**United States Court of Appeals for the Federal Circuit**

04-1022

POLY-AMERICA, L.P.,

> Plaintiff-Appellee,

v\.

GSE LINING TECHNOLOGY, INC.,

> Defendant-Appellant.

[Jerry R. Selinger]{.underline}, Jenkens & Gilchrist, of Dallas, Texas,
argued for plaintiff-appellee. With him on the brief were [John C.
Eichman]{.underline} and [Timothy G. Ackermann]{.underline}.

[Donald R. Dunner]{.underline}, Finnegan, Henderson, Farabow, Garrett &
Dunner, L.L.P., of Washington, DC, argued for defendant-appellant. With
him on the brief were [Thomas H. Jenkins]{.underline} and [Rachel H.
Townsend]{.underline}. Of counsel on the brief were [T. Michael
Wall]{.underline}, Gardere Wynne Sewell LLP, of Houston, Texas; and
[David M. Frischkorn]{.underline}, [S. Richard Carden]{.underline} and
[Alison J. Baldwin]{.underline}, McDonell Boehnen Hulbert & Berghoff, of
Chicago, Illinois.

Appealed from: United States District Court for the Northern District of
Texas

Judge Sidney A. Fitzwater

United States Court of Appeals for the Federal Circuit

04-1022

POLY-AMERICA, L.P.,

Plaintiff-Appellee,

v\.

GSE LINING TECHNOLOGY, INC.,

Defendant-Appellant.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

DECIDED: September 14, 2004

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Before MICHEL, LOURIE, and RADER, [Circuit Judges]{.underline}.

LOURIE, [Circuit Judge]{.underline}.

GSE Lining Technology, Inc. ("GSE") appeals from the post-trial decision
of the district court denying its motion for judgment as a matter of law
("JMOL") that two of Poly-America, L.P.'s ("Poly-America's") patents
relating to landfill liner technology were invalid. [Poly-America, L.P.
v. GSE Lining Tech., Inc.]{.underline}, No. 3:00-CV-1457-D (N.D. Tex.
Aug. 13, 2003) ("[Post-Trial Order]{.underline}"). GSE also appeals from
the denial of its motion for a new trial on damages. [Id.]{.underline}
Because we agree with the district court's claim construction with
respect to Poly-America's patents and because there is sufficient
evidence to support the jury's verdict, we affirm the denial of JMOL of
invalidity for both patents. However, because the district court erred
in permitting Poly-America to claim the lost profits of a related
corporation, Poly-Flex, Inc. ("Poly-Flex"), in its damages calculations,
we reverse the district court's denial of GSE's motion for a new trial
on damages and remand for the district court to redetermine whether
Poly-America has incurred lost profits.

BACKGROUND

Poly-America, L.P.[^1] owns United States Patents 5,763,047, directed to
a three-layered textured landfill liner, and 5,804,112, covering a
method for making such a liner. Both patents have an effective filing
date of April 3, 1996, and both issued in 1998. The patents disclose a
blown-film liner that comprises a smooth inner layer bonded to textured
outer layers. The texture in the outer layers is created by a blowing
agent that erupts during the extrusion process, producing a surface
useful for gripping sloped dirt surfaces. The inner layer protrudes from
the outer textured layers, and, when welded to the smooth portion of an
adjoining sheet, it forms a strong seal to create an effective barrier
for landfill use.

The blown-film process employs a circular die to shape thermoplastic
material into a long, hollow tube, and concentric channels in the die
produce plastic sheets

having multiple layers. The extruded material is then cut into
rectangular sheets. Poly-America claims that its innovation went against
the traditional understanding about the process used to create
blown-film liners. It asserts that before its invention, the prevailing
belief in the industry was that balanced thermoplastic flow and uniform
velocity within a blown-film die were critical parameters for normal
production. In contrast, Poly-America's invention called for blocking
certain channels in the die that normally produced the outer layers, so
that the liner would have a smooth layer without the textured portions.
Poly-America claimed that a skilled artisan would not have intentionally
obstructed a channel in a blown-film die for fear of damaging the
equipment and incurring significant expense in repair and lost
production time.

In July 2000, Poly-America, Inc. sued Serrot International, Inc.
("Serrot"), alleging infringement of the '047 and '112 patents. Serrot
moved for summary judgment of invalidity, arguing that Poly-America's
patents were invalid as anticipated. It argued that Gloucester
Engineering manufactured for another company, Gundle Lining System, a
die ("the Gundle die") that was capable of performing the method claimed
in the '112 patent. That machine, Serrot claimed, was sold in 1987 and
thus is anticipatory prior art under the 35 U.S.C. § 102(b) on-sale bar.
Serrot also asserted that the '047 and '112 patent claims were
anticipated or, in the alternative, were rendered obvious by another
existing liner product, Friction Seal, made by a cast process, not a
blown-film process. The district court rejected Serrot's theories of
invalidity, and it denied Serrot's motion for summary judgment.
[Poly-America, Inc. v. Serrot Int'l, Inc.]{.underline}, No.
3:00-CV-1457-D (N.D. Tex. Oct. 18, 2001) ("[Claim Construction
Order]{.underline}").

Serrot thereafter conceded infringement, and the case proceeded to trial
before a jury on Serrot's invalidity defenses, willfulness, and damages.
In December 2002, the jury returned a verdict in favor of Poly-America,
Inc., concluding that the patents were not invalid and finding that
Serrot had willfully infringed the patents. [Poly-America, Inc. v.
Serrot Int'l, Inc.]{.underline}, No. 3:00-CV-1457-D, slip op. at 9-10,
17 (N.D. Tex. Dec. 19, 2002) ("[Jury Verdict]{.underline}"). The jury
awarded damages of \$7.15 million in lost profits and a reasonable
royalty of \$5.08 million. [Id.]{.underline} at 17.

Following the jury verdict, GSE filed a post-trial motion for JMOL,
arguing that the Poly-America patents were invalid for anticipation and
obviousness. It also moved for JMOL or, alternatively, a new trial on
damages, asserting that the jury's award was against the great weight of
the evidence. The district court denied GSE's motions for JMOL of
invalidity, but it did conclude that the jury's reasonable royalty award
was unreasonable to the extent that the amount was greater than the
maximum reasonable royalty damages award that was supported by the trial
evidence. The court conditioned the denial of GSE's motion for a new
trial on Poly-America's acceptance of a remittitur of \$266,502.00 of
the reasonable royalty award. [Post-Trial Order]{.underline}, slip op.
at 26.

Poly-America accepted the remittitur, and GSE now appeals from the
denials of its motion for JMOL of invalidity and its motion for a new
trial on damages. GSE does not appeal from the willfulness decision, nor
is infringement at issue in this appeal. We have jurisdiction pursuant
to 28 U.S.C. § 1295(a)(1).

DISCUSSION

We review a district court's denial of a motion for JMOL of patent
invalidity [de novo]{.underline}, reapplying the standard used by the
district court. [Sextant Avionique, S.A. v. Analog Devices,
Inc.]{.underline}, 172 F.3d 817, 824 (Fed. Cir. 1999). JMOL is
appropriate when "a party has been fully heard on an issue and there is
no legally sufficient evidentiary basis for a reasonable jury to find
for that party on that issue." Fed. R. Civ. P. 50(a)(1). When reviewing
a court's denial of JMOL, we must "determine whether viewing the
evidence in the light most favorable to the non-moving party, and giving
the non-movant the benefit of all reasonable inferences, there is
sufficient evidence of record to support a jury verdict in favor of the
non-movant." [Ericsson, Inc. v. Harris Corp.]{.underline}, 352 F.3d
1369, 1373 (Fed. Cir. 2003) (citation and internal quotation marks
omitted).

The denial of a motion for a new trial is an issue not unique to patent
law; thus, we apply the law of the regional circuit in which the
district court sits---in this case, the Fifth Circuit. [See]{.underline}
[WMS Gaming Inc. v. Int'l Game Tech.]{.underline}, 184 F.3d 1339, 1361
(Fed. Cir. 1999). In the Fifth Circuit, "\[t\]he decision to grant or
deny a motion for a new trial will be disturbed only for abuse of
discretion or misapprehension of the law." [Woodfield v.
Bowman]{.underline}, 193 F.3d 354, 358 (5th Cir. 1999) (citing [Mitchell
v. Lone Star Ammunition, Inc.]{.underline}, 913 F.2d 242, 252 (5th Cir.
1990)). The Fifth Circuit affirms the denial of a motion for new trial
"unless, on appeal, the party that was the movant in district court
makes a clear showing of an absolute absence of evidence to support the
jury's verdict, thus indicating that the trial court had abused its
discretion in refusing to find the jury's verdict contrary to the great
weight of the evidence." [Whitehead v. Food Max of Miss.,
Inc.]{.underline}, 163 F.3d 265, 269 (5th Cir. 1998).

A. [The '112 Patent]{.underline}

On appeal, GSE argues as it did in the district court that
Poly-America's '112 method patent was anticipated by the sale of the
Gundle die. GSE maintains that, because the die was capable of
performing the process that Poly-America later claimed, the sale of the
die was a § 102(b) on-sale bar. It claims that the district court relied
on and misinterpreted [In re Kollar]{.underline}, 286 F.3d 1326 (Fed.
Cir. 2002), as holding that a sale of a method does not constitute a
sale within the meaning of § 102(b) until the method has been put into
commercial practice. GSE argues that our decision in [Minton v. National
Ass'n of Securities Dealers, Inc.]{.underline}, 336 F.3d 1373 (Fed. Cir.
2003), holds otherwise, so that even though the Gundle die may not have
been used to carry out the claimed process before the critical date of
Poly-America's patent, its sale still represents a statutory bar to the
patentability of the process. Additionally, it contends that the jury
could not have reasonably concluded that the "choker slides" in the
Gundle die were not the same as the "plugs" in the claims of the '112
patent.

Poly-America responds that the district court was correct to deny GSE's
motion for JMOL because the process later claimed in the '112 patent was
not ready for patenting when the Gundle die was sold in 1987. That
defect, it argues, prevents the sale from becoming a bar to
patentability. Poly-America asserts that our decision in
[Kollar]{.underline} is inapposite and that GSE has generally failed to
show that the jury charge regarding the sale of the Gundle die was
either erroneous or prejudicial. Also, Poly-America argues that the jury
could have found a material difference between the "choker slides" and
the claimed "plugs" and that such a finding was supported by substantial
credible evidence.

We agree with Poly-America that the district court properly denied GSE's
motion for JMOL. Our analysis begins with the relevant statute, 35
U.S.C. § 102(b) (2000), which provides in relevant part that "\[a\]
person shall be entitled to a patent unless . . . the invention was . .
. on sale in this country, more than one year prior to the date of the
application for patent in the United States . . . ." "Whether an
invention is 'on sale' within the meaning of § 102(b) is a question of
law based on underlying factual findings." [Kollar]{.underline}, 286
F.3d at 1329. Because a patent is presumed to be valid, 35 U.S.C. § 282
(2000), and that presumption can be overcome only by clear and
convincing evidence of facts to the contrary, the facts supporting the
claim that a patent is invalid in view of an on-sale bar must be proved
by clear and convincing evidence. [Minton]{.underline}, 336 F.3d at
1376.

In [Kollar]{.underline}, we considered whether a license agreement
between an applicant's assignee and another corporation was a proper
basis for a § 102(b) on-sale bar. In that case, Kollar's assignee and
the corporation agreed to a license of a low-cost process for preparing
various dialkyl peroxides. We stated that "the issue concerning the
on-sale bar is not whether the process is physically represented or
enabled by a written description, but whether the process has been
commercialized." 286 F.3d at 1333. Because the process needed
development work in order to be commercially useful and to enable the
product of the process to be sold, we held that neither the transfer of
know-how regarding a claimed process nor that of a written description
of a process met that standard, and thus neither qualifies as a "sale"
within the meaning of § 102(b). [Id.]{.underline}

On the other hand, we decided in [Minton]{.underline} that a lease of a
computer program, one that implemented a claimed method and was
guaranteed to operate properly, constituted a commercial offer for sale
of the method. 336 F.3d at 1378. Whereas the transaction in
[Kollar]{.underline} involved mere know-how in need of development, the
patentee in [Minton]{.underline} transferred a fully operational
computer program capable of implementing the claimed method.
[Id.]{.underline}

In the present case, the district court found that the Gundle die "was
not used to produce textured blown-film liner with a smooth edge until
April 2002," [Post-Trial Order]{.underline}, slip. op. at 8, well after
the critical date of Poly-America's '112 patent. Moreover, there was
evidence that it was not even known that the Gundle die could perform
Poly-America's process and that the use of blocked channels in the
Gundle die clearly went against conventional wisdom. The Gundle die
possessed choker slides, in contrast to the "plugs" of the '112 patent
claims. GSE's argument that the Gundle die was capable of performing the
claimed method is largely premised on the hindsight that its choker
slides were able to achieve an objective they were not originally
designed to do.

Neither [Kollar]{.underline} nor [Minton]{.underline} is wholly on point
here, so we need not parse out which case's facts are closer to this
one. Those cases involved licenses and leases of the claimed methods by
the inventors, whereas this case involves a purported sale by a third
party of a device asserted after the critical date to be usable in a
claimed method. This case thus does not involve the policy prohibition
against an inventor commercializing his invention while deferring the
filing of a patent application. It does not involve a transaction with
respect to the claimed method; it involves only a device different from
that described in the patent for carrying out the claimed method. Thus,
we conclude that the sale of the Gundle die was not an anticipation of
the claimed method.

In addition, there is substantial evidence in the trial record that the
Gundle die's "choker slides" functioned as devices for throttling
purposes and not as "plugs" to block the flow of material to produce a
textured liner with a smooth edge, as required by the claims of the '112
patent. Because the jury could have reasonably concluded that GSE had
not carried its burden of proving by clear and convincing evidence that
Poly-America's '112 patent was invalid under the on-sale bar, we agree
with the district court that substantial evidence supports the jury's
verdict and that Poly-America's '112 patent has not been shown to be
invalid. Accordingly, we affirm the district court's denial of GSE's
motion for JMOL of invalidity.

B. [The '047 Patent]{.underline}

GSE argues that Poly-America's '047 patent is invalid as anticipated or,
alternatively, obvious in view of a similar liner called Friction Seal
that was manufactured via a cast process by the National Seal Company as
early as 1991. GSE maintains that the district court erred by construing
the preamble phrase "blown-film" as a substantive limitation in the
claims of the '047 patent. If the preamble is an integral part of the
claims, then the claims are not invalid over the Friction Seal liner,
which is not a "blown-film" liner. Poly-America asserts that the
district court correctly construed the preamble language as a
limitation, emphasizing the court's analysis of the intrinsic evidence.
It thus urges that the court properly denied GSE's motion for JMOL of
invalidity.

Claim construction is a question of law that we review without
deference. [Cybor Corp. v. FAS Techs., Inc.]{.underline}, 138 F.3d 1448,
1456 (Fed. Cir. 1998) (en banc). A court may consider the specification,
the prosecution history, and other relevant evidence when construing the
scope of the claims. [Pitney Bowes, Inc. v. Hewlett-Packard
Co.]{.underline}, 182 F.3d 1298, 1309 (Fed. Cir. 1999).

"Whether to treat a preamble as a limitation is a determination resolved
only on review of the entire\[\] . . . patent to gain an understanding
of what the inventors actually invented and intended to encompass by the
claim." [Corning Glass Works v. Sumitomo Elec. U.S.A.,
Inc.]{.underline}, 868 F.2d 1251, 1257 (Fed. Cir. 1989). "No litmus test
defines when a preamble limits claim scope." [Catalina Mktg. Int'l, Inc.
v. Coolsavings.com, Inc.]{.underline}, 289 F.3d 801, 808 (Fed. Cir.
2002). On the one hand, a preamble is a claim limitation if it recites
essential structure or steps, or if it is "necessary to give life,
meaning, and vitality" to the claim. [Pitney Bowes]{.underline}, 182
F.3d at 1305. On the other hand, a preamble is not limiting "where a
patentee defines a structurally complete invention in the claim body and
uses the preamble only to state a purpose or intended use for the
invention." [Rowe v. Dror]{.underline}, 112 F.3d 473, 478 (Fed. Cir.
1997). "Further, when reciting additional structure or steps underscored
as important by the specification, the preamble may operate as a claim
limitation." [Catalina Mktg.]{.underline}, 289 F.3d at 808.

We agree with Poly-America that the phrase "blown-film" is a limitation
of the claims of the '047 patent. The specification is replete with
references to the invention as a "blown-film" liner, including the title
of the patent itself and the "Summary of the Invention." The phrase is
used repeatedly to describe the preferred embodiments, and the entire
preamble "blown-film textured liner" is restated in each of the patent's
seven claims. Our analysis shows that the inventor considered that the
"blown-film" preamble language represented an important characteristic
of the claimed invention. We therefore agree with the district court's
conclusion that a "\[r\]eview of the entirety of the '047 patent reveals
that the preamble language relating to 'blown-film' does not state a
purpose or an intended use of the invention, but rather discloses a
fundamental characteristic of the claimed invention that is properly
construed as a limitation of the claim itself." [Claim Construction
Order]{.underline}, slip op. at 3. We further agree with the district
court that the jury had the opportunity to fully consider GSE's defense
of invalidity for anticipation and obviousness and that there was
substantial evidence to support its verdict. Consequently, we affirm the
court's denial of GSE's motion for JMOL of invalidity for the '047
patent.

C. [Lost Profits]{.underline}

GSE argues that the district court improperly permitted Poly-America to
claim lost profits on Poly-Flex's lost sales. It alleges that Poly-Flex,
even though it is a sister corporation to Poly-America, nonetheless
lacks any exclusive rights and is hence not entitled to damages for
infringement. Thus, it contends, the district court erred by treating
Poly-America and Poly-Flex as a single economic unit and awarding
Poly-America damages for lost profits on sales allegedly lost by
Poly-Flex due to infringing sales by GSE.

Poly-America responds that it operates together with Poly-Flex as a
single economic unit for the purposes of production, marketing, and
sales of the patented liner. It claims that the two corporations share a
unity of interest that justifies treating them as a single economic unit
for lost profits. Furthermore, it argues that Poly-Flex was more than a
mere non-exclusive licensee and possessed certain substantive rights,
including the "right of enforcement for claims for past damages" and the
right to sublicense others, and that Poly-Flex could and did assign
those rights to Poly-America. Poly-America cites a provision in its
license agreement with Poly-Flex stating that, at least as between the
parties, Poly-America is entitled to collect damages accruing to
Poly-Flex from any infringement of the '047 and '112 patents. For those
reasons, Poly-America asserts, the jury could have reasonably attributed
Poly-Flex's sales to Poly-America, and the district court correctly
denied GSE's motion for a new trial.

We disagree with Poly-America and the district court that Poly-Flex's
lost profits are properly recoverable as if they were Poly-America's own
damages. Section 284 of Title 35 of the United States Code provides that
a patentee shall be awarded "damages adequate to compensate for the
infringement, but in no event less than a reasonable royalty." In
[General Motors Corp. v. Devex Corp.]{.underline}, 461 U.S. 648 (1983),
the Supreme Court stated that Congress intended in § 284 that a "patent
owner would in fact receive full compensation for 'any damages' \[the
patentee\] suffered as a result of the infringement." [Id.]{.underline}
at 654. Whether lost profits are legally compensable in a particular
situation is a question of law that we review [de novo]{.underline}.
[Rite-Hite Corp. v. Kelley Co., Inc.]{.underline}, 56 F.3d 1538, 1544
(Fed. Cir. 1995) (en banc).

It is true that the recovery of lost profits by a patentee is not
limited to the situation in which the patentee is selling the patented
device. However, the patentee needs to have been selling some item, the
profits of which have been lost due to infringing sales, in order to
claim damages consisting of lost profits. [See]{.underline}
[id.]{.underline} at 1548-49. Poly-America apparently has not sold any
item on which it claims damages to itself from GSE's infringement.
Although it is not clear here whether Poly-America has itself suffered
lost profits from the infringement, a matter that may be dealt with on
remand, Poly-America argues that Poly-Flex's lost profits on its lost
sales are legally compensable to Poly-America, its licensor. We
disagree.

Even though Poly-America and Poly-Flex seem to share interests as two
entities collaborating in the manufacture and sale of textured landfill
liners, that relationship by itself is not sufficient to permit
Poly-America to claim Poly-Flex's lost profits from Poly-Flex's lost
sales. Poly-America and Poly-Flex have a common parent corporation and
are not simply divisions of a single corporation, but are separate
corporate entities. Their parent has arranged their corporate identities
and functions to suit its own goals and purposes, but it must take the
benefits with the burdens. While we do not speculate concerning the
benefits that the two companies reap from dividing their operations and
separating the owner of the patent from the seller of the patented
product, Poly-America and Poly-Flex may not enjoy the advantages of
their separate corporate structure and, at the same time, avoid the
consequential limitations of that structure---in this case, the
inability of the patent holder to claim the lost profits of its
non-exclusive licensee. While Poly-America may have the right to sue
under its patents, both as an owner and as a back-licensee, it can
recover only its own lost profits, not Poly-Flex's.

The provision of the license agreement between Poly-America and
Poly-Flex providing that Poly-America "desires to have the contractual
right to collect all damages accruing to Poly-Flex for certain past
infringements of the Patents" does not change this situation. We have
held that a licensee generally may not sue for damages unless it has
exclusive rights under a patent, including the right to sue.
[See]{.underline} [Rite-Hite]{.underline}, 56 F.3d at 1552; [Ortho
Pharm. Corp. v. Genetics Inst., Inc.]{.underline}, 52 F.3d 1026, 1032
(Fed. Cir. 1995). Poly-Flex does not have exclusive rights. It is
clearly identified in the license agreement as a non-exclusive licensee,
and as such, it received only a "bare license" and has no entitlement
under the patent statutes to itself collect lost profits damages for any
losses it incurred due to infringement. [Rite-Hite]{.underline}, 56 F.3d
at 1552. Although parties to a lawsuit may allocate the disposition of
infringement damages between themselves, as they appear to have done
here, they cannot create lost profits for a patentee if there are none.
Awarding lost profits to Poly-America on the basis of its private
arrangement with Poly-Flex would synthetically create lost profits for
Poly-America, when it may not have suffered any, to the detriment of
GSE.

We therefore conclude that the district court misapprehended the law of
damages and lost profits and improperly denied GSE's motion for a new
trial on damages. Accordingly, we reverse that portion of the district
court's judgment and remand the case to determine whether there are any
lost profits incurred by Poly-America due to GSE's infringement, and, if
not, the proper reasonable royalty to which Poly-America may be
entitled.

CONCLUSION

For the reasons stated above, we affirm the district court's denial of
JMOL of invalidity for Poly-America's '112 and '047 patents. We reverse
the court's denial of GSE's motion for a new trial on damages and remand
for further proceedings consistent with this opinion.

COSTS

Each party shall bear its own costs.

[AFFIRMED-IN-PART, REVERSED-IN-PART, AND REMANDED]{.underline}.

[^1]: Poly-America, L.P., the named appellee in this case, is the
    successor-in-interest of Poly-America, Inc., the corporation that
    originally filed suit. Similarly, GSE is the successor-in-interest
    of Serrot International, Inc., the initial defendant. The names of
    the parties were changed during the course of the lawsuit to reflect
    the parties now participating in this appeal. [See]{.underline}
    [Poly-America, L.P. v. GSE Lining Tech., Inc.]{.underline}, No.
    3:00-CV-1457-D, slip op. at 1 n.1 (N.D. Tex. Aug. 13, 2003).