The US Court of Appeals for the Federal Circuit determined that an accused infringer was entitled to a new trial relating to validity issues but still faced sanctions for its continuous disregard of its discovery obligations. ADASA Inc. v. Avery Dennison Corp., Case No. 22-1092 (Fed. Cir. Dec. 16, 2022) (Moore, Hughes, Stark, JJ.)

ADASA owns a patent relating to methods and systems for commissioning radio-frequency identification (RFID) transponders. ADASA sued Avery Dennison for patent infringement, alleging that its manufacture and sale of certain RFID tags infringed ADASA’s patent. Both parties sought summary judgment following discovery. Avery Dennison asserted that the patent was ineligible for patent protection under 35 U.S.C. § 101, and ADASA argued that the asserted claims were not anticipated or obvious based on the book RFID for Dummies. The district court granted ADASA’s motion on validity and denied Avery Dennison’s motion for patent ineligibility. Prior to trial, ADASA moved in limine to exclude Avery Dennison’s damages expert’s testimony related to certain licenses, and the district court granted the motion.

At trial, ADASA entered licenses into evidence as part of its damages case and alleged that they reflected lump-sum agreements to practice the asserted patent. The district court declined to include a jury instruction on lump-sum damages and a lump-sum option on the verdict form, observing that Avery Dennison’s expert had not offered a lump-sum damages opinion and concluding that the licenses alone were insufficient for the jury to award lump-sum damages. The jury returned an infringement verdict and awarded ADASA a running royalty of $0.0045 per infringing RFID tag, which resulted in an award of $26.6 million.

In its post-trial motions, Avery Dennison moved for a new trial, arguing it was reversible error for the district court to exclude its damages expert’s testimony and to decline to provide a jury instruction for a lump-sum damages award. Before the district court ruled on its motion, Avery Dennison revealed to ADASA that it had discovered additional previously undisclosed RFID tags in its databases. A subsequent investigation determined that the number of undisclosed tags was more than two billion. Avery Dennison agreed to pay an additional $9.5 million in damages, which corresponded to the royalty rate determined by the jury. ADASA subsequently moved for sanctions. The district court award $20 million in sanctions after finding that Avery Dennison had engaged in protracted discovery failures and a continuous disregard for the seriousness of the litigation and its expected obligations. The sanctions award corresponded to a $0.0025 per-tag rate applied to both the adjudicated and late-disclosed tags. Avery Dennison appealed.

Avery Dennison challenged the district court’s summary judgment rulings, its denial of a new trial and its imposition of sanctions. The Federal Circuit affirmed the district court’s patent eligibility determination, finding that the patent “is directed to a specific, hardware-based RFID serial number data structure designed to enable technological improvements to the commissioning process,” which “is not a mere mental process,” and concluded that the claim was directed to patent-eligible subject matter.

The Federal Circuit reversed the district court’s validity finding, however. The Court found that the district court erred by reading RFID for Dummies too narrowly and by improperly disregarding corroborating testimony. The Court also found that although the prior art discussed certain concepts “in different terms and with different points of emphasis” than the asserted patent, “the district court erred in interpreting these linguistic differences as fatal to a finding of anticipation.” The Court thus reversed and remanded the district court’s invalidity finding.

The Federal Circuit further found no error in the district court’s decision regarding lump-sum instructions. It explained that there was no dispute that Avery Dennison did not advance a lump-sum damages theory before the jury or offer any testimony that lump-sum damages were appropriate, and its expert expressly disclaimed any such opinions. The Court stated that there may be some circumstances where licenses standing alone without supporting testimony could support a lump-sum instruction, but not in this case. Since there was insufficient evidence to warrant such instruction, the district court appropriately declined to include a lump-sum option on the verdict form.

The Federal Circuit also found that the district court did not abuse its discretion by excluding certain licenses and related expert testimony, concluding that Avery Dennison did not meet its burden as the proffering party. The Court found that the fact that the licensed portfolios included patents that covered RFID technology “says little, if anything,” about their relation to the asserted patent. The fact that “some patents in a portfolio cover RFID technology or, were cited during [] prosecution, says nothing about the compatibility of the thousands of remaining patents in the portfolio.” The Court thus affirmed the district court’s exclusion.

Finally, although the Federal Circuit found no abuse of discretion in the district court’s sanctions decision, the Court nevertheless vacated the sanctions award in view of the district court’s chosen method for calculating the remedy. The Court explained that while district courts may impose sanctions for deterrent effects, the size of the award must bear a reasonable relationship to the harm that occurred. The Court found that by tying the award to both the adjudicated and untimely disclosed tags, the district court divorced the remedy from the harm that flowed from Avery Dennison’s discovery violation. The Court thus vacated the sanctions award and remanded for the district court to reconsider the appropriate remedy.

Lillian Spetrino authored this article.