Judges: Lourie (author), Schall, Prost

[Appealed from E.D. Tex., Judge Ward]

In ACCO Brands, Inc. v. ABA Locks Manufacturer Co., No. 06-1570 (Fed. Cir. Sept. 12, 2007), the Federal Circuit reversed the district court’s judgment in favor of ACCO Brands, Inc. (“ACCO”) with respect to induced infringement of ACCO’s U.S. Patent No. 5,502,989 (“the ’989 patent”) and vacated the district court’s judgment, also in favor of ACCO, with respect to willfulness, enhanced damages, and attorneys’ fees because it found that the jury’s verdict of direct infringement was not supported by substantial evidence. However, finding no grounds for reversible error as to validity, unenforceability, and claim construction, the Federal Circuit affirmed those aspects of the district court’s decision.

ACCO is the owner of U.S. Patent No. 5,493,878 (“the ’878 patent”), U.S. Patent No. 6,006,557 (“the ’557 patent”), and the ’989 patent. These patents are directed to locking systems that inhibit the theft of equipment such as personal computers. In May 2002, ACCO sued ABA Locks Manufacturer Co., Ltd. (“ABA”) and Belkin Components (“Belkin”) for infringement, alleging that ABA and Belkin’s K100 (“key lock”) and C100 (“combo lock”) products infringed the ’878, ’557, and ’989 patents. ABA is a Taiwan-based manufacturer of the key lock and combo lock products, whereas Belkin is a California-based distributor of these products in the United States.

After construing the disputed claim limitations, the district court granted SJ to ABA and Belkin, finding that the combo lock did not infringe the ’989 or ’878 patents and that the key lock did not infringe the ’878 patent. Then, in May 2004, a jury determined the remaining infringement and validity issues with respect to the ’989 and ’557 patents. The jury was informed, based on the claim construction, that the key lock could essentially be operated in two ways, one infringing and the other noninfringing. The noninfringing method was the method that Belkin instructed its customers to use in the instructions included in its key lock product. The parties agreed that when a user employed the noninfringing method, direct infringement did not occur.

The jury found that the defendants willfully induced infringement of the ’989 and ’557 patents, and rejected all invalidity defenses. The jury also awarded damages, but did not apportion them based on the type of lock. The defendants then moved for JMOL, which the district court granted in part. Specifically, the district court granted JMOL that the claims of the ’557 patent were invalid, which resulted in the combo lock not infringing any of the asserted patents as a matter of law. Because the jury’s damages award was not apportioned separately for the key lock and the combo lock, and because the district court previously determined that the combo lock did not infringe the ’989 patent, the district court set aside the damages verdict. A second jury trial was then held to determine damages due to the key lock’s infringement of the ’989 patent. The second jury found that all of ABA and Belkin’s lock sales induced infringement and awarded damages against ABA in the amount of $1,822,000 and against Belkin in the amount of $253,000. Then, after a bench trial on inequitable conduct, the district court held that the defendants had failed to prove that the ’989 patent was unenforceable. The district court also found the case exceptional under 35 U.S.C. § 285, and awarded enhanced damages and attorneys’ fees to ACCO. Belkin appealed, but ABA did not.

On appeal, the Federal Circuit addressed the jury verdict of induced infringement first. The Court agreed with Belkin that substantial evidence did not support the jury verdict that Belkin induced infringement of the ’989 patent. It noted that 35 U.S.C. § 271(b) provides that “[w]hoever actively induces infringement of a patent shall be liable as an infringer.” Slip op. at 7 (alteration in original). It explained that in order to prevail on an inducement claim, the patentee must establish first that there has been direct infringement, and second that the alleged infringer knowingly induced infringement and possessed specific intent to encourage another’s infringement. It observed that “[s]pecific intent requires a ‘showing that the alleged infringer’s actions induced infringing acts and that he knew or should have known his actions would induce actual infringements.’” Id. (quoting DSU Med. Corp. v. JMS Co., 471 F.3d 1293, 1304 (Fed. Cir. 2006)).

The Court found that ACCO failed to prove the threshold requirement of direct infringement. It explained that “[i]n order to prove direct infringement, a patentee must either point to specific instances of direct infringement or show that the accused device necessarily infringes the patent in suit.” Id. Here, noted the Court, the parties did not dispute that the accused device could be operated in either of two modes, one infringing and the other noninfringing. The Court added that because the accused device could be used at any given time in a noninfringing manner, the accused device did not necessarily infringe the ’989 patent.

The Court observed that the record further showed that ACCO failed to point to specific instances of direct infringement. The Court noted that the sole witness at trial who testified to having used the lock in an infringing manner was ACCO’s expert and that the record contained no evidence of actual users having operated the lock in an infringing manner. It noted that ACCO proffered no witness testimony of actual Belkin key lock users, or surveys of Belkin’s customers, that would indicate that a user, aside from the expert retained for the litigation, directly infringed the ’989 patent. Moreover, noted the Court, the record indicated that Belkin key lock users received instructions describing the noninfringing method. Thus, based on the record, the Federal Circuit held that there was no evidence of direct infringement.

Further, the Federal Circuit rejected ACCO’s reliance on Hilgraeve Corp. v. Symantec Corp., 265 F.3d 1336, 1343 (Fed. Cir. 2001), which states that an accused device may be found to infringe a product claim “if it is reasonably capable of satisfying the claim limitations, even though it may also be capable of non-infringing modes of operation.” Slip op. at 9. The Federal Circuit found that this “broad legal statement [did] not alter the requirement that ACCO must prove specific instances of direct infringement or that the accused device necessarily infringes the patent in suit, in order to sustain the jury verdict of induced infringement.” Id. The Court added that “[h]ypothetical instances of direct infringement are insufficient to establish vicarious liability or indirect infringement.” Id. The Court stressed that “[t]he mere sale of a product capable of substantial non-infringing uses does not constitute indirect infringement of a patent.” Id. (alteration in original) (citation omitted).

Because the Court found that the record lacked substantial evidence to support the jury’s finding of direct infringement, it held that the jury verdict of infringement could not stand and that the district court’s denial of JMOL must be reversed. In light of this conclusion, the Court further vacated the district court’s judgment with respect to willfulness, enhanced damages, and attorneys’ fees.

However, finding no basis to reverse the district court with respect to other issues raised by Belkin, including unenforceability, invalidity, claim construction, and the district court’s denial of Belkin’s motion for leave to file a revised SJ motion, the Federal Circuit affirmed those aspects of the district court’s decision.