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Mentor Graphics Corporation v. EVE-USA, Inc.

United States Court of Appeals, Federal Circuit

March 16, 2017

MENTOR GRAPHICS CORPORATION, AN OREGON CORPORATION, Plaintiff- Cross-Appellant
v.
EVE-USA, INC., A DELAWARE CORPORATION, SYNOPSYS EMULATION AND VERIFICATIONS.A.S., FORMED UNDER THE LAWS OF FRANCE, SYNOPSYS, INC., A DELAWARE CORPORATION, Defendants-Appellants

         Appeals from the United States District Court for the District of Oregon in Nos. 3:10-cv-00954-MO, 3:12-cv-01500-MO, 3:13-cv-00579-MO, Judge Michael W. Mosman.

          Mark E. Miller, O'Melveny & Myers LLP, San Francisco, CA, argued for plaintiff-cross-appellant. Also represented by Anne E. Huffsmith, Luann Loraine Simmons.

          E. Joshua Rosenkranz, Orrick, Herrington & Sut-cliffe LLP, New York, NY, argued for defendants-appellants. Also represented by Daniel A. Rubens,

          Andrew D. Silverman; Robert M. Loeb, Eric Shumsky, Washington, DC; Indra Neel Chatterjee, Vicki L. Feeman, Travis Jensen, Scott T. Lonardo, Menlo Park, CA; William H. Wright, Los Angeles, CA.

          Sean C. Cunningham, DLA Piper LLP (US), San Diego, CA, for amici curiae Hewlett-Packard Company, Aruba Networks, Inc., NETGEAR, Inc., Newegg Inc., Oracle America, Inc., Ruckus Wireless, Inc., Safeway Inc., SAS Institute Inc., Varian Medical Systems, Inc., Veri-Fone, Inc., VIZIO, Inc.

          Before Lourie, Moore, and Chen, Circuit Judges.

          Moore, Circuit Judge.

         The present appeal arises from litigation in the District of Oregon between Mentor Graphics Corp. ("Mentor") and Synopsys, Inc., Synopsys Emulation and Verification S.A.S., and EVE-USA, Inc. ("EVE") (collectively, "Synop-sys").[1] Mentor asserted several patents against Synopsys, including U.S. Patent Nos. 6, 240, 376 ("the '376 patent"), 6, 947, 882 ("the '882 patent"), 6, 009, 531 ("the '531 patent"), and 5, 649, 176 ("the '176 patent"). Synopsys asserted two patents against Mentor-U.S. Patent Nos. 6, 132, 109 ("the '109 patent") and 7, 069, 526 ("the '526 patent").

         The '376 patent was the only patent tried to the jury. Prior to trial, the district court granted summary judgment barring Synopsys from challenging the '376 patent's validity because of assignor estoppel. It also granted Synopsys' motion in limine precluding Mentor from introducing evidence of willful infringement. The jury found in favor of Mentor and found damages of approximately $36, 000, 000. Synopsys appeals the infringement verdict, the damages award, and the summary judgment of assignor estoppel. Mentor cross-appeals the motion in limine regarding willfulness.

         The district court granted summary judgment on the remaining patents prior to trial. It held that Synopsys' '109 patent was indefinite and Synopsys' '526 patent lacked patent-eligible subject matter. Synopsys appeals both decisions. The district court also held that the claims of Mentor's '882 patent lacked written description support and its infringement allegations relating to the '531 and '176 patents were barred by claim preclusion. Mentor cross-appeals both decisions.

         We hold there was substantial evidence to support the jury's infringement verdict regarding the '376 patent and affirm the district court's denial of judgment as a matter of law. We affirm the damages award. We affirm the summary judgment that assignor estoppel bars Synopsys from challenging the validity of the '376 patent. We reverse the summary judgment that Synopsys' '109 patent is indefinite. We affirm the summary judgment that Synopsys' '526 patent lacks patent-eligible subject matter. We vacate the motion in limine precluding Mentor from presenting evidence of willful infringement. We reverse the summary judgment that Mentor's '882 patent lacks written description support. Finally, we reverse the summary judgment that Mentor's infringement allegations regarding the '531 and '176 patents are barred by claim preclusion.

         I. Background

         Every patent in this case involves simulation/emulation technology. The parties have a complicated litigation history, and only the relevant portions thereof are addressed here. In 1998, Mentor filed the application that would become the '376 patent. The two inventors, Dr. Alain Raynaud and Dr. Luc Burgun, were Mentor employees and assigned the invention to Mentor. Dr. Raynaud and Dr. Burgun subsequently left Mentor and founded EVE, with Dr. Burgun serving as president and CEO and Dr. Raynaud serving as a Technology Center Director. In 2006, Mentor sued EVE for infringement of the '376, '531, and '176 patents, alleging EVE's "ZeBu" emulation and verification system infringed the patents. Mentor and EVE settled prior to trial, and EVE obtained a license to the three patents. The license contained a provision terminating the license if EVE were acquired by another company in the emulation industry.

         In 2012, Mentor learned Synopsys was in discussions to acquire EVE. Mentor's CEO contacted his counterpart at Synopsys and offered to waive the confidentiality provision of the Mentor-EVE license to inform Synopsys that the license would terminate if Synopsys acquired EVE. Synopsys and EVE subsequently filed a declaratory judgment action, seeking a declaration that the '531, '176, and '376 patents were invalid and not infringed. One week later, Synopsys acquired EVE. Mentor answered the declaratory judgment complaint, adding counterclaims of willful infringement of the '531, '176, and '376 patents. Synopsys then amended its complaint to assert claims of infringement of the '526 and '109 patents against Mentor. The district court consolidated the suit with another involving Mentor's '882 patent.

         The parties appeal the various summary judgment and post-trial rulings. We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(1).

         II. Analysis

         A. Synopsys' Appeal

         1. Infringement of Mentor's '376 Patent

         The jury found Synopsys infringed claims 1, 24, and 26-28 of the '376 patent and awarded damages. Synopsys moved for JMOL that its products did not infringe. The district court denied the motion, and Synopsys appeals. We affirm the denial of JMOL.

         We apply the law of the regional circuit when reviewing a denial of JMOL after a jury verdict. In the Ninth Circuit, JMOL is appropriate only "if the evidence, construed in the light most favorable to the nonmoving party, permits only one reasonable conclusion, and that conclusion is contrary to the jury's verdict." Pavao v. Pagay, 307 F.3d 915, 918 (9th Cir. 2002).

         The '376 patent relates to debugging source code after synthesis. Synthesis is the process of transforming Hardware Description Language ("HDL") into gate-level "netlists." '376 patent at 1:26-27. Much of the patent's disclosure addresses Register Transfer Level ("RTL") source code, which is a subset of HDL. See id. at 1:27-31. The patent teaches that prior art HDL simulators were limited because a developer could only view the input and ultimate output of a netlist; there was no way to "step through" the intermediate gates. Id. at 2:1-17. Without the ability to measure intermediate values, "the ability to debug the design at the gate level [was] severely limited." Id. at 2:20-23. Additionally, to the extent intermediate signals could be measured, there was no way to map a value within a netlist to its corresponding RTL logic within the source code. Id. at 2:13-17.

         The '376 patent seeks to solve these problems by allowing developers to insert test probes at various stages of a netlist to monitor intermediate values. Id. at 2:30-39; Figs. 1, 2. The probe results are referred to as "instrumentation signals." Id. at 6:32-34. The system correlates instrumentation signals with corresponding portions of the RTL code and displays the results to a user. Id. at 2:30-34. Asserted claim 1 is representative:

1. A method comprising the steps of:
a) identifying at least one statement within a register transfer level (RTL) synthesizable source code; and
b) synthesizing the source code into a gate-level netlist including at least one instrumentation signal, wherein the instrumentation signal is indicative of an execution status of the at least one statement.

Id. at 15:1-8 (emphasis added).

         Mentor accused Synopsys' ZeBu emulators of infringing. The ZeBu emulators allow developers to insert "flexible probes" and "value-change probes" into a netlist. These probes measure values at various intermediate stages of a netlist. The ZeBu emulators output the test results to a waveform viewer. Mentor's expert Dr. Sar-rafzadeh testified that each probe signal shown in the waveform viewer identifies a portion of RTL by name, and the RTL name can be used to locate the corresponding source code.

         Synopsys argues it does not infringe because its ZeBu emulators do not "indicate" an RTL statement but rather merely provide the name of a block of RTL that a developer can use to locate corresponding code. It argues "you don't 'indicate' information by providing other data that might help you indirectly figure out the needed information." Synopsys Br. 32. We note at the outset that neither party asked the district court to construe "indica- tive, " and the parties agreed the plain and ordinary meaning of the term governs.[2] The question presented on appeal is whether there is substantial evidence for the jury verdict that the ZeBu infringed.

         We hold there was substantial evidence to support the jury's infringement verdict. A developer using the ZeBu emulator can create a test file called a "Tcl" file and input test probes into a netlist using the "probe signals" command. J.A. 43212. Dr. Sarrafzadeh testified that the probe signal command creates instrumentation signals when the simulation is run. J.A. 41127:12-41129:14. He then explained how a developer could use the simulation results to locate a particular line of RTL code corresponding to an instrumentation signal. He explained that the Tcl file identifies a particular line of RTL code by identifying the name of a block of code, and then a developer can use that name to locate the specific lines of corresponding RTL code. J.A. 41130:7-21. He testified that "you look at the name of the signal, on flexible probes, for example, and you associate that back to the RTL source." J.A. 42417:3-5; see J.A. 42423:10-18 ("Q: How do you know if you have tens of thousands of instrumentation signals, which signal corresponds to the RTL that you are looking at? A: Fantastic question. I look at the name of the signal. If the name is S, I go and look for it. If the name is S5, I will go and look for it. So based on the name of the signal, I will know, among millions of lines of code, which ones I'm talking about."); J.A. 42426:7-10 ("Q: How would you find a particular process? A: Same thing, by looking at, for example, the sensitivity list and using its name identifier, you know which process you are talking about."). This is substantial evidence to support the jury's finding that the instrumentation signal indicates at least one RTL statement.

         We affirm the district court's denial of JMOL.

         2. Assignor Estoppel of Mentor's '376 Patent

         Synopsys briefly challenges the district court's grant of summary judgment that it was barred from challenging the validity of the '376 patent because of assignor estoppel. Synopsys does not dispute that assignor estoppel applies to the facts of this case, but it argues the Supreme Court "demolished the doctrinal underpinnings of assignor estoppel in the decision that abolished the comparable licensee estoppel in Lear, Inc. v. Adkins, 395 U.S. 653 (1969)." Synopsys Br. 42. We disagree. In Diamond Scientific, we emphasized the continued vitality of the doctrine of assignor estoppel after Lear. Diamond Sci. Co. v. Ambico, Inc., 848 F.2d 1220, 1222-26 (Fed. Cir. 1988); see also MAG Aerospace Indus., Inc. v. B/E Aerospace, Inc., 816 F.3d 1374, 1380-81 (Fed. Cir. 2016). The district court's grant of summary judgment that assignor estoppel applies is affirmed.

         3. Damages for Synopsys' Infringement of Mentor's '376 Patent

         At trial, Mentor argued it was entitled to obtain lost profit damages for lost sales of its Veloce emulators resulting from Synopsys' infringing sales of its ZeBu emulators because Mentor would have made additional Veloce sales but for Synopsys' infringing ZeBu sales. The district court gave detailed instructions to the jury about the standard for awarding lost profits, including extensive discussion of each of the four Panduit factors. J.A. 164- 75. The jury ultimately awarded Mentor $36, 417, 661 in lost profits and another $242, 110.45 in reasonable royalties. J.A. 187. Synopsys appeals arguing that the damage award should be vacated because the district court failed to apportion the lost profits. We do not agree.

         The Patent Act provides: "the court shall award [the patent owner] damages adequate to compensate for the infringement but in no event less than a reasonable royalty for the use made of the invention by the infring-er." 35 U.S.C. § 284. Under the statute, "damages adequate to compensate" means "full compensation for any 'any damages' [the patent owner] suffered as a result of the infringement." Gen. Motors Corp. v. Devex Corp., 461 U.S. 648, 654-55 (1983). As the Supreme Court explained in Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U.S 476, 507 (1964) (plurality opinion), the statutory measure of damages is "the difference between [the patent owner's] pecuniary condition after the infringement, and what his condition would have been if the infringement had not occurred." The Court went on to distinguish between disgorgement of defendant's profits, which had been allowed prior to the 1946 statutory amendment, and the compensatory damages of § 284, which are defined as "compensation for pecuniary loss he (the patentee) has suffered from the infringement, without regard to the question whether the defendant has gained or lost by his unlawful acts." Id. (quoting Coupe v. Royer, 155 U.S. 565, 582 (1895)).[3] Section 284 damages "have been said to constitute 'the difference between his pecuniary condition after the infringement, and what his condition would have been if the infringement had not occurred.'" Id. (quoting Yale Lock Mfg. Co. v. Sargent, 117 U.S. 536, 552 (1886)). Put simply, "[t]he question to be asked in determining damages is 'how much had the Patent Holder and Licensee suffered by the infringement. And that question (is) primarily: had the Infringer not infringed, what would Patent Holder-Licensee have made?'" Id.

         Compensatory damages are a staple across most every area of law. And compensatory damages under the patent statute, which calls for damages adequate to compensate the plaintiff for its loss due to the defendant's infringement, should be treated no differently than the compensatory damages in other fields of law. See Livesay Window Co. v. Livesay Indus., Inc., 251 F.2d 469, 471 (5th Cir. 1958) ("To allow a patent owner to recover lost profits from an infringer is no unique treatment of this one type of wrongdoing, and [it] is essentially the same problem which inheres in other instances of an interference with a valuable business right."). Their form is fairly standard; "but for" some harmful act by a defendant, a plaintiff would be in a certain position. When a plaintiff proves it would have been in a certain position but for a defendant's harmful act, it is entitled to damages to put it in the same position it would have occupied had the harmful act never occurred. In breach of contract disputes, injured parties are awarded expectancy damages designed to replicate full performance of the contract. The goal of expectancy damages is to put the non-breaching party in the position it would have occupied but for the breach. See, e.g., Fifth Third Bank v. United States, 518 F.3d 1368, 1374 (Fed. Cir. 2008); California Fed. Bank v. United States, 395 F.3d 1263, 1267 (Fed. Cir. 2005); Glendale Fed. Bank, FSB v. United States, 239 F.3d 1374, 1380 (Fed. Cir. 2001). Similarly, under tort law, injured parties receive damages sufficient to put them in the same position they would have occupied had the injury never occurred. See, e.g., Cooper Indus., Inc. v. Leather-man Tool Grp., Inc., 532 U.S. 424, 432 (2001) ("[Compensatory damages] are intended to redress the concrete loss that the plaintiff has suffered by reason of the defendant's wrongful conduct."); Kansas v. Colorado, 533 U.S. 1, 13 (2001) (state against state tort); New York, L.E. & W.R. Co. v. Estill, 147 U.S. 591, 616-17 (1893) (business tort). The "but for" damages the patentee must establish in patent law, as the Supreme Court explained, are an answer to a simply stated question: "[H]ad the Infringer not infringed, what would the Patent Holder-Licensee have made?" Aro Mfg. Co., 377 U.S. at 507.

         There is no particular required method to prove but for causation. One "useful, but non-exclusive" method to establish the patentee's entitlement to lost profits is the Panduit test first articulated by the Sixth Circuit. Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1545 (Fed. Cir. 1995) (en banc) (citing Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152 (6th Cir. 1978)). When a patentee proves it would have made additional sales but for a defendant's infringement, the patentee is entitled to be made whole for the profits it proves it lost. See, e.g., Asetek Danmark A/S v. CMI USA Inc., 842 F.3d 1350, 1361 (Fed. Cir. 2016); Versata Software, Inc. v. SAP Am., Inc., 717 F.3d 1255, 1263-64 (Fed. Cir. 2013); Grain Processing Corp. v. Am. Maize-Prods. Co., 185 F.3d 1341, 1352-53 (Fed. Cir. 1999); Photo Elecs. Corp. v. England, 581 F.2d 772, 784 (9th Cir. 1978); Livesay Window, 251 F.2d at 471. The goal of lost profit damages is to place the patentee in the same position it would have occupied had there been no infringement.[4] In this regard, lost profit patent damages are no different than breach of contract or general tort damages. Thus, the fact finder's job is to determine what would the patent holder have made (what would his profits have been) if the infringer had not infringed.

         Under the Panduit test, a patentee is entitled to lost profit damages if it can establish four things:

(1) demand for the patented product;
(2) absence of acceptable non-infringing alternatives;
(3) manufacturing and marketing capability to exploit the ...

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