Funai Electric Co., Ltd. v. Daewoo Electronics Co., Ltd.

United States Court of Appeals
for the Federal Circuit
__________________________
FUNAI ELECTRIC COMPANY, LTD.,
Plaintiff-Cross Appellant,
v.
DAEWOO ELECTRONICS CORPORATION
AND DAEWOO ELECTRONICS AMERICA, INC.,
Defendants-Appellants,
and
DAEWOO ELECTRONICS COMPANY, LTD.,
DAEWOO ELECTRONICS CORPORATION OF
AMERICA, INC.
AND DAEWOO ELECTRIC MOTOR INDUSTRIES,
LTD.,
Defendants.
__________________________
2009-1225, -1244
__________________________
Appeal from the United States District Court for the
Northern District of California in Case No. 04-CV-01830,
Magistrate Judge Joseph C. Spero.
___________________________
Decided: September 1, 2010
___________________________
FUNAI ELECTRIC v. DAEWOO ELECTRONICS 2
MICHAEL J. LYONS, Morgan, Lewis & Bockius LLP, of
Palo Alto, California, argued for plaintiff-cross appellant.
With him on the brief were LORRAINE M. CASTO and HARRY
F. DORSCHER.
PERRY R. CLARK, Law Offices of Perry R. Clark, of Palo
Alto, California, argued for defendants-appellants. With
him on the brief were JENNY N. LEE and SARAH L. FORNEY,
Kirkland & Ellis LLP, of Palo Alto, California. Of counsel
were ZHUANJIA GU and AVINASH D. LELE.
__________________________
Before NEWMAN, LOURIE, AND LINN, Circuit Judges.
Opinion for court filed by Circuit Judge NEWMAN. Con-
curring Opinion filed by Circuit Judge LINN.
NEWMAN, Circuit Judge.
This appeal is taken from the final judgment of the
United States District Court for the Northern District of
California, on issues of patent infringement, validity, dam-
ages, and successor liability. 1 The district court’s judgment
1. Funai Electric Co. v. Daewoo Electronics Corp., No.
C-04-01830 JCS (N.D. Cal. Feb. 13, 2009) (unpublished)
(final judgment and injunction); Funai Electric Co. v. Dae-
woo Electronics Corp., 593 F. Supp. 2d 1088 (N.D. Cal. 2009)
(order on post-trial motions); Funai Electric Co. v. Daewoo
Electronics Corp., No. C 04-01830 JCS (N.D. Cal. July 22,
2008) (unpublished) (successor liability order); Funai Elec-
tric Co. v. Daewoo Electronics Corp., No. C 04-01830 JCS
(N.D. Cal. Nov. 26, 2007) (unpublished) (partial summary
judgment order); Funai Electric Co. v. Daewoo Electronics
Corp., No. C 04-01830 CRB, 2006 WL 3780715 (N.D. Cal.
Dec. 20, 2006) (partial summary judgment order); Funai
Electric Co. v. Daewoo Electronics Corp., No. C 04-01830
3 FUNAI ELECTRIC v. DAEWOO ELECTRONICS
as to the patent issues is affirmed. We reverse as to succes-
sor liability, and remand for further proceedings on this
issue.
BACKGROUND
In May 2004 Funai Electric Company, Ltd. (“Funai”)
filed suit against four Daewoo entities: Daewoo Electronics
Corporation (“DEC”), a corporation of South Korea, and its
predecessor Korean company Daewoo Electronics Company
Ltd. (“DECL”); and their United States subsidiaries Daewoo
Electronics America, Inc. (“DEAM”), a Florida Corporation,
and its predecessor Daewoo Electronics Company of Amer-
ica (“DECA”), a California corporation. The charge was
infringement of six United States patents owned by Funai
pertaining to various electrical and mechanical components
of video cassette players and recorders (“VCRs”). VCRs
convert information stored on video cassette tapes into
images displayed on a screen. The patented inventions are
described as improvements that lower the cost of producing
VCRs while maintaining product quality.
In early 2005 DECL and DECA ceased participating in
the litigation, presenting no defense and refusing discovery.
The district court entered default judgment against them
and, based on the evidence before the court, awarded Funai
$6,956,187 in damages for infringement by DECL and
DECA before October 25, 2002, plus attorney fees and costs
incurred as to these entities. The total award, including
prejudgment interest, was $8,066,112. No appeal was taken
from this award. However, DECL and DECA did not pay
the judgment. Funai then asserted, by amended complaint,
CRB, 2006 WL 6130993 (N.D. Cal. Mar. 1, 2006) (claim
construction).
FUNAI ELECTRIC v. DAEWOO ELECTRONICS 4
that the successor companies DEC (South Korea) and
DEAM (Florida) are liable for payment. The district court
reserved that issue until after trial on the merits.
The litigation proceeded as to DEC and DEAM (herein-
after together “Daewoo”). In various pre-trial proceedings
the district court narrowed the issues for trial. Thus the
court held, on summary judgment, that three of the six
patents were not infringed. The remaining three patents
were U.S. Patent No. 6,021,018 (“the ’018 patent”); No.
6,421,210 (“the ’210 patent”); and No. 6,064,538 (“the ’538
patent”). After a Markman hearing, the court granted
summary judgment that the ’018 and ’210 patents are not
literally infringed, but denied summary judgment as to
infringement under the doctrine of equivalents. The court
denied summary judgment on the question of infringement
of the ’538 patent, either literally or under the doctrine of
equivalents. The court also held, as a matter of law, that
the claims of the ’538 patent are not invalid on the ground of
indefiniteness. The remaining issues were set for trial to a
jury.
After a 14-day trial, the jury found that Daewoo will-
fully infringed the ’018 and ’210 patents under the doctrine
of equivalents, and willfully infringed the ’538 patent either
literally or under the doctrine of equivalents for infringing
acts occurring on and after October 25, 2002. The jury
awarded Funai $7,216,698 in damages as against DEC, of
which $2,298,590 was jointly assessed against DEC and
DEAM. In view of the verdict of willful infringement, the
court awarded Funai its attorney fees and expenses, but
declined to enhance the damages awarded by the jury. The
court entered a permanent injunction, and denied Daewoo’s
duly made post-trial motions.
5 FUNAI ELECTRIC v. DAEWOO ELECTRONICS
The district court then considered Funai’s request that
the damages that had been awarded against the defaulting
predecessor companies, DECL and DECA, be assessed
against their successor companies DEC and DEAM. The
court applied the law of South Korea as to successor liabil-
ity, and ruled that neither DEC nor DEAM is liable for the
judgment entered against their predecessors.
Daewoo appeals the aspects that were decided adversely
to it, viz., the issues of infringement, claim indefiniteness,
and damages. Funai cross-appeals the district court’s
refusal to enhance damages based on the jury’s willfulness
findings and the sanctioned attorney misconduct, and also
appeals the ruling as to successor liability.
I
THE ’018 PATENT
The ’018 patent, issued February 21, 2000, is entitled
“Loading Mechanism for a Video Cassette.” The claims are
directed to an improvement in the movement of the cassette
holder between an initial position and a play position, so
that the door of the cassette is opened before the cassette
holder is moved. This sequential motion allows the cassette
to be closer to the door without colliding, thus beneficially
reducing the overall size of the VCR. Claim 1 of the ’018
patent is as follows:
1. A loading mechanism for loading a video cassette
into a play position in a video cassette deck compris-
ing:
a door having an opening for receiving said
video cassette;
FUNAI ELECTRIC v. DAEWOO ELECTRONICS 6
a cassette holder, for holding said video cas-
sette at an initial position, and for moving said
video cassette between said initial position and a
play position while holding said video cassette;
a slide arm capable of sliding in parallel to an
insertion direction of said video cassette;
a holder drive gear for driving said cassette
holder via a gear mechanism so said cassette holder
is positioned in the initial position when said slide
arm is positioned at a first position, and is posi-
tioned in said play position when said slide arm is
positioned at a second position; and
a door arm for driving said door in accordance
with movement of said slide arm, so that when said
slide arm slides from said second position toward
said first position, said door arm opens said door
while said slide arm slides from the first position
towards a third position which is arranged between
said first and second positions, and said holder
drive gear starts to drive said cassette holder from
said play position towards said initial position after
said slide arm passes said third position so that said
door is opened before said cassette holder is moved
when said cassette holder is moved to said initial
position.
(Emphasis added to the aspects at issue for infringement.)
The accused Daewoo products are VCR decks and com-
bination TV/VCR and DVD/VCR decks, that include what is
called a “T-Mecha” loading mechanism. Witnesses ex-
plained the structure and operation of the patented mecha-
7 FUNAI ELECTRIC v. DAEWOO ELECTRONICS
nism and the Daewoo products. The district court granted
summary judgment that the “holder drive gear” limitation is
not literally met by the Daewoo products, and the jury found
that this limitation is met under the doctrine of equivalents.
The other disputed limitation was based on the “opened”
term, which was not presented to the jury because the
district court granted summary judgment that this limita-
tion is literally met. The jury found that claims 1-4 of the
’018 patent were infringed. Each side appeals those rulings
and findings adverse to it.
A. “Holder Drive Gear”
Funai appeals the summary judgment that claims 1-4 of
the ’018 patent are not literally infringed based on the
court’s “holder drive gear” interpretation, and Daewoo
appeals the summary judgment that the “opened” limitation
is literally met. The other limitations of these claims were
conceded by Daewoo to be embodied in its accused cassette
decks.
In the Daewoo products, when loading a cassette into a
T-Mecha deck, the cassette is placed in the cassette holder
in an “initial position” and thereafter is driven to a position,
called an “intermediate” position, from which a pin on the
cassette holder pushes the cassette downward about two
millimeters, to the play position. The Daewoo ejection
sequence is similar, but the actions occur in the reverse
order. During ejection of a cassette the pin is released,
allowing embedded springs to push the cassette upward
from the play position about two millimeters, whereupon it
arrives at the intermediate position as the door is opened.
While in the intermediate position, and before further
movement of the cassette holder to the initial position, the
door becomes fully opened.
FUNAI ELECTRIC v. DAEWOO ELECTRONICS 8
The district court ruled that the Daewoo cassette decks
could not be found to literally meet the claim limitation that
“said holder drive gear starts to drive said cassette holder
from said play position towards said initial position,” for in
the Daewoo decks “it is the slide arm cam’s release of the
pin that moves the holder from the play position.” Funai,
2006 WL 3780715, at *8. The court explained that in the
Daewoo products the release of the pin holding down the
video cassette, and the subsequent force of the springs
applied to the cassette upon the release of the pin, move the
cassette holder from the play position toward the initial
position. Since this action is not performed by the holder
drive gear, the court ruled by summary judgment that the
claims could not be found to be literally infringed.
On appeal Funai argues that the “holder drive gear”
limitation is literally met whenever the accused products
are not loaded with a cassette tape, at which time the pin
and springs are not implicated. However, the claims are
predicated on the presence of a cassette tape, for all of the
claims recite “loading,” “receiving,” “holding,” and “moving”
a video cassette. We affirm the district court’s ruling that
the “holder drive gear” limitation could not be found to be
literally met, negating literal infringement of claims 1-4 of
the ’018 patent.
B. “Opened”
The jury found infringement of claims 1-4 of the ’018
patent in terms of the doctrine of equivalents. The only
claim limitation presented for jury consideration of equiva-
lency was the holder drive gear. Daewoo does not challenge
the jury’s finding of equivalency of the holder drive gear.
However, Daewoo argues that the district court erred in its
determination on summary judgment that the “opened”
limitation was literally infringed, and that infringement
9 FUNAI ELECTRIC v. DAEWOO ELECTRONICS
under the doctrine of equivalents cannot be found because of
prosecution history estoppel as to the “opened” limitation.
Daewoo argues that the court erred as to the “opened”
limitation by focusing only on the status of the door upon
movement of the cassette holder to the initial position,
without also accounting for the claim’s requirement that the
VCR door is opened before the cassette holder moves from
the play position. Daewoo states that in its VCRs the door
is opened only after the cassette holder has moved two
millimeters. The district court held that: “It does not matter
that the door does not move before the holder shifts from the
play position to the intermediate position. The critical
point, not disputed by the parties, is that when the holder is
moved towards the initial position from the intermediate
position, the door has already begun its opening motion.”
Funai, 2006 WL 3780715, at *8. Funai states that the
district court correctly construed the “opened” limitation to
mean “moved from a closed position such that the door has
cleared the cassette so that ejecting the cassette will not
interfere with the door.” Funai, 2006 WL 6130993, at *7.
We agree that this claim construction is correct, for it is as
described in the specification. This construction, and the
summary judgment based thereon, have not been shown to
be in error. The court’s ruling that the “opened” limitation
is literally met by the accused products is sustained. On the
entirety of the claim, the jury verdict of infringement is
supported by substantial evidence, and is affirmed.
II
THE ’210 PATENT
The ’210 patent, issued July 16, 2002, is entitled
“Mechanism for Preventing Propagation of Driving Motor
Noise and Vibration on a Tape Deck, and Tape Deck Having
FUNAI ELECTRIC v. DAEWOO ELECTRONICS 10
the Same.” Claims 1, 2, 4-7, 9, and 10 were asserted by
Funai. Claims 1 and 5 are representative:
1. A mechanism for preventing propagation of driv-
ing motor noise and vibration on a tape deck, com-
prising:
a deck chassis, a pinch roller and a capstan
axis for conveying a tape, a motor which is mounted
on said deck chassis for driving said capstan axis, a
cylinder drum which is mounted on said deck chas-
sis and provided with a head for magnetic-recording
and playing on the tape;
said motor being a direct driving motor in
which a motor shaft is directly coupled to the cap-
stan axis, and which is controlled by current switch-
ing;
said motor being electrically insulated from
said deck chassis;
said direct driving motor controlled by a pulse
width modulation (PWM) control; and
said direct driving motor including a rotational
axis as a capstan axis, a rotor which is mounted on
said rotational axis, a stator core which is wounded
by a coil being supplied PWM control current and
faces to said rotor, and a bearing holder which holds
said stator core and supports said rotational axis,
and said direct driving motor is mounted through
said bearing holder on the deck chassis;
wherein said bearing holder is made of an insu-
lating material.
11 FUNAI ELECTRIC v. DAEWOO ELECTRONICS
5. A mechanism for preventing propagation of driv-
ing motor noise and vibration on a tape deck com-
prising a deck chassis, a pinch roller and a capstan
axis for conveying a tape, a motor which is mounted
on said deck chassis for driving said capstan axis,
and a cylinder drum which is mounted on said deck
chassis and provided with a head for magnetic-
recording and playing on the tape:
wherein said motor is a direct driving motor in
which a motor shaft is directly coupled to the cap-
stan axis, and which is controlled by current switch-
ing;
wherein said motor comprises a rotational axis
as a capstan axis, a rotor which is mounted in said
rotational axis, a stator core which is wound by a
coil being supplied switching control current and
faces to said rotor, a bearing holder which is made
of an insulating material for holding said stator core
and supporting said rotational axis, and a motor
PCB (printed circuit board) which is supported by
said bearing holder and on which circuit elements
for controlling the motor are mounted, and wherein
said motor is secured on the deck chassis through
the bearing holder; and,
wherein said motor PCB is held in close to
where the bearing holder is mounted on the deck
chassis, and supported by a supporting member in
an electrically insulating state at a distance from
where the motor PCB is held.
FUNAI ELECTRIC v. DAEWOO ELECTRONICS 12
(Emphasis added to the term at issue on this appeal.) The
only disputed aspect for the ’210 patent relates to the insu-
lating material. The district court ruled on summary judg-
ment that there was not literal infringement as to this
limitation, and the issue of equivalency was given to the
jury. Funai contends that the district court erred in ruling
on summary judgment that this element was not literally
infringed, and Daewoo challenges the court’s definition of
“insulating material” and argues that prosecution history
estoppel bars infringement under the doctrine of equiva-
lents.
A. “Insulating Material”
The district court construed “insulating material” as fol-
lows:
a material with poor electrical conduction that acts
to suppress switching noise generated by a pulse
width modulation control of the direct driving mo-
tor, thereby suppressing the video screen and audio
noise caused by electrical noise produced by the
capstan motor.
Daewoo argues that the court’s definition of insulating
material as a material having “poor electrical conduction”
renders the claim construction fatally flawed because it
improperly uses comparative language. Daewoo states that
the district court in its claim construction merely replaced
one vague term (“insulating”) with an even vaguer term
(“poor electrical conduction”). Daewoo argues that the word
“poor” is a comparative term, raising but not answering the
question of “poor relative to what?” Daewoo states that an
adequate definition of “insulating material” requires a
numerical resistivity limit, such as 107 ohm-cm or greater,
13 FUNAI ELECTRIC v. DAEWOO ELECTRONICS
which corresponds to the resistivity of materials illustrated
in the ’210 specification, in order to provide certainty and
clarity to the claims. Funai responds that “poor electrical
conduction” adequately describes the insulating material
used in this context, and that a person of ordinary skill in
the field of insulating motors and reading the specification
would have no trouble understanding what is covered by the
claim.
Daewoo also argues that the district court’s further de-
scription of “insulating material” as a material that “acts to
suppress switching noise generated by a pulse width modu-
lation control of the direct driving motor” is “functional” and
therefore “circular,” and thus improper. In response Funai
points to the specification’s statement that the insulating
material suppresses such noise, as supporting the court’s
construction.
The use of comparative and functional language to con-
strue and explain a claim term is not improper. A descrip-
tion of what a component does may add clarity and
understanding to the meaning and scope of the claim. The
criterion is whether the explanation aids the court and the
jury in understanding the term as it is used in the claimed
invention. There was evidence in the district court that
persons experienced in this field would understand this
description of the insulating material, in the context in
which it is used, as a poor electrical conductor serving the
function set forth in the claim. No error can be attributed to
this use of comparative and functional explanation in con-
struing these claims.
B. Literal Infringement
The district court granted summary judgment that
Daewoo’s VCR products did not use an “insulating mate-
FUNAI ELECTRIC v. DAEWOO ELECTRONICS 14
rial,” and thus that the asserted claims of the ’210 patent
could not be found to be literally infringed. Funai chal-
lenges this determination, stating that there was a disputed
factual question of whether the Daewoo material was “insu-
lating” in terms of the insulating requirements of the pat-
ented invention.
The ’210 patent illustrates using a resin as an insulat-
ing material. The Funai products use a polycarbonate resin
having the brand name Lexan®. The accused Daewoo
products also use a Lexan® polycarbonate resin, but Dae-
woo’s expert testified that the Daewoo material is a “filled”
resin containing 8% carbon fibers. Funai, No. C 04-01830
JCS, at 32 (N.D. Cal. Nov. 26, 2007) (unpublished) (quoting
declaration of Daewoo’s expert). The Daewoo expert stated
that the carbon fibers increase the thermal and electrical
conductivity of the material, making it conductive, not
insulating. The Daewoo expert testified that Daewoo chose
the filled polycarbonate for its ability to dissipate static,
stating that this property is consistent with being a conduc-
tor and inconsistent with being an insulator. Id. at 33.
Funai argues that the Daewoo Lexan® polycarbonate is still
92% an insulating resin, and that this property is not lost
despite the 8% carbon filler.
On cross-examination, Daewoo’s expert acknowledged
that the Daewoo polycarbonate resin is between 1 million
and 100 million times more resistive (that is, less conduc-
tive) than metal. Daewoo argues that this does not prove
that its product is an insulating material; it merely indi-
cates that the product is substantially less conductive than
metal. Funai responds that this admission would have
permitted a reasonable jury to find that the Daewoo filled
polycarbonate serves as an insulating material as taught in
the ’210 patent, and therefore that summary judgment of
no literal infringement was inappropriate. Funai points to
15 FUNAI ELECTRIC v. DAEWOO ELECTRONICS
other evidence that Funai states could support a jury ver-
dict of literal infringement, citing a National Science Foun-
dation Project article that was introduced by Daewoo’s
expert, which describes materials with resistivities in the
range of 102 to 101 ohm-cm—which range includes Daewoo’s
polycarbonate material—as “used for slightly electrical
conducting applications.” Funai states that this shows that
the Daewoo material is sufficiently insulating to serve the
functions set forth in the ’210 patent, and that a reasonable
jury could have so found.
On the issue of literal infringement, the district court
stated on summary judgment that Funai “failed to produce
any evidence that one of ordinary skill in the art would
consider Daewoo’s bearing holders to be made of material
with ‘poor electrical conduction.’” Id. at 34. This appears to
be inaccurate, for the evidence adduced on cross-
examination, and the National Science Foundation Report
designating the specific Daewoo Lexan® as “slightly con-
ducting,” support the characterization of “poor electrical
conduction” when viewed favorably to the party opposing
summary judgment. See Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 248-49 (1986) (summary judgment should be
granted only when there is no genuine issue of material
fact). However, even if summary judgment were improvi-
dently granted as to this question, the issue of infringement
is decided by the doctrine of equivalents, as we next discuss.
For that reason, a trial of literal infringement is unwar-
ranted. 2
2. Daewoo has moved to strike sixteen pages of Funai’s
cross-appeal reply brief, discussing literal infringement of
the ’018 patent and the ’210 patent. Funai objects, stating
that the issues of literal infringement are properly part of
the cross-appeal because they were decided adversely to
Funai. We acknowledge that there can arise procedural
uncertainty as to whether a particular issue is properly
FUNAI ELECTRIC v. DAEWOO ELECTRONICS 16
C. Infringement by Equivalents
Infringement of the ’210 patent under the doctrine of
equivalents was tried to the jury, with evidence and argu-
ment on the equivalency of the insulating material used by
Daewoo. Daewoo does not contest the jury’s finding of
equivalency. Instead, Daewoo argued in the district court,
and repeats on this appeal, that it was legal error to have
permitted the question of equivalency to be tried, because
infringement by equivalents is precluded by prosecution
history estoppel. Daewoo contends that in accordance with
Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co., 535
U.S. 722 (2002), and this court’s implementing precedent in
Honeywell International Inc. v. Hamilton Sundstrand Corp.,
370 F.3d 1131 (Fed. Cir. 2004), there arose a presumption of
estoppel that has not been rebutted. The district court
denied summary judgment on this ground, stating that
prosecution history estoppel does not apply because the
insulating material limitation was not a ground of prosecu-
tion rejection.
Issues of prosecution history estoppel are resolved as a
matter of law, and receive plenary review on appeal. Festo
Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co., 344 F.3d
1359, 1367-68 (Fed. Cir. 2003) (en banc, on remand). In
determining whether an estoppel arose, and the scope of the
estoppel, the analysis focuses on the claims as originally
filed, the amendments made, and the reasons therefor. The
original claims here relevant are:
1. A mechanism for preventing propagation of driv-
ing motor noise and vibration on a tape deck com-
presented as an alternative reason for supporting the judg-
ment, or by cross-appeal when, as here, the cross-appellant
states that the issue has independent consequences. The
motion to strike is denied.
17 FUNAI ELECTRIC v. DAEWOO ELECTRONICS
prising a deck chassis, a pinch roller and a capstan
axis for conveying a tape, a motor which is mounted
on said deck chassis for driving said capstan axis,
and a cylinder drum which is mounted on said deck
chassis and provided with a head for magnetic-
recording and playing on the tape:
wherein said motor is a direct driving motor in
which a motor shaft is directly coupled to the cap-
stan axis, and which is controlled by current switch-
ing; and,
wherein said motor is electrically insulated from
said deck chassis.
2. The mechanism for preventing propagation of
driving motor noise and vibration on a tape deck ac-
cording to claim 1, wherein said direct driving motor
is controlled by a pulse width modulation (PWM)
control.
4. The mechanism for preventing propagation of
driving motor noise and vibration on a tape deck ac-
cording to claim 2, wherein said direct driving motor
comprises a rotational axis as a capstan axis, a rotor
which is mounted on said rotational axis, a stator
core which is wound[] by a coil being supplied PWM
control current and faces to said rotor, and a bear-
ing holder which holds said stator core and supports
said rotational axis, and said direct driving motor is
mounted through said bearing holder on the deck
chassis:
FUNAI ELECTRIC v. DAEWOO ELECTRONICS 18
wherein said bearing holder is made of an insu-
lating material.
5. The mechanism for preventing propagation of
driving motor noise and vibration on a tape deck ac-
cording to claim 2, wherein said cylinder drum is
mounted on said deck chassis through an insulator.
Application Ser. No. 09/560,726, filed on Apr. 28, 2000.
Funai states that the district court correctly held no es-
toppel existed with respect to equivalency of the “insulating
material” element of the claims, for this aspect was unre-
lated to or “merely tangential” to the prosecution. In Festo,
535 U.S. at 741, the Court stated:
There are some cases, however, where the amend-
ment cannot reasonably be viewed as surrendering
a particular equivalent. . . . “[T]he rationale under-
lying the amendment may bear no more than a tan-
gential relation to the equivalent in question; . . . .
In those cases the patentee can overcome the pre-
sumption that prosecution history estoppel bars a
finding of equivalence.
Funai states that any presumptive estoppel was overcome.
Funai also points out that issued claim 5 was not amended
at all during prosecution, and states that any presumptive
estoppel does not apply to claim 5.
The district court reviewed the prosecution history,
wherein the examiner rejected, on the ground of obvious-
ness, original claims 1-3 and 6 based on U.S. Patent
6,147,833 to Watanabe in view of U.S. Patent 3,881,188 to
Zenzefilis. In rejecting claims 1 and 2, the examiner stated:
19 FUNAI ELECTRIC v. DAEWOO ELECTRONICS
Watanabe does not show the motor electrically insu-
lated from the deck chassis. This feature is taught
by Zenzefilis ([rubber mounting blocks] 126; Figure
3). It would have been obvious to one of ordinary
skill in the art at the time the invention was made
to electrically insulate the motor of Watanabe on
the deck chassis as taught by Zenzefilis. The ra-
tionale is as follows: One of ordinary skill in the art
at the time of the invention would have been moti-
vated to electrically insulate the driving motor of
Watanabe as taught by Zenzefilis in order to reduce
the switching noise that contains frequency ele-
ments of a video band and a sound band so that
video screen noise and audio noise is decreased.
’210 application, Office Action of Jan. 3, 2002. The exam-
iner stated that original claim 4, and other claims that had
not been rejected, would be allowed. The applicant pre-
sented no argument, simply cancelled the rejected claims,
and rewrote claim 4 in independent form. Claim 4 then
issued as claim 1 of the ’210 patent.
Daewoo argues that the cancellation of claims 1 and 2
raised the presumption of surrender of the entire scope
between claim 4 and claims 1 and 2, whether or not that
scope had been involved in any specific rejection or argu-
ment. Daewoo cites Honeywell, 370 F.3d at 1141, for its
holding that: “A presumption of surrender . . . arises if
rewriting the dependent claims into independent form,
along with canceling the original independent claims, con-
stitutes a narrowing amendment.” Funai argues that the
cancellation of claims 1 and 2 cannot be deemed a narrow-
ing amendment as to the nature of the insulating material,
and its conductivity, for there was no rejection and no issue
concerning the nature of the insulating material or its
FUNAI ELECTRIC v. DAEWOO ELECTRONICS 20
conductivity. Funai states that the examiner’s Wata-
nabe/Zenzefilis rejection focused on whether there was any
electrical insulation at all, and that the same description of
the insulation appears in original claim 4. Funai argues
that patentability of claim 4 clearly was based on the other
limitations of claim 4.
It is apparent that the nature of the insulating material
was not a factor in the allowance of claim 4, for this aspect
was not at issue during prosecution. This limitation is in
the category that the Court called “merely tangential” to the
prosecution, as discussed in Festo. Thus the district court
correctly held that the cancellation of claims 1 and 2 did not
surrender access to equivalency with respect to the insulat-
ing material. The district court appropriately tried the
question of equivalency to the jury. Absent estoppel, Dae-
woo does not challenge that substantial evidence supports
the jury’s finding of infringement by equivalents. That
judgment is affirmed.
III
THE ’538 PATENT
The ’538 patent, issued May 16, 2000 for a “Bias-
ing/Erasing Oscillation Circuit for Magnetic Tape Recording
Apparatus,” relates to the oscillation circuit for magnetic
erasing heads in a VCR. Magnetic heads have electrical
coils that read the magnetic information on a video cassette
tape and transmit an electrical signal that erases the infor-
mation stored on the tape. In the prior art, these erasing
signals were generated by a separate transformer. The ’538
patent describes a circuit that eliminates the need for a
separate transformer, by using the electrical coils them-
selves to generate the signal that erases information on the
21 FUNAI ELECTRIC v. DAEWOO ELECTRONICS
tape. By eliminating the transformer, VCR manufacturing
costs are reduced and reliability is improved.
The district court construed the claims, and the jury
found that claims 1 and 3-5 were willfully infringed by
Daewoo, either literally or under the doctrine of equivalents.
The finding of infringement is not appealed insofar as it is
based on the district court’s claim construction. However,
Daewoo challenges the correctness of the claim construction.
Daewoo also does not appeal the jury’s verdict that the
claims are not invalid on the ground of obviousness, but
challenges the district court’s ruling that the claims comply
with the definiteness requirement of 35 U.S.C. §112 ¶2.
The claims at issue for the ’538 patent are as follows:
1. A biasing/erasing oscillator in a magnetic tape
recording apparatus having an entire width erasing
head for erasing signals recorded in an azimuth
track, or the azimuth track and a linear track, of a
magnetic tape, and a linear record erasing head for
erasing signals recorded in the linear track of the
magnetic tape, comprising:
a series circuit connecting in series through a
series junction point at least between said linear re-
cord erasing head and one of said entire-width eras-
ing head and an inductance element;
an oscillating capacitor connected in parallel
with said series circuit;
a transistor having a collector and a base and
having an emitter connected to said series junction
point;
FUNAI ELECTRIC v. DAEWOO ELECTRONICS 22
a direct current blocking capacitor connected
between one end of said series circuit and said base;
and
a bias resistor for providing a bias voltage to
said base.
3. An oscillator according to claim 1, wherein said
inductance element is an inductor.
4. An oscillator according to claim 3, wherein said
series circuit includes two erasing heads of said en-
tire-width erasing head and said linear record eras-
ing head and said inductor, said series junction
point is a junction point between said two erasing
heads and said inductor.
5. A biasing/erasing oscillator in a magnetic tape
recording apparatus having an entire width erasing
head for erasing signals recorded in an azimuth
track, or the azimuth track and a linear track, of a
magnetic tape, and a linear record erasing head for
erasing signals recorded in the linear track of the
magnetic tape, comprising:
a series circuit connecting in series through a
series junction point said entire-width erasing head
and said linear record erasing head;
an oscillating capacitor connected in parallel
with said series circuit;
23 FUNAI ELECTRIC v. DAEWOO ELECTRONICS
a transistor having a collector and a base and
having an emitter connected to said series junction
point;
a direct current blocking capacitor connected
between one end of said series circuit and said base;
and
biasing means providing a bias voltage to said
base.
A. Infringement
Daewoo states that the jury’s finding of infringement
was due to the district court’s erroneous claim construction.
Referring to the requirement in claim 5 of “a series circuit
connecting in series through a series junction point said
entire-width erasing head and said linear record erasing
head,” Daewoo argues that the district court incorrectly
construed the “series circuit” limitation by “vitiating” the
phrase “through a series junction point.” The question is
whether the claim requires that the series junction point
must lie between the erasing heads, or whether the claim is
met when the series circuit includes a series junction point
that is not between the heads. The district court construed
the claims, stating that “[t]he claim language does not
require that the series junction point must be between the
two heads, but only that all three must be in series.” (Em-
phasis in original). The court referred to the specification,
and observed that Figure 2 of the patent shows the series
junction point located between the two erasing heads, and
Figure 5 shows a series junction point that is not located
between the two erasing heads.
FUNAI ELECTRIC v. DAEWOO ELECTRONICS 24
Daewoo argues that the claim requires that the series
junction point lies between the two erasing heads. The
district court stated that Daewoo’s argument is an “at-
tempt[] to limit the claim to a preferred embodiment, even
though this limitation is not found in the language of claim
5.” We affirm the district court’s claim construction, for it is
in accordance with the specification including the drawings,
whereas Daewoo’s construction would exclude the embodi-
ment in Figure 5. See, e.g., Hoechst Celanese Corp. v. BP
Chems. Ltd., 78 F.3d 1575, 1581 (Fed. Cir. 1996) (a claim
construction that excludes a preferred embodiment is rarely,
if ever, correct).
On the district court’s construction of the claims, the
jury verdict of infringement is not challenged on appeal.
B. Validity
Daewoo argues that claims 1, 3, and 4 are invalid for
failure to meet the claim definiteness requirements of 35
U.S.C. §112 ¶2. The jury did not address this question, for
the district court had reserved it to be resolved as a matter
of law if infringement were found by the jury. The issue of
claim definiteness receives plenary review, as a question of
law. See AllVoice Computing PLC v. Nuance Commc’ns,
Inc., 504 F.3d 1236, 1240 (Fed. Cir. 2007).
Daewoo’s position is that the claim clause “a series junc-
tion point at least between said linear record erasing head
and one of said entire-width erasing head and an inductance
element” is fatally indefinite. Daewoo focuses on the
“grammatically incongruous wording” of the terms “at
least,” “between,” and “one of,” which Daewoo says are used
inconsistently with their ordinary usage in the English
language. Daewoo particularly points to the words “at
least” and the uncertainty as to what these words modify.
25 FUNAI ELECTRIC v. DAEWOO ELECTRONICS
The district court observed that “the wording is, at the very
least, awkward,” but deemed the claim amenable to con-
struction. The court reasoned that “one of ordinary skill in
the art would interpret the use of ‘at least’ in claim 1 as
modifying ‘one of.’ Otherwise, ‘at least’ would have no
meaning at all.” Funai, 2006 WL 6130993, at *11. The
court construed the “series junction point” limitation as:
a point on said series circuit between (1) the linear
record erasing head and the entire-width erasing
head, (2) the linear record erasing head and an in-
ductance element or (3) the linear record erasing
head and both the entire-width erasing head and an
inductance element.
Id. at *12. The court explained that the specification sup-
ports these placements of the junction point, a ruling consis-
tent with the requirement of Exxon Chemical Patents, Inc. v.
Lubrizol Corp., 64 F.3d 1553, 1557 (Fed. Cir. 1995), that
“We must give meaning to all the words in [the] claims.”
We conclude that this construction is correct, for it com-
ports with the specification and the prosecution record. An
ungainly claim is not thereby indefinite, when its meaning
can be understood by a person experienced in the field of the
invention, on review of the patent documents. See Power-
One, Inc. v. Artesyn Techs., Inc., 599 F.3d 1343, 1350 (Fed.
Cir. 2010) (“To comport with §112’s definiteness require-
ment, the boundaries of the claim, as construed by the court,
must be discernible to a skilled artisan based on the lan-
guage of the claim, the specification, and the prosecution
history, as well as her knowledge of the relevant field of
art.”). The protocols of claim writing can lead to awkward
phrasing, for the claim is restricted to a single sentence, no
matter how complex the invention; and claim content is
FUNAI ELECTRIC v. DAEWOO ELECTRONICS 26
burdened by tradition. Judge Learned Hand is credited
with the observation that the drafting of patent documents
is the most challenging of tasks. In part the challenge
arises because patents are written for persons knowledge-
able in the field of the invention, for every patent must
describe its advance in a specific technological or intellec-
tual art—yet the draftsman knows that ultimately the
patent must survive the legal scrutiny of lay judges and
juries. Judge Hand understood this burden, writing in
Dorsey v. Pilot Electric Co., 32 F.2d 211, 212 (2d Cir. 1929),
that: “As in any other written instrument, words [of a
patent claim] are capable of many meanings; we must
translate them into the underlying purpose of their user.”
For the terms whose definiteness is challenged by Daewoo,
the district court properly implemented this guidance,
which has often been reinforced. The court construed the
terms to implement their meaning as manifested in the
specification and the prosecution history, and correctly
rejected Daewoo’s charge of indefiniteness. This ruling is
affirmed.
IV
DAMAGES
The jury awarded a total of $7,316,698 in damages.
Daewoo raises several issues with respect to the damages
award, and argues that Funai’s letter notice of infringement
was inadequate and that Funai’s marking of its products
was incomplete, such that damages could not accrue for
infringement before the filing of suit on May 7, 2004.
A. Actual Notice
Funai stated that it gave Daewoo actual notice of in-
fringement, by letter dated April 3, 2003 from the General
27 FUNAI ELECTRIC v. DAEWOO ELECTRONICS
Manager of Funai’s Intellectual Property Department in
Japan to the CEO of Daewoo Electronics Corporation in
South Korea. The letter included citation of six United
States patents, as follows:
We believe that your products infringe one or
more claims of the aforementioned our patents.
We confirmed Your VCRs (Japan Model DR-
MC3 and U.S.A. Model DV-T8DN) that was in-
fringed at least our patents as follows:
USP 5,815,218
USP 5,987,209
USP 6,021,018 with certificate of correction
USP 6,064,538
USP 6,421,210
USP Re. 37,332
....
Enclosed please find each copy of these pat-
ents.
This letter was followed in June 2003 with claim charts.
See Funai, 593 F. Supp. 2d at 1114. Daewoo did not dispute
that the letter provided actual notice of infringement as to
the two product models mentioned in the letter, but argued
that the letter was legally insufficient to provide actual
notice as to any other Daewoo VCR models, thus limiting
the period of damages at least as to those models.
FUNAI ELECTRIC v. DAEWOO ELECTRONICS 28
Funai argued that this letter was adequate actual notice
of infringement as to all products having the same or sub-
stantially similar deck and circuitry as the Model DV-
T8DN. Funai pointed out that Daewoo’s interrogatory
responses and stipulations during discovery showed that
several Daewoo models contained the same infringing
components—namely, the T-Mecha deck, polycarbonate
insulating material, and eraser biasing circuitry—as in the
DV-T8DN model. See J.A. 32713-36 (interrogatory re-
sponses with table identifying accused products and their
components); J.A. 45273-82 at ¶¶ 13, 33, 46 (stipulations
regarding accused products).
To serve as actual notice, a letter must be sufficiently
specific to support an objective understanding that the
recipient may be an infringer. Gart v. Logitech, Inc., 254
F.3d 1334, 1346 (Fed. Cir. 2001). The letter must communi-
cate a charge of infringement of specific patents by a specific
product or group of products. Amsted Industries Inc. v.
Buckeye Steel Castings Co., 24 F.3d 178, 187 (Fed. Cir.
1994). However, when the threshold specificity is met, the
ensuing discovery of other models and related products may
bring those products within the scope of the notice. The jury
was instructed as to the notice requirements, and to con-
sider this aspect in its calculation of damages. A reasonable
jury could have followed this procedure, for it has not been
shown that the jury’s calculation of damages does not im-
plement this instruction.
B. Constructive Notice
Funai argued that it is entitled to damages from the
date of commencement of Daewoo’s infringement, based on
constructive notice by marking as to the ’018 patent. Funai
states that the ’210 patent was not subject to the marking
requirement, for Funai stopped practicing that invention
29 FUNAI ELECTRIC v. DAEWOO ELECTRONICS
prior to issuance of the patent. See Texas Digital Sys., Inc.
v. Telegenix, Inc., 308 F.3d 1193, 1220 (Fed. Cir. 2002) (“The
recovery of damages is not limited where there is no failure
to mark, i.e., . . . where there are no products to mark.”).
Satisfaction of the constructive notice requirements of
§287(a) is a question of fact, Maxwell v. J. Baker, Inc., 86
F.3d 1098, 1111 (Fed. Cir. 2006), and when tried to a jury, is
reviewed accordingly. The jury was instructed as follows,
with respect to the date from which damages should be
calculated:
You should begin to calculate damages for the
’018 and ’210 patents as of October 25, 2002, or the
date that Funai first gave notice to each defendant
of its claim of patent infringement, whichever is
later. . . .
Funai can give notice of infringement of the
’018 and ’210 patents in two ways. The first way is
to give notice to the public in general. Funai can do
this by placing the word “patent” or the abbrevia-
tion “PAT” with the number of the patent on sub-
stantially all the products it sold, either itself or by
licensees, that included the patented invention.
This type of notice is effective from the date Funai
began to mark substantially all of their products
that use the patented invention with the patent
number. If Funai did not mark substantially all of
their products that use the patented invention with
the patent number, then Funai did not provide no-
tice in this way.
FUNAI ELECTRIC v. DAEWOO ELECTRONICS 30
A second way Funai can provide notice of its
patents is to communicate to Daewoo a specific
charge that the accused product infringed the ’018
and ’210 patents. This actual notice is effective
from the time it is given.
In any event, the date Funai first gave notice of
infringement of the ’018 and ’210 patents can be no
later than May 7, 2004, the filing date of the law-
suit.
J.A. 148-49 (Jury Instruction Nos. 39-40). For the ’538
patent, for which no marking was asserted by Funai, the
jury was instructed that, “You should begin to calculate
damages for the ’538 patent as of April 3, 2003.” J.A. 148
(Jury Instruction No. 39).
Daewoo did not object to these instructions. Daewoo
now argues that the instructions are incorrect, and that the
marking statute permits no lapse in the completeness of the
marking. We review challenges to jury instructions under
the law of the regional circuit in which the district court
sits, here the Ninth Circuit. Eli Lilly & Co. v. Aradigm
Corp., 376 F.3d 1352, 1359 (Fed. Cir. 2004). Under Ninth
Circuit law, a party’s “[f]ailure to object to an instruction
waives review.” Image Tech. Servs. v. Eastman Kodak Co.,
125 F.3d 1195, 1206 (9th Cir. 1997). Daewoo did not object
to the jury instructions, thus waiving appellate review of the
error it now raises.
Daewoo argued that Funai did not completely mark all
products with the ’018 patent, and marked no products with
the ’538 patent, and that these lapses eliminated any bene-
fit of constructive notice. Funai responded that 88-91% of
its products sold at retail were properly marked, and that
31 FUNAI ELECTRIC v. DAEWOO ELECTRONICS
the remaining unmarked products were sales through
Funai’s Original Equipment Manufacturer (“OEM”) custom-
ers for resale. Funai argued that marking need not be
perfect, provided that it is sufficiently complete that the
interested public is reasonably apprised of the patented
status of the product.
The evidence at trial was that until the end of 2003, ap-
proximately 88% of Funai’s sales were sold as Funai prod-
ucts and all were marked with the ’018 patent. The
remaining 12%, sold through OEM customers, did not bear
Funai’s patent number. In 2004, approximately 91% of
Funai’s sales were of Funai brand products, and all were
marked with the ’018 patent.
The marking statute, 35 U.S.C. §287(a), applies to “Pat-
entees, and persons making, offering for sale, or selling
within the United States any patented article for or under
them or importing any patented article into the United
States.” Daewoo stated that the statute requires marking of
all Funai products, whether sold by Funai directly, or
through OEM customers. Funai stated that the sales by the
OEM customers were not sold “for or under [the patentee],”
and thus non-marking is reasonably excused by the statute.
Funai states that in all events the 9-12% unmarked items
were a minor part of the total sales of the patented prod-
ucts. Funai stresses that Daewoo was fully aware of the
Funai products and was not “innocently” prejudiced, citing
the purpose of the marking statute.
Daewoo cites American Medical Systems, Inc. v. Medical
Engineering Corp., 6 F.3d 1523, 1537 (Fed. Cir. 1993), for its
statement that marking “must be substantially consistent
and continuous in order for the party to avail itself of the
constructive notice provisions of the statute.” However,
precedent also states that when others than the patentee
FUNAI ELECTRIC v. DAEWOO ELECTRONICS 32
are involved in sales to the public, a “rule of reason” is
applied, “consistent with the purpose of the constructive
notice provision—to encourage patentees to mark their
products in order to provide notice to the public of the
existence of the patent and to prevent innocent infringe-
ment.” Maxwell, 86 F.3d at 1111-12. Funai states that
substantial evidence at trial supported the jury findings of
notice, actual or constructive, reflected in damages calcula-
tions. The district court found that substantial evidence
supported the jury’s application of a rule of reason to the
question of constructive notice, and the calculations apply-
ing constructive notice to the ’018 patent, as discussed in
the court’s order on post-trial motions. Funai, 593 F. Supp.
2d at 1108 (“The Court concludes that th[e] evidence consti-
tutes substantial evidence from which the jury could find
that Funai’s marking of products that incorporated the ’018
invention was ‘substantially consistent and continuous.’
The Court further concludes that the jury’s finding was not
contrary to the weight of the evidence.”). We affirm this
ruling.
C. The Damages Award
The jury awarded $7,316,698 in damages against DEC,
of which $2,298,590 was jointly assessed against DEAM.
These damages apply only to the period after October 25,
2002, the date at which the original defendants DECL and
DECA transferred their business to their successor compa-
nies DEC and DEAM. See Part V, post. The award was
based on lost profits as to certain products, and a reasonable
royalty for those products for which lost profits were not
established. The district court, upon thorough review of the
challenges raised by Daewoo, found that substantial evi-
dence supported the jury verdict. Funai, 593 F. Supp. 2d at
1102-08.
33 FUNAI ELECTRIC v. DAEWOO ELECTRONICS
The evidence of lost profits was premised primarily on
Funai’s loss to Daewoo of the business of a long-time large
customer, for which direct losses were established, with the
presentation of expert testimony and evidence that this was
essentially a two-supplier market. Although Daewoo raises
various arguments, it did not present contradictory evi-
dence. With respect to other VCR sales, Funai’s expert
testified that during the time period in question Funai’s
market share was about 30% and, applying this percentage,
that Funai had lost $1,698,262 in profits. Daewoo argues
that Funai failed to establish that, but for the infringement,
Funai would have made 30% of these VCR sales, but intro-
duced no contrary market share evidence or rebuttal testi-
mony.
Daewoo also argues, as it did in the district court, that
Funai’s patented technology was not the basis for demand
for the Daewoo products, and therefore that damages should
not have been based on the entire lost sales value. The
district court held that the evidence supported this measure.
See Imonex Servs., Inc. v. W.H. Munzprufer Dietmar Tren-
ner GmbH, 408 F.3d 1374, 1379 (Fed. Cir. 2005) (under the
“entire market value” rule, where an apparatus contains
several features, a patent holder may recover damages
based on the entire apparatus where it can show that the
basis for customer demand is the patented feature). The
evidence at trial portrayed general industry demand for
smaller, cheaper, faster, and more reliable VCRs, and Funai
presented evidence that the patented technology furthers
these goals. The jury heard evidence that the invention in
the ’018 patent shrank the size of VCRs, the ’538 invention
reduced costs and increased reliability of VCRs, and the ’210
invention enabled use of a high-performance motor that
reduced rewind speeds for VCR cassette tapes. There was
evidence that these benefits were the basis for customer
demand. Funai also presented evidence that there were no
FUNAI ELECTRIC v. DAEWOO ELECTRONICS 34
available noninfringing alternative products. See Minnesota
Mining & Mfg. Co. v. Johnson & Johnson Orthopaedics,
Inc., 976 F.2d 1559, 1577 (Fed. Cir. 1992) (a patent holder
may demonstrate lost profits by proving (1) demand for the
patented product, (2) absence of acceptable noninfringing
substitutes, (3) its capability to exploit the demand, and (4)
the amount of profit it would have made).
The specific details of the damages calculation are not
presented for review, other than as based on the principles
we have discussed. All of the arguments presented by
Daewoo have been considered, as they were by the district
court, but they do not undermine the sufficiency of the
evidence supporting the verdict. The award is supported by
substantial evidence, and is affirmed.
D. Willful Infringement
The jury found that Daewoo’s infringement was willful.
However, the district court denied Funai’s request for
enhancement of damages. We review the district court’s
decision on the standard of abuse of discretion. Odetics, Inc.
v. Storage Tech. Corp., 185 F.3d 1259, 1274 (Fed. Cir. 1999).
In Read Corp. v. Portec, Inc., 970 F.2d 816 (Fed. Cir.
1992), this court identified nine factors that may be relevant
to determination of whether enhanced damages should be
awarded. The district court analyzed each of the nine Read
factors, and called its decision a “close call.” Funai, 593 F.
Supp. 2d at 1117. The court found that three of the factors
favor an enhancement of damages, one factor “only weakly
supports” an enhancement, and the remaining five factors
do not favor enhancement. Funai argues that the court
erred in its analysis of three of the five factors that the court
found did not favor enhancement, and that the court abused
its discretion in declining to enhance the damages award.
35 FUNAI ELECTRIC v. DAEWOO ELECTRONICS
The first of the three disputed Read factors concerns the
duration of the defendant’s knowing infringement. Funai
argues that Daewoo continued to infringe after it received
direct written notice of infringement. Funai states that the
district court erred in its statement that “the focus of this
factor is whether or not the infringer has continued to
infringe after there has been a judicial finding that a par-
ticular device infringes the asserted patent.” Funai, 593 F.
Supp. 2d at 1116 (emphasis in original). Funai contends
that the district court should have considered all of the
circumstances of Daewoo’s deliberate continuation of in-
fringement, starting with when Daewoo received notice of
infringement in April 2003, and that it continued to infringe
while the litigation was ongoing, including after the district
court’s Markman ruling which was adverse to Daewoo.
Daewoo responds that the district court did not err, or if it
did, the error was harmless because the district court con-
sidered the other Read factors. Although we agree with
Funai that the district court presented too rigid a view of
this factor, this aspect alone is not dispositive. The decision
as to enhancement of damages is “informed by the totality of
the circumstances,” Odetics, 185 F.3d at 1274, and it is
apparent that all of the circumstances were before the
district court.
The second disputed Read factor concerns the closeness
of the case. The district court recognized that, as to two of
the three infringed patents, Daewoo’s infringement was
found under the doctrine of equivalents, rather than literal
infringement. This aspect may be weighed as part of the
analysis. See WMS Gaming, Inc. v. Int’l Game Tech., 184
F.3d 1339, 1354-55 (Fed. Cir. 1999). The court also ob-
served that Daewoo prevailed, during the pre-trial motions
for summary judgment, on non-infringement as to three of
the six patents initially noticed. Although Funai points out
that Daewoo’s infringement as to the three patents that
FUNAI ELECTRIC v. DAEWOO ELECTRONICS 36
were fully litigated was found to be willful, and that this
verdict is unrelated to whether Daewoo may not have in-
fringed other patents, this aspect does not of itself show
abuse of discretion.
The third disputed Read factor concerns the infringer’s
behavior as a party to the litigation. The district court
remarked, in its post-trial decision, that Daewoo had com-
mitted misconduct during the litigation and that the court
had imposed sanctions. However, the court found that “the
conduct on which those sanctions were based is not so
severe as to justify an award of enhanced damages.” Funai,
593 F. Supp. 2d at 1115. Funai argues that the district
court confused the punitive purpose of enhancement of
damages with the compensatory purpose of sanctions, and
that litigation misconduct is indeed a basis for enhancement
of remedy. Again, although we agree with Funai that
litigation misconduct can render a case “exceptional” under
35 U.S.C. §285, it is not of itself dispositive, but is a factor to
be considered as part of the entirety of the circumstances.
Overall, we will not disturb the district court’s conclu-
sion. “The trial judge is in the best position to weigh consid-
erations such as the closeness of the case, the tactics of
counsel, the conduct of the parties, and any other factors
that may contribute to a fair allocation of the burdens of
litigation as between winner and loser.” Modine Mfg. Co. v.
Allen Group, Inc., 917 F.2d 538, 543 (Fed. Cir. 1990) (quot-
ing S.C. Johnson & Son, Inc. v. Carter-Wallace, Inc., 781
F.2d 198, 201 (Fed. Cir. 1986)). We are not persuaded that
the district court’s denial of the request to enhance the
damages was an abuse of discretion. This decision is af-
firmed.
37 FUNAI ELECTRIC v. DAEWOO ELECTRONICS
V
SUCCESSOR LIABILITY
When this lawsuit was filed, four Daewoo entities were
named as defendants. As mentioned ante, DEC and its
predecessor DECL are South Korean companies, and DEAM
and its predecessor DECA are United States companies. On
October 25, 2002 DECL of South Korea transferred its VCR
business to DEC by an “Agreement for Sale and Purchase of
Assets,” as translated by Daewoo. As part of the same asset
transfer DECA, a corporation of California, transferred its
entire business to DEAM, a corporation of Florida.
Approximately one year into this infringement litiga-
tion, DECL and DECA ceased all defense, refusing discovery
and, according to the parties, presenting no defense or
argument as to liability for infringement or Funai’s asserted
basis for the measure of damages. On October 7, 2005 the
district court entered default judgment against DECL and
DECA, jointly and severally, for infringing sales between
January 1, 2001 and October 25, 2002, in the amount of
$8,066,112 including interest, attorney fees, and costs.
DECL and DECA did not pay the judgment. In response to
Funai’s motion requesting that the judgment be applied to
the successor companies DEC and DEAM, the district court
held that neither successor company is liable for the judg-
ment against its predecessor, on the ground that the law of
South Korea does not permit successor liability unless the
liability is expressly assumed by contract. Funai, No. C 04-
01830 JCS (N.D. Cal. July 22, 2008) (unpublished) (succes-
sor liability order). Funai does not challenge the application
of Korean law to the Korean companies DECL and DEC, but
argues that Korean law does not apply to the successor
liability of the United States companies DECA and DEAM.
Funai states that its claim is not a contract claim under the
FUNAI ELECTRIC v. DAEWOO ELECTRONICS 38
Korean contract, and attributes the district court’s error to
this misperception. Funai stresses that the issue is the
liability of a successor to a United States company for the
judgment of a United States court for infringement of
United States patents by activities in the United States by a
United States corporation doing business in the United
States. Funai’s position is that any such successor liability
is governed by the laws of the United States and the appli-
cable state law.
The district court applied the Korean law, and held that
under Korean law there is no successor liability as between
DECA, the defaulting California corporation, and its succes-
sor DEAM, the Florida corporation. Funai appeals this
decision.
A. Application of South Korean Law
The determination of foreign law is reviewed as a ques-
tion of law. See Fed. R. Civ. P. 44.1 (determination of for-
eign law is treated as a ruling on a question of law).
Similarly, the threshold question of whether the applicable
law is that of a foreign country is determined as a question
of law.
In the district court, Funai and Daewoo were in agree-
ment that the law of South Korea does not recognize succes-
sor liability in the absence of an express agreement on
assumption of liability. The district court held that Korean
law applied to the transfer from the Daewoo United States
subsidiary DECA to its successor DEAM, reasoning as
follows:
In this case, Korea has a strong interest in having
its law applied because the Transfer Agreement was
a contract entered in Korea between two Korean
39 FUNAI ELECTRIC v. DAEWOO ELECTRONICS
corporations, where most of the assets transferred
were also in Korea. DECL . . . and DEC would rea-
sonably have expected that the Transfer Agreement
would be governed by Korean law under these cir-
cumstances. Further, to the extent that the trans-
fer between DECA and DEAM was an outgrowth of
the Transfer Agreement (as Funai itself asserted)
the same expectation would apply to the issue of
successor liability in that context.
Funai, No. C 04-01830 JCS (N.D. Cal. July 22, 2008), at 14.
Funai points out that the question is not of interpretation
and enforcement of the Korean contract between the Korean
companies, but enforcement of a United States judgment
against United States companies, in the circumstances of
this case where the successor company simply continues the
infringing business of its predecessor, without change of
address, personnel, or any other aspect that has been con-
sidered relevant in United States laws of successor liability.
Funai argues that the question of whether DEAM is liable
for the judgment against DECA is determined in accordance
with the applicable state law, not the law of South Korea.
The district court held that because the transfer be-
tween the Korean corporations was by a “contract entered in
Korea” that is governed by Korean law, the “outgrowth”
transfer between the United States corporations was also
governed by Korean law. The district court apparently
placed some weight on the fact that the Funai entity that
owns the infringed patents is itself a foreign company, for
the court stated:
While New Jersey law on successor liability protects
third parties seeking to assert claims against suc-
cessor corporations, New Jersey’s interest in ad-
FUNAI ELECTRIC v. DAEWOO ELECTRONICS 40
vancing that policy is not involved under the facts
here. First, as [Daewoo] point[s] out, the plaintiff in
this action is not Funai-USA, but rather Funai Elec-
tric Company, Ltd., a Japanese company. Thus,
New Jersey has no interest in applying its law to
protect Funai. Nor does New Jersey have an inter-
est in having its law applied to Daewoo, as New
Jersey law is less advantageous to Daewoo than Ko-
rean law.
Id. at 14-15. However, it is fundamental to the rule of law
that the courts are open to native and alien alike, when
affected by a violation of United States law. See Disconto
Gesellschaft v. Umbreit, 208 U.S. 570, 578 (1908) (“Alien
citizens, by the policy and practice of the courts of this
country, are ordinarily permitted to resort to the courts for
redress of wrongs and the protection of their rights.”). We
take incidental note that Funai states that its United States
subsidiary that handles Funai’s business in the United
States, Funai Corporation, Inc., is a New Jersey corporation
with its principal place of business in Rutherford, New
Jersey.
We need not consider whether the judgment against
DECL (Korea) can be collected from its successor Korean
company; the only question is the liability of the United
States successor DEAM for this default judgment against its
predecessor DECA, for infringing activities of the predeces-
sor before the transfer to DEAM. The question is whether a
domestic corporation incurring a judgment of a United
States court is insulated from that judgment if the judgment
would not be enforceable under the laws of its foreign par-
ent.
41 FUNAI ELECTRIC v. DAEWOO ELECTRONICS
Applying the guidance of the rules of choice of law
among competing states, the United States has an overrid-
ing interest in the integrity of judgments of its courts with
respect to violations of United States law by entities doing
business in the United States. We take note of the district
court’s explanation that New Jersey does not have an inter-
est in applying its laws to Daewoo, “as New Jersey law is
less advantageous to Daewoo than Korean law.” That
concern reflects Daewoo’s interest, not the interest of New
Jersey in assuring that businesses in New Jersey are sub-
ject to the laws of New Jersey. See, e.g., Hilton v. Guyot,
159 U.S. 113, 163 (1895) (“No law has any effect, of its own
force, beyond the limits of the sovereignty from which its
authority is derived. The extent to which the law of one
nation, as put in force within its territory, whether by
executive order, by legislative act, or by judicial decree,
shall be allowed to operate within the dominion of another
nation, depends upon what our greatest jurists have been
content to call ‘the comity of nations.’”).
We conclude that the district court erred in ruling that
Korean law applies to the successor liability relationship
between these United States corporations. This is not a
question of conflict with foreign law, or choice between
domestic and foreign law, for no foreign law is involved in
this question of successor liability for a default judgment for
violation of United States law. We reverse the district
court’s ruling that the law of Korea applies to absolve
DEAM of successor liability for the judgment against DECA
arising in this same litigation and relating to the same
infringing products.
B. The Applicable State Law
There remains the question of which United States state
law applies to the question of successor liability between
FUNAI ELECTRIC v. DAEWOO ELECTRONICS 42
DEAM and DECA. DEAM is a Florida corporation with its
principal place of business in New Jersey, and DECA is a
California corporation with its principal place of business in
New Jersey. In conformity with the choice of law rules of
the forum state, here California, see Paracor Finance, Inc. v.
General Electric Capital Corp., 96 F.3d 1151, 1164 (9th Cir.
1996) (“In a federal question action where the federal court
is exercising supplemental jurisdiction over state claims, the
court applies the choice-of-law rules of the forum state.”), we
analyze the situation in accordance with the “governmental
interest” choice-of-law test. See Washington Mut. Bank, FA
v. Superior Court, 15 P.3d 1071, 1080 (Cal. 2001) (“[W]hen
there is no advance agreement on applicable law, but the
action involves the claims of residents from outside Califor-
nia, the trial court may analyze the governmental interests
of the various jurisdictions involved to select the most
appropriate law.”).
California applies a three-step analysis, whereby the
court first determines whether there is a material difference
between the laws of the states in question, for “if the laws of
each state are identical, there is no problem.” Id. If the
laws are materially different, then the court “must proceed
to the second step and determine what interest, if any, each
state has in having its own law applied to the case.” Id.“Only if the trial court determines that the laws are materi-
ally different and that each state has an interest in having
its own law applied, thus reflecting an actual conflict, must
the court take the final step and select the law of the state
whose interests would be ‘more impaired’ if its law were not
applied.” Id. at 1081 (citing Bernhard v. Harrah’s Club, 546
P.2d 719, 723 (Cal. 1976)) (emphasis in original).
Neither party argues any material difference in the laws
of successor liability, among California, Florida, and New
Jersey. Funai states that the appropriate law is that of
43 FUNAI ELECTRIC v. DAEWOO ELECTRONICS
New Jersey, and indeed the district court conducted its
conflict-of-laws analysis as between the laws of South Korea
and New Jersey. The selection of New Jersey also comports
with the principle of the Supreme Court’s ruling in Hertz
Corp. v. Friend, 130 S. Ct. 1181, 1192 (2010), wherein the
Court held that for diversity jurisdiction the “principal place
of business” is “the place where a corporation’s officers
direct, control, and coordinate the corporation’s activities,”
from which it follows that the laws of the principal place of
business should normally apply to transactions flowing from
the corporation’s “nerve center.” Id. at 1193, 1195. The
Court explained that “in practice it should normally be the
place where the corporation maintains its headquarters—
provided that the headquarters is the actual center of
direction, control, and coordination,” and “not simply an
office where the corporation holds its board meetings.” Id.
at 1192. It is not disputed that New Jersey meets these
criteria, for both DECA and its successor DEAM. Thus we
reach the question of successor liability under New Jersey
law.
Under New Jersey law, the transferee of corporate as-
sets ordinarily is not liable for the debts of the transferor
company, subject to several exceptions. The exceptions
include instances where (1) there is an express or implied
assumption of the liabilities; (2) the transaction amounts to
an actual or de facto consolidation or merger of the two
corporations, (3) the purchasing corporation is a mere
continuation of the seller, or (4) the transaction is for the
fraudulent purpose of escaping the seller’s liabilities. Lefe-
ver v. K.P. Hovnanian Enters., Inc., 734 A.2d 290, 292 (N.J.
1999). The consideration paid by the successor may also be
considered. See Mettinger v. Globe Slicing Mach. Co., 709
A.2d 779, 783 (N.J. 1998) (“A fifth exception, sometimes
incorporated in one of the preceding exceptions, arises from
FUNAI ELECTRIC v. DAEWOO ELECTRONICS 44
the absence of adequate consideration for the sale or trans-
fer.”).
Funai argues that the second and third of these excep-
tions well fit the succession from DECA to DEAM. Funai
states that the DECA-DEAM transaction amounted to a de
facto merger, that the successor was a mere continuation of
the predecessor, and that any consideration paid by DEAM
to DECA was unrelated to these two exceptions. Applying
New Jersey law in Berg Chilling Systems, Inc. v. Hull
Corp., 435 F.3d 455, 468 (3d Cir. 2006), the Third Circuit
explained that: “The de facto merger exception is similar to
the continuation exception, save that the latter focuses on
situations in which the purchaser is merely a restructured
or reorganized form of the seller. . . . [W]e follow the trend
of the courts here and treat the exceptions identically.” See
also Portfolio Fin. Servicing Co. v. Sharemax.com, Inc., 334
F. Supp. 2d 620, 625 (D.N.J. 2004) (“Courts have analyzed
and applied successor liability by treating the ‘de facto
consolidation’ and ‘mere continuation’ exceptions together.”).
It is not disputed that DECA’s sales activities in the
United States continued as DEAM without interruption, at
the same corporate headquarters and sales facilities in New
Jersey, with substantially the same managers and other
employees. Thus Funai argues that DEAM is a mere con-
tinuation of DECA, like a de facto merger. New Jersey
precedent identifies four factors as pertinent to this inquiry:
“(i) continuity of management, personnel, physical location,
assets, and general business operations; (ii) a cessation of
ordinary business and dissolution of the predecessor as soon
as practically and legally possible; (iii) assumption by the
successor of the liabilities ordinarily necessary for the
uninterrupted continuation of the business of the predeces-
sor; and (iv) continuity of ownership/shareholders.” Wood-
rick v. Jack J. Burke Real Estate, Inc., 703 A.2d 306, 312
45 FUNAI ELECTRIC v. DAEWOO ELECTRONICS
(N.J. Super. 1997). Not all of these factors need be present
in order for the successor to assume the liabilities of the
predecessor. Id. New Jersey applies a straightforward
inquiry:
[T]he most relevant factor is the degree to which the
predecessor’s business entity remains intact. The
more a corporation physically resembles its prede-
cessor, . . . the more reasonable it is to hold the suc-
cessor fully responsible. In this way, the innocent,
injured consumer is protected without the possibil-
ity of being left without a remedy due to the subse-
quent corporate history of the manufacturer.
Wilson v. Fare Well Corp., 356 A.2d 458, 466 (N.J. Super.
1976); see Luxliner P.L. Export, Co. v. RDI/Luxliner, Inc.,
13 F.3d 69, 73 (3d Cir. 1993) (“In determining whether
either of these exceptions [the de facto merger or mere
continuation exceptions] applies, the factfinder must con-
sider whether stock was part of the purchase price for the
assets; whether there was a continuity of business, control
or management between the two corporations; and whether
the alleged successor corporation assumed the debts of the
predecessor corporation.”).
It was stipulated that DEAM continued the business op-
erations of DECA, including sales of the VCR products here
accused of infringement. DEAM continued at the same New
Jersey address, with the same facilities, equipment, soft-
ware, accounting systems, and office furniture that DECA
had used. DECA’s corporate headquarters and manage-
ment and employees became DEAM’s. DECA ceased opera-
tions in its name, collecting outstanding accounts, selling its
office building to DEAM, and dissolving DECA as a corpora-
tion, all by the end of 2004. Recognizing that “[t]he crucial
FUNAI ELECTRIC v. DAEWOO ELECTRONICS 46
inquiry is whether there was an ‘intent on the part of the
contracting parties to effectuate a merger or consolidation
rather than a sale of assets,’” Luxliner, 13 F.3d at 73 (quot-
ing McKee v. Harris-Seybold Co., 264 A.2d 98, 104 (N.J.
Super. 1970)), we agree with Funai that it is not controlling
whether consideration passed between DEAM and DECA in
connection with the transfer.
In the words of Wilson, 356 A.2d at 467, the transfer be-
tween DECA and DEAM was simply a “new hat” for DECA.
It is thus appropriate, and in full accord with New Jersey
law, that DEAM should be liable for the default judgment
entered against DECA in this litigation. We reverse the
district court’s contrary ruling.
CONCLUSION
The judgment of infringement of the ’018 patent, the
’210 patent, and the ’538 patent, and the damages for such
infringement, is affirmed. We reverse the district court’s
determination of no successor liability, and remand for
appropriate proceedings as to this issue.
AFFIRMED-IN-PART, REVERSED-IN-PART, and
REMANDED
United States Court of Appeals
for the Federal Circuit
__________________________
FUNAI ELECTRIC COMPANY, LTD.,
Plaintiff-Cross Appellant,
v.
DAEWOO ELECTRONICS CORPORATION
AND DAEWOO ELECTRONICS AMERICA, INC.,
Defendants-Appellants,
and
DAEWOO ELECTRONICS COMPANY, LTD.,
DAEWOO ELECTRONICS CORPORATION OF
AMERICA, INC.
AND DAEWOO ELECTRIC MOTOR INDUSTRIES,
LTD.,
Defendants.
__________________________
2009-1225, -1244
__________________________
Appeal from the United States District Court for the
Northern District of California in Case No. 04-CV-01830,
Magistrate Judge Joseph C. Spero.
__________________________
LINN, Circuit Judge, concurring.
I am pleased to join the opinion of the court with the
exception of Section IV.B, the result of which I join, but
for a different reason. In that section, the majority af-
firms the district court’s post-trial ruling that supported
FUNAI ELECTRIC v. DAEWOO ELECTRONICS 2
the jury’s application of the constructive notice provisions
of 35 U.S.C. § 287. This ruling related to Funai’s Original
Equipment Manufacturer (“OEM”) sales of articles cov-
ered by the ’018 patent but not marked with the patent
number. Because the record before us is not fully devel-
oped and this court heretofore has not directly addressed
the applicability of constructive notice to OEM sales, and
because substantial evidence fully supports the jury’s
verdict even assuming that constructive notice does not
apply, I would simply affirm on the basis of the substan-
tial evidence and not decide the constructive notice ques-
tion.
Section 287 lays out the conditions under which con-
structive notice attaches and specifies that “patentees”
and “persons making . . . any patented article for or under
them” may give notice to the “public” by marking the
patented article. The statute unambiguously relates to
the patentee’s products and by its terms extends to sales
by licensees, who are “making . . . patented article[s] . . .
under [the patentee].” As the majority opinion makes
clear, for a patentee to avail itself of the constructive
notice provisions of § 287, the marking of its products
“must be substantially consistent and continuous.” See
Am. Med. Sys., Inc. v. Med. Eng’g Corp., 6 F.3d 1523, 1537
(Fed. Cir. 1993). Our precedent also recognizes that
because a patentee is not directly involved in the manu-
facturing and packaging activities of its licensees, a “rule
of reason” applies to the marking requirement in those
circumstances. See Maxwell v. J. Baker, Inc., 86 F.3d
1098, 1111-12 (Fed. Cir. 1996) (“When the failure to mark
is caused by someone other than the patentee, the court
may consider whether the patentee made reasonable
efforts to ensure compliance with the marking require-
ments.”). But how the marking requirement of § 287
applies to sales of products made by a patentee for an
3 FUNAI ELECTRIC v. DAEWOO ELECTRONICS
OEM customer as distinguished from sales of products
made by a licensee under a patent is not entirely clear.
Our court has not yet directly addressed the question.
Here, Funai did not contest at trial that while 88-91%
of its products were sold at retail and properly marked,
the remaining 9-12% of its products were sold to Funai’s
OEM customers for resale and were not marked with the
number of the ’018 patent. Funai justified this by point-
ing to the testimony of its witness, Mr. Mizoo, that the
OEM customers controlled the packaging and wanted to
differentiate their slightly higher priced products from
those of Funai. Because the statute makes no explicit
distinction between direct sales and sales to OEM pur-
chasers, and because this court has not directly extended
the rule of reason to OEM sales, the relevance of that
testimony is uncertain. Beyond that testimony, neither
the nature of Funai’s OEM agreements with its customers
nor the facts relating to any markings or lack of markings
on OEM repackaged products is set forth in this record.
I take no position on whether the district court was
right or wrong in supporting the jury’s application of
constructive notice under these circumstances. In my
opinion, the issue is of no moment, because any error that
might have been made would have been harmless. The
evidence presented to the jury on damages was broken
down at least in part by period and by patent. This data
could have enabled the jury to assess Funai’s damages
theories and calculate the award by period and patent.
For the ’018 patent during the applicable period (prior to
actual notice) the amount of reasonable royalty damages
sought as part of Funai’s mixed lost profits/reasonable
royalty theory on damages was relatively small. Funai
Trial Ex. #34. Moreover, Funai presented evidence that
the entire lost profits portion of the damage request was
due to the sale of articles that infringed the ’210 patent
FUNAI ELECTRIC v. DAEWOO ELECTRONICS 4
and itself was significantly greater than the jury’s dam-
ages award. Thus, we can assume that the jury awarded
damages for the ’018 patent only for those time periods in
which Funai carried its burden of showing that Daewoo
had actual notice. See i4i Ltd. P’ship v. Microsoft Corp.,
598 F.3d 831, 849 (Fed. Cir. 2009) (“We will not set aside
a general verdict simply because the jury might have
decided on a ground that was supported by insufficient
evidence. We will uphold such a verdict if there was
sufficient evidence to support any of the plaintiff’s alter-
native factual theories; we assume the jury considered all
the evidence and relied upon a factual theory for which
the burden of proof was satisfied.”) (internal quotation
marks and citations omitted).
For these reasons, I would not decide the question of
constructive notice and would simply affirm on the sub-
stantial evidence that fully supports the jury’s verdict
apart from the OEM sales, leaving the constructive notice
question as it relates to OEM sales for another day on a
record that more comprehensively presents the question
and requires an answer.