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University of Pittsburgh of the Commonwealth System of Higher v. Varian Medical

April 25, 2012

UNIVERSITY OF PITTSBURGH OF THE COMMONWEALTH SYSTEM OF HIGHER EDUCATION D/B/A UNIVERSITY OF PITTSBURGH, PLAINTIFF,
v.
VARIAN MEDICAL SYSTEMS, INC.,
DEFENDANT.



The opinion of the court was delivered by: Arthur J. Schwab United States District Judge

ELECTRONICALLY FILED

MEMORANDUM OPINION RE: ENHANCED DAMAGES PURSUANT TO 35 U.S.C. § 284, ATTORNEYS FEES PURSUANT TO 35 U.S.C. § 285, PREJUDGMENT INTEREST PURSUANT TO 35 U.S.C. § 284, AND AN ONGOING ROYALTY

I.Introduction

Presently before this Court are Plaintiff, University of Pittsburgh's ("Pitt's"), Motion for Enhanced Damages pursuant to 35 U.S.C. § 284, which includes a request for attorneys fees, Pitt's Motion for Prejudgment Interest, and the parties' Motions on an Ongoing Royalty. Doc. Nos. 686, 722, 747, and 749. After careful consideration of the Motions, Defendant Varian Medical System's ("Varian's") and Pitt's Responses in Opposition (Doc. Nos. 696, 753, 764, 765), Pitt's Reply Thereto (Doc. No. 702), and Varian's Supplemental Brief (Doc. No. 857), the jury's verdict in the damages portion of the trial will be multiplied by a factor of 2 (i.e., 200%), Pitt will be awarded reasonable attorneys fees, and Pitt will be awarded prejudgment interest in the amount of 6%. The Court also will impose an ongoing royalty of 10.5% for sales of RPM Systems and 1.5% for sales of Clinac and Trilogy linear accelerators sold in combination with RPM Systems will be imposed. The reasons for these decisions are set forth as follows.

II.Factual Background and Procedural History

This is an action in patent infringement. The parties are familiar with the relevant facts. The Court set forth a detailed procedural and factual history of this case in its Memorandum Opinion on Pretrial Motions in Limine. Doc. No. 600, 1-4. Therefore, the recitation which follows only contains information pertinent to the present Memorandum Opinion.

On December 30, 2011, the Court granted Pitt's Motion for Partial Summary Judgment, finding that Varian infringed Pitt's U.S. Patent No. 5,727,554 ("'554 patent"), as a matter of law. Doc. No. 432. The Court also denied Varian's Motion for Summary Judgment regarding invalidity, damages, and willfulness. Id. The Court also found the redesigned RPM System infringes as a matter of law (literally and under the doctrine of equivalents), and struck Varian's belated defense of non-infringement due to "incapacity." Id. On January 26, 2011, at the conclusion of the first of three parts of the trial, the jury found that Varian willfully infringed Pitt's '554 patent. Doc. No. 542.

On February 23, 2012, at the conclusion of the damages portion of the case, the jury found that Pitt was entitled to receive a reasonable royalty rate of 10.5% for Varian's sales of RPM Systems from June 16, 2002 to March 31, 2011, which equated to damages in the amount of $12,095,819.00.*fn1 Doc. No. 666. Additionally, the jury found that Pitt was entitled to receive a reasonable royalty rate of 1.5% for Varian's Clinac and Trilogy linear accelerators sold in combination with RPM Systems from June 16, 2002 to March 31, 2011, totaling $24,788,475.00. Id. In total, the jury found that Varian should pay Pitt over $36.8 million for infringing Pitt's '554 patent, through March 31, 2011. Id. Following this jury verdict, Pitt filed the instant Motions for enhanced damages, attorneys fees, and prejudgment interest. Doc. Nos. 686 and 722. The parties both filed respective Motions on ongoing royalties. Doc. Nos. 747 and 749.

In the third portion of the trial in this case, the jury found that Varian had not proved, by clear and convincing evidence, that: (1) claims 20, 21, 22, 25, 26, 28, 30, 31, and 38 of the '554 patent are invalid because they are anticipated; (2) claims 20, 21, 22, 23, 24, 25, 26, 28, 29, 30, 31, 32, 36, 37, and 38 are invalid because they are obvious; and/or (3) claims 20, 21, 22, 23, 24, 25, 26, 28, 29, 30, 31, 32, 36, 37, and 38 are invalid because they are not enabled. Doc. No. 853. Based upon the parties' Cross-Motions for Summary Judgment (Doc. Nos. 776 and 779), the Court found that claims 20-26, 28-32, and 36-38 are not indefinite (Doc. Nos 858 and 859).

The Court will now address the parties' pending Motions which address enhanced damages pursuant to 35 U.S.C. § 284, an award of attorneys fees, an award of prejudgment interest, and an ongoing royalty, respectively. Dos. Nos. 686, 722, 747, 749.

III. Enhanced Damages Pursuant to 35 U.S.C. § 284

Pursuant to 35 U.S.C. § 284, " . . . the court may increase the damages up to three times the amount found or assessed." The underlying rationale embodied in enhanced compensatory damages is deterrence and punishment of the infringer, as well as "protection of the integrity of the patent system." Power Integrations, Inc. v. Fairchild Semiconductor Int'l, Inc., et al., 762 F. Supp. 2d. 710 (D. Del. 2011) (quoting Lightwave Techs., Inc. v. Corning Glass Works, 1991 U.S. Dist. LEXIS 543 (S.D.N.Y. Jan. 16, 1991)).

An inquiry of enhanced damages pursuant to 35 U.S.C. § 284 has two steps. First, a determination must be made as to whether the infringer, in this case Varian, acted with culpability. A finding of willful infringement satisfies the culpability requirement. Odetics, Inc. v. Storage Tech. Corp, 185 F.3d 1259, 1274 (Fed. Cir. 1999). As noted, on January 26, 2011, the 3 jury found that Varian willfully infringed Pitt's '554 patent. Doc. No. 542. This finding is not an automatic basis for enhancing the damages award, but satisfies the first step of the analysis.

Once the first step is satisfied, the Court must determine if, and to what extent, damages should be enhanced. Enhanced damages are discretionary and are based on the totality of the circumstances of the case, including both aggravating and mitigating facts. Group One, Ltd. v. Hallmark Cards, Inc., 407 F.3d 1297, 1308 (Fed.Cir. 2005); Odetics, 185 F.3d at 1274. "The paramount determination . . . is the egregiousness of the defendant's conduct based on all the facts and circumstances." Read Corp. v. Portec, Inc., 970 F.2d 816, 826 (Fed. Cir. 1992).

The United States Court of Appeals for the Federal Circuit has provided district courts with factors, known as the Read factors, to consider when determining whether, and to what extent, damages should be enhanced. The Read factors include: (1) whether the infringer deliberately copied the ideas or design of another; (2) whether the infringer, when it knew of the other's patent protection, investigated the scope of the patent, and formed a good-faith belief that the patent was invalid or was not infringed; (3) the infringer's behavior as a party to the litigation; (4) the infringer's size and financial condition; (5) the closeness of the case; (6) the duration of the infringer's misconduct; (7) any remedial action by the infringer; (8) the infringer's motivation for harm; and (9) whether the infringer attempted to conceal its misconduct. i4i LP v. Microsoft Corp., 589 F.3d 1246, 1273-74 (Fed. Cir. 2009).

Therefore, the Court turns to the application of the Read factors to this case.

1.Deliberate Copying and Investigation of Scope of Patent

The Court, in its Opinion on the parties' Cross-Motions for Summary Judgment, and the jury verdict in the willfulness portion of the trial, have, in effect, already determined the first two Read factors: (1) whether the infringer (Varian) deliberately copied Pitt's '554 patent and (2) whether Varian investigated the scope of the patent to avoid infringement. Doc. Nos. 432 and 542. Varian was aware of Pitt's '554 patent since at least February 2000. Doc. 505, ¶ 21. By granting summary judgment, the Court found that Varian's non-infringement defenses were objectively unreasonable.*fn2 Doc. No. 432, 40 ("The Court, as a matter of law, rules on the existing record that Varian's reliance on its alleged non-infringement, and its reliance on the other non-liability issues and defenses raised by Varian were not reasonable, and was objectively reckless."). Furthermore, the jury found that Varian's invalidity defenses were unreasonable. Doc. No. 542. In doing so, they found that "Varian knew, or it was so obvious that Varian should have known, that it was highly likely it was infringing a valid patent." Id.

The Court also notes the '554 patent prosecution history. On March 17, 1998, Pitt's application for the '554 patent was granted. The '554 patent originally had 22 claims. Following failed licensing negotiations between Pitt and Varian, and prior to the Court's ruling on summary judgment and the willfulness trial, Varian presented many similar invalidity positions to the United States Patent and Trademark Office. Doc. No. 571, 100. In 2010, the Patent and Trademark Office, in a reexamination proceeding, not only found that the '554 patent was valid, but also added additional claim terms (Claims 23-38).*fn3 Exhibit JT-39.

The Court's finding of infringement in its Opinion on Cross-Motions for Summary Judgment, the jury's finding of willful infringement, and the '554 patent prosecution history all demonstrate that although Varian investigated Pitt's '554 patent, it did not have a reasonable good-faith belief that Pitt's patent was invalid or, if valid, that Varian's devices did not infringe. Indeed, any alleged "good faith" belief of non-infringement by Varian was negated by its continued insistence on its positions, despite findings of the Patent and Trademark Office and subsequent legal rulings and jury verdicts. As noted by a fellow district court judge, "one who undertakes a course of infringing conduct may neither sneer in the face of the [IP] owner nor hide its head in the sand like an ostrich." Metso Minerals, Inc. v. Powerscreen Int'l Dist. Ltd., 2011 WL 6225376 (E.D.N.Y. Dec. 8, 2011) (quoting Video Views, Inc. v. Studio 21, Ltd., 925 F.2d 1010, 1021 (Fed. Cir. 1991)); see also Nat'l Bus. Forms & Printing, Inc. v. Ford Motor Co., 2009 WL 3570387, at * 6 (S.D. Tx. May 8, 2009) ("an infringer cannot be naive and be like ostriches and put their heads in the sand and ignore obvious facts" and then later claim entitlement to status as an "innocent infringer."). Therefore, because Varian did not have a good faith belief that Pitt's '554 patent was invalid, or that it was not infringing the '554 patent, Read factors one and two weigh in favor of enhanced damages.

2.Conduct During Litigation

This case has a long procedural history in which both sides have zealously represented their clients. The Court understands the need to protect the record for appeal purposes. However, instead of complying with this Court's Orders while protecting the record, Varian has consistently attempted (although not in bad faith) to have the trial proceed in the manner in which it chose, rather than based upon this Court's rulings. See, e.g., Emergency Motion for Reconsideration of Pretrial Order (Doc. No. 427); Motion for Reconsideration Proposed Verdict Form (Doc. No. 484); Motion for Reconsideration of Order Excluding Deposition Testimony of Dr. Jeffrey Shogan Based on Changed Circumstances (Doc. No. 527); Petition for a Writ of Mandamus and Emergency Motion for Stay of Trial (Doc. No. 508); and Motion for Declaration of Mistrial (Doc. No. 808).

By way of example, this Court set a trial to begin on January 23, 2012, on the narrow issue of willfulness based upon the parties' contentions in their Motions for Summary Judgment that this singular issue was relatively straightforward and necessitated a ruling for their respective sides. Doc. No. 426. However, despite originally arguing that willfulness was a simple issue to which Varian was clearly entitled to a favorable ruling, Varian objected to the first portion of the three-part trial being on this narrow issue. Doc. No. 427; In re Varian Med. Sys. Inc., 2012 U.S. App. LEXIS 1196, at *2 (Fed. Cir. Jan. 20, 2012). At the January 13, 2012 preliminary pre-trial conference, the Court gave Varian the option to try invalidity with the issue of willfulness in the first portion of the trial. Id. at *5; Doc. No. 684, 34 ("Again, we are trying willfulness because [Varian] said it was a winner for [it] . . . on summary judgment and only took five pages [to argue that point.]") However, Varian contended that it would not have sufficient time to prepare for the invalidity trial, even though much of the evidence and argument would have been the same as the willfulness portion of the trial. In re Varian, 2012 U.S. App. LEXIS 1196, at *5 ("There would be no way to do it."). Thus, the Court denied Pitt's request to try invalidity with willfulness.

The Court has permitted both sides to zealously advocate their respective positions to the Court in the form of motions, oral argument, and presentation to the jury. Again, this Court is mindful of the need to protect the record and has allowed both parties to do so. However, although it has not acted in bad faith, Varian has continually re-argued the Court's rulings, and attempted to delay the litigation with an extensive motion practice. Therefore, this Read factor weighs in favor of enhancing damages.

3.Varian's Financial Condition

The jury in the damages portion of the trial awarded Pitt over $36 million in damages:

(a) based upon sales of RPM Systems and (b) based upon sales of Clinac and Trilogy linear accelerators sold in combination with RPM Systems, from June 16, 2002 to March 31, 2011. Doc. No. 666. The award consisted of a 10.5% reasonable royalty rate for sales of RPM Systems and a 1.5% reasonable royalty rate for sales of Clinac and Trilogy linear accelerators sold in combination with RPM Systems. Id. Evidence submitted to the jury demonstrated that Varian is a multi-billion dollar corporation. Indeed, Varian made a gross profit of approximately $91,582,630 on sales of RPM Systems during the applicable time period and a gross profit of approximately $849,450,742 for sales of the Clinac and linear accelerators sold in combination with RPM Systems.

Pitt sought a royalty rate of 12% for sales of the RPM Systems for damages of $13,720,170 (Doc. No. 636-1), and a royalty rate of up to 3% was sought for sales of Clinac and Trilogy linear accelerators sold in ...


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