99-1584, 00-1005
INSITUFORM TECHNOLOGIES, INC.,
INSITUFORM (
and INSITUFORM GULF SOUTH, INC.,
Plaintiffs-Cross Appellants,
v.
CAT CONTRACTING, INC.,
FIRSTLINER
Defendants-Appellants,
and
MICHIGAN SEWER CONSTRUCTION COMPANY,
Defendant-Appellant,
and
KANAL SANIERUNG HANS MUELLER GmbH & CO. KG,
Defendant-Appellee.
Harold
James, Epstein Drangel Bazerman
& James LLP, of
N. Elton
Dry, Dry & Tassin, LLP, of
Richard
L. Stanley, Howrey Simon Arnold & White, LLP,
of Houston, Texas, for defendant-appellee Kanal Sanierung Hans Mueller GmbH
& Co., KG. With him on the brief was
Albert B. Deaver, Jr.
On remand from the Supreme Court of the
99-1584, 00-1005
INSITUFORM TECHNOLOGIES, INC.,
INSITUFORM (
and INSITUFORM GULF SOUTH, INC.,
Plaintiffs-Cross Appellants,
v.
CAT CONTRACTING, INC.,
FIRSTLINER
Defendants-Appellants,
and
MICHIGAN SEWER CONSTRUCTION COMPANY,
Defendant-Appellant,
and
KANAL SANIERUNG HANS MUELLER GmbH & CO. KG,
Defendant-Appellee.
__________________________
DECIDED:
__________________________
Before MAYER, Chief Judge, MICHEL, and SCHALL, Circuit Judges.
SCHALL, Circuit Judge.
Defendants Cat Contracting, Inc.
(“CAT”), Firstliner
We
affirm the judgment of infringement with respect to all defendants. We also affirm the district court’s joinder
of Insituform
BACKGROUND
I.
Underground pipes, such as sewer pipes, are often subject to great stress. As a result, over time, the pipes develop cracks and other structural defects, which can result in leakage. In the past, the only way to rehabilitate a section of underground pipe was to dig up the broken section and replace it. Eric Wood, the sole inventor named on the ‘012 patent, pioneered a process for rehabilitating underground pipe without digging it up.
The ‘012 patent discloses Wood’s invention. The patent relates to a method for performing pipe repair without removing the damaged pipe from the ground. The method involves installing a liner into the pipe. Claim 1 of the patent, the only claim at issue, claims a process for impregnating a flexible tube liner with resin prior to insertion of the liner into a damaged pipe. The liner has an impermeable film on the outside and a resin-absorbent, felt layer on the inside. A vacuum is applied to the inside of the liner by cutting a window into the outer, impermeable film, applying a cup (a “vacuum cup”) to the outside of the window, and connecting the other end of the cup to a vacuum source. Using the created vacuum, a section of the inside of the liner is impregnated with resin, which is drawn through the liner. The vacuum cup is then moved to another section of the liner while the previously used window is sealed. This process for impregnating the liner with resin allows for impregnation at the jobsite, eliminating the need to transport a heavier, already impregnated liner to the site.
II.
This case has a lengthy procedural history. The issues before us arise from a complex series of trials, appeals, and cross-appeals that now span nearly fourteen years. We briefly review each significant decision in turn.
A. Plaintiffs’ suit for patent infringement
The original defendants in this action were CAT, Inliner
KS is a German sewer rehabilitation company owned by Hans
Mueller. After reading about KS’s
proprietary sewer rehabilitation technology in a trade magazine, Giulio Catallo contacted KS to obtain a license for that
technology.
The original accused process used by defendants—referred to as the “Multiple Cup Process” or “Process 1”—was a method of tube liner impregnation involving the serial application of vacuum cups. In Process 1, from four to six cups were used to draw a vacuum from a corresponding number of slits in the tube liner. As a result, when the cup closest to the advancing resin was removed, and its slit was sealed, the remaining downstream cups continued to draw a vacuum in the tube liner.
At some point in either 1991 or early 1992, on the advice of counsel, defendants switched to an alternate process. In the alternate process—referred to as the “Multiple Needle Process” or “Process 2”—the multiple cups were replaced with multiple metal tubes, known as needles. In Process 2, the needles are inserted through the layers of the impregnated tube liner, rather than merely placed over holes in the wall of the liner. Defendants did not develop Process 2 until after the first phase of the case had already been tried to a jury.
The original action for infringement of the ‘012 patent
was brought in February 1990. The
original plaintiffs were Insituform of North America, Inc.; Insituform
Licensees, B.V.; and
Only claim 1 of the ‘012 patent was asserted at trial. It recites
1. A method of
impregnating with a curable resin an inner layer of resin absorbent material
disposed in an elongate flexible tube having an outer layer formed by an
impermeable film, the method comprising the steps of
(1) introducing
into one end of the elongate tube a mass of the curable resin sufficient to
impregnate the entire resin absorbent inner layer of the tube,
(2) forming a
window in the impermeable outer layer of the tube at a distance from said one
end of the tube,
(3) drawing
through the window a vacuum in the interior of the tube downstream of said one
end by disposing over the window a cup connected by a flexible hose to a vacuum
source which cup prevents ingress of air into the interior of the tube while
the tube is being evacuated, the outer layer of the tube being substantially
impermeable to air,
(4) beginning at
or near the end at which the curable resin mass was introduced, passing the
tube between squeezing members which force the resin to flow towards the region
of vacuum application as the tube progresses through the squeezing members,
(5) when the
resin reaches the vicinity of the region of vacuum application, removing the
cup and sealing the window,
(6) providing
another window in the impermeable layer of the tube downstream of the
previously formed window,
(7) drawing
through the new window a vacuum in the interior of the tube while progressively
moving the tube through the squeezing members to force the resin to flow toward
the new region of vacuum application, and
(8) repeating
steps 5, 6, and 7, where necessary to impregnate the entire resin absorbent
inner layer of the flexible tube.
‘012 patent,
col. 6, l. 37 – col. 7, l. 6.
The case was first tried to a jury in June 1991. The jury returned a verdict that the ‘012 patent was not invalid and was infringed, both literally and via equivalents, by Process 1, the only accused process then at issue. The district court granted defendants’ motion for judgment notwithstanding the verdict (“JNOV”) with respect to literal infringement and ordered a new trial as to infringement under the doctrine of equivalents. In June 1994, the case was reassigned to a different judge. A bench trial was held in February 1995, and in November of that year the court held that Process 1 and Process 2 (which had been introduced after the 1991 trial) infringed the ‘012 patent under the doctrine of equivalents. The court held defendants CAT, Firstliner, and MSC liable for direct infringement. The court also found CAT and Firstliner liable for induced infringement. Additionally, the court found that KS also had induced infringement of the ‘012 patent. Defendants appealed.
B. Insituform I
On appeal, we ruled that claim 1 of the ‘012 patent, which
recites use of a single cup moved to different windows along the tube to draw a
vacuum, did not encompass the accused methods of using several cups or several
needles attached at different points along the tube, and thus was not literally
infringed by either Process 1 or Process 2.
Insituform Techs., Inc. v. Cat Contracting, Inc., 99 F.3d 1098,
1106-07 (Fed. Cir. 1996) (“Insituform I”). We also ruled that plaintiffs were not barred
by prosecution history estoppel from asserting infringement under the doctrine
of equivalents.
C. Insituform II
On remand, the district court again held that claim 1 of the ‘012 patent was infringed by both Process 1 and Process 2 under the doctrine of equivalents. Insituform Techs., Inc. v. Cat Contracting, Inc., CA No. H-90-1690 (S.D. Tex. Dec. 31, 1996). The court subsequently enjoined defendants from practicing those processes. In addition, the court ruled again that KS had induced infringement of the ‘012 patent. Defendants again appealed.
On the second appeal to us, we reaffirmed that prosecution
history estoppel did not bar plaintiffs from asserting infringement under the
doctrine of equivalents. Insituform
Techs., Inc. v. Cat Contracting, Inc., 166 F.3d 688, 692 (Fed. Cir. 1998)
(“Insituform II”). On the
infringement issue, insofar as Process 1 was concerned, we affirmed the
district court’s holding that the process infringed claim 1 of the ‘012 patent
under the doctrine of equivalents.
Turning to the liability of KS[2]
for induced infringement, we noted that “a separate corporation related to [KS]
licensed the infringing technology to [Firstliner] after [KS] received notice
of the ‘012 patent.”
D. Insituform III
On remand, the district court determined that Gruppe was not the alter ego of KS and that KS, therefore,
was not liable for induced infringement.
District Court Opinion, slip op. at 45. Additionally, the district court joined Giulio Catallo in his personal capacity as a defendant, and
held him jointly liable for damages. Joinder
Order, slip op. at 9. With both the
liability and damages trials now concluded, the court awarded damages for infringement
of the ‘012 patent by Process 1 under the doctrine of equivalents. District Court Opinion, slip op. at
62. Additionally, the court found CAT
and Firstliner’s infringement to be willful and thus
enhanced the actual damages award by fifty percent, id. at 55, and
awarded Insituform attorney fees, id. at 57.
Defendants appealed, raising a number of different
issues. These included (1) whether
Insituform Netherlands, the new assignee of the ‘012 patent, had been improperly
joined as a plaintiff; (2) whether Giulio Catallo, as
president of CAT, had been improperly joined as an individual defendant jointly
and severally liable for damages; (3) whether the district court had properly
assessed damages following our decision in Insituform II; (4) whether
the district court had erred in holding that the infringement that was found in
the case was willful; and (5) whether the district court had erred in
determining the extent to which accused infringers CAT and Firstliner
instructed, and therefore induced, their licensees to use the infringing
process. For their part, plaintiffs
cross-appealed the district court’s ruling that Gruppe
was not the alter ego of KS and that KS therefore was not vicariously liable for
induced infringement.
After oral argument in the appeal, defendants filed
motions asking us to apply our holding in Festo
Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co., Ltd.,
234 F.3d 558 (Fed. Cir. 2000) (en banc) (“Festo
I”). In Festo
I, we ruled that a narrowing amendment to a claim limitation made for a
substantial reason related to patentability completely bars the application of
the doctrine of equivalents to that amended claim limitation.
After reexamining the prosecution history of the ‘012
patent, we determined that, under Festo I,
Insituform had made a narrowing amendment to claim 1 of the ‘012 patent. Insituform III, 10 Fed. Appx. at 879-80. The
claim was narrowed, we pointed out, because claim 1 in its original form did
not limit the number of cups that could be used to create a vacuum, whereas
claim 1 in its amended form was limited to the use of one cup.
E. Remand from the Supreme Court
The Supreme Court vacated and remanded our decision in Festo I.
Festo Corp. v. Shoketsu
Kinzoku Kogyo Kabushiki Co., Ltd., 525
F. Festo III
After the Supreme Court remanded Festo
to us, we rendered our second en banc decision in the case. Festo
Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co., Ltd.,
344 F.3d 1359 (Fed. Cir. 2003) (“Festo III”). In Festo
III, we summarized the three ways in which the Supreme Court stated that
the Festo presumption could be rebutted.
ANALYSIS
The following issues are now before us on direct appeal: (1) whether plaintiffs are barred from asserting infringement under the doctrine of equivalents by reason of prosecution history estoppel in light of Festo II and Festo III; (2) whether Insituform Netherlands, the new assignee of the ‘012 patent, was improperly joined as a plaintiff; (3) whether Giulio Catallo, president of CAT, was improperly joined as an individual defendant and held jointly and severally liable for damages; (4) whether the district court properly assessed damages following our decision in Insituform II; (5) whether the district court erred in holding that the infringement that was found in this case was willful; and (6) whether the district court erred in determining the extent to which accused infringers CAT and Firstliner instructed their licensees to use the infringing process. On cross-appeal, we consider whether the district court erred in ruling that Gruppe was not the alter ego of KS, and that KS therefore was not vicariously liable for induced infringement. We address the parties’ contentions in turn, beginning with the Festo issue.
I.
With the complete bar of Festo I overturned, we asked the parties to give us their views as to how we should decide the case in light of Festo II and Festo III. In response, both plaintiffs and defendants urged us to decide the Festo issue on the record now before us. We of course are not bound by the wishes of the parties on a question such as this. However, because resolution of the issue turns on whether Insituform’s rationale underlying the narrowing amendment bore no more than a tangential relation to accused Process 1, and because the record has been fully developed on this point, we agree that we can decide the issue. See Festo III, 344 F.3d at 1370 (“[W]hether the patentee has established a merely tangential reason for a narrowing amendment is for the court to determine from the prosecution history record without the introduction of additional evidence, except, when necessary, testimony from those skilled in the art as to the interpretation of that record.”).
Plaintiffs urge that nothing in either Festo II or Festo III invalidates Insituform II, where we determined that plaintiffs were not barred by prosecution history estoppel from asserting infringement under the doctrine of equivalents. Plaintiffs contend that any presumption of surrender is rebutted because the rationale underlying the amendment narrowing claim 1 to a single cup process bears at most a tangential relation to the infringing equivalent—the multiple-cup method of Process 1. Specifically, plaintiffs assert that the reason for the amendment was to overcome the prior art teaching of a single vacuum source at the far end of the tube liner. As such, plaintiffs argue, the amendment is, at most, only tangentially related to Process 1, which places multiple cups near the resin front.
For their part, defendants note that claim 1, as
originally filed, covered a process using single or multiple cups at any
location downstream of the resin front. See
Insituform I, 99 F.3d at 1108.
They also note that we construed claim 1, as amended, to cover a single
vacuum cup, which inherently creates a discontinuous vacuum.
For
the reasons which follow, we hold that plaintiffs have rebutted the Festo presumption that a narrowing amendment made
for a reason of patentability surrenders the entire territory between the
original claim limitation and the amended claim limitation. See Festo
II, 535
In Insituform I, we construed claim 1
of the ‘012 patent as limited to “a process using only one vacuum cup which
inherently creates a discontinuous vacuum.”
1. A method of impregnating a flexible tube
comprising an inner layer of resin absorbent material and an outer layer in the
form of an impermeable film, wherein the resin absorbent layer is impregnated
with a curable resin by applying a vacuum to the inside of a flexible tube
whilst the resin is brought into impregnation contact with the resin absorbent
material, the impermeable film serving as a means to prevent ingress of air
into the interior of the tube, whilst the impregnation process is taking place.
2. A method according to claim 1, wherein
the resin is introduced into one end of the tube in a quantity calculated
effectively to impregnate all of the resin absorbent material of the tube, and
the vacuum is applied to the interior of the tube, downstream of the resin
mass, so that the resin will tend to flow towards the vacuum application
region.
3. A method according to claim 2, wherein
the lining tube containing the mass of resin is fed through a pressure applying
nip, such as may be defined by a nip roller, which, together with the movement
of the tube, squeezes the resin in a direction towards the region of the
application of the vacuum, at the same time flattening the tube and assisting
in the even distribution of the resin.
4. A method according to claim 2, wherein
the vacuum is applied through a window in the film in the wall of the tube by
means of a cup applied to said window and connected to a source of vacuum by
means of a flexible hose, whereby the cup can move with the tube during its
movement relative to said nip, the cup being moved and applied to a position
spaced downstream from the previous window, said previous window being sealed
by means of a patch or the like, whereby the process is repeated for respective
lengths of the tube until the entire tube length has been impregnated.
As can be seen, the position and number of
vacuum cups were not specified in independent claim 1. Neither did claim 1 specify the location of
the vacuum source. Dependent claim 2
referred to the vacuum being applied to the interior of the tube, “downstream
of the resin mass,” while dependent claim 3 stated that the resin is squeezed
“in a direction towards the region of the application of the vacuum.” It was only in dependent claim 4 that the
inventor recited application of the vacuum through a window in the wall of the
tube by means of a cup applied to the window, as well as repositioning of the
cup. All four claims were rejected over
United States Patent No. 4,182,262 to Everson (“Everson”).
We stated in Insituform I that the
original four claims “were rejected over Everson, which discloses both the use
of a continuous vacuum and the creation of that vacuum from only a single
vacuum source at the far end of the tube opposite the resin source.”
[I]t cannot be said that a reasonable
competitor could conclude that Insituform relinquished coverage of processes
using either multiple vacuum sources or a continuous vacuum. At no point did Insituform indicate that the
Everson problem could be solved only in the manner used by Insituform, i.e.,
Insituform never stated that the problem could not be solved by using more than
one vacuum source or a continuous vacuum.
Rather, the only express limitation put on the invention by Insituform
was the use of a vacuum source close to the resin.
On remand, the district court held that
Process 1 infringed claim 1 under the doctrine of equivalents, and the case
returned to us on appeal in Insituform II. On appeal, Firstliner argued that Warner-Jenkinson
Co. v. Hilton Davis Chemical Co., 520 U.S. 17 (1997), issued after Insituform
I, limited the doctrine of equivalents so that it could not apply in the
case. Firstliner pointed to Warner-Jenkinson’s
holding that where no explanation is given for an amendment made during
prosecution of a patent, a presumption is to be applied against the patentee
that the amendment was made for purposes of patentability. Firstliner asserted that when Insituform
amended claim 1 in response to the examiner’s 35 U.S.C. § 103 rejection over
Everson, it necessarily gave up coverage of any process in which the vacuum was
created at multiple vacuum sources because it provided no explanation for that
narrowing amendment. Insituform II,
161 F.3d at 691. We rejected this argument, pointing out that, during
prosecution, Insituform had explained the reason for the amendment of claim 1:
The stated reason . . . for Insituform’s amendment to overcome the Everson reference
was to avoid the need to use a large compressor when the vacuum is created a
significant distance from the resin source.
The Warner Jenkinson presumption, therefore, which comes into
play only when no explanation is given for a claim amendment, is not
applicable to this case because Insituform made clear that the reason for the
amendment was to overcome the prior art teaching creation of a single source
vacuum at the far end of the liner.
In our view, Insituform has rebutted the Festo presumption.
The prosecution history and our discussion of that history in Insituform
I and II compel the conclusion that the amendment limiting the
literal scope of claim 1 to a single cup process bears “only a tangential
relation,” if that, “to the equivalent in question,” a process using multiple
cups. The question we must address is
“whether the reason for the narrowing amendment was peripheral, or not directly
relevant, to the alleged equivalent.” Festo III, 344 F.3d at 1365. As the discussion above indicates, the
narrowing amendment in this case was for the purpose of distinguishing the
invention over Everson. Insituform made
it clear that the difference between its process and Everson was that its
process did not have the disadvantage of the Everson process of a large
compressor at the end of the liner.
There is no indication in the prosecution history of any relationship
between the narrowing amendment and a multiple cup process, which is the
alleged equivalent in this case. Thus,
we hold that plaintiffs have successfully rebutted the Festo
presumption by establishing that the amendment narrowing the claimed invention
from multiple cups to a single cup was tangential to accused Process 1, which
used multiple cups attached at different points along the liner tube. We therefore affirm the judgment of
infringement under the doctrine of equivalents.
Because we have sustained the judgment of infringement, we must consider the several additional issues that were mooted when we reversed the judgment of infringement under the short-lived complete bar rule arising out of Festo I.
II.
We consider first the issues raised by defendants in their
direct appeal. Defendants appeal (1) the
joinder of Insituform
A. Joinder of Insituform
Defendants appeal the joinder
of Insituform
The original corporate
plaintiff, and owner of the ‘012
patent, was Insituform Licensees B.V.
Insituform Licensees B.V. filed this lawsuit in 1990. In 1992, the case went to trial. At that time, the plaintiffs were Insituform
Licensees B.V.; Insituform of North America, Inc.; and Insituform Gulf South,
Inc. The defendants were CAT,
Following a jury trial, a
verdict, and after a new trial was ordered, Insituform Licensees B.V. assigned
the ‘012 patent to Insituform
Probably to remedy what they
perceived to be a potential defective parties problem, plaintiffs, in 1999,
sought leave to amend their pleadings to include Insituform North America, Inc.[4] and, if
necessary, Insituform Netherlands as parties under Fed. R. Civ.
P. 15(a) and 21. The district court
stated that “[Insituform
Because the joinder issue is
not unique to patent law, we apply the law of the regional circuit. McGinley v. Franklin Sports, Inc., 262
F.3d 1339, 1357 (Fed. Cir. 2001) (“A district court’s decision to grant or deny
a motion for leave to join a party involves a procedural question that raises
no special issues relating to patent law, and therefore [regional circuit] law
applies.”); Datascope Corp. v. SMEC, Inc.,
962 F.2d 1043, 1045 (Fed. Cir. 1992) (Regional circuit law determines “the
standard for determining whether the district court abused its discretion in
denying [the patentee] leave to amend” its complaint to add a new party.). Rule 15(a) provides that a party may amend
its pleadings “only by leave of court or by written consent of the adverse
party; and leave shall be freely given when justice so requires.” Fed. R. Civ. P.
15(a). Rule 21 states that “parties may
be dropped or added by order of the court on motion of any party or of its own
initiative at any stage of the action and on such terms as are just.” Fed. R. Civ. P.
21. In applying Rule 21, the court is
governed by the liberal amendment standards of Rule 15(a). See McLellan
v.
The district court exercised its discretion in this case
fully aware of plaintiffs’ alleged misrepresentation in the 1994 joint motion
and determined that defendants would suffer no prejudice were Insituform
B. Joinder of Giulio Catallo
Defendants appeal the joinder of Giulio
Catallo as a defendant in his individual capacity. According to defendants, the addition of
Catallo as a party to this suit violated due process and was contrary to the
Supreme Court’s decision in Nelson v. Adams U.S.A., Inc., 529 U.S. 460
(2000). For their part, plaintiffs
distinguish Nelson and rely on our decision in Fromson
v. Citiplate, Inc., 886 F.2d 1300 (Fed. Cir.
1989). Plaintiffs assert that Catallo is
the main executive officer of both CAT and Firstliner and (1) had controlling
authority of their day-to-day operations, (2) was directly and actively
involved in all aspects of the litigation, and (3) was individually responsible
for all of the conduct that led the district court to increase damages and
award attorney’s fees. As explained
below, the district court’s ruling on this point is supported by our decision
in Fromson, and we see no clear error in the
court’s interpretation of the facts. We
accordingly affirm the court’s decision on this point.
Giulio
Catallo is the sole owner of defendants CAT and Firstliner. He also is president of both
corporations. Plaintiffs first attempted
to join Catallo in his individual capacity in January of 1991, before the first
infringement trial in the case. That
motion was denied without prejudice and without opinion. Plaintiffs renewed their motion after the
infringement trial (the trial for damages was bifurcated) in July 1991. This motion also was denied without prejudice
and without opinion. In each case, the
reason asserted for the joinder of Catallo was that he was “directly responsible
for all of the activities of CAT and INLINER [and] was clearly the moving force
behind infringement [and] personally financially benefited from the payments
made [under one of the contracts found to be infringing.]” Additionally, plaintiffs asserted that
Catallo was personally a licensee of the accused process because he signed a
license agreement twice, on behalf of himself and as President of
Firstliner.
The damages portion of the case was tried in September 1997. After trial, the court found that defendants’ infringement had been willful. In July 1999, plaintiffs moved again to add Giulio Catallo as a defendant. In so doing, they argued that Catallo’s corporations were a “real credit risk.” They also argued that Catallo was a personal tortfeasor. Finally, they urged that in the intervening years (1991-1999) many facts had come to light that weighed in favor of making Catallo personally liable as an individual party.
Defendants acknowledge that a
corporate entity may be disregarded if doing so will prevent fraud, illegality,
injustice, a contravention of public policy, or prevent the corporation from
shielding someone from criminal liability.
See Manville Sales Corp. v.
In an
As noted above, because the
amendment of a pleading to add a party is not unique to patent law, we apply
the law of the regional circuit. McGinley,
262 F.3d at 1357. We thus review a
district court’s decision to add a party pursuant to Rules 15 and 21 of the
Federal Rules of Civil Procedure for an abuse of discretion. Jacobsen, 133 F.3d at 318. Our decision in Ohio Cellular, upon
which the district court relied, was subsequently overturned by the Supreme
Court. Nelson, 529
In Nelson,
The Supreme Court reversed our
decision in Ohio Cellular on due process grounds. The Court determined that Nelson was never
afforded a proper opportunity to respond to the claim against him.
In Fromson,
Citiplate, Inc. (“Citiplate”)
was sued by Howard A. Fromson (“Fromson”)
for patent infringement. Fromson moved before trial to add the individual
owners of Citiplate as parties, because he suspected
that the defendant corporation might not be able to pay a judgment against it. Fromson, 886
F.2d at 1301. The district court
initially denied the motion because of defendant Citiplate’s
assurances that its financial condition was sound.
We affirmed the district court’s decision. In so doing, we relied upon the test articulated by the Supreme Court in Schiavone v. Fortune, Inc., 477 U.S. 21 (1986), to determine whether the requirements of Rule 15(c) had been met. In Schiavone, the Court articulated a four-part test:
Relation back is dependent upon four factors, all of which must be satisfied: (1) the basic claim must have arisen out of the conduct set forth in the original pleading; (2) the party to be brought in must have received such notice that it will not be prejudiced in maintaining its defense; (3) that party must or should have known that, but for a mistake concerning identity, the action would have been brought against it; and (4) the second and third requirements must have been fulfilled within the prescribed limitations period.
Schiavone, 477
The original 1991 motions to
add Giulio Catallo presumably were denied because the
district court believed defendants’ assertions that Catallo “was merely acting
in accordance [with] the duties and scope of his position” and that he “had a
good faith belief and basis that the Inliner process
did not infringe any Insituform patents when the contracts were
performed.” When all the facts were
determined following the 1997 damages trial, the court concluded that these
assertions were not true, finding that Catallo “was personally responsible for
many, if not all, of the aggravating facts which led this court to award
attorney’s fees and enhanced damages.” Joinder
Order, slip op. at 7. Furthermore,
the court found that “Catallo diligently acted to protect his interests at
every stage of the proceedings.”
Applying the Fifth Circuit’s abuse of discretion standard, we cannot say that the district court abused its discretion in adding Catallo as a defendant in his individual capacity. In our view, the controlling case is Fromson, which the Supreme Court distinguished in Nelson. As in Fromson, plaintiffs in this case sought from the very beginning to add Catallo as a defendant in his individual capacity on the theory that he was liable as an individual tortfeasor. We have stated that “it is well settled that corporate officers who actively aid and abet their corporation’s infringement may be personally liable for inducing infringement under § 271(b) regardless of whether the corporation is the alter ego of the corporate officer.” Orthokinetics, Inc. v. Safety Travel Chairs, Inc., 806 F.2d 1565, 1579 (Fed. Cir. 1986). The facts of this case are closer to Fromson than to Nelson. Accordingly, we affirm the decision of the district court.
C. Damages
The overarching issue with
respect to damages is the propriety of the district court’s procedure in
reassessing damages in light of our decision in Insituform II. The issues of infringement and damages were
bifurcated in the case. The damages
trial concluded while the appealed infringement decision still was pending
before us in Insituform II. The
damages trial was conducted under the assumption that Process 1 (using cups)
and Process 2 (using needles) both infringed the ‘012 patent. We determined, however, that only Process 1
infringed and that Process 2 did not. Insituform
II, 161 F.3d at 694. Not knowing
that the damages trial had already concluded, we stated that “the bifurcated
damages trial will determine for what amount [defendants are] actually
responsible . . . .”
Following our decision in Insituform
II, the district court, over the objection of defendants, chose to allow
only limited discovery to address the issue of damages, instead of again
opening up trial proceedings. District
Court Opinion, slip op. at 3-4. The
primary issue on which the final damages award turned was one of fact. Specifically, the district court had to
determine the date on which defendants stopped using infringing Process 1 and
started using the non-infringing Process 2.
Based on Catallo’s
previous testimony at the 1991 and 1995 trials, and the new evidence presented
during discovery, the district court amended its damages ruling. The court stated that the deposition
testimony of the two additional witnesses “do[es]
nothing to persuade the Court that needles were actually being used for
production purposes during the first quarter of 1991.”
Defendants argue on appeal that rendition of judgment without a trial specifically focusing on damages relating to Process 1 violated their due process rights and our mandate in Insituform II. For their part, plaintiffs respond that there was no procedural error in the district court’s damages calculation because, in their view, the district court did not make credibility choices except as to Catallo’s testimony in open court. Additionally, plaintiffs argue that the due process requirements in a civil case, where only property interests are at stake, are much less stringent than in criminal cases.
We agree with defendants that
“the procedure chosen by the district court in this case was tantamount to a
‘trial by affidavit’ which has long been disapproved in our federal judicial
system.” Anderson v. Liberty Lobby,
Inc., 477
We review summary judgment de novo. Merck & Co., Inc. v. Mylan Pharms., Inc., 190 F.3d 1335, 1338 (Fed. Cir. 1999). Summary judgment is appropriate where the record indicates “that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Fed. R. Civ. P. 56(c). We believe that the deposition testimony of the two additional witnesses, combined with the inconsistent testimony of Catallo at the two trials created a disputed issue of material fact upon which the quantum of damages turns. The district court should have resolved this issue with trial-type proceedings. We therefore vacate and remand on this issue so that the trial court may properly weigh the new evidence regarding the quantum of damages attributable to infringing Process 1.
D. Willful
Infringement
The district court determined
that defendants CAT and Firstliner’s infringement had
been willful. District Court Opinion,
slip op. at 55. One crucial aspect of
the district court’s willfulness determination was the failure of CAT and
Firstliner to obtain an opinion of counsel.
E. Inducement
of Infringement
The district court determined that CAT and Firstliner were liable for induced infringement under 35 U.S.C. § 271(b) on account of work done by their licensees. District Court Opinion, slip op. at 45. CAT and Firstliner raise two issues related to their alleged induced infringement. First, they contend that there was a lack of proof with regard to the scienter element of induced infringement. Second, they contend that there was insufficient evidence to sustain the district court’s determination of damages related to the licensees’ use of infringing Process 1.
Section 271(b) provides that
“[w]hoever actively induces infringement of a patent
shall be liable as an infringer.” In
order to succeed on a claim of inducement, the patentee must show both direct
infringement and a certain level of intent on the part of the alleged inducer
that the patent be infringed. Water
Techs. Corp. v. Calco, Ltd., 850 F.2d 660, 668
(Fed. Cir. 1988). However, there is a
lack of clarity concerning whether the required intent must be merely to induce
the specific acts or additionally to cause an infringement. See Manville Sales Corp. v.
The
district court relied on Manville and applied the stricter standard for
induced infringement, requiring that “the alleged infringer’s actions induced
infringing acts and that he knew or should have known his actions would
induce actual infringement.” District
Court Opinion, slip op. at 40 (citing Manville, 917 F.2d at
553). In finding the requisite intent,
the court noted a response to a questionnaire submitted by one of CAT/Firstliner’s licensees.
Intent
is a factual determination particularly within the province of the trier of fact and may be inferred from all of the
circumstances. Water Techs., 850
F.2d at 669. We review factual
determinations by the court for clear error.
Tegal Corp. v.
We now turn to the method the district court used to arrive at the quantum of damages. To assess damages, the court had to make findings as to the percentage of CAT/Firstliner licensees that were instructed to use infringing Process 1. The issue before us is whether the district court correctly determined the extent to which defendants CAT and Firstliner instructed their licensees to use the infringing Process 1, thereby inducing infringement under 35 U.S.C. § 271(b). Specifically, the issue is whether the district court’s method for determining the percentage of licensees who were instructed to use infringing Process 1 was flawed. The parties agreed to resolve this aspect of the lawsuit by licensees’ questionnaire answers, subject to correction by deposition if either party so desired. District Court Opinion, slip op. at 45-46. It appears that the district court resolved this issue on the basis selected by the parties, and properly exercised its discretion in so doing. Accordingly, we affirm the district court’s ruling on this point.
Defendants assert that the district court clearly erred in its methodology in determining the extent to which CAT/Firstliner instructed their licensees to use infringing Process 1. Primarily, defendants argue that plaintiffs failed to carry their burden of proof with respect to the royalty revenue received by defendants CAT and Firstliner from use of the accused Process 1. Plaintiffs respond that the parties stipulated to a procedure for establishing the extent to which CAT and Firstliner instructed their licensees to use Process 1. Plaintiffs argue that the district court, having resolved the issue in the manner selected and stipulated to by the parties, should be given full deference as the factfinder in the case.
As part of the stipulated procedure
for determining the extent of induced infringement, a formal questionnaire was
prepared and distributed to CAT/Firstliner’s
licensees. Only two licensees
responded. The first licensee said it
was instructed to use Process 1; the second licensee said it was instructed to
use Process 2. The district court noted
that the response to the questionnaires was “admittedly less than
satisfactory.” District Court Opinion,
slip op. at 46. However, the court
judged that the poor response “was due in no small part to actions of
Defendants in publishing statements in trade publications and in disseminating
letters which implied that the finding of this Court would be reversed.”
“[C]ertain
subsidiary decisions underlying a damage theory are discretionary with the
court, such as . . . [determining] the methodology for arriving at a reasonable
royalty [citations omitted]. Such
decisions are, of course reviewed under the abuse of discretion standard.” SmithKline Diagnostics, Inc. v.
We do not believe that CAT/Firstliner has shown an abuse of discretion in this case. Accordingly, we will not disturb the district court’s ruling that at least half of defendants’ licensees used Process 1, while the other half used Process 2. District Court Opinion, slip op. at 48.
III.
We now address plaintiff’s cross-appeal. Plaintiffs appeal the district court’s decision declining to hold KS liable for infringement based on an alter-ego theory of induced infringement. We begin with a brief review of the key entities and the facts surrounding the alleged alter ego relationship.
KS is a German corporation,
and is one of the named defendants in the lawsuit. As noted above, it is a sewer rehabilitation
company, owned by Hans Mueller. KS was
(legally) using the Firstliner process in
The non-party to whom plaintiffs are trying to link to KS via their alter ego argument is Kanal Mueller Gruppe International GmbH & C