Lead Opinion
Opinion for the court filed by Circuit Judge PROST. Opinion dissenting in part filed by Circuit Judge MAYER.
Macke International Trade, Inc. (“Macke”) and Anthony O’Rourke appeal decisions of the United States District Court for the Central District of California granting judgment as a matter of law (“JMOL”) that O’Rourke was personally liable for inducing Macke’s infringement of U.S. Patent No. 5,636,592 (“the '592 patent”) owned by Lawrence I. Wechsler, Wechsler v. Macke Int’l Trade, Inc.,
I. BACKGROUND
Anthony O’Rourke is the president, lone stockholder, and sole employee of Macke, a company O’Rourke formed in 1991 to develop, manufacture, and market pet products. In early 1998, O’Rourke and a co-inventor developed a portable device for carrying and dispensing water for a pet, and filed a patent application on the device shortly thereafter. In late 1998, Macke began distributing this device under the name “Handi-Drink.”
In 1999, during the prosecution of his patent application on the Handi-Drink device, O’Rourke learned of the '592 patent, which had been issued to Wechsler in 1997. Rather than securing an opinion of counsel regarding the validity of the '592 patent, O’Rourke analyzed the '592 patent, the
On motions for summary judgment, the district court ruled that O’Rourke was not the alter ego of Macke and was not liable for infringement under 35 U.S.C. § 271(a). Wechsler I,
After a jury trial, the jury returned special verdicts finding that Macke and O’Rourke willfully infringed the '592 patent based on their becoming aware of the patent in April 1999 and continuing to sell the original Handi-Drink device until April 2000 (“Special Verdict No. 3”), but that O’Rourke was not personally liable for inducing Macke’s infringement (“Special Verdict No. 1”). Wechsler II,
Having found that Macke and O’Rourke infringed the '592 patent, the jury awarded Wechsler approximately $630,000 in lost profits and approximately $25,000 in reasonable royalties for the infringement. Macke and O’Rourke moved for JMOL setting aside the lost profit damages since Wechsler did not manufacture a product until after the Handi-Drink device was off the market. That motion was denied by the district court. Wechsler III,
This appeal followed. O’Rourke appeals the grant of JMOL that he is personally liable for inducing infringement of the '592 patent. Macke and O’Rourke appeal the denial of JMOL that the lost profit award was not supported by substantial evidence. Wechsler cross-appeals the grant of summary judgment that Macke is not O’Rourke’s alter ego. We have jurisdiction over each pursuant to 28 U.S.C. § 1295(a)(1).
II. DISCUSSION
A. Grant of JMOL that O’Rourke was Personally Liable for Infringement
O’Rourke appeals the district court’s grant of JMOL that he was personally liable, despite the jury’s special verdict that he was not. In granting JMOL, the district court determined that Special Verdict No. 1, i.e., that O’Rourke was not personally liable for inducing infringement, was inconsistent with Special Verdict No. 3, i.e., that the defendants willfully infringed the '592 patent. However, in reconciling these two special verdicts, the district court essentially discarded Special Verdict No. 1. O’Rourke contends this was error.
This court “applies the same standard of review as that applied by the trial court when reviewing a JMOL motion following a jury verdict.” nCube Corp. v. SeaChange Int’l, Inc.,
With regard to allegedly inconsistent jury verdicts, we also apply regional circuit law. EMI Group N. Am., Inc. v. Cypress Semiconductor Corp.,
Here, the district court did not hold that Special Verdict No. 1 was not supported by substantial evidence. Instead, the district court held that two special verdicts returned by the jury were inconsistent. After the being instructed that “[t]he defendants are Macke International Trade, Inc. [a]nd Anthony O’Rourke, referred to respectively as ‘Macke’ and ‘O’Rourke,’ ” the jury was asked:
1. Do you find that Mr. Wechsler has shown by a preponderance of the evidence that Mr. O’Rourke is personally liable for infringement of the ['592] patent?
“YES” is a finding for Mr. Wechsler. “NO” is a finding for Mr. O’Rourke.
3. Do you find by clear and convincing evidence that Defendants have willfully infringed based upon Defendants becoming aware of the content of the ['592] patent in April 1999 and then continuing to sell the original Handi-Drink?
“YES” is a finding for Mr. Wechsler. “NO” is a finding for Mr. O’Rourke.
(emphases added). The jury answered “NO” to the former question and ‘TES” to the latter. In light of these responses, the district court “recognize[d] that an inconsistency may arguably exist in the special verdicts returned by the jury, and that the Court ‘has a duty to reconcile the jury’s special verdict responses on any reasonable theory consistent with the evidence.’ ” Wechsler II,
In attempting to reconcile the verdicts, the district court essentially reversed the jury’s finding on Special Verdict No. 1. However, the district court did not find that the verdict was not supported by substantial evidence. Instead, the district court stated that “the record fully supports and makes reasonable the conclusion that the jury intended to find O’Rourke personally liable for infringing the '592 patent....” Wechsler II,
Under the district court’s logic, a person that incorporates him or herself to conduct business can never escape personal liability for willful infringement by the corporation. This is inconsistent with our case law. Unless the corporate structure is a sham, we have held that personal liability for inducement must be supported by personal culpability. Hoover Group, Inc. v. Custom Metalcraft, Inc.,
In fact, not only are the special verdicts not inconsistent, but giving meaning to both Special Verdicts Nos. 1 and 3 appears to be the most reasonable interpretation of them, given the instructions the district court gave to the jury. Before submitting the issues to the jury, the district court described Wechsler’s contentions to the jury as follows:
First, Wechsler contends that O’Rourke is personally liable for indirect infringement of the '592 patent by contributing to or encouraging others to directly infringe.
Second, Wechsler claims that he has suffered damages as a result of Macke’s infringement.
Third, Wechsler claims that Macke’s infringement of the '592 patent is willful, (emphases added). None of the jury instructions referenced O’Rourke directly infringing the '592 patent — the district court had already granted summary judgment that O’Rourke was not liable for direct infringement. Wechsler I,
Thus, rather than disregarding the jury’s explicit finding that O’Rourke was not personally liable for infringement of the '592 patent in Special Verdict No. 1, the district court should have interpreted the finding of willful infringement in Spe
B. Denial of JMOL Precluding Lost Profits
O’Rourke and Macke also appeal the district court’s denial of JMOL that the jury’s award of lost profit damages was not supported by substantial evidence. According to O’Rourke and Macke, lost profits should be unavailable to Wechsler as a matter of law since Wechsler lacked the ability to produce a product while the HandiDrink device was on the market.
“Whether lost profits are legally compensable in a particular situation is a question of law that we review de novo.” Poly-Am., L.P. v. GSE Lining Tech, Inc.,
According to the district court, Wechsler “presented substantial evidence of such but-for causation in the form of evidence of his development and sales of [his product] and the testimony of his expert,” and that “[t]he strength of that evidence was determined by the jury, and may not be reconsidered by the Court.” Wechsler III,
“Normally, if the patentee is not selling a product, by definition there can be no lost profits.” Rite-Hite,
Here, it is undisputed that Wechsler did not produce a product until April 2001, approximately one year after the period of infringement ended. Nonetheless, Wech-sler asserts that he had the capability to do so earlier, as evidenced by his later sales and the testimony of his expert. The evidence of later manufacturing and marketing, however, is not dispositive to the determination of whether the patentee had the ability to do so during the period of infringement. Only if it is indicative of the ability to manufacture and market the patented device during the period of infringement is it relevant.
In the present case, the record demonstrates that, despite his later success manufacturing and marketing a product, Wechsler lacked the capability to manufacture his device during the period of in
Wechsler’s expert’s testimony to the contrary does not change this fact. Wech-sler’s expert’s opinion that Wechsler had the capability to manufacture and market his device during the period of infringement was based solely on the fact that Wechsler manufactured and marketed his product after the period of infringement. As stated by Wechsler’s expert, “[w]e know Wechsler had the capacity to manufacture the product. As he described, he did manufacture the product at a later time.” However, as discussed above, later success in manufacturing a product does not necessarily indicate the ability to manufacture it at an earlier date. Here, the evidence clearly demonstrates that Wech-sler, due to delays at his factory, was unable to produce a product during the period of infringement.
Contrary to O’Rourke and Macke’s contention, however, this does not end our inquiry. Wechsler could still receive lost profit damages if Macke’s infringing sales preempted subsequent sales by Wechsler and/or eroded the market price Wechsler was able to charge for his product. See Lam, Inc. v. Johns-Manville Corp.,
C. Summary Judgment on Alter Ego Liability
Wechsler cross-appeals the district court’s grant of summary judgment that Macke was not the alter ego of O’Rourke. We review the grant of summary judgment de novo, drawing all reasonable factual inferences in favor of the non-moving party, in this case Wechsler. Anderson v. Liberty Lobby, Inc.,
Since the alter ego issue is not unique to patent law, we apply the law of the regional circuit. Insituform Techs., Inc. v. CAT Contracting, Inc.,
California courts generally treat the alter ego doctrine as a drastic remedy and disregard the corporate form only reluctantly and cautiously. See, e.g., Las Palmas Assocs. v. Las Palmas Ctr. Assocs.,
In arguing for piercing the corporate veil, Weehsler points out that O’Rourke is the sole shareholder, director, and officer of Macke. However, “the rule is well settled ... that the mere fact [an individual] owns all of the stock of another corporation is not of itself sufficient to cause the courts to disregard the corporate entity of the ... corporation and to treat it as the alter ego of the individual.” Carlesimo v. Schwebel,
In an attempt to show such bad faith, Weehsler argues that: (1) Macke was un-dercapitalized, (2) O’Rourke concentrated assets in himself and liabilities in Macke, (3) O’Rourke treated Macke’s assets as his own, (4) O’Rourke held himself out as liable for Macke’s debts, and (5) O’Rourke intended to use the corporate identity to defraud creditors. However, Wechsler’s allegations, taken either individually or collectively, fail to raise a genuine issue of material fact.
With regard to his argument that Macke is undercapitalized, Weehsler draws the court’s attention to Macke’s balance sheet. However, Macke’s balance sheet shows that Macke had significant assets in a bank account, positive net income, and no liabilities. Moreover, Weehsler has submitted no evidence that Macke ever failed to pay its bills or other debts. At best, Weehsler merely points out that Macke does not carry patent infringement liability insurance. Weehsler, however, does not demonstrate how this fact makes Macke undercapitalized. California law is clear that “it is incumbent upon the one seeking to pierce the corporate veil to show by evidence that the financial setup of the corporation is just a sham, and accomplishes injustice.” Id. at 493,
With regard to the allegation that O’Rourke held himself out as personally liable for Macke’s debts, Wechsler cites letters from the attorney for both O’Rourke and Macke to two of Macke’s customers offering to indemnify them in any potential patent infringement suit brought by Wechsler. These letters, however, do not specifically identify O’Rourke as the indemnitor. Instead, they identify the attorney’s “client,” which may refer to either O’Rourke or Macke, as the indem-nitor. According to O’Rourke, this was intended to identify Macke, not him. However, even if O’Rourke did offer to personally indemnify Macke’s customers, such an indemnification would make him liable for the customers’ debts, not Macke’s. As such, Wechsler’s argument that O’Rourke held himself out as liable for Macke’s debts is misguided.
Wechsler’s contention that O’Rourke manipulated corporate assets and liabilities so as to concentrate assets in himself and liabilities in the corporation is also off the mark. Wechsler bases this assertion on the fact that O’Rourke licensed, rather than assigned, his patents to Macke and that these licenses would terminate if Macke ever became insolvent. These, however, are common licensing terms, see Richard Levin & Glenn Walter, Bankruptcy and Licensing, 786 PLI/Pat 757, 765 (June 2004), and do not raise an issue of material fact as to whether O’Rourke and Macke are alter egos. Moreover, the argument that O’Rourke concentrated liabilities in the corporation is at odds with Wechsler’s previous argument that O’Rourke held himself out as personally liable for the corporation’s debts.
Wechsler’s contention that O’Rourke treated Macke’s assets as his own also falls short of raising a genuine issue of material fact. In support of his argument, Wechsler relies on the fact that two of Macke’s websites referred to Macke’s PETCREW® product line as “Anthony O’Rourke’s Petcrew.” However, this evidence does not establish that O’Rourke used corporate assets for his own benefit. To the contrary, by attaching O’Rourke’s name to Macke’s mark, Macke was the one being benefited — by taking advantage of O’Rourke’s reputation in the pet product industry.
Lastly, Wechsler’s contention that O’Rourke intended to use the corporate identity to defraud creditors also fails to raise an issue of material fact. According to Wechsler, during settlement negotiations, counsel for Macke and O’Rourke alluded to “reconfiguring [Macke] in anticipation of any adverse decision” in this case.
III. CONCLUSION
Because the district court improperly disregarded the jury’s special verdict, the district court’s grant of JMOL that O’Rourke was personally liable for inducing infringement by Macke is reversed. Because the jury’s award of lost profit damages was not supported by substantial evidence, the district court’s denial of JMOL on the issue of lost profits is also reversed. Lastly, because the district court correctly concluded that Wechsler had failed to raise an issue of material fact regarding alter ego liability, the district court’s grant of summary judgment that Macke is not the alter ego of O’Rourke is affirmed.
COSTS
No costs.
REVERSED-IN-PART AND AFFIRMED-IN-PART.
Notes
. Macke and O'Rourke contend that the letter containing this allusion to “reconfiguring [Macke] in anticipation of any adverse decision” is inadmissible under Fed.R.Evid. 408, which prohibits the use of certain evidence "when offered to prove liability for, invalidity of, or amount of a claim that was disputed as to validity or amount, or to impeach through a prior inconsistent statement or contradiction.” The district court appears to have held otherwise. See Wechsler I,
Dissenting Opinion
dissenting-in-part.
Because Wechsler has presented a valid legal theory founded on factual conclusions supported by substantial evidence, I dissent from the court’s reversal of the jury’s lost profits award.
“To recover lost profits damages, the patentee must show a reasonable probability that, ‘but for’ the infringement, it would have made the sales that were made by the infringer.” Rite-Hite Corp. v. Kelley Co.,
Here, Wechsler’s theory is premised upon diverted sales and price erosion, that Macke International Trade, Ine.’s (“Macke”) infringing sales displaced his ability to make those sales when he subsequently entered the market, and Macke’s lower-priced infringing goods eroded his ability to charge otherwise attainable higher prices. It is uncontested that Wechsler was not selling a competing product during the infringement period, but he was making preparations to enter the market during that period and then did enter the market less than a year later. As a matter of law, this is sufficient to entitle a patent owner to lost profits if proven. Cf. Rite-Hite Corp.,
Macke’s contention that a patent owner must be selling a competing product during the infringement period to recover lost profits is incorrect. Indeed, we previously have rejected such a contention. See Hebert,
Moreover, logic dictates that a patentee may still suffer lost profits despite an inability to manufacture during the infringement period. As Wechsler argues here, subsequent sales by the patentee may be preempted by the earlier infringing sales and those earlier infringing sales may also erode the market price. Accordingly, because Wechsler’s absence from the market and inability to enter the market during the infringement period is not a per se bar to recovering lost profits, our review is reduced to whether the jury’s presumed factual findings are supported by substantial evidence.
The jury was presented with expert testimony that Wechsler could have sold every infringing unit sold by Macke but for the infringement. The expert’s conclusion was premised on the lack of a suitable noninfringing alternative product and demand for the patented product. On appeal, Macke contends that its noninfring-ing product (the Handi-Drink 2), which was developed nearly one year after the current suit was filed, was a suitable alternative. Determining whether a nonin-fringing alternative was available during the infringement period and whether it was suitable are factual issues. See Grain Processing Corp. v. Am. Maize-Prods. Co.,
Here, Anthony O’Rourke, Macke’s president, testified that it took nearly one year to develop the Handi-Drink 2 and bring it to market. This testimony supports the jury’s presumed finding that it was not available during the infringing period. See Micro Chem., Inc. v. Lextron, Inc.,
Finally, Macke contends that Wechsler failed to prove the amount of damages he suffered. However, the jury was presented evidence on the amount of damages, including the pricing of similar goods on the market, the lack of suitable alternatives, Wechsler’s manufacturing costs, price erosion, and expert testimony concerning the calculation of damages. The jury presumably found this evidence credible. Accordingly, in light of the absence of