Funai Electric Co. v. Daewoo Electronics Corp., Nos. 2009-1225, 2009-1244 (Fed. Cir. Sept. 1, 2010).

The patentee sued four entities—a South Korean corporation and its predecessor, along with a U.S. subsidiary and its predecessor—for infringement of six patents related to VCR technology. After almost a year of litigation, the two predecessor companies ceased participating in the case and a default judgment was entered against them. The default was never appealed, and the predecessor companies never paid the $8 million judgment. After a trial involving the successor companies, judgment was entered against the successors for willful infringement, but enhanced damages were not awarded. The court applying South Korean law ruled that the remaining defendants were not liable for the default judgment against their predecessors.

Affirming the district court’s infringement rulings, the Federal Circuit addressed the issue of prosecution history estoppel in the context of infringement under the doctrine of equivalents. During the prosecution of one of its patents, the patentee cancelled two claims after they were rejected by the examiner. It then added limitations from those claims into a formerly dependant claim, which then became claim 1 of the issued patent. The Federal Circuit agreed with the district court that the limitation was “merely tangential” to the prosecution. If the “rationale underlying the amendment [bears] no more than a tangential relation to the equivalent in question…the patentee can overcome the presumption that prosecution history estoppel bars a finding of equivalence.” Thus, the Federal Circuit agreed that the cancellation of the original two claims did not “surrender access to equivalency” with respect to a “merely tangential” limitation since it was not a ground for prosecution rejection.

Although the jury found that the alleged infringers willfully infringed, the court affirmed the district court’s decision not to award enhanced damages. The district court’s decision was reviewed for an abuse of discretion. In considering enhanced damages, the district court properly considered the Read factors. In particular, the Federal Circuit agreed that whether the infringement was literal or under the doctrine of equivalents may be weighed in determining whether to award enhanced damages.

On the issue of successor liability, the Federal Circuit reversed and held that U.S. law should apply to determining whether a U.S. company is liable for the actions of a predecessor. Focusing on the U.S. entities and applying New Jersey law – which places liability with a successor company when the business transfer is no more than a “new hat,” the U.S. predecessor’s sale activities continued under the new company “without interruption, at the same corporate headquarters and sales facilities in New Jersey, [and] with substantially the same managers and other employees.” Thus, the Federal Circuit found that the U.S. successor was fully liable for the default judgment entered against its predecessor.

A copy of the opinion can be found here.