Federal Circuit affirms patent owner victory of lost profits, enhanced damages

Georgetown Rail Equip. Co. v. Holland L.P.,  (Fed. Cir. Aug. 1, 2017) (Before Reyna, Schall, and Wallach, J.) (Opinion for the court, Wallach, J.)

Georgetown owns a patent directed to a system and method for inspecting railroad tracks using digital technology. Holland purchases track and crosstie measuring technologies and inspects tracks. Data acquired from inspection is sent to a third-party company who returns a finished report to Holland. In 2012, Holland and Georgetown competed for a potential customer, Union Pacific, after which Holland and Union Pacific entered into a contract. Georgetown then sued Holland. A jury found that Holland infringed Georgetown’s patent and awarded Georgetown lost profits. The District Court approved an additional award of enhanced damages, affirming a jury finding that Holland willfully infringed the patent.

Holland appealed on several counts, challenging the district court’s adverse claim construction, the jury’s infringement finding, the district court’s approval of the jury’s award of lost profits, and the award of enhanced damages. The Court affirmed.

At the claim construction stage of the litigation, Holland argued that “mounted on a vehicle for movement along the railroad track,” in the preamble,” was a claim limitation. The district court disagreed, finding the preamble phrase was not an essential structural element, did not provide antecedent basis, and was not a distinguishing point over prior art during prosecution. On appeal, the Court agreed, finding that the phrase merely recited an intended use of the invention, a conclusion underscored by the specification and the fact that the claim described a structurally complete invention.  

Holland also challenged the jury’s finding of direct infringement, arguing that no reasonable jury could have found Holland used allegedly infringing data processing equipment or offered to sell the entire invention covered by Georgetown’s patent. The Court disagreed. Direct infringement based on use of a system claim requires a party to use every element of the claimed system. The party must control the system as a whole and obtain benefit from it. Even though Holland’s use involved physically removing hard drives and shipping them to a third party, the Court found that Holland performed front-end collection and requests for processing consistent with the claims, which demonstrated Holland’s ultimate control of, and derivation of benefit from, the entire system.

Holland also challenged the district court’s denial of its JMOL on lost profits damages. Holland challenged the sufficiency of the evidence under the four-factor test from Panduit Corp. v. Stahlin Brothers Fibre Works, 575 F.2d 1152 (6th Cir. 1978) which requires a patentee making a claim for lost profits to show: (1) “demand for the patented products;” (2) “absence of acceptable non-infringing substitutes;” (3) “manufacturing and marketing capability to exploit the demand;” and (4) “the amount of profit . . . would have been made.” Holland challenged the evidence with respect to factors (1) and (4). Regarding the first factor, the Court found Holland unnecessarily narrowed the standard by alleging: 1) demand respecting Union Pacific only, and not other customers and 2) that a lost profits analysis must be made during the period of allegedly infringing sales. The correct standard only requires that a patentee sell some item, the profits of which have been lost due to infringing sales. Regarding factor four, the Court found there was ample evidence supporting that Georgetown would have made that amount of profits.

Finally, Holland challenged the district court’s finding of willful infringement. The Court found that there was substantial evidence supporting the jury’s finding and the district court did not abuse its discretion. For one, the jury heard evidence that Holland was aware of Georgetown’s patent prior to the current litigation and despite Holland’s disagreements, the jury was free to decide whose evidence it found more compelling. Additionally, the Court found that Holland failed to make specific arguments regarding the district court’s findings of enhanced damages and therefore could not find the district court abused its discretion.

The standards for overturning a jury verdict and Court’s award of enhanced damages are high. The legal standard regarding lost profits is not limited to one third party sale and courts have discretion to determine if substantial evidence supports a finding of lost profits.

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