finding no irreparable injury. Because the district court clearly erred in finding no irreparable injury, this court concludes that the district court abused its discretion when it denied Presidio a permanent injunction. Accordingly, this court vacates the district court's denial of Presidio's motion for a permanent injunction and remands for a re-weighing of the four-factors consistent with this opinion. This court also vacates the district court's ongoing royalty determination, which was predicated on the district court's denial of a permanent injunction.

If you have questions about the material presented above, please contact Dr. Lawrence M. Sung ( lsung@bakerlaw.com or 202.861.1537) or any member of our Intellectual Property Team.

See information regarding BakerHostetler's Patent Litigation and IP Prosecution and Portfolio Management practices.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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