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Federal Circuit Hears Arguments on Appeals Of Liability Judgments in Bifurcated Trials

Thursday, February 14, 2013

In a bifurcated district court patent infringement trial, is the second part of the trial--on damages and willfulness--an “accounting” such that an appeal of the first part of the trial--on validity and infringement--is statutorily within the jurisdiction of the U.S. Court of Appeals for the Federal Circuit?

The appeals court sitting en banc entertained that question on Feb. 8, amid parties' arguments about the meaning of the word “accounting” in the early 20th century and today (Robert Bosch L.L.C. v. Pylon Manufacturing Corp., Fed. Cir., No. 2011-1363, argued 2/8/13).

The court agreed on its own motion on Aug. 7 to consider en banc its jurisdiction over these interlocutory appeals (84 PTCJ 603, 8/10/12), with the assumption that district court judges wanting to bifurcate litigation would be hesitant to do so if 28 U.S.C. §1292(c) barred appeal until after the second part of the trial. However, the parties and judges acknowledged that judges could “game the system,” deferring final judgment on liability even though the first part of the trial was complete.

District court judges disagree as to the benefits and disadvantages of trial bifurcation (78 PTCJ 112, 5/29/09). Early patent reform bills contained a provision that would require bifurcation if either party requested it (81 PTCJ 547, 3/4/11), but it was deleted during final Senate action on the bill that eventually was enacted as the America Invents Act.

Bosch's Appeal Handled First

In the instant case, Robert Bosch L.L.C., a subsidiary of the Bosch Group, holds patents (U.S. Patent Nos. 6,292,974; 6,675,434; 6,944,905; and 6,978,512) on what are known as beam-type wiper blades.

Pylon Manufacturing Corp. is a privately-held Florida company that also sells beam blades and won a contract to supply Wal-Mart Stores Inc. in 2006 after Bosch failed to make a timely delivery. In August 2008, Bosch sued Pylon in the U.S. District Court for the District of Delaware, alleging patent infringement.

Judge Sue L. Robinson bifurcated the litigation--at Pylon's request and over Bosch's objection--deferring discovery as to damages. After summary judgments and a jury trial, the net result was that Pylon was found to infringe valid claims of the '905 and '434 patents. 748 F. Supp. 2d 383, 2010 BL 260238 (D. Del. 2010).

Robinson denied Bosch's motion for entry of a permanent injunction and Bosch appealed that decision. The Federal Circuit reversed the lower court's injunction ruling in an Oct. 12 opinion. Robert Bosch L.L.C. v. Pylon Manufacturing Corp., 659 F.3d 1142, 100 U.S.P.Q.2d 1656 (Fed. Cir. 2011) (82 PTCJ 854, 10/21/11).

Jurisdiction as to Validity, Infringement Issues.

Meanwhile Pylon had appealed the judgments on infringement and patent validity. Bosch moved to dismiss those appeals, arguing that the Federal Circuit lacked jurisdiction because the issues of damages and willfulness had not yet been resolved by the district court.

The Federal Circuit's jurisdiction as defined in 28 U.S.C. §1295(a)(1) is over “a final decision of a district court.” Section 1292 is directed to interlocutory appeals, subsection (c) is specific to the Federal Circuit, and Section 1292(c)(2) gives the court jurisdiction “of an appeal from a judgment in a civil action for patent infringement which would otherwise be appealable to … the Federal Circuit and is final except for an accounting.”

The court denied Bosch's motion in August 2011. 426 Fed. App'x 912, 2011 BL 199005 (Fed. Cir. 2011). Bosch moved for reconsideration, which the court also denied in October of that year. 437 Fed. App'x 947, 2011 BL 272776 (Fed. Cir. 2011). The court rejected Bosch's argument that there is a distinction between “accounting” and a “jury trial … on the issues of damages and willfulness.”

The court thus continued with Pylon's appeal and held oral argument July 9 on the merits. However, Bosch reprised the jurisdiction argument and the panel--Chief Judge Randall R. Rader and Judges Kathleen O'Malley and Jimmie V. Reyna--forced Pylon's counsel to address it.

A month later, the court issued its sua sponte order to consider the issue en banc (84 PTCJ 603, 8/10/12), It asked the parties to address separately whether 28 U.S.C. §1292(c)(2) confers jurisdiction (a) “when a trial on damages has not yet occurred” or (b) “when willfulness issues are outstanding and remain undecided.”

Patent and Trademark Office Solicitor Raymond T. Chen filed a brief on behalf of the U.S. government and supporting Pylon's position. Other amicus briefs were filed by the American Intellectual Property Law Association, the Intellectual Property Owners Association, the Intellectual Property Law Association of Chicago, and MEMC Electronic Materials Inc.

The AIPLA and IPO both argued against treating willfulness as part of the accounting. The IPO argued that if damages were still outstanding, the court should nevertheless take the case, but the AIPLA took no position on that question.

Bosch Limits Statute to 'Complicated' Damages Issues

“Historically, an accounting was a procedure with a special master determining profits,” Mark A. Hannemann of Kenyon & Kenyon, New York, said, arguing on behalf of Bosch before the nine Federal Circuit active judges.

Under questioning from Judges Kathleen M. O'Malley and Timothy B. Dyk, Hannemann acknowledged that if a special master were to determine damages, Bosch's case was weakened. And Dyk asked why it should matter, then, whether the damages were to be determined by a jury instead of a special master.

“Because if it's before a jury, it's not an accounting,” Hannemann said, ultimately relying on the pre-1936 distinction between actions on the case--in law--and actions in equity.

Judge Alan D. Lourie said that “willfulness relates to increased damages,” suggesting that if the court were to find that an accounting includes damages, willfulness would be included as well.

“The classic historical archetype of an accounting is a special master looking through the parties' books and opposing proofs to see what the infringer's profits really were,” Hannemann said first. “But I agree that willfulness is tied up in that.” Again he said that the accounting was the province of a court sitting in equity, though, such that the word could not capture the deliberations of a jury trying the issue of willfulness.

Lourie and O'Malley received no satisfactory answer when asking what was left of Section 1292(c)--beyond its jurisdiction given by Section 1295--in Bosch's view. According to Dyk's reasoning, Bosch's argument left only design patent infringement covered under the word “accounting,” given federal courts' current ways of determining damages in utility patent infringement cases.

Hannemann held firm nevertheless, saying there may be utility patent cases where the damages issue “is complicated enough” that the plaintiff demands the master's accounting, and “in all of the day-to-day situations where, for example, the jury finds a royalty rate,” leaving only a calculation based on the number of infringing units.

Judge Pauline Newman asked why the court should not just treat the statute as being permissive, leaving it to the discretion of the trial judge to decide what issues are appealable when. Additionally, O'Malley pointed out that the time to appeal starts to run to the extent the district court judge labels its liability opinion a final judgment. In bifurcated trials then, she said, if the loser is required to wait and the second damages trial takes a long time, the time might expire and the appellant will lose its right to appeal.

Hannemann said the judge could resolve the timing problem by “purposely delaying a decision on post-trial motions” on validity or infringement.

Issues in Two Parts of Trial 'Inextricably Intertwined'

Garret A. Leach of Kirkland & Ellis, Chicago, represented Pylon at oral argument. He countered Bosch by arguing that even before law and equity courts were merged in the 1930s, an accounting was not “limited to a specific procedure or form.”

O'Malley was once again active in questioning. When Leach appeared to agree with Bosch about options available to the lower court to postpone decisions, O'Malley, a former district court judge, disparaged the suggestion as requiring the judge “to game the system.”

Leach, however, dealt with more questions about willfulness than damages. Reyna picked up on a statement by Hannemann that “willfulness issues and liability issues are inextricably intertwined.” But Leach essentially said that, to the extent that is so, it is an artifact of the court's jurisprudence, and not the definition of accounting.

“This court may have added additional tests and procedures and guidelines to look at willfulness, but that cannot divest this court jurisdiction that was granted by Congress,” Leach said, again relying on Pylon's view of “the common meaning of accounting … at the time of the statute [in 1948].”

In front of the panel, O'Malley had indicated her belief that the court would have to hear the issue en banc because the panel was otherwise bound to the holding in In re Calmar Inc., 854 F.2d 461, 7 U.S.P.Q.2d 1713 (Fed. Cir. 1988). In that case, the court held that it had jurisdiction over an interlocutory petition for writ of mandamus as to the district court's order that sanctioned counsel.

Leach and O'Malley engaged in a discussion about Calmar again at the en banc oral argument, but this time she questioned whether it was really on point.

Eventually, the two agreed that “a handful of cases just assumed” jurisdiction was authorized under Section 1292(c). And to Leach, there was no reason to change the assumption.

“That is the law that we've been following, and we think that it is also supported by the statute,” he said. “It's not upon this court to come in here to say, 'We're going to change it just to change it.' ”

“But that's the point of an en banc (review),” O'Malley replied.

By Tony Dutra  

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