 United States Court of Appeals for the Federal Circuit

                                    04-1262, -1290



                              IMONEX SERVICES, INC.,

                                                      Plaintiff-Appellant,

                                           v.


               W. H. MUNZPRUFER DIETMAR TRENNER GMBH,
         ALLIANCE LAUNDRY SYSTEMS, L.L.C., AMERICAN DRYER, INC.,
             MAYTAG CORPORATION, and THE DEXTER COMPANY,

                                                      Defendants-Cross Appellants.



      Gregory M. Luck and Thomas W. Sankey, Sankey & Luck, L.L.P., of Houston,
Texas, argued for plaintiff-appellant. With Gregory M. Luck on the brief was Michael T.
McLemore. Of counsel was Randy J. McClanahan, McClanahan & Clearman, L.L.P., of
Houston, Texas.

      Scott F. Partridge, Baker Botts LLP, of Houston, Texas, argued for defendants-
cross appellants. With him on the brief were Gene Spears, R. William Beard, Jr.,
Michael Hawes, and Amanda Woodall Mayor.


Appealed from: United States District Court for the Eastern District of Texas

Judge T. John Ward
  United States Court of Appeals for the Federal Circuit
                                 04-1262,-1290

                           IMONEX SERVICES, INC.,

                                               Plaintiff-Appellant,

                                        v.

             W.H. MUNZPRUFER DIETMAR TRENNER GMBH,
      ALLIANCE LAUNDRY SYSTEMS, L.L.C., AMERICAN DRYER, INC.,
          MAYTAG CORPORATION, and THE DEXTER COMPANY,

                                               Defendants-Cross Appellants.

                        ___________________________

                        DECIDED: May 23, 2005
                        ___________________________

Before RADER, Circuit Judge, ARCHER, Senior Circuit Judge, and BRYSON,
Circuit Judge.

RADER, Circuit Judge.

      A jury decided that Imonex’s U.S. Patents No. 4,911,280 (the ’280 patent)

and No. 5,988,349 (the ’349 patent) were valid, enforceable, and willfully

infringed, and awarded damages of $10,350,000 to Imonex. The United States

District Court for the Eastern District of Texas later denied the defendants’ JMOL

motions of non-infringement and non-willfulness, but found that the jury had not

heard sufficient evidence for the damages award.       Therefore, the trial court

ordered and held a second trial on damages. The second jury awarded damages

of $1,396,872 to Imonex. The district court also declared this an “exceptional

case” and awarded attorney fees to Imonex. Imonex appeals the district court’s

finding that a second trial was necessary because of insufficient evidence; the
exclusion of certain testimony of its damages expert in the first trial; and the

inclusion of the testimony of the defendants’ damages expert in the second. The

defendants cross-appeal the district court’s denial of their JMOL motions as well

as the award of attorney fees to Imonex. Because the judgments and decisions

of the trial court are supported by the record, this court affirms.

                                          I.

       The ’280 and ’349 patents claim coin selectors.                These particular

inventions differentiate between coins of different diameters.         In the claimed

devices, a coin enters the selector at the top of a vertical or near-vertical coin

race. This race holds the coin on edge. A protrusion on one side wall of the race

deflects the coin toward an opening on the opposite wall. If the coin is equal to

or smaller than the opening in diameter, it falls through; otherwise it continues

down the race. Claims 24, 25, and 29 of the ’280 patent claim the protrusion

feature in the following terms:

          a coin deflecting protrusion situated along the primary coin
          race and positioned downstream from the inlet portal and
          proximate the aperture, said protrusion having a contact edge
          laterally protruding toward said aperture so as to deflect coins
          traveling down the primary coin race toward the aperture.

Claim 2 of the ’349 patent claims the same feature as “a means for applying a

lateral force.” Claim 4 in the same patent claims “a first curvilinear protrusion.”

       The district court construed the “coin deflecting protrusion” as “a surface

which extends or juts into the primary coin race so as to engage each coin as the

coin proceeds downwardly in the primary coin race” (Emphasis added). The

district court also noted that the “first curvilinear protrusion” means a surface that




04-1262,-1290                              2
“contact[s] each coin.” (Emphasis added).

       The defendants argue that the W2000 coin selector cannot infringe the

patents in suit because some coins do not contact the protrusion. In other words,

“each coin” does not hit the protrusion. As evidence, the defendants offered the

testimony of their own experts, and also that of Imonex’s expert, who stated

under cross-examination that he was not sure that the protrusion in the W2000

device would act to move every coin toward the aperture. On the other side,

Imonex asserts that the credibility of the defendant’s technical expert was

undermined by his own cross-examination testimony, that the testimony of

Munzprufer’s owner on infringement was self-serving, and that its own expert’s

testimony was only the truthful admission that if an infinite number of coins were

introduced into the coin slot, it is possible that one or more coins might not

engage the protrusion.

       “The grant or denial of a motion for judgment as a matter of law is a

procedural issue not unique to patent law, reviewed under the law of the regional

circuit in which the appeal from the district court would usually lie.” Summit

Tech., Inc. v. Nidek Co., 363 F.3d 1219, 1223 (Fed. Cir. 2004). In the United

States Court of Appeals for the Fifth Circuit, “[a] jury verdict must be upheld

unless ‘there is no legally sufficient evidentiary basis for a reasonable jury to find’

as the jury did.” Hiltgen v. Sumrall, 47 F.3d 695, 699-700 (5th Cir. 1995). On

this record, substantial evidence from Imonex’s expert supports the verdict of

infringement. This court affirms the denial of JMOL on this issue.




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                                    II.

      The defendants dispute the district court’s denial of JMOL on the jury’s

verdict of willful infringement. Willfulness requires a showing that the totality of

the circumstances evince the egregious conduct that constitutes willful

infringement.   Knorr-Bremse Systeme Fuer Nutzfahrzeuge GmbH v. Dana

Corp., 383 F.3d 1337, 1342 (Fed. Cir. 2004) (en banc).            Actual notice of

another’s patent rights triggers an affirmative duty of due care. See Rolls-Royce

Ltd. v. GTE Valeron Corp., 800 F.2d 1101, 1109 (Fed. Cir. 1986). Constructive

notice, as by marking a product with a patent number, is insufficient to trigger

this duty. See Nike, Inc. v. Wal-Mart Stores, Inc., 138 F.3d 1437, 1446 (Fed.

Cir. 1998). This court has identified several criteria for assessing damages,

including, inter alia, whether the infringer, when he knew of the other's patent

protection, investigated the scope of the patent and formed a good-faith belief

that it was invalid or that it was not infringed, and the duration of defendant’s

misconduct. Read Corp. v. Portec, Inc., 970 F.2d 816, 826-28 (Fed. Cir. 1992).

      Willful infringement in this case hinges on when the defendants had actual

knowledge of Imonex’s patent rights, and their actions after that time. The record

shows that Imonex disclosed its coin selection devices to employees of the

original equipment manufacturer, or OEM, defendants at trade shows years

before it filed suit. Those Imonex devices were marked with the numbers of both

of the patents in suit. Imonex also distributed advertising literature which stated

that the products were patented. Imonex corresponded with employees of the

OEMs about use of the patented devices in the OEMs’ products. The record also




04-1262,-1290                             4
disclosed that none of the OEM defendants commissioned an opinion of counsel

about infringement, until after they were sued for infringement. The defendants

do not deny that Imonex displayed its properly marked products at trade shows,

but insist that this notice was insufficient to trigger its duty of due care, because

no defendant employees with decision-making capacity received notice or

studied the patents themselves. The jury could have reasonably concluded that

several instances recounted in the record triggered the OEM’s duty of care.

Those instances that provide actual notice to the OEMs of the patents on

Imonex’s products include Imonex’s display of its products at trade shows, the

widespread distribution of literature depicting the products as patented,

and correspondence with OEM employees about the use of patented devices in

the OEM products.

       The defendants also argue that they exercised their duty of due care by

obtaining opinions of counsel regarding possible infringement of the patents in

suit shortly after being served with the complaint.       Imonex argues that the

defendants should have obtained these opinions as soon as they learned of their

possible infringement of Munzprufer’s patents. This issue is informed, however,

by this court’s recent decision in Knorr-Bremse, which was decided shortly after

the briefs in this case were submitted. In that case, the affirmative duty of due

care to avoid infringement was reiterated, but it was found no longer appropriate

to draw an adverse inference with respect to willful infringement from failure to

obtain legal advice. Knorr-Bremse, 383 F.3d at 1345-46. Therefore, while early

receipt of legal advice would have strengthened the defendants’ argument that




04-1262,-1290                            5
they had not willfully infringed, failure to have solicited such advice does not give

rise to an inference of willfulness. Overall, the jury had substantial evidence to

find willfulness, and this court affirms the district court’s denial of JMOL on this

point.

         Defendants also dispute the finding by the trial court that this case is

exceptional, and the court’s award of attorney fees and costs. In an exceptional

case, a court may award attorney fees. 35 U.S.C. § 285 (2000). This court

reviews a district court’s exceptional case finding for clear error. Pharmacia &

Upjohn Co. v. Mylan Pharms., Inc., 182 F.3d 1356, 1359 (Fed. Cir. 1999). The

criteria for declaring a case exceptional include willful infringement, bad faith,

litigation misconduct and unprofessional behavior. See Sensonics, Inc. v.

Aerosonic Corp. 81 F.3d 1566, 1574 (Fed. Cir. 1996). “[T]he trial court has

broad discretion in the criteria by which it determines whether to award attorney

fees.”    Brooktree Corp. v. Advanced Micro Devices, Inc., 977 F.2d 1555,

1582 (Fed. Cir. 1992).

         In this case, although the jury found willfulness in the first trial, the court

assessed fees only from the time of the first verdict to the end of the case. The

first verdict certainly placed defendants on notice of the patent, and that they

were likely infringing it. Yet, the record includes evidence that the defendants

sold more than one hundred thousand W2000 devices after the first trial. This

court concludes, based on these facts, that the district court did not abuse its

discretion in making an exceptional case finding, and awarding attorney fees for

the period after the first verdict.




04-1262,-1290                               6
                                        III.

         The jury also decided the amount of damages in the first trial. Imonex

initially sought lost profits and a reasonable royalty from Munzprufer as well as a

reasonable royalty from the OEMs based on 26,459 W2000s sold as aftermarket

or kit items. In addition, Imonex sought a reasonable royalty from the OEMs

based on the entire market value of the laundry machines with the W2000. The

entire market value rule “permits recovery of damages based on the value of the

entire apparatus containing several features, where the patent related feature is

the basis for customer demand.” State Indus., Inc. v. Mor-Flo Indus., Inc., 883

F.2d 1573, 1580 (Fed. Cir. 1989). This measure of damages arises “where both

the patented and unpatented components together are ‘analogous to

components of a single assembly,’ ‘parts of a complete machine,’ or ‘constitute a

functional unit’ but not where the unpatented components ‘have essentially no

functional relationship to the patented invention and . . . may have been sold with

an infringing device only as a matter of convenience or business advantage.’”

Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1550 (Fed. Cir. 1995) (en banc).

Before trial, however, Imonex abandoned all damages demands except the

entire market value theory against the OEMs. Imonex foresaw otherwise the

potential for a double recovery based on royalties from items manufactured by

Munzprufer in addition to royalties on the OEM machines incorporating the same

Munzprufer products. Also, before trial, Munzprufer and the OEMs moved to

exclude the testimony of Imonex’s damages expert on the entire market value

claim.




04-1262,-1290                            7
       At trial, the court asked Imonex to justify its use of the entire market value

theory. Imonex first argued that a laundromat customer would have perceived

that the coin selectors enhanced the performance of the washing machines as a

whole. Imonex later argued that the Georgia-Pacific factors, specifically factors 8

(commercial success of a product as relevant to royalties) and 13 (distinguishing

between patented and non-patented features of an infringing device or process in

calculating damages) supported its theory.         Georgia-Pacific Corp. v. U.S.

Plywood Corp., 318 F. Supp. 1116, 1120 (S.D.N.Y. 1970). In addition, Imonex

noted that the OEMs could supply profitability data only on the entire machines.

       The trial court nonetheless excluded the testimony of Imonex’s witness in

relation to the entire market value of the OEM equipment.              Without that

testimony, Imonex had no damages theory at all.          Therefore, the court sua

sponte allowed a claim for damages for the 26,459 W2000s sold as aftermarket

or kit items.

       Regardless of the court’s order, Imonex expanded its arguments to

include over 800,000 coin selectors that Munzprufer had incorporated into OEM

machines. In effect, this theory replaced the entire market theory with another

theory based on the value of the coin selectors incorporated in the OEM

machines. The trial court also properly rejected expert testimony related to this

theory, reminding Imonex that only the aftermarket selectors could figure into a

royalty calculation. During closing argument, Imonex, ostensibly expounding on

willfulness and without adequate evidence on a royalty rate beyond the 26,459

aftermarket W2000s, displayed a chart illustrating sales of 1,000,000 W2000s.




04-1262,-1290                            8
The chart proposed an average royalty of $20.73 per machine.                The jury

evidently followed this information in reaching an award of $10,350,000 in

damages to Imonex.

       The trial court, properly noting its prior limits on testimony of royalty rates

for aftermarket products, rejected the jury award for lack of adequate foundation.

The district court offered Imonex the choice of a remittitur of $490,295.04 --

based on the actual number of aftermarket W2000s sold by each OEM -- or a

new trial. Imonex chose a new trial.

       In the second jury trial, the defendants’ damages expert testified about the

operating income attributable to the infringing coin selectors in the laundry

machines. The second jury awarded damages of $1,396,872 to Imonex. The

trial court entered judgment in this amount.            In addition, the trial court

acknowledged the first jury’s finding of willful infringement and the record that the

OEMs continued to sell products with W2000s after the infringement verdict. For

these reasons, the district court awarded Imonex attorney fees from the end of

the first trial through the end of the case.

                                          IV.

       Imonex appeals the district court’s decision to exclude testimony on the

entire market value rule. This court reviews a trial court’s admission or exclusion

of expert testimony for abuse of discretion. Gen. Elec. Co. v. Joiner, 522 U.S.

136, 141 (1997).

       Imonex’s proposed expert testimony on the entire market value rule,

however, bore no relation to that rule.         The entire market value rule allows




04-1262,-1290                              9
calculation of damages based on the value of an entire apparatus containing

several features, when the patent-related feature is the “basis for customer

demand.”    Rite-Hite, 56 F.3d at 1549.       Without any evident record that the

patented features were the basis for customer demand for the laundry machines

as a whole, the trial court properly foreclosed further evidence on this

unsupported theory.

       Any reliance on the so-called Georgia-Pacific factors, actually a Georgia-

Pacific listing, had little or no relation to Imonex’s entire-value calculation in

different clothing.    In sum, the district court did not abuse its discretion in

rejecting Imonex’s expert’s testimony on the entire market value theory.

       Imonex also appeals the district court’s finding that the record does not

support the first jury’s damages award of $10,350,000. A district court’s duty to

remit excessive damages is a procedural issue, not unique to patent law.

Shockley v. Arcan, Inc., 248 F.3d 1349, 1358 (Fed. Cir. 2001).            This court

therefore applies the law of the Fifth Circuit for this issue. In the Fifth Circuit, a

district court’s decision on remittitur, as well as a decision to grant a new trial,

receives review for an abuse of discretion. Vogler v. Blackmore, 352 F.3d 150,

154 (5th Cir. 2003).

       During the first trial, the district court permitted Imonex to seek damages

only for the 26,459 aftermarket coin selectors.         The jury heard testimony,

therefore, only on a royalty for these selectors. In closing argument, Imonex’s

attorney showed a chart with the heading “W2000s sold = 1,000,000,” a table of

the amounts obtained by multiplying the price at which each OEM sold W2000s




04-1262,-1290                            10
as aftermarket items by 30%, and a concluding line that read “Average 30%

royalty = [$20.73].” As the trial court detected, this chart misled the jury. In fact,

a 30% royalty on the $69.12 unweighted average selling price of 26,459

aftermarket W2000s would have yielded a total damages award of $548,653.82 -

- about five per cent of the actual award. The record did not show any royalty for

1,000,000 W2000s, nor any showing that a 30% rate applied to those units.

Therefore, the district court did not abuse its discretion in vacating the jury’s

damages award of $10,350,000.

       Finally, Imonex appeals the district court’s decision to allow the

defendants’ damages expert to opine in the second trial on “operating income”

attributable to the coin selectors in the integrated units. The defendants defined

operating income as the income attributable only to the coin selectors integrated

into the laundry machines. Because in discovery for the first trial the OEMs

asserted that it was impossible to accurately attribute a portion of the operating

income to any individual component of a machine, Imonex asserts that testimony

on this subject would be unreliable, and inadmissible. The record shows no

presentation from Imonex other than the opinions of the OEMs noted above, to

exclude Munzprufer’s expert’s testimony. The United States Supreme Court has

enumerated a number of factors to assess the reliability of expert testimony. See

Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 592-95 (1993). Imonex did

not present any competent testimony of its own specifically addressing the

Daubert factors.    Therefore, this court detects no abuse of discretion in the

district court’s admission of Munzprufer’s expert testimony.




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                                         V.

       In summary, the district court did not err in denying JMOL motions on

infringement and willfulness, granting a new trial on damages, excluding

evidence on Imonex’s entire market value theory, allowing the jury to hear

Munzprufer’s evidence on operational income, and awarding attorney fees. This

court altogether affirms the judgments of the district court.

                                      COSTS

       Each party shall bear its own costs.

                                    AFFIRMED




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