Transocean Offshore Deepwater Drilling, Inc. v. Maersk Drilling USA, Inc., No. 2011-1555 (Nov. 15, 2012).

Transocean brought suit against Maersk to enforce its patents on an improved apparatus for offshore drilling. The Federal Circuit reversed the trial court’s grant of JMOL to the defendant, Maersk, on obviousness even though, in a previous appeal, the Fed Circuit had found that two prior art references contain all of the elements of the asserted claims and provide a motive to combine so that a prima facie case of obviousness had been established. On remand, the jury found for the patentee, Transocean, on seven secondary considerations of non-obviousness: commercial success, industry praise, unexpected results, copying, industry skepticism, licensing, and long-felt but unsolved need. Hence, the court found, this was the rare case in which such considerations overcome a prima facie case.

Regarding the first factor, commercial success, Transocean presented sufficient evidence of both success and its nexus to the claimed invention. It showed its drilling rigs commanded a market premium over other rigs, introducing contracts that provided for reduced daily rates if the patented feature was not present and evidence that some customers expressly required that feature. Transocean also offered testimony from a Maersk employee that it added the patented feature to its drilling rig design because market surveys established customer demand for it, and testimony that the patented design had become the industry standard. Also, the court found the trial court had erred in considering a rejection of the claims by the European Patent Office.

Regarding the second and third factors, industry praise and unexpected results, Transocean presented numerous documents showing industry praise for the unexpected increase in drilling efficiency made possible by the patented technology, including a paper from a competitor and articles in a trade magazine, one describing the features of Transocean’s rigs and characterizing the technology as being critical to the future. One of the inventors testified that industry members had doubted whether the claimed feature would increase drilling efficiency. Transocean’s evidence also linked the industry praise and the unexpected efficiency gains directly to the claimed feature.

As for the copying factor, Transocean cited an internal Maersk document stating it had to incorporate the patented feature, which the memo distinguished from the prior art. Also, the court noted, Maersk was aware of Transocean’s patents when designing its accused rig and decided to incorporate the claimed feature anyway because it believed the patents were invalid over the prior art. Regarding industry skepticism, the two inventors testified that industry experts and Transocean’s customers were skeptical of the claimed feature due to fears of an adverse operational side-effect.

Regarding licensing, Transocean established its licenses to customers and competitors were due to the merits of the claimed invention. The court rejected Maersk’s contentions that Transocean’s licenses were attributable instead to the threat of litigation and were not tied to the asserted claims, citing Transocean’s assertions that the royalties exceeded any litigation costs. One party had paid a royalty of nearly $500,000 for one month of operations and at least three companies had taken licenses without any apparent threat of litigation.

Regarding the factor of long-felt but unsolved need, there was conflicting evidence but Transocean presented evidence that its technology satisfied a long-felt need for greater drilling efficiency, that the drilling industry had been operating in deep water since the 1970s, and that the industry tried another method that failed.

As to each of the seven factors, the court held, substantial evidence supported the jury’s finding. The court noted that it has rarely found objective evidence sufficient to overcome a prima facie case of obviousness but also that few cases present such extensive objective evidence of nonobviousness. This, the court held, “is precisely the sort of case where the objective evidence ‘establish[es] that an invention appearing to have been obvious in light of the prior art was not.’” (Citations omitted.) The court concluded that Maersk failed to prove by clear and convincing evidence that the asserted claims would have been obvious.

Interestingly, the court also reversed the trial court’s conditional grant of new trial, even after holding that that the jury had erred in finding the prior art lacked certain elements of the claims. (As discussed, the Federal Circuit had expressly found in the prior appeal that all claim elements appeared in two prior art references.) Because its prior finding was the law of the case, the court found, conducting a new trial would serve no purpose. The court rejected the trial court’s opinion that a new trial was needed because the jury’s findings on secondary considerations may have been tainted by the court’s failure to instruct the jury that the first three Graham factors already had been resolved in Maersk’s favor. “These were discrete and separate fact questions on the special verdict. There is no reason to think that because the jury erred on one such fact finding, the other, unrelated fact findings are somehow tainted.”

The court also reversed the trial judge’s other JMOL decisions in favor of Maersk for lack of enablement and non-infringement. On the first issue, the court found substantial evidence supported the jury’s verdict that Maersk failed to prove that undue experimentation would be required. Regarding infringement, the district court relied on the fact that the initial design that Maersk had sold had been changed to avoid infringement. But the jury’s conclusion that what Maersk offered for sale and initially sold was infringing was supported by substantial evidence. The court noted that Maersk did not argue on appeal that the schematics in its contract were missing any of the limitations of the asserted claims.

Finally, the court reversed the trial court’s grant of JMOL on damages after the jury awarded Transocean $15 million. Maersk argued that amount, equal to the upfront royalty customers had paid for actual use of the invention, was too high because Maersk had only offered the feature and then modified its drill prior to delivery to avoid infringement. The court stated it was sympathetic with Maersk’s argument but could not conclude that the jury’s award lacked substantial evidence. The court cited Transocean’s model license that includes an upfront fee of $15 million and a 5% running royalty when the licensee operates the rig where Transocean has patents; the fact that several companies had accepted these terms; and testimony that Transocean offered competitors such as Maersk less favorable terms than its other customers.