WESTERNGECO LLC, et al, Plaintiffs, VS. ION GEOPHYSICAL CORPORATION, et al, Defendants.
CIVIL ACTION NO. 4:09-CV-1827
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION
October 24, 2013
KEITH P. ELLISON
Pending before the Court is WesternGeco L.L.C.’s Motion for Supplemental Damages (Doc. No. 636), ION Geophysical Corporation’s Motion to Compel (Doc. No. 658), and WesternGeco L.L.C.’s Motion to Strike (Doc. No. 659). After considering the motions, all responses thereto, and the applicable law, the Court finds that WesternGeco L.L.C.’s Motion for Supplemental Damages must be GRANTED. WesternGeco L.L.C.’s Motion to Strike must be DENIED and ION Geophysical Corporation’s Motion to Compel must be GRANTED.
I. BACKGROUND
This is a patent infringement case originally brought by WesternGeco L.L.C. (“WesternGeco”) against ION Geophysical Corporation (“ION”). WesternGeco alleged that ION had infringed certain claims of U.S. Patent Nos. 7,293,520 (the “‘520 Patent”), 7,162,967 (the “‘967 Patent”), 7,080,607 (the “‘607 Patent”), and 6,691,038 (the “‘038 Patent”). These patents all pertain to streamer positioning devices used in marine seismic surveys. Streamers, essentially long cables deployed behind boats, create three-dimensional maps of the subsurface of the ocean floor with acoustic signals and sensors. Streamer positioning devices control the position of the streamer as it is towed in order to achieve optimal imagery from the signals and to
In a ruling on a summary judgment motion on June 29, 2012, the Court decided that ION had infringed claim 18 of WesternGeco’s ‘520 Patent under
ION’s CEO, Robert Peebler, testified under oath at trial that ION stopped selling the DigiFIN after the Court’s June 29, 2012 entry of summary judgment. On February 21, 2013, ION admitted that ION Dubai, a foreign subsidiary, had in fact continued sales. (See Doc No. 634 at 38.) Based on this information, the Court ordered ION to submit post-trial accounting, which revealed that “[t]he last sales information provided to [WesternGeco] prior to trial was for sales through May 2011.” (Doc. No. 620 at 3 (emphasis in original.))1 In its post-trial accounting, ION identified 1,353 sales since May 2011, some of which occurred before trial but were not presented to the jury and some of which occurred after trial. (Id. at 5-6.) The Court found that WesternGeco was entitled to supplemental damages for sales since May 2011, and ordered briefing. (Doc. No. 634 at 39.)
To assess supplemental damages, the Court must resolve (1) how many additional units infringed WesternGeco’s patents, (2) how to apply the jury’s award to those units, and (3) whether to impose an enhancement for willful conduct.
A. Additional Infringement
ION’s liability for any additional infringement must satisfy the requirements of
(1) Whoever without authority supplies or causes to be supplied in or from the United States all or a substantial portion of the components of a patented invention, where such components are uncombined in whole or in part, in such manner as to actively induce the combination of such components outside of the United States in a manner that would infringe the patent if such combination occurred within the United States… [and]
(2) Whoever without authority supplies or causes to be supplied in or from the United States any component of a patented invention that is especially made or especially adapted for use in the invention and not a staple article or commodity of commerce suitable for substantial noninfringing use, where such component is uncombined in whole or in part, knowing that such component is so made or adapted and intending
that such component will be combined outside of the United States in a manner that would infringe the patent if such combination occurred within the United States . . .
In this case, the parties agree on ION’s liability for 1,140 DigiFIN units, but another 617 units remain in dispute. These DigiFIN units can be subdivided into two helpful categories – those that were manufactured in the United States and those that were manufactured in Dubai.
1. DigiFINs Manufactured in the United States
ION sold and delivered 1,014 finished DigiFIN units prior to this Court’s entry of summary judgment that were nevertheless not included in the jury award. ION concedes liability for these units. (Doc. No. 644 at 11.)
In addition, ION shipped 483 finished DigiFIN units to itself in Norway on July 6, 2012. (Doc. No. 620 at 9.) ION transferred the DigiFIN units once more in September – this time to its facility in Dubai. (Id. at 10.) From Dubai, ION shipped 126 of these units to SOPGC, a buyer in China, according to a pre-existing contract. (Id.) After relocation, ION entered into a contract with BGP, another foreign buyer, for 70 units. (Id. at 11.) The remaining 287 units sit, unsold, in a warehouse in Dubai.2 (Doc. No. 644 at 5.) ION concedes that supplemental damages
ION argues that
ION has misinterpreted
Under [Section 271(f)(2)], the export of a specially designed knife that has no use other than as a part of a patented deveining machine would constitute infringement. It follows that § 271(f)(2) would cover the export of an inventory of such knives to be warehoused until used to complete the assembly of an infringing machine.
550 U.S. at 463 (Stevens, J., dissenting). The majority changed the facts of Justice Stevens’ explanation slightly to warehousing copies of the knife, but did not disagree with the premise that Section 271(f)(2) could be satisfied by the “export of an inventory of [components] to be warehoused.” Id. at 453 n.15.
ION is therefore liable under
Another 260 units were manufactured, to some degree, in Dubai and subsequently sold to Turkey and Cyprus.4 ION claims that these DigiFINs were manufactured and sold overseas, beyond the reach of United States patent laws. (Doc. No. 644 at 18.) ION admits, however, that these units were made in Dubai from parts, “all of [which] directly or indirectly came from the United States.” (Id. at 13.) Some of these parts were common to other non-infringing products, while some were unique to the DigiFIN. (Id.) None of these parts, according to ION, satisfies the “substantial portion” language of Section 271(f)(1) or the “component” language of Section 271(f)(2). (Id. at 20.) ION argues that WesternGeco cannot recover damages for these units since the supply of these parts did not constitute an act of infringement. (Id.)
WesternGeco disagrees. First, WesternGeco disputes the evidence of overseas manufacturing: “[n]o credible evidence exists that ION has actually moved its manufacturing to Dubai.” (Doc. No. 649 at 4.) WesternGeco points, for example, to ION’s own admission on March 1, 2013 that its facility in Dubai “is presently being renovated to permit the manufacture of DigiFINs,” suggesting that the facility is not operational. (Doc. No. 620 at 9; Doc. No. 636 at 7.) Second, WesternGeco argues that ION’s actions constitute infringement even if the finished DigiFINs are manufactured in Dubai. (Doc. No. 649 at 5.) WesternGeco claims that ION “merely accelerated its supply to predate its sale contracts.” (Id. at 6.) ION continues to infringe since it “supplied all of the components for its newest DigiFIN from the United States, including components ‘unique to the device.’” (Id.)
Based on the jury’s findings, as well as ION’s own admissions, liability is proper for the shipment of parts from the United States that are unique to the DigiFIN. Under
B. Calculation of Damages
Supplemental damages for ION’s continued infringement must be calculated consistently with the jury’s verdict. See Apple, Inc. v. Samsung Elec. Co., Ltd., 926 F. Supp. 2d 1100, 1106 (N.D. Cal. 2013). In this case, the jury awarded WesternGeco $93,400,000 for lost profits and $12,500,000 as reasonable royalty for 2,547 infringing DigiFINs. (Doc. No. 536 at 8.) The parties disagree over how to calculate the relevant rate of damages to be applied to the additional units of infringement. WesternGeco argues that the Court should use the ratio of the total damages to sales, totaling $41,578 per DigiFIN. (Doc. No. 636 at 11.) ION argues that the Court should use the ratio of the reasonable royalty award to sales, totaling $4,907.73 per unit. (Doc. No. 644 at 21.)
ION’s proposed solution of considering only the reasonable royalty would insufficiently compensate WesternGeco.
The Court finds that using the total amount of damages is more consistent with the jury’s award. WesternGeco’s approach of taking the average of the damages assessed by the jury (Doc. No. 649 at 7) is reasonable since the jury awarded lost profits for some acts of infringement and reasonable royalty for others (see Doc. No. 530 at 24). Most courts confronting supplemental damages are faced with only one form of damages. See, e.g., August Tech. Corp. v. Camtek, Ltd., 2010 WL 5560088 at *3-4 (D. Minn. Nov. 17 2010) (lost profits); Mondis Tech. Ltd. v. Chimei InnoLux Corp., 822 F. Supp. 2d 639, 643 (E.D. Tex. 2011) (royalty rate); Stryker Corp. v. Davol, Inc., 75 F. Supp. 2d 746, 747 (W.D. Mich. 1999) (royalty rate); Apple, 926 F. Supp. 2d at 1106 (lost profit or reasonable royalty depending on the product). In this case, the Court must extrapolate the jury’s award of lost profit damages and reasonable royalty to ensure consistency with the jury’s verdict and adequate compensation for WesternGeco. The jury’s award of $105,900,000 for 2,547 DigiFIN units suggests a reasonable supplemental damages award of $73,052,546 for 1,757 additional units.
C. Enhancement for Willful Violation
WesternGeco requests enhanced damages based on ION’s continued infringement. In a prior Order, this Court refused to impose enhanced damages after finding that ION reasonably relied on defenses presented at trial. (Doc. No. 634 at 24-28.) WesternGeco highlights 396 DigiFINs that were sold after the verdict – 126 units sold post-verdict to SOPGC, 70 units sold post-verdict to BGP, and 200 (now 260) units manufactured in Dubai from American parts and
To prove objective recklessness, WesternGeco must show by clear and convincing evidence that “[ION] acted despite an objectively high likelihood that its actions constituted infringement of a valid patent.” Bard Peripheral Vascular, Inc. v. W.L. Gore & Assoc., Inc., 682 F.3d 1003, 1005 (Fed. Cir. 2012). As discussed above, ION’s liability under Section 271(f) for these additional units arose when it supplied components abroad with the intent of future combination. When examining ION’s recklessness, the Court therefore considers the timing of the export rather than the timing of the sale.
ION exported all of the finished DigiFIN units in July 2012, after the summary judgment order but prior to the verdict. (Doc. No. 620 at 9.) At exportation, ION reasonably relied on the defenses that it would later present to the jury. (See Doc. No. 634 at 24-28.) The only question is whether its actions were objectively reckless on the heels of the Court’s summary judgment ruling that it had infringed claim 18 of the ‘520 patent. (See Doc. No. 372.) ION’s export of 70 units, subsequently sold to BGP, was not objectively reckless. ION reasonably relied on its argument that the relocation of inventory abroad, without a committed buyer in mind, is not an infringement. Although mistaken, this argument is not unreasonable. ION’s export of 126 units, subsequently delivered to SOPGC pursuant to a pre-existing contract, is more troubling to the Court. ION noted the arguments that it would have made but for their litigation decision to concede liability: “ION took the position it would not argue either that these units sold by ION INTERNATIONAL or their movement outside of the United States as part of ION INTERNATIONAL’s overall inventory relocation exempted them from an accounting.” (Doc.
ION exported DigiFIN parts before and after the verdict. (See Doc. No. 623-3.) Neither the summary judgment order nor the verdict considered the supply of parts, rather than finished DigiFIN units. The Court now decides that the supply of parts unique to the DigiFIN satisfies Section 271(f)(2)’s requirements, but ION’s contrary belief was not objectively baseless. As such, the shipment of unique DigiFIN parts after the verdict also does not support enhanced damages.
III. PERMANENT INJUNCTION
In light of the circumstances necessitating this Order, WesternGeco requests that the Court clarify the existing permanent injunction. The Court issued a permanent injunction in this case on June 19, 2013 based on the revelation after trial that ION continued to make and sell DigiFIN units. (Doc. No. 634 at 46.) The Court found that the “deeply troubling” misstatements at trial, the shipment of inventory abroad, and the SOPGC sale after trial weighed in favor of a permanent injunction. (Id.) WesternGeco now asks that the Court clarify that the injunction applies to “ION’s supply of DigiFIN components from the United States for assembly abroad” in order to target ION’s current practice of shipping DigiFIN parts to Dubai for manufacture and sale. (Doc. No. 636 at 16.) As explained above, the supply abroad of parts unique to the DigiFIN with the intent for future combination is an infringement under Section 271(f)(2). As such, ION’s supply of parts unique to the DigiFIN from the United States is hereby enjoined.
IV. MOTION TO COMPEL
WesternGeco brought a separate lawsuit against one of ION’s customers, Polarcus, for infringing the same patents at issue in this case. (Doc. No. 658, Ex. A.) WesternGeco alleged
ION moves to compel production of the complete agreement. (Doc. No. 658.) WesternGeco moves to strike ION’s Motion to Compel as repetitive of a prior post-trial motion. (Doc. No. 659.)
The Court finds that ION’s present Motion to Compel is distinct from its prior Motion to Compel. (Compare Doc. No. 609 with Doc. No. 658.) The two motions sought different documents pursuant to different rationales. Although the prior Motion to Compel was denied (Doc. No. 634 at 44), the Court considers the present Motion on its own merits. As such, WesternGeco’s Motion to Strike is denied.
ION argues that the Polarcus agreement should be discoverable as relevant to the number of infringing units. (Doc. No. 658 at 5.) Polarcus bought DigiFINs and Lateral Controllers from ION. (Doc. No. 658, Ex. A at 6.) In its complaint against Polarcus, WesternGeco claimed that it “was not compensated for some or all of [Polarcus’s] infringement as a result of the ION litigation.” (Id. at 7 (emphasis added.)) ION highlights the potential overlap between infringements covered by the ION verdict and the Polarcus agreement: “It appears from public information that WesternGeco is likely getting a double recovery in some respect because its
The Court agrees with ION that the effect of the agreement on the number of infringing units is far from clear and warrants discovery.
While the agreement is relevant to the number of DigiFINs requiring supplemental damages, it is not relevant to the rate of supplemental damages. ION argues that “the Polarcus license is directly relevant to WesternGeco’s request for supplemental damages, both for the number of DigiFINs subject to royalties, as well as the rate.” (Doc. No. 658 at 5 (emphasis in original.)) To the contrary, the Court’s assessment of supplemental damages applies the known jury verdict to the number of additional infringing units. The agreement has no relevance in this calculation beyond determining the number of units that warrant supplemental damages.
Accordingly, the Court orders production of the Polarcus agreement to outside counsel by Tuesday, October 29, 2013, for the limited purpose of determining whether the agreement includes a past release for infringements adjudicated at trial or included in the base for supplemental damages. ION must file any motion for a credit or remittitur, if necessary, within seven days of production. WesternGeco’s response will be due seven days after the submission of ION’s motion.
CONCLUSION
ION’s supply of an additional 1,757 infringing DigiFIN units from the United States, as both its finished form and its essential components, infringed WesternGeco’s patents. These acts of infringement were not before the jury, and require supplemental damages consistent with the jury’s verdict. The Court hereby awards WesternGeco $73,052,546 in supplemental damages.
IT IS SO ORDERED.
SIGNED at Houston, Texas, on this the 24th day of October, 2013.
KEITH P. ELLISON
UNITED STATES DISTRICT JUDGE