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PCT International Incorporated v. Holland Electronics LLC

United States District Court, D. Arizona

September 8, 2015

PCT International Incorporated, Plaintiff,
v.
Holland Electronics LLC, Defendant.

ORDER AND FINDINGS OF FACT AND CONCLUSIONS OF LAW

JAMES A. TEILBORG, Senior District Judge.

Pending before the Court are the following motions:

(1) "Defendant's Motion to Supplement the Record" (Doc. 396)
(2) "Defendant's Motion for Entry of Judgement [sic], Findings of Fact, and Conclusions of Law Regarding Laches and Equitable Estoppel" (Doc. 406)
(3) "Defendant's Renewed Motion for Judgment as a Matter of Law Regarding the Number of Infringing Units and Amount of Damages; (2) Infringement; (3) Invalidity for Anticipation or Obviousness; (4) Invalidity for Indefiniteness, and (5) Extraterritoriality" (Doc. 408; Doc. 409-1)
(4) "Plaintiff PCT International, Inc.'s Motion for an Accounting for Royalties Due Through Entry of Judgment, Prejudgment Interest, and Postjudgment Interest" (Doc. 405)
(5) "Plaintiff PCT International, Inc.'s Motion for Permanent Injunction" (Doc. 404)

The Court now rules on the motions.

I. Background

The parties are thoroughly familiar with the basic facts of this case, and the Court will not repeat them here. During the jury trial, Defendant Holland Electronics LLC ("Holland") filed a motion for judgment as a matter of law pursuant to Federal Rule of Civil Procedure ("Rule") 50. (Doc. 381). While this motion was pending, the jury returned a verdict in favor of Plaintiff PCT International, Inc. ("PCT"). (Doc. 394). Specifically, the jury found that Holland directly (but not willfully) infringed claim 1 of United States Patent No. 6, 042, 422 (the "'422 Patent") with respect to sixty Holland products. (Id. at 2-5). The jury also found that the '422 Patent was not invalid, and awarded PCT damages of $515, 778.27 covering a royalty payment for 14, 736, 522 infringing units. (Id. at 5-6).

Following the conclusion of trial, the Court held a status conference where the parties and Court agreed that the Court would deny Holland's motion for judgment as a matter of law without prejudice to Holland filing a renewed motion; that the parties would file all post-trial motions by June 5, 2015; and the Court would not enter judgment until after ruling on the post-trial motions. (Doc. 401). The parties have now filed their post-trial motions.

II. Motion to Supplement the Record

Holland has filed a motion to supplement the record with a copy of a proposed jury instruction that Holland handed to the Court during trial but neither filed nor read aloud into the transcript. (Doc. 396). PCT has not filed a response to the motion; moreover, this proposed jury instruction is properly part of the record. Therefore, the Court will grant the motion. The proposed instructions now filed at Docs. 396-1 and 396-2 are part of the record.

III. Laches and Equitable Estoppel

Holland moves for entry of judgment in its favor on its affirmative defenses of laches and equitable estoppel, both of which Holland alleged in its "First Amended Answer to Complaint." (Doc. 51 at 15-16). As these are equitable defenses not tried to the jury, the Court must issue findings of fact and conclusions of law.

A. Findings of Fact[1]

In September 2007, Holland first began selling products that PCT accuses of violating the '422 Patent. (Tr. 1069:25-1070:1). Holland did not market or advertise its allegedly infringing[2] connectors in a 2007 catalog or on its website in 2007, however. Between September 2007 and October 2010, Holland sold approximately 15 million allegedly infringing connectors. (Tr. 1060:16-17, 1061:2-5). Holland did not sell its allegedly infringing connectors in large quantities to the cable and satellite markets in the United States; rather, it sold only small quantities to the industrial and home markets. (Ex. PX561 at 0002; Tr. 1464). Most of Holland's sales of these connectors, at least through 2012, were to Latin America. (Ex. PX561 at 0002; Tr. 1464).

PCT at least periodically monitored its competitors' products to check whether competitors were infringing PCT's patents. (Tr. 827-32, 905:13-15). Nevertheless, PCT did not have actual or constructive knowledge of Holland's alleged infringing activities until October 2010. In approximately October 2010, PCT became aware of a 2010 Holland catalog that listed connectors which PCT believed could infringe its patents. (Tr. 833:12-18; Ex. 1141; Ex. 1143). On October 12, 2010, PCT's general counsel sent Holland a letter informing Holland that PCT believed features of Holland's connectors were "very similar to those disclosed" in the '422 Patent and seeking to discuss the matter with Holland. (Ex. PX031). After PCT and Holland exchanged e-mails in October and November 2010, (Ex. 1143), PCT did not contact Holland regarding the alleged infringement of the '422 Patent until April 2012, when PCT's outside counsel sent a letter to Holland accusing Holland of infringing the '422 Patent. (Ex. PX033; Tr. 1210:10-15).

In 2011, the International Trade Commission embargoed certain Holland connectors, including those designs immediately predating the designs at issue in this infringement action, from entering the United States. (Tr. 1513, 1580-81). Although this embargo, which was eventually lifted, limited Holland's imports of the allegedly infringing connectors, some imports still occurred and Holland also maintained an inventory within the United States that it used to fulfill orders. (Tr. 1513-14).

In December 2011, PCT employees discussed among themselves a new Holland SLCU-6 connector that was hitting the Latin American market and "someday possibly the US, " with one PCT sales manager thinking the connector would not make inroads into the U.S. market. (Ex. DX1006).

On April 9, 2012, PCT sent Holland a letter again accusing Holland of infringing the '422 Patent and requesting that Holland discuss licensing possibilities to use the '422 Patent. (Ex. PX33). PCT filed the present lawsuit against Holland on August 21, 2012. (Doc. 1). Between October 2010 and August 2012, Holland sold approximately 4 million allegedly infringing connectors. (Tr. 1060:22-23).

B. Analysis & Conclusions of Law

1. Laches

Holland argues that the doctrine of laches is an equitable defense to PCT's claim for infringement of the '422 Patent. (Doc. 406 at 4). Specifically, Holland contends that PCT delayed for an unreasonable and inexcusable length of time in filing suit against Holland after PCT first knew or should have known of Holland's alleged infringement, and this delay has prejudiced Holland. (Doc. 406 at 5-6).

a. Legal Standard

Laches is an equitable and affirmative defense to a claim of patent infringement. Fed.R.Civ.P. 8(c)(1); A.C. Aukerman Co. v. R.L. Chaides Constr. Co., 960 F.2d 1020, 1028 (Fed. Cir. 1992) (en banc). The Federal Circuit Court of Appeals ("Federal Circuit") has defined laches as "the neglect or delay in bringing suit to remedy an alleged wrong, which taken together with lapse of time and other circumstances, causes prejudice to the adverse party and operates as an equitable bar." Aukerman, 960 F.2d at 1028-29. A defendant invoking the laches defense must prove by a preponderance of the evidence that (1) "the plaintiff delayed filing suit for an unreasonable and inexcusable length of time from the time the plaintiff knew or reasonably should have known of its claim against the defendant" and (2) "the delay operated to the prejudice or injury of the defendant." Id. at 1032, 1045.

The Federal Circuit has held that the period of the plaintiff's delay "begins at the time the patentee has actual or constructive knowledge of the defendant's potentially infringing activities." Wanlass v. Gen. Elec. Co., 148 F.3d 1134, 1337 (Fed. Cir. 1998). Even when a plaintiff has actual ignorance of the defendant's activities, "ignorance will not insulate him from constructive knowledge of infringement" when the defendant engages in "pervasive, open, and notorious activities that a reasonable patentee would suspect were infringing." Id. at 1338 (internal quotation marks omitted). "For example, sales, marketing, publication, or public use of a product similar to or embodying technology similar to the patented invention, or published descriptions of the defendant's potentially infringing activities, give rise to a duty to investigate whether there is infringement." Id. Constructive knowledge also may exist when these activities "are sufficiently prevalent in the inventor's field of endeavor." Id.

The length of delay between the date on which the plaintiff acquires actual or constructive knowledge of the defendant's alleged infringing activities and the date on which the plaintiff files the infringement suit "which may be deemed reasonable has no fixed boundaries but rather depends on the circumstances." Aukerman, 960 F.2d at 1032. In determining whether the plaintiff's delay is inexcusable, courts have considered factors such as other litigation, negotiations with the accused, poverty and illness, the extent of infringement, and dispute over ownership of the patent. Id. at 1033.

The defendant may satisfy the second prong of the laches defense, prejudice, by showing either evidentiary or economic prejudice resulting from the plaintiff's delay. Id. Evidentiary prejudice arises "by reason of a defendant's inability to present a full and fair defense on the merits due to the loss of records, the death of a witness, or the unreliability of memories of long past events, thereby undermining the court's ability to judge the facts." Id. Economic prejudice arises when the defendant (or others) "will suffer the loss of monetary investments or incur damages which likely would have been prevented by earlier suit, " but does not include merely those damages "attributable to a finding of liability for infringement." Id. Rather, the defendant must show a change in its economic position during the period of delay. Id.

b. Analysis

The starting point in deciding whether PCT's delay in filing suit was unreasonable and inexcusable is to determine the period of delay at issue. The parties dispute whether this period began in 2007 or in October 2010. Holland contends PCT's period of delay began in 2007, when Holland introduced the allegedly infringing products. (Doc. 406 at 5). PCT contends that the period of delay began in October 2010 when PCT became aware of Holland's alleged infringement and when Holland first marketed the products in its catalog. (Doc. 422 at 2-3).

Holland asserts that PCT had constructive notice in 2007 of its allegedly infringing products because Holland openly and notoriously sold these products, made them available on the market (including for retail purchase), and described them in its catalog. (Doc. 406 at 5). Although Holland cites three pieces of evidence in support of its argument, none of this evidence establishes PCT's constructive knowledge in 2007 of Holland's sales. First, Holland relies upon its "publicly available product catalog and website" as evidence that PCT had a duty to investigate whether Holland's products infringed the '422 Patent. (Doc. 406 at 1; Doc. 428 at 2). The only product catalog cited by Holland or discussed at trial bears a copyright date of 2010 and therefore is not probative as to Holland's catalog in 2007.[3] See (Ex. PX333 at 116).

Second, Holland cites the trial testimony of Michael Holland, who testified that the Holland website contained cutaway drawings of its connectors showing their inside design. (Doc. 406 at 1:15-16; Tr. 1204:16-21). Mr. Holland also testified that Holland products were "available on the market at that time, " including in retail stores. (Tr. 1204:22-1205:9). However, Mr. Holland made these comments in the context of a discussion concerning his October 18, 2010 e-mail to PCT's general counsel. See (Tr. 1204:1-24; Ex. 1143). As such, his testimony is contextually limited to that timeframe.[4]

Third, Holland cites the testimony of Brandon Wilson and Steve Youtsey, who testified that PCT at least periodically monitored its competitors' products to ensure that competitors were not infringing PCT's patents and PCT was aware that Holland made product information available on Holland's website. (Doc. 406 at 1) (citing Tr. 827-32); see also (Tr. 905:13-15) (testimony of Steve Youtsey that the coaxial cable connector market is like a "small town where everybody kind of knows everybody's business"). Holland argues that because Steve Youtsey and Brandon Wilson did not temporally limit their "admissions, " their testimony applies to the period beginning in 2007. (Doc. 428 at 1-2). But Holland has not presented evidence that it advertised its allegedly infringing connectors in its 2007 catalog or on its website in 2007. Therefore, Holland has not shown that PCT had actual knowledge of Holland's allegedly infringing activities prior to October 2010. Nor has Holland shown that it engaged in "pervasive, open, and notorious activities" prior to October 2010 such that PCT had constructive knowledge of these activities.

Because Holland has not shown by a preponderance of the evidence that PCT had actual or constructive knowledge of Holland's allegedly infringing activities prior to October 2010, the Court finds, as it has stated in its findings of fact, that the period of PCT's delay in filing suit begins in October 2010.

The Court now turns to the issue of whether PCT's delay from October 2010 to its filing suit on August 21, 2012 was unreasonable and inexcusable. PCT asserts that its delay was reasonable because (1) Holland's 2010 catalog did not show the shape of Holland's "grip ring" in sufficient detail to determine, from the catalog alone, whether Holland's connectors infringed the '422 Patent; (2) PCT believed Holland's sales to be focused in Latin America and not the United States; and (3) Holland's infringing connectors were the subject of an embargo that prevented their importation into the United States. (Doc. 422 at 7).

PCT's contention that its delay was reasonable because Holland's 2010 catalog did not sufficiently show the details of Holland's connectors is unpersuasive. By October 2010, PCT evidently believed that Holland's connectors might infringe the '422 Patent. PCT considered the possibility of infringement to be sufficient to merit contacting Holland and inviting Holland to discuss the matter further. The fact that it was not clear from Holland's catalog alone as to whether Holland was infringing the '422 Patent does not negate PCT's awareness of the potential infringement.

Holland argues that PCT's delay was unreasonable because PCT knew that Holland was selling a large volume of allegedly infringing connectors in the United States. (Doc. 428 at 3). But Holland has not shown that PCT was aware of significant sales of the allegedly infringing connectors and chose to sit on its rights. Rather, the evidence shows that Holland's connectors were mostly sold to Latin America, not the United States, and when Holland was importing them into the United States in 2011, this importation was limited. Even if Holland's 2011 importation was sufficient to trigger PCT's duty to commence an infringement proceeding against Holland, it was not unreasonable for PCT to spend a year to conduct testing of Holland's products, prepare for litigation, attempt to settle the dispute, or engage in any other pre-litigation practices.

Holland contends that because courts have applied laches "based on delays as short as five months, " the Court should find PCT's delay to be unreasonable and inexcusable. (Doc. 428 at 4). In Romag Fasteners, Inc. v. Fossil, Inc., 29 F.Supp. 3d 85 (D. Conn. 2014), upon which Holland principally relies, the court found the plaintiff in a patent infringement suit to have unreasonably and inexcusably delayed filing suit where the plaintiff had had in its possession all of the necessary information to determine infringement five months before it filed suit. 29 F.Supp. 3d at 99-100. There, the court noted that the nature of the defendant's business-designer handbags-coupled with the November timing when the plaintiff filed suit led to the "inescapable conclusion... that Plaintiff carefully timed this suit to take advantage of the imminent holiday shopping season to be able to exercise the most leverage over Defendants in an attempt to extract a quick and profitable settlement, as it had done twice before in the past three years." Id. at 100.

Unlike in Romag Fasteners, there is no evidence PCT purposefully delayed filing suit for the purposes of extracting a profitable settlement from Holland or for furthering Holland's infringement with an eye toward a greater recovery of damages. Although Holland contends that PCT timed its pre-litigation letter and the filing of its complaint to seek to pressure Holland during acquisition negotiations, (Doc. 428 at 4-5), the evidence at trial showed that PCT had no knowledge of these negotiations and the parties involved in these negotiations had signed non-disclosure agreements. (Tr. 987:11-24). The facts of the present case do not resemble those in Romag Fasteners.

Holland fails to prove by a preponderance of the evidence that PCT's delay in filing suit from October 2010 to August 21, 2012 was not unreasonable and inexcusable.[5] Although the four million units that Holland sold within the United States during this timeframe sounds significant in hindsight, there is no evidence that PCT acted unreasonably or inexcusably in not immediately filing suit upon suspecting infringement in October 2010. In the absence of evidence, Holland essentially asks the Court to infer impropriety from the mere length of PCT's delay alone, which is the kind of "mechanical rule[]" that the Federal Circuit has disavowed in applying the equitable defense of laches. See Aukerman, 960 F.2d at 1032 ("A court must look at all of the particular facts and circumstances of each case and weigh the equities of the parties."). Accordingly, PCT's delay was not unreasonable and inexcusable, and laches does not apply.[6]

2. Equitable Estoppel

Holland argues that equitable estoppel bars PCT's claim for infringement because PCT misled Holland into believing that PCT would not enforce the '422 Patent against Holland and Holland relied upon PCT's conduct. (Doc. 406 at 7-8).

a. Legal Standard

Equitable estoppel, like laches, is an equitable defense to patent infringement that may bar the plaintiff from all relief on its infringement claim. Aukerman, 960 F.2d at 1041. Unlike laches, however, equitable estoppel is not about the reasonableness of the plaintiff's delay in filing suit; rather, equitable estoppel concerns the plaintiff's misleading conduct. See id. at 1042.

To prove equitable estoppel, an alleged infringer must establish three elements by a preponderance of the evidence. Id. at 1028, 1046. First, the alleged infringer must show that "[t]he patentee, through misleading conduct, [led] the alleged infringer to reasonably infer that the patentee does not intend to enforce its patent against the alleged infringer." Id. at 1028. "Conduct' may include specific statements, action, inaction, or silence where there was an obligation to speak." Id. This element requires that the alleged infringer is aware of the patentee and the patent, and the alleged infringer "must know or reasonably be able to infer that the patentee has known of the former's activities for some time." Id. at 1042.

Second, the alleged infringer must show that it relied on the patentee's conduct. Id. at 1028. This requires the alleged infringer to "show that, in fact, it substantially relied on the misleading conduct of the patentee in connection with taking some action." Id. at 1042-43.

Third, the alleged infringer must show that because of its reliance upon the patentee's conduct, "the alleged infringer will be materially prejudiced if the patentee is allowed to proceed with its claim." Id. at 1028, 1043.

b. Analysis

With respect to the second element of equitable estoppel, Holland argues that it relied upon PCT's misleading conduct because if PCT had filed suit earlier against Holland, Holland would have redesigned its products and discontinued its sales of the allegedly infringing products. (Doc. 406 at 8-9). Holland correctly cites Aspex Eyewear, Inc. v. Clariti Eyewear, Inc., 605 F.3d 1305 (Fed. Cir. 2010) for the proposition that a defendant may establish reliance by showing that it would have discontinued its sales of the allegedly infringing products had the plaintiff filed its infringement suit at an earlier time. See Aspex, 605 F.3d at 1312; (Doc. 406 at 8). The fatal flaw in Holland's argument is that no evidence in the record supports Holland's assertion that it would have discontinued sales of the allegedly infringing products if PCT had filed its suit at an earlier time. Holland's assertion in its motion is the argument of counsel, not evidence.

To the contrary, affirmative evidence exists from which the Court infers that Holland would not have discontinued its sales of the allegedly infringing products if PCT had sued earlier. PCT filed the present lawsuit on August 21, 2012. (Doc. 1). The Court issued its Markman claim construction order on February 21, 2014. (Doc. 124). Despite both of these events, Holland continued to infringe until at least February 25, 2015. (Tr. 1060:2-6). Holland's continued sales of its infringing products even after it was sued and had lost its claim construction arguments undermines Holland's claim of reliance upon any PCT misconduct.

Because Holland has not shown any evidence of reliance, it has not satisfied its burden of proving the second prong of equitable estoppel. Accordingly, Holland has failed to prove equitable estoppel.[7]

IV. Motion for Judgment as a Matter of Law

Holland moves for judgment as a matter of law pursuant to Rule 50 on five issues: (1) literal infringement of the "annular rib" requirement; (2) invalidity; (3) indefiniteness; (4) extraterritoriality; and (5) the number of infringing units. (Doc. 408).

A. Rule 50 Standard

Rule 50 permits a court to grant judgment as a matter of law ("JMOL") on an issue if "the court finds that a reasonable jury would not have a legally sufficient evidentiary basis to find for the party on that issue." Fed.R.Civ.P. 50(a)(1). "Judgment as a matter of law is proper when the evidence permits only one reasonable conclusion and the conclusion is contrary to that reached by the jury." Lakeside-Scott v. Multnomah Cnty., 556 F.3d 797, 802 (9th Cir. 2009) (quoting Ostad v. Or. Health Sci. Univ., 327 F.3d 876, 881 (9th Cir. 2003)). The court must uphold the jury's verdict "if it is supported by substantial evidence, which is evidence adequate to support the jury's conclusion, even if it is also possible to draw a contrary conclusion." Pavao v. Pagay, 307 F.3d 915, 918 (9th Cir. 2002). "In making this determination, the court must not weigh the evidence, but should simply ask whether the [moving party] has presented sufficient evidence to support the jury's conclusion." Harper v. City of L.A., 533 F.3d 1010, 1021 (9th Cir. 2008). The court must "view the evidence in the light most favorable to the party in whose favor the jury returned a verdict and draw all reasonable inferences in [its] favor." Lakeside-Scott, 556 F.3d at 802.

B. Literal Infringement of the "Annular Rib" Requirement

1. The Meaning of "Annular Rib"

Holland argues that no reasonable juror could have found that its products literally infringed the "annular rib" requirement of the '422 Patent. (Doc. 408 at 3). Claim 1 of the '422 Patent requires that the collapsible band "form[s] an annular rib projecting inward... when said outer barrel is axially compressed." Holland contends that "annular" means "basically circular" and the evidence showed Holland's connectors form a square shape. (Id. at 5). Neither party sought the Court's construction of the term "annular rib" during the Markman briefing or at the Markman hearing. Because Holland suggested a proposed construction of "annular rib" to the jury during trial, PCT argued that Holland was improperly presenting claim construction evidence to the jury. (Doc. 351); see also (Doc. 276) (motion in limine). The Court declined to construe "annular rib" in its jury instructions, instead concluding that the term should be given its plain and ordinary meeting. (Tr. 1976-77; Doc. 393 at 17).

The Court reiterates that Holland's untimely claim construction argument concerning "annular rib" is improper, and the Court again declines Holland's invitation to construe the term. Nor does "annular rib" need to be construed even if Holland's argument was timely; the term "annular rib" as used in claim 1 of the '422 Patent has its plain and ordinary meaning.[8]

Nothing in the specification or prosecution history of the '422 Patent suggests a particular meaning for "annular ring" that would vary from its ordinary meaning. See (Doc. 124 at 1-4) (claim construction legal standard). One dictionary definition for "annular" is "of, relating to, or forming a ring." See Merriam-Webster, Inc., Annular, http://www.merriam-webster.com/dictionary/annular (last visited Aug. 4, 2015). Thus, an annular rib is a rib relating to or forming a ring around the longitudinal axis of the connector. Holland argues that this rib must be circular, citing both PCT's expert and John Mezzalingua Associates Inc. v. Cabel-Con, Inc., 1997 WL 176318 (N.D.N.Y. Apr. 7, 1997) (Doc. 408 at 5). In John Mezzalingua, the court construed the word "circular" as not requiring the "exact form of a circle" but also not extending to any object that "has a continuous edge around it, " such as a square. 1997 WL 176318, at *4. The Court agrees that the term "circular" as used to describe an object does not require a mathematically precise circle but only that the object approximately form a circle. Furthermore, the Court agrees that the term "annular" means "circular." Annular means "ring-shaped, " and rings are ordinarily understood to have circular shapes. Thus, the term "annular rib" as used in the '422 Patent has the plain and ordinary meaning that the rib is ring-shaped, forming at ...


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