Federal Circuit: Licensees’ Failure to Mark Eliminates Entitlement to Pre-Suit Damages

Recently, in Packet Intelligence LLC v. NetScout Sys., Inc., No 19-2041 (July 14, 2020), the Court of Appeals for the Federal Circuit reversed a jury verdict of $3.5 million in pre-suit damages and vacated the trial court’s enhancement of that award because licensees of the asserted patents failed to properly mark allegedly patent practicing products. Under the later-decided burden-shifting framework announced in Arctic Cat Inc. v. Bombardier Recreational Prods. Inc., 876 F.3d 1350 (Fed. Cir. 2017) (“Arctic Cat”), the Federal Circuit concluded that Packet Intelligence failed to meet its burden of proving that an unmarked product manufactured by its licensee did not practice an asserted patent. The Court further rejected Packet Intelligence’s argument that NetScout’s infringement of method of use patents could serve as a basis for recovery of pre-suit damages for sales of products capable of performing the claimed method. It concluded that a patentee cannot circumvent 35 U.S.C. § 287 and include unmarked products in its royalty base by simply arguing that infringement of related method of use claims drove sales of such unmarked products capable of carrying out the claimed processes.

Appellants NetScout Systems, Inc. and NetScout Systems Texas, LLC (“NetScout”) appealed from a judgment of the U.S. District Court for the Eastern District of Texas after a jury verdict and bench trial found, inter alia, that NetScout willfully infringed certain claims of U.S. Patent 6,665,725 (“the ’725 patent”), U.S. Patent 6,839,751 (“the ’751 patent”) and U.S. Patent 6,954,789 (“the ’789 patent”). The asserted claims of the ’789 patent recite apparatus claims, while the asserted ’725 patent and ’751 patent claims recite method of use claims. Packet Intelligence LLC (“Packet Intelligence”) asserted claims from all three patents against NetScout’s “G10” and “GeoBlade” products. The jury determined that Packet Intelligence was entitled to $3.5 million in damages for pre-suit infringement, $2.25 million in post-suit damages, $2.8 million in enhanced damages and an ongoing future royalty of 1.55%. The court also concluded that NetScout was not entitled to judgment as a matter of law on its failure to mark defense under 35 U.S.C. § 287.

After the jury verdict was announced, the Federal Circuit in a different case announced a change in the law regarding the burden of proof required to prevail with a patent marking defense under 35 U.S.C. § 287. In Arctic Cat, the Federal Circuit held that an alleged infringer bears the initial burden of production to identify the products it believes are unmarked patented articles subject to § 287. The Court noted that this initial burden of production is a “low bar” and that the alleged infringer need only put the patentee on notice that certain licensees sold specific unmarked products believed to practice the asserted patent. Under the Arctic Cat framework, the burden then falls to the patentee to prove that the unmarked products identified do not practice the patent-at-issue or otherwise establish that marking was not required.

The Court acknowledged that the jury charge from the Eastern District of Texas was “in tension” with that later-decided Arctic Cat decision, because the charge imposed a burden on NetScout to prove that the unmarked products it identified practiced the asserted patent. Citing Federal Circuit law, the Court determined that NetScout’s failure to object to the jury charge was not dispositive in this case, as it “is bound by the law, not the jury charge, even if the charge was not objected to.” It further noted that NetScout’s failure to object did not render the jury charge the “law of the case” for evaluating the sufficiency of the evidence regarding compliance with § 287. Instead, the Court applied Artic Cat’s burden-shifting framework before concluding that Packet Intelligence failed to prove that the unmarked product at issue, MeterFlow, did not practice at least one claim of the ’789 patent.

On appeal, Packet Intelligence argued that it met its burden in two ways. First, Packet Intelligence argued that the fact that the patentee removed mention of the MeterFlow product from the provisional application from which the ’789 patent claims priority before filing non-provisional applications was substantial evidence showing that the MeterFlow product does not practice the ’789 patent. Second, Packet Intelligence argued that testimony from the named inventor stating that a different product, MeterWorks, did not embody his invention was substantial evidence as to MeterFlow. The Federal Circuit rejected these arguments, concluding that Packet Intelligence had failed to meet its burden of proving that MeterFlow did not practice one or more claims of the ’789 patent, entitling NetScout to judgment as a matter of law that NetScout was not liable for pre-suit damages from sales of the MeterFlow product.

The Federal Circuit further rejected Packet Intelligence’s argument in the alternative that the pre-suit damages award could be sustained by evidence of direct infringement of the ’725 and ’751 method of use patents based on NetScout’s own internal use and testing. The Court held that the evidence failed to show that this internal use by NetScout drove sales of the accused products. Reciting the adage that method of use claims are “not directly infringed by the mere sale of an apparatus capable of performing the claimed process,” the Court explained that Packet Intelligence could not simply count sales of the software accused of infringing the ’789 patent as sales of the methods claimed in the ’725 and ’751 patents. Rather, it was Packet Intelligence’s burden to prove that the claimed methods of use were actually performed and thus infringed. The Court held that since Packet Intelligence failed to mark its own products with the ’789 patent covering the apparatus, “[i]t cannot circumvent § 287 and include [the accused] products in its royalty base simply by arguing that NetScout’s infringement of related method claims drove sales.”

Although method patents are not subject to the marking requirements of § 287, the Court’s holding is instructive in that claims of infringement of method claims cannot be used to circumvent compliance with the marking statute for licensed products that embody related apparatus or system claims in other patents-at-issue. Patent owners with method of use claims should therefore take care to ensure that any licensed products capable of performing the claimed methods, that also embody related apparatus or system claims, comply with marking requirements, in order to preserve claims to pre-suit damages.

Further, it remains to be seen whether and to what extent this decision will address the Federal Circuit’s previous legal question of whether the patent marking statue should apply on a patent-by-patent basis, or a claim-by-claim basis. See, e.g., Rembrandt Wireless Techs., LP v. Samsung Elecs. Co., Ltd., 853 F.3d 1370, 1384 (Fed. Cir. 2017) (“The patent-by-patent versus claim-by-claim marking dispute between the parties raises a novel legal issue not squarely addressed by our past decisions . . . We therefore remand to the district court to address in the first instance whether the patent marking statute should attach on a patent-by-patent or claim-by-claim basis.” (issue later mooted and not addressed on remand with district court)).

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