Exclusion of Patentee's Damages Evidence Not Enough to Justify Summary Dismissal: Federal Circuit | Practical Law

Exclusion of Patentee's Damages Evidence Not Enough to Justify Summary Dismissal: Federal Circuit | Practical Law

In Info-Hold, Inc., v. Muzak LLC, the US Court of Appeals for the Federal Circuit reversed the US District Court for the Southern District of Ohio's grant of summary judgment of no reasonable royalty damages and resultant entry of final judgment against the patent owner after it excluded the patent owner's damages evidence because the full record included evidence from which the district court could determine a reasonable royalty. The Federal Circuit also vacated the district court's induced infringement ruling.

Exclusion of Patentee's Damages Evidence Not Enough to Justify Summary Dismissal: Federal Circuit

by Practical Law Intellectual Property & Technology
Published on 28 Apr 2015 • USA (National/Federal)
In Info-Hold, Inc., v. Muzak LLC, the US Court of Appeals for the Federal Circuit reversed the US District Court for the Southern District of Ohio's grant of summary judgment of no reasonable royalty damages and resultant entry of final judgment against the patent owner after it excluded the patent owner's damages evidence because the full record included evidence from which the district court could determine a reasonable royalty. The Federal Circuit also vacated the district court's induced infringement ruling.
On April 24, 2015, in Info-Hold, Inc., v. Muzak LLC, the US Court of Appeals for the Federal Circuit reversed the US District Court for the Southern District of Ohio's grant of summary judgment on damages and resultant entry of final judgment against the patent owner, and vacated its ruling on induced infringement (No. 2014-1167, (Fed. Cir. Apr. 24, 2015)). The Federal Circuit affirmed the district court's ruling on claim construction of the sole claim term in dispute.
The case involves US Patent No. 5,991,374 (the '374 patent), owned by Info-Hold. The '374 patent claims are directed to systems, apparatuses and methods for playing music and messages through telephones and public speaker systems. Both parties sell music-on-hold systems, which play tracks from a message playback device over the telephone to callers who are on hold.
Info-Hold, after at least two attempts to put Muzak on notice of the '374 patent and Muzak's potentially infringing activity, started a patent infringement suit against Muzak in district court. Info-Hold based its damages case on the technical report of its expert who performed tax and audit work for Info-Hold and based his reasonably royalty calculation on:
  • The entire market value of the accused devices, without accounting for whether the patented features drove demand for the products.
  • Info-Hold's previous settlement and license agreement with a third party concerning the '374 patent.
  • The 25% rule of thumb for patent royalties.
During the district court proceeding, Muzak filed motions for summary judgment that:
  • Muzak did not induce infringement of the '374 patent.
  • Info-Hold was not entitled to lost profits.
  • Info-Hold was not entitled to reasonable royalty damages.
Muzak also moved to strike Info-Hold's expert report, which the district court granted because the expert:
  • Was not qualified to opine on the issue of damages.
  • Used the discredited 25% rule of thumb in his analysis.
The district court also granted Muzak's motions for summary judgment of:
  • No induced infringement, finding that Muzak did not possess actual knowledge that its acts induced infringement.
  • No reasonable royalty damages, finding that Info-Hold had no evidence to make a prima facie case for reasonable royalty damages since its expert's report was no longer of record.
Notably, the court then entered final judgment against Info-Hold and dismissed the case on the grounds that Info-Hold had not shown that it was entitled to any measurable royalty.
The Federal Circuit reversed the district court's finding of no reasonable royalty damages, finding that:
  • Even if a plaintiff has proffered no relevant damages evidence, a district court must consider the whole record to attempt to determine any non-zero reasonable royalty using the Georgia-Pacific factors.
  • Although the district court properly excluded Info-Hold's expert report and testimony and Info-Hold therefore could make no prima facie case as to a reasonable royalty, the record included deposition testimony of Muzak's expert that could provide a basis for the reasonable royalty determination.
  • Whether the other evidence of record was sufficient to determine a reasonable royalty was a question for the district court but it created a genuine issue of material fact making summary judgment inappropriate.
The Federal Circuit also vacated the district court's finding of no induced infringement and remanded the issue back to the district court for further consideration. The Federal Circuit found that the record showed that Info-Hold had contacted Muzak multiple times to put it on notice of the '374 patent and potentially infringing activity. Consequently, the court held that there was a genuine question of material fact about whether Muzak had willfully blinded itself to the fact that its actions constituted infringement, which is a basis for finding inducement under Commil USA, LLC v. Cisco Systems, Inc. (720 F.3d 1361, 1366 (Fed. Cir. 2013)).
Finally, the Federal Circuit affirmed the district court's claim construction of the term "when a caller is placed on hold," finding that the district court's construction was supported by both the claim language and prosecution history.
Info-Hold had also brought suit alleging infringement of the '374 patent against Applied Media Technologies Corporation. In Info-Hold, Inc., v. Applied Media Techs. Corp., the Federal Circuit reversed the US District Court for the Southern District of Ohio, holding that the district court had improperly narrowed the scope of the claims in its claim construction (No. 2013-1528, (Fed. Cir. Apr. 24, 2015)). The Federal Circuit remanded the case back to the district court for further proceedings.