IP Law Daily, TOP STORY—FedCir: Overseas Manufacturers of Infringing Power Converters Had Knowledge of U.S. Sales, Were Liable for Lost Profits, Enhanced Damages, (Mar 14, 2013)

By Thomas Long, J.D.

Power converter manufacturer SynQor, Inc. was entitled to partial summary judgment of infringement against nine competitors in connection with five of SynQor’s patents, the U.S. Court of Appeals for the Federal Circuit has held (SynQor, Inc. v. Artesyn Technologies, Inc., March 13, 2013, Rader, R.). The appellate court affirmed a determination by the U.S. District Court for the Eastern District of Texas that the “isolation” limitations of SynQor’s asserted patent claims appeared in the defendants’ products. An award to SynQor of $95 million in lost-profits damages and awards of supplemental and enhanced damages for post-trial infringement were also affirmed.

Background. SynQor accused the defendants of infringing U.S. Patents Nos. 7,072,190 (the '190 Patent); 7,272,021 (the '021 Patent); 7,564,702 (the '702 Patent); 7,558,083 (the '083 Patent); and 7,269,034 (the '034 Patent). The patents generally involved high-efficiency DC-DC power converter systems used to power circuitry in large computer systems and telecommunication and data communication equipment. These systems convert direct current (DC) from one voltage level to another. The patents disclosed converters with separate “isolation” and “regulation” stages.

A power converter provides “isolation” if its input and output are not directly connected by wires. The parties disputed whether the term “isolation” in the patents required the absence of a wired connection between any two points, or only the absence of a wired connection “between an input and an output of a particular stage, component, or circuit.”

Converters provide “regulation” by restricting output to a desired voltage even when the input voltage varies. “Fully regulated” converters monitor the output voltage and modify the operation of the circuit to maintain a desired output. “Semi-regulated” converters monitor the input voltage to maintain a desired output voltage.

SynQor’s asserted patents related to a multiple-stage distributed power architecture known as an “intermediate bus architecture” (IBA). IBA saves space by using a single isolation stage with multiple non-isolating regulators. The non-isolating regulators can be smaller, less expensive, and more efficient than integrated isolating/regulating converters. The '190 Patent, '021 Patent, and the '702 Patent covered power converter systems comprising a “non-regulating isolation stage” and a “plurality of non-isolating regulation stages, each receiving the output of the isolation stage.” The '083 Patent claimed a “non-regulating isolating step-down DC-DC power converter,” which is the intermediate bus converter component of the power systems claimed in the other patents. The '034 Patent claimed a “DC-DC converter system” comprising “isolation/semi-regulation circuitry” and a plurality of non-isolating switching regulators receiving the output of the isolation/semi-regulation circuitry.

The defendants manufactured and sold intermediate bus converters overseas. SynQor filed suit for induced and contributory infringement, alleging that the defendants sold their products with knowledge that they would be used in, or were especially made to be used in, infringing systems imported into the United States. SynQor also asserted direct infringement with respect to certain U.S. sales.

Anticipation or obviousness. The defendants contended that the district court erred by denying their motion for judgment as a matter of law (JMOL) on the ground that claims 2, 8, 10, and 19 of the '190 Patent, claims 21 and 30 of the '021 Patent, and claims 56 and 71 of the '702 Patent were been invalid as anticipated or obvious. The Federal Circuit disagreed with the defendants’ arguments that (1) a doctoral thesis by Dr. Loveday H. Mweene (Mweene Thesis) anticipated claims 2 and 8 of the '190 Patent, claim 21 of the '021 Patent, claim 56 of the '702 Patent, and claim 1 of the '083 Patent, and (2) the Mweene Thesis combined with a paper on distributed power systems written by Bob Mammano would have made obvious claims 10 and 19 of the '190 Patent, claim 30 of the '021 Patent, and claim 71 of the '702 Patent.

The Mweene Thesis disclosed a distributed power architecture with a non-regulating isolation stage supplying power to a plurality of regulators, and separately disclosed a non-isolating regulator in a simplified mathematical analysis. The record contained sufficient evidence to support the jury’s finding that the buck converter discussed by the Mweene Thesis was not disclosed as a point of load converter to be used in an actual system, the court held. For similar reasons, this court concluded that the defendants failed to prove that any of the asserted claims of the '190 Patent, the '021 Patent, or the '702 Patent would have been obvious at the time of invention in view of the Mweene Thesis in combination with other references. Neither the Mweene Thesis alone, nor any combination of the asserted prior art, taught or suggested a distributed power architecture having a plurality of non-isolated regulation stages, according to the court.

Claim construction. The appellate court reviewed the district court’s claim construction without deference. The Federal Circuit held that the district court correctly construed the term “isolation” to require the absence of an electrical path “between the input and output of a particular stage, component, or circuit.” According to the court, the defendants put forth no reason that the accused systems avoided infringement under this construction. Therefore, the grant of partial summary judgment of infringement on this limitation was affirmed.

Liability for induced and contributory infringement. The appellate court rejected the defendants’ argument that the jury was incorrectly instructed as to the knowledge required to establish liability for induced infringement. The district court instructed the jury: “The Plaintiff must show that the Defendants actually intended to cause the acts that constitute direct infringement and that the Defendants knew or should have known that its actions would induce actual infringement. A Defendant also cannot be liable for inducing infringement if it had no reason to be aware of the existence of the patent” (emphasis added).

Although this instruction might be erroneous if considered in isolation—because it allowed the jury to find induced infringement if the defendants “had reason to be aware of” the patents-in-suit—the instructions as a whole in the context of the trial did inform the jury that actual knowledge was required, the Federal Circuit said. SynQor premised its theory of liability on actual knowledge and made that theory clear to the jury.

In addition, the jury instructions on contributory infringement required actual knowledge for a liability verdict, the court said. The jury found each defendant liable for contributory infringement; thus, the jury, by following this instruction, in fact found each defendant had actual knowledge of the '190 Patent.

In the court’s view, there was enough evidence to support the jury’s finding that the defendants had actual knowledge of the '190 Patent. SynQor presented specific evidence for each defendant that allowed the jury to infer actual pre-suit knowledge of the '190 Patent. For example, SynQor showed that each of the Defendants possessed SynQor datasheets or products marked with SynQor’s earlier patents, to which the patents in suit claim priority.

The denial of JMOL of noninfringement was, accordingly, affirmed.

Lost profits damages. To establish entitlement to price erosion damages, SynQor had to show that “but for” infringement of the patents-in-suit, it would have sold its products at higher prices. The jury heard evidence that SynQor sold its bus converters for prices “in the 60s to as high as $110” per unit when it first entered the market, and made sales to Hewlett-Packard and Sun for $84 per unit in 2002. SynQor also sold about 18,500 converters to Cisco in 2010 at $70 and $81 per unit during a market shortage. The jury reasonably could have concluded that witness testimony indicated that customers would not have switched to noninfringing alternatives in response to SynQor’s higher prices, the court said. The court held that there was sufficient evidence for the jury to have accepted SynQor’s expert’s conclusion on “but for” pricing. As such, the awards of lost-profits and reasonable royalty damages were supported by substantial evidence and were not excessive or based only on speculation and guesswork.

The defendants also sought a new trial on damages because SynQor’s revelation at trial of $20 billion customer end-product sales skewed the damages horizon for the jury. A patentee may assess damages based on the entire market value of the accused product only where the patented feature created the basis for customer demand, the court noted. In this case, SynQor did not seek to justify its damages figure based on the price of the customer end products. SynQor’s damages calculations were based on the “but for” sales price of the intermediate bus converters, the appellate court said. SynQor used the end-product value only to argue that the price elasticity of demand for the intermediate bus converters would be high because they enable space saving and efficiency while representing a small fraction of the end price. The district court found that SynQor’s discussion of end-product sales was not unfair or prejudicial, and the appellate court found no abuse of discretion by the district court. Denial of the defendants’ motion for a new trial on damages was affirmed.

Supplemental damages. The district court found that each defendant actively induced or contributed to infringement after the verdict by continuing to sell the accused products overseas with knowledge that they would be imported into the United States. The district court awarded supplemental damages for post-trial infringement, which it enhanced by 1.75 times based on the “egregiousness” of the defendants’ conduct.

The sanctions imposed against the defendants did not constitute an abuse of discretion, the appellate court held. First, the district court correctly determined that agreements between the defendants and their U.S. customers did not qualify as true non-important agreements sufficient to prevent a post-verdict finding of intent to induce infringement. Rather, the agreements contemplated continued U.S. sales and merely provided for indemnification, shifting financial responsibility for any damages onto the defendants’ customers. Second, the enhancement was proper because it was “squarely based on a recognition of Defendants’ willful infringement,” the appellate court held.

The case is Nos. 2011-1191, 2011-1192, 2011-1194, 2012-1070, 2012-1071, and 2012-1072.

Attorneys: Carter G. Phillips (Sidley Austin) for SynQor, Inc. Donald R. Dunner (Finnegan, Henderson, Farabow, Garrett & Dunner, LLP) for Artesyn Technologies, Inc.

Companies: SynQor, Inc.; Artesyn Technologies, Inc.; Astec America, Inc.; Bel Fuse, Inc.; Delta Electronics, Inc.; Delta Products Corp.; Power-One, Inc.; Murata Electronics North America, Inc.; Murata Manufacturing Co., Ltd.; Murata Power Solutions, Inc.; Cherokee International Corp.; Lineage Power Corp.

MainStory: TopStory Patent FedCir