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

99-1584, 00-1005

INSITUFORM TECHNOLOGIES, INC.,

INSITUFORM (Netherlands) B.V.,

and INSITUFORM GULF SOUTH, INC.,

Plaintiffs-Cross Appellants,

v\.

CAT CONTRACTING, INC.,

FIRSTLINER U.S.A., INC., and GUILIO CATALLO,

Defendants-Appellants,

and

MICHIGAN SEWER CONSTRUCTION COMPANY,

Defendant-Appellant,

and

KANAL SANIERUNG HANS MUELLER GmbH & CO. KG,

Defendant-Appellee.

[Harold James]{.underline}, Epstein Drangel Bazerman & James LLP, of New
York, New York, for plaintiffs-cross appellants.

[Arnold Anderson Vickery]{.underline}, of Houston, Texas, for CAT
Contracting, Inc., et al.

[N. Elton Dry]{.underline}, Dry & Tassin, LLP, of Houston, Texas, for
defendant-appellant Michigan Sewer Construction Company.

[Richard L. Stanley]{.underline}, Howrey Simon Arnold & White, LLP, of
Houston, Texas, for defendant-appellee Kanal Sanierung Hans Mueller GmbH
& Co., KG. With him on the brief was [Albert B. Deaver, Jr.]{.underline}

On remand from the Supreme Court of the United States

# United States Court of Appeals for the Federal Circuit

99-1584, 00-1005

INSITUFORM TECHNOLOGIES, INC.,

INSITUFORM (NETHERLANDS) B.V.,

and INSITUFORM GULF SOUTH, INC.,

> Plaintiffs-Cross Appellants,

v\.

CAT CONTRACTING, INC.,

FIRSTLINER U.S.A., INC., and GIULIO CATALLO,

> Defendants-Appellants,
>
> and

MICHIGAN SEWER CONSTRUCTION COMPANY,

Defendant-Appellant,

and

KANAL SANIERUNG HANS MUELLER GmbH & CO. KG,

Defendant-Appellee.

[\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_]{.underline}

DECIDED: October 4, 2004

[\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_]{.underline}

Before MAYER, [Chief Judge]{.underline}, MICHEL, and SCHALL, [Circuit
Judges]{.underline}.

SCHALL, [Circuit Judge]{.underline}.

Defendants Cat Contracting, Inc. ("CAT"), Firstliner U.S.A., Inc.
("Firstliner"), Giulio Catallo (sometimes referred to as "Catallo"), and
Michigan Sewer Construction Company ("MSC") ("defendants") appeal the
judgment of the United States District Court for the Southern District
of Texas holding them liable for infringement of United States Patent
No. 4,366,012 ("the '012 patent") and awarding plaintiffs Insituform
Technologies, Inc. ("Insituform Technologies"), Insituform (Netherlands)
B.V. ("Insituform Netherlands"), and Insituform Gulf South, Inc.
("Insituform Gulf") ("plaintiffs") damages for that infringement.
[Insituform Techs., Inc. v. Cat Contracting, Inc.]{.underline}, No.
H-90-1690, slip op. (S.D. Tex. Aug. 31, 1999) ("[District Court
Opinion]{.underline}"). Defendants also appeal the joinder of Insituform
Netherlands as a plaintiff. [Id.]{.underline} at 21-22. In addition,
CAT, Firstliner, and Catallo appeal the district court's joinder of
Catallo as a defendant. [Insituform Techs., Inc. v. Cat Contracting,
Inc.]{.underline}, No. H-90-1690, slip op. at 9 (Aug. 30, 1999)
("[Joinder Order]{.underline}"). For their part, plaintiffs cross-appeal
the ruling of the district court declining to hold defendant Kanal
Sanierung Hans Mueller GmbH & Co. KG ("KS") vicariously liable to
plaintiffs under an alter-ego theory of induced infringement. [District
Court Opinion]{.underline}, slip op. at 44-45.

We affirm the judgment of infringement with respect to all defendants.
We also affirm the district court's joinder of Insituform Netherlands as
a plaintiff, its joinder of Giulio Catallo as a defendant, and its
ruling declining to hold KS vicariously liable for induced infringement.
However, we vacate the judgment that the infringement of CAT and
Firstliner was willful and remand for further proceedings on the issue
of willful infringement. We also vacate the district court's damages
award and remand for further proceedings to determine damages based on
when defendants ceased selling the pipe repair process that was found to
infringe the '012 patent. Accordingly, we affirm-in-part,
vacate-in-part, and remand.

BACKGROUND

I.

Underground pipes, such as sewer pipes, are often subject to great
stress. As a result, over time, the pipes develop cracks and other
structural defects, which can result in leakage. In the past, the only
way to rehabilitate a section of underground pipe was to dig up the
broken section and replace it. Eric Wood, the sole inventor named on the
'012 patent, pioneered a process for rehabilitating underground pipe
without digging it up.

The '012 patent discloses Wood's invention. The patent relates to a
method for performing pipe repair without removing the damaged pipe from
the ground. The method involves installing a liner into the pipe. Claim
1 of the patent, the only claim at issue, claims a process for
impregnating a flexible tube liner with resin prior to insertion of the
liner into a damaged pipe. The liner has an impermeable film on the
outside and a resin-absorbent, felt layer on the inside. A vacuum is
applied to the inside of the liner by cutting a window into the outer,
impermeable film, applying a cup (a "vacuum cup") to the outside of the
window, and connecting the other end of the cup to a vacuum source.
Using the created vacuum, a section of the inside of the liner is
impregnated with resin, which is drawn through the liner. The vacuum cup
is then moved to another section of the liner while the previously used
window is sealed. This process for impregnating the liner with resin
allows for impregnation at the jobsite, eliminating the need to
transport a heavier, already impregnated liner to the site.

II\.

This case has a lengthy procedural history. The issues before us arise
from a complex series of trials, appeals, and cross-appeals that now
span nearly fourteen years. We briefly review each significant decision
in turn.

A. [Plaintiffs' suit for patent infringement]{.underline}

The original defendants in this action were CAT, Inliner U.S.A., Inc.
("Inliner"), MSC, and KS. Inliner subsequently changed its name to
Firstliner U.S.A., Inc., and we refer to this defendant as Firstliner
throughout. Firstliner and CAT are in the business of rehabilitating and
restructuring various types of pipes, including sanitary, storm sewer,
water main, conduit, and industrial pipe. [District Court
Opinion]{.underline}, slip op. at 5. Firstliner oversees the marketing
of its trenchless procedure for pipe rehabilitation to potential
licensees. [Id.]{.underline} In addition, Firstliner manufactures
pipeliners and related materials, which it sells to CAT and its
licensees. [Id.]{.underline} CAT is responsible for marketing, bidding
for, and negotiating contracts with customers and managing its pipeline
rehabilitation contracts. [Id.]{.underline} Giulio Catallo, who was
subsequently added as a defendant, is the individual principal of both
CAT and Firstliner. MSC is also in the pipe rehabilitation business. CAT
was involved in a joint venture with MSC for performing the accused
processes.

KS is a German sewer rehabilitation company owned by Hans Mueller. After
reading about KS's proprietary sewer rehabilitation technology in a
trade magazine, Giulio Catallo contacted KS to obtain a license for that
technology. [Id.]{.underline} Catallo subsequently acquired the rights
to use the accused processes from Kanal Mueller Gruppe International
GmbH & Co. ("Gruppe"), a German export licensing company also owned by
Hans Mueller. Although KS stated in a letter written on November 10,
1989, that CAT was a "qualified Licensee for our KM-INLINER sewer
relining process for the territories of the USA," there was no formal
license agreement executed by the parties. [Id.]{.underline} at 6. An
actual license agreement, however, was later executed between Gruppe and
Firstliner, permitting CAT's use of the accused process.
[Id.]{.underline} This license agreement stated that "\[t\]he licensee
has been informed of a threat of a possible claim for infringing the
INSITUFORM method." [Id.]{.underline}

The original accused process used by defendants---referred to as the
"Multiple Cup Process" or "Process 1"---was a method of tube liner
impregnation involving the serial application of vacuum cups. In Process
1, from four to six cups were used to draw a vacuum from a corresponding
number of slits in the tube liner. As a result, when the cup closest to
the advancing resin was removed, and its slit was sealed, the remaining
downstream cups continued to draw a vacuum in the tube liner.

At some point in either 1991 or early 1992, on the advice of counsel,
defendants switched to an alternate process. In the alternate
process---referred to as the "Multiple Needle Process" or "Process
2"---the multiple cups were replaced with multiple metal tubes, known as
needles. In Process 2, the needles are inserted through the layers of
the impregnated tube liner, rather than merely placed over holes in the
wall of the liner. Defendants did not develop Process 2 until after the
first phase of the case had already been tried to a jury.

The original action for infringement of the '012 patent was brought in
February 1990. The original plaintiffs were Insituform of North America,
Inc.; Insituform Licensees, B.V.; and Insituform Gulf. Insituform
Licensees, B.V. was the owner of the '012 patent at the commencement of
the suit. As explained more fully below, Insituform Licensees, B.V.
subsequently assigned the '012 patent to Insituform Netherlands, along
with the right to sue for past infringement. Insituform Netherlands was
thus eventually substituted for Insituform Licensees, B.V. as a
plaintiff. Insituform Technologies, Inc. ("ITI") is the parent company
and administrative headquarters for the Insituform organization,
including Insituform Gulf. [Id.]{.underline} at 4. Insituform Gulf is
authorized to do business in Louisiana, Mississippi, and Texas and
licensed to perform Insituform technology in designated regions
throughout the United States.[^1] [Id.]{.underline} at 5. Insituform of
North America, Inc. is no longer a party to the suit.

Only claim 1 of the '012 patent was asserted at trial. It recites

1\. A method of impregnating with a curable resin an inner layer of
resin absorbent material disposed in an elongate flexible tube having an
outer layer formed by an impermeable film, the method comprising the
steps of

\(1\) introducing into one end of the elongate tube a mass of the
curable resin sufficient to impregnate the entire resin absorbent inner
layer of the tube,

\(2\) forming a window in the impermeable outer layer of the tube at a
distance from said one end of the tube,

\(3\) drawing through the window a vacuum in the interior of the tube
downstream of said one end by disposing over the window a cup connected
by a flexible hose to a vacuum source which cup prevents ingress of air
into the interior of the tube while the tube is being evacuated, the
outer layer of the tube being substantially impermeable to air,

\(4\) beginning at or near the end at which the curable resin mass was
introduced, passing the tube between squeezing members which force the
resin to flow towards the region of vacuum application as the tube
progresses through the squeezing members,

\(5\) when the resin reaches the vicinity of the region of vacuum
application, removing the cup and sealing the window,

\(6\) providing another window in the impermeable layer of the tube
downstream of the previously formed window,

\(7\) drawing through the new window a vacuum in the interior of the
tube while progressively moving the tube through the squeezing members
to force the resin to flow toward the new region of vacuum application,
and

\(8\) repeating steps 5, 6, and 7, where necessary to impregnate the
entire resin absorbent inner layer of the flexible tube.

'012 patent, col. 6, l. 37 -- col. 7, l. 6.

The case was first tried to a jury in June 1991. The jury returned a
verdict that the '012 patent was not invalid and was infringed, both
literally and via equivalents, by Process 1, the only accused process
then at issue. The district court granted defendants' motion for
judgment notwithstanding the verdict ("JNOV") with respect to literal
infringement and ordered a new trial as to infringement under the
doctrine of equivalents. In June 1994, the case was reassigned to a
different judge. A bench trial was held in February 1995, and in
November of that year the court held that Process 1 and Process 2 (which
had been introduced after the 1991 trial) infringed the '012 patent
under the doctrine of equivalents. The court held defendants CAT,
Firstliner, and MSC liable for direct infringement. The court also found
CAT and Firstliner liable for induced infringement. Additionally, the
court found that KS also had induced infringement of the '012 patent.
Defendants appealed.

B. [Insituform I]{.underline}

On appeal, we ruled that claim 1 of the '012 patent, which recites use
of a single cup moved to different windows along the tube to draw a
vacuum, did not encompass the accused methods of using several cups or
several needles attached at different points along the tube, and thus
was not literally infringed by either Process 1 or Process 2.
[Insituform Techs., Inc. v. Cat Contracting, Inc.]{.underline}, 99 F.3d
1098, 1106-07 (Fed. Cir. 1996) ("[Insituform I]{.underline}"). We also
ruled that plaintiffs were not barred by prosecution history estoppel
from asserting infringement under the doctrine of equivalents.
[Id.]{.underline} at 1107-08. Finally, we ruled that the district court
had erred in construing claim 1. We therefore vacated the judgment of
infringement with respect to both processes under the doctrine of
equivalents and remanded the case for new findings regarding
infringement under the doctrine of equivalents under the correct claim
construction. [Id.]{.underline} Because we vacated the judgment of
direct infringement, we did not reach the issue of whether KS had
induced infringement of the '012 patent.

C. [Insituform II]{.underline}

On remand, the district court again held that claim 1 of the '012 patent
was infringed by both Process 1 and Process 2 under the doctrine of
equivalents. [Insituform Techs., Inc. v. Cat Contracting,
Inc.]{.underline}, CA No. H-90-1690 (S.D. Tex. Dec. 31, 1996). The court
subsequently enjoined defendants from practicing those processes. In
addition, the court ruled again that KS had induced infringement of the
'012 patent. Defendants again appealed.

On the second appeal to us, we reaffirmed that prosecution history
estoppel did not bar plaintiffs from asserting infringement under the
doctrine of equivalents. [Insituform Techs., Inc. v. Cat Contracting,
Inc.]{.underline}, 166 F.3d 688, 692 (Fed. Cir. 1998) ("[Insituform
II]{.underline}"). On the infringement issue, insofar as Process 1 was
concerned, we affirmed the district court's holding that the process
infringed claim 1 of the '012 patent under the doctrine of equivalents.
[Id.]{.underline} at 693. However, with respect to Process 2, we held
that there were substantial differences between the claimed single cup
process and the accused multiple needle process. [Id.]{.underline} at
694. Accordingly, we reversed the court's holding that Process 2
infringed. [Id.]{.underline}

Turning to the liability of KS[^2] for induced infringement, we noted
that "a separate corporation related to \[KS\] licensed the infringing
technology to \[Firstliner\] after \[KS\] received notice of the '012
patent." [Id.]{.underline} at 695. That corporation was Gruppe. Because
Gruppe was not a party to the case, and because "there were no findings
that this affiliate was \[KS\]'s alter ego," we vacated the district
court's holding and remanded for further proceedings on the inducement
issue. [Id.]{.underline}

D. [Insituform III]{.underline}

On remand, the district court determined that Gruppe was not the alter
ego of KS and that KS, therefore, was not liable for induced
infringement. [District Court Opinion]{.underline}, slip op. at 45.
Additionally, the district court joined Giulio Catallo in his personal
capacity as a defendant, and held him jointly liable for damages.
[Joinder Order]{.underline}, slip op. at 9. With both the liability and
damages trials now concluded, the court awarded damages for infringement
of the '012 patent by Process 1 under the doctrine of equivalents.
[District Court Opinion]{.underline}, slip op. at 62. Additionally, the
court found CAT and Firstliner's infringement to be willful and thus
enhanced the actual damages award by fifty percent, [id.]{.underline} at
55, and awarded Insituform attorney fees, [id.]{.underline} at 57.

Defendants appealed, raising a number of different issues. These
included (1) whether Insituform Netherlands, the new assignee of the
'012 patent, had been improperly joined as a plaintiff; (2) whether
Giulio Catallo, as president of CAT, had been improperly joined as an
individual defendant jointly and severally liable for damages; (3)
whether the district court had properly assessed damages following our
decision in [Insituform II]{.underline}; (4) whether the district court
had erred in holding that the infringement that was found in the case
was willful; and (5) whether the district court had erred in determining
the extent to which accused infringers CAT and Firstliner instructed,
and therefore induced, their licensees to use the infringing process.
For their part, plaintiffs cross-appealed the district court's ruling
that Gruppe was not the alter ego of KS and that KS therefore was not
vicariously liable for induced infringement.

After oral argument in the appeal, defendants filed motions asking us to
apply our holding in [Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki
Co., Ltd.]{.underline}, 234 F.3d 558 (Fed. Cir. 2000) (en banc) ("[Festo
I]{.underline}"). In [Festo I]{.underline}, we ruled that a narrowing
amendment to a claim limitation made for a substantial reason related to
patentability completely bars the application of the doctrine of
equivalents to that amended claim limitation. [Id.]{.underline} at 569.
Because our [Festo I]{.underline} decision represented an intervening
change in controlling authority, we revisited our infringement holdings
in [Insituform I]{.underline} and [II]{.underline}. [Insituform Techs.,
Inc. v. Cat Contracting, Inc.]{.underline}, 10 Fed. Appx. 871, 877 (Fed.
Cir. 2001) (unpublished) ("[Insituform III]{.underline}").

After reexamining the prosecution history of the '012 patent, we
determined that, under [Festo I]{.underline}, Insituform had made a
narrowing amendment to claim 1 of the '012 patent. [Insituform
III]{.underline}, 10 Fed. Appx. at 879-80. The claim was narrowed, we
pointed out, because claim 1 in its original form did not limit the
number of cups that could be used to create a vacuum, whereas claim 1 in
its amended form was limited to the use of one cup. [Id.]{.underline}
Accordingly, we held that "Insituform cannot assert any range of
equivalents for this claim limitation \[and\] Process 1, which uses
multiple cups, cannot infringe under the doctrine of equivalents, the
only finding of infringement affirmed by this court." [Id.]{.underline}
at 880. We therefore reversed the district court's final judgment of
liability and damages, and remanded the case with instructions "(i) to
vacate all orders entered after the finding of infringement as moot,
including those relating to damages and Catallo's joinder as defendant;
and (ii) to dismiss the case as to all parties." [Id.]{.underline} We
thus did not address the several remaining issues noted above that
originally were on appeal to us in [Insituform III]{.underline}.
Plaintiffs petitioned the Supreme Court for a writ of certiorari, as did
the plaintiff in [Festo I]{.underline}.

E. [Remand from the Supreme Court]{.underline}

The Supreme Court vacated and remanded our decision in [Festo
I]{.underline}. [Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co.,
Ltd.]{.underline}, 525 U.S. 722 (2002) ("[Festo II]{.underline}"). In
[Festo II]{.underline}, the Court overruled the complete bar we
established in [Festo I]{.underline}, establishing a flexible bar
instead. [Id.]{.underline} at 738 ("\[W\]e have consistently applied the
doctrine \[of equivalents\] in a flexible way, not a rigid one."). The
Court also held, [inter]{.underline} [alia]{.underline}, that where the
equivalent was "unforeseeable at the time of the amendment" or the
rationale underlying the amendment bore "only a peripheral relation" to
the equivalent, the patentee could rebut the so-called
"Festo-presumption." [Id.]{.underline} at 740. That presumption is that
a narrowing amendment made for a reason of patentability surrenders the
entire territory between the original and the amended claim limitation.
[Id.]{.underline} Accordingly, the Court vacated our decision in
[Insituform III]{.underline} and remanded the case to us for further
proceedings in light of its decision in [Festo II]{.underline}.
[Insituform Techs., Inc. v. Cat Contracting, Inc.]{.underline}, 535 U.S.
1108 (2002).

F. [Festo III]{.underline}

After the Supreme Court remanded [Festo]{.underline} to us, we rendered
our second [en]{.underline} [banc]{.underline} decision in the case.
[Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co., Ltd.]{.underline},
344 F.3d 1359 (Fed. Cir. 2003) ("[Festo III]{.underline}"). In [Festo
III]{.underline}, we summarized the three ways in which the Supreme
Court stated that the [Festo]{.underline} presumption could be rebutted.
[Id.]{.underline} at 1369. First, the patentee may demonstrate that "the
alleged equivalent would have been unforeseeable at the time of the
narrowing amendment." [Id.]{.underline} Second, the patentee may
demonstrate that "the rationale underlying the narrowing amendment bore
no more than a tangential relation to the equivalent in question."
[Id.]{.underline} Finally, there may be "'some other reason' suggesting
that the patentee could not reasonably have been expected to have
described the alleged equivalent." [Id.]{.underline} (citing [Festo
II]{.underline}, 535 U.S. at 740-41).

ANALYSIS

The following issues are now before us on direct appeal: (1) whether
plaintiffs are barred from asserting infringement under the doctrine of
equivalents by reason of prosecution history estoppel in light of [Festo
II]{.underline} and [Festo III]{.underline}; (2) whether Insituform
Netherlands, the new assignee of the '012 patent, was improperly joined
as a plaintiff; (3) whether Giulio Catallo, president of CAT, was
improperly joined as an individual defendant and held jointly and
severally liable for damages; (4) whether the district court properly
assessed damages following our decision in [Insituform II]{.underline};
(5) whether the district court erred in holding that the infringement
that was found in this case was willful; and (6) whether the district
court erred in determining the extent to which accused infringers CAT
and Firstliner instructed their licensees to use the infringing process.
On cross-appeal, we consider whether the district court erred in ruling
that Gruppe was not the alter ego of KS, and that KS therefore was not
vicariously liable for induced infringement. We address the parties'
contentions in turn, beginning with the [Festo]{.underline} issue.

I.

With the complete bar of [Festo I]{.underline} overturned, we asked the
parties to give us their views as to how we should decide the case in
light of [Festo II]{.underline} and [Festo III]{.underline}. In
response, both plaintiffs and defendants urged us to decide the
[Festo]{.underline} issue on the record now before us. We of course are
not bound by the wishes of the parties on a question such as this.
However, because resolution of the issue turns on whether Insituform's
rationale underlying the narrowing amendment bore no more than a
tangential relation to accused Process 1, and because the record has
been fully developed on this point, we agree that we can decide the
issue. [See]{.underline} [Festo III]{.underline}, 344 F.3d at 1370
("\[W\]hether the patentee has established a merely tangential reason
for a narrowing amendment is for the court to determine from the
prosecution history record without the introduction of additional
evidence, except, when necessary, testimony from those skilled in the
art as to the interpretation of that record.").

Plaintiffs urge that nothing in either [Festo II]{.underline} or [Festo
III]{.underline} invalidates [Insituform II]{.underline}, where we
determined that plaintiffs were not barred by prosecution history
estoppel from asserting infringement under the doctrine of equivalents.
Plaintiffs contend that any presumption of surrender is rebutted because
the rationale underlying the amendment narrowing claim 1 to a single cup
process bears at most a tangential relation to the infringing
equivalent---the multiple-cup method of Process 1. Specifically,
plaintiffs assert that the reason for the amendment was to overcome the
prior art teaching of a single vacuum source at the far end of the tube
liner. As such, plaintiffs argue, the amendment is, at most, only
tangentially related to Process 1, which places multiple cups near the
resin front.

For their part, defendants note that claim 1, as originally filed,
covered a process using single or multiple cups at any location
downstream of the resin front. [See]{.underline} [Insituform
I]{.underline}, 99 F.3d at 1108. They also note that we construed claim
1, as amended, to cover a single vacuum cup, which inherently creates a
discontinuous vacuum. [Id.]{.underline} at 1106. Defendants thus argue
that accused Process 1 falls squarely within the territory surrendered
by the narrowing amendment.

For the reasons which follow, we hold that plaintiffs have rebutted the
[Festo]{.underline} presumption that a narrowing amendment made for a
reason of patentability surrenders the entire territory between the
original claim limitation and the amended claim limitation.
[See]{.underline} [Festo II]{.underline}, 535 U.S. at 740-41. We reach
this conclusion because we conclude that the prosecution history
establishes that "the rationale underlying" the amendment narrowing the
scope of literal claim coverage from multiple cups to a single cup bears
"no more than a tangential relation to the equivalent in question,"
accused Process 1. [Id.]{.underline} Therefore, application of the
doctrine of equivalents in this case was not barred. Accordingly, we
again affirm the judgment of the district court that Process 1 infringed
claim 1 of the '012 patent under the doctrine of equivalents.[^3]

In [Insituform I]{.underline}, we construed claim 1 of the '012 patent
as limited to "a process using only one vacuum cup which inherently
creates a discontinuous vacuum." [Id.]{.underline} at 1106. Based upon
that construction, we affirmed the district court's JNOV that
Firstliner's Process 1, employing multiple cups beyond the resin, did
not literally infringe claim 1. [Id.]{.underline} As noted, we also
held, however, that Insituform was not barred by prosecution history
estoppel from asserting that Process 1 infringed claim 1 under the
doctrine of equivalents. [Id.]{.underline} at 1109. In so holding, we
first looked at the original claims in Insituform's application. Of
those, only the first four are relevant to this appeal. Those claims
recited:

> 1\. A method of impregnating a flexible tube comprising an inner layer
> of resin absorbent material and an outer layer in the form of an
> impermeable film, wherein the resin absorbent layer is impregnated
> with a curable resin by applying a vacuum to the inside of a flexible
> tube whilst the resin is brought into impregnation contact with the
> resin absorbent material, the impermeable film serving as a means to
> prevent ingress of air into the interior of the tube, whilst the
> impregnation process is taking place.
>
> 2\. A method according to claim 1, wherein the resin is introduced
> into one end of the tube in a quantity calculated effectively to
> impregnate all of the resin absorbent material of the tube, and the
> vacuum is applied to the interior of the tube, downstream of the resin
> mass, so that the resin will tend to flow towards the vacuum
> application region.
>
> 3\. A method according to claim 2, wherein the lining tube containing
> the mass of resin is fed through a pressure applying nip, such as may
> be defined by a nip roller, which, together with the movement of the
> tube, squeezes the resin in a direction towards the region of the
> application of the vacuum, at the same time flattening the tube and
> assisting in the even distribution of the resin.
>
> 4\. A method according to claim 2, wherein the vacuum is applied
> through a window in the film in the wall of the tube by means of a cup
> applied to said window and connected to a source of vacuum by means of
> a flexible hose, whereby the cup can move with the tube during its
> movement relative to said nip, the cup being moved and applied to a
> position spaced downstream from the previous window, said previous
> window being sealed by means of a patch or the like, whereby the
> process is repeated for respective lengths of the tube until the
> entire tube length has been impregnated.

As can be seen, the position and number of vacuum cups were not
specified in independent claim 1. Neither did claim 1 specify the
location of the vacuum source. Dependent claim 2 referred to the vacuum
being applied to the interior of the tube, "downstream of the resin
mass," while dependent claim 3 stated that the resin is squeezed "in a
direction towards the region of the application of the vacuum." It was
only in dependent claim 4 that the inventor recited application of the
vacuum through a window in the wall of the tube by means of a cup
applied to the window, as well as repositioning of the cup. All four
claims were rejected over United States Patent No. 4,182,262 to Everson
("Everson").

We stated in [Insituform I]{.underline} that the original four claims
"were rejected over Everson, which discloses both the use of a
continuous vacuum and the creation of that vacuum from only a single
vacuum source at the far end of the tube opposite the resin source."
[Id.]{.underline} at 1108. The objection was overcome by amending claim
1 to include, in a different form, the limitations of original dependent
claims 2-4. Further examining the prosecution history, we determined
that Insituform had stated to the examiner that the problem with Everson
was that Everson's method was ineffective when dealing with a long
length of tube because it required an exceedingly large suction
compressor. We pointed out that Insituform solved this problem by
placing the suction source closer to the resin front, thus allowing the
use of a smaller suction compressor. [Id.]{.underline} Based on our
examination of the prosecution history, we concluded that Insituform was
not estopped from asserting that Inliner's multiple cup process
infringed claim 1 of the '012 patent under the doctrine of equivalents:

> \[I\]t cannot be said that a reasonable competitor could conclude that
> Insituform relinquished coverage of processes using either multiple
> vacuum sources or a continuous vacuum. At no point did Insituform
> indicate that the Everson problem could be solved only in the manner
> used by Insituform, [i.e.]{.underline}, Insituform never stated that
> the problem could not be solved by using more than one vacuum source
> or a continuous vacuum. Rather, the only express limitation put on the
> invention by Insituform was the use of a vacuum source close to the
> resin.

[Id.]{.underline} at 1109. We remanded the case to the district court
for further proceedings on whether Process 1 infringed claim 1 under the
doctrine of equivalents.

On remand, the district court held that Process 1 infringed claim 1
under the doctrine of equivalents, and the case returned to us on appeal
in [Insituform II]{.underline}. On appeal, Firstliner argued that
[Warner-Jenkinson Co. v. Hilton Davis Chemical Co.]{.underline}, 520
U.S. 17 (1997), issued after [Insituform I]{.underline}, limited the
doctrine of equivalents so that it could not apply in the case.
Firstliner pointed to [Warner-Jenkinson]{.underline}'s holding that
where no explanation is given for an amendment made during prosecution
of a patent, a presumption is to be applied against the patentee that
the amendment was made for purposes of patentability. Firstliner
asserted that when Insituform amended claim 1 in response to the
examiner's 35 U.S.C. § 103 rejection over Everson, it necessarily gave
up coverage of any process in which the vacuum was created at multiple
vacuum sources because it provided no explanation for that narrowing
amendment. [Insituform II]{.underline}, 161 F.3d at 691. We rejected
this argument, pointing out that, during prosecution, Insituform had
explained the reason for the amendment of claim 1:

> The stated reason . . . for Insituform's amendment to overcome the
> Everson reference was to avoid the need to use a large compressor when
> the vacuum is created a significant distance from the resin source.
> The [Warner Jenkinson]{.underline} presumption, therefore, which comes
> into play only when [no explanation]{.underline} is given for a claim
> amendment, is not applicable to this case because Insituform made
> clear that the reason for the amendment was to overcome the prior art
> teaching creation of a single source vacuum at the far end of the
> liner.

[Id.]{.underline} at 692 (citation omitted, emphasis in original).
Having rejected Inliner's prosecution history estoppel argument, we went
on to affirm the district court's judgment of infringement under the
doctrine of equivalents. [Id.]{.underline} at 692-93. As noted above,
however, we subsequently reversed the judgment of infringement in
[Insituform III]{.underline} based on our short-lived complete bar rule
arising out of [Festo I]{.underline}.

In our view, Insituform has rebutted the [Festo]{.underline}
presumption. The prosecution history and our discussion of that history
in [Insituform I]{.underline} and [II]{.underline} compel the conclusion
that the amendment limiting the literal scope of claim 1 to a single cup
process bears "only a tangential relation," if that, "to the equivalent
in question," a process using multiple cups. The question we must
address is "whether the reason for the narrowing amendment was
peripheral, or not directly relevant, to the alleged equivalent." [Festo
III]{.underline}, 344 F.3d at 1365. As the discussion above indicates,
the narrowing amendment in this case was for the purpose of
distinguishing the invention over Everson. Insituform made it clear that
the difference between its process and Everson was that its process did
not have the disadvantage of the Everson process of a large compressor
at the end of the liner. There is no indication in the prosecution
history of any relationship between the narrowing amendment and a
multiple cup process, which is the alleged equivalent in this case.
Thus, we hold that plaintiffs have successfully rebutted the
[Festo]{.underline} presumption by establishing that the amendment
narrowing the claimed invention from multiple cups to a single cup was
tangential to accused Process 1, which used multiple cups attached at
different points along the liner tube. We therefore affirm the judgment
of infringement under the doctrine of equivalents.

Because we have sustained the judgment of infringement, we must consider
the several additional issues that were mooted when we reversed the
judgment of infringement under the short-lived complete bar rule arising
out of [Festo I]{.underline}.

II\.

We consider first the issues raised by defendants in their direct
appeal. Defendants appeal (1) the joinder of Insituform Netherlands, (2)
the joinder of Catallo in his individual capacity, (3) the damages award
for infringement by Process 1, (4) the district court's willfulness
determination, and (5) the extent to which CAT/Firstliner induced
infringement by their licensees.

A. [Joinder of Insituform Netherlands]{.underline}

Defendants appeal the joinder of Insituform Netherlands. According to
defendants, the current owner of the '012 patent, Insituform
Netherlands, never filed suit and was named to this litigation only
because of a misrepresentation to the district court in 1994, after the
case was reassigned to a new judge. They assert that the district
court's 1994 decision adding Insituform Netherlands as a party was in
error and that no properly named party has standing to sue for damages.
Plaintiffs respond that the district court acted well within its
discretion (i) in granting the joint 1994 motion that Insituform
Netherlands be added as a party, and (ii) in refusing to alter that
decision in 1999.

The original corporate plaintiff, and owner of the '012 patent, was
Insituform Licensees B.V. Insituform Licensees B.V. filed this lawsuit
in 1990. In 1992, the case went to trial. At that time, the plaintiffs
were Insituform Licensees B.V.; Insituform of North America, Inc.; and
Insituform Gulf South, Inc. The defendants were CAT, MSC, KS, and
Firstliner.

Following a jury trial, a verdict, and after a new trial was ordered,
Insituform Licensees B.V. assigned the '012 patent to Insituform
Netherlands. The assignment included the right to sue for past
infringement. At the time of the assignment, Insituform Netherlands was
not a party to the lawsuit, and it did nothing to join the suit for two
years. On November 30, 1994, the parties entered a joint motion asking
the court to make Insituform Netherlands a party. The motion stated that
"legal title to the patent in suit has been transferred from Insituform
Licensees B.V. to Insituform (Netherlands) BV." Plaintiffs also
represented to defendants and to the district court that Insituform
Licensees B.V. had changed its name to Insituform Netherlands. This was
not technically true. While ownership of the patent had, indeed, changed
hands, Insituform Licensees B.V. was still an existing corporate entity
at the time of the motion. After the motion to join Insituform
Netherlands was granted, defendants discovered the alleged
misrepresentation and, on that basis, now challenge Insituform
Netherlands' standing.

Probably to remedy what they perceived to be a potential defective
parties problem, plaintiffs, in 1999, sought leave to amend their
pleadings to include Insituform North America, Inc.[^4] and, if
necessary, Insituform Netherlands as parties under Fed. R. Civ. P. 15(a)
and 21. The district court stated that "\[Insituform Netherlands\] was
made a party to this suit by order of this court on November 30, 1994."
[District Court Opinion]{.underline}, slip op. at 21. The court also
stated that "the rights of the legal patent owner have been at issue
since the inception of this case and . . . \[Insituform Netherlands\]
has presented evidence of recoverable monetary damages that Defendants
have been able to rebut at trial. Therefore, Defendants would not be
prejudiced if \[Insituform Netherlands\] is recognized as a party
plaintiff in this suit." [Id.]{.underline} at 21-22. In other words, the
district court ruled that it had already joined Insituform Netherlands
as a party in November 1994, and it refused to change that decision in
1999, despite the arguments of defendants.

Because the joinder issue is not unique to patent law, we apply the law
of the regional circuit. [McGinley v. Franklin Sports,
Inc.]{.underline}, 262 F.3d 1339, 1357 (Fed. Cir. 2001) ("A district
court's decision to grant or deny a motion for leave to join a party
involves a procedural question that raises no special issues relating to
patent law, and therefore \[regional circuit\] law applies.");
[Datascope Corp. v. SMEC, Inc.]{.underline}, 962 F.2d 1043, 1045 (Fed.
Cir. 1992) (Regional circuit law determines "the standard for
determining whether the district court abused its discretion in denying
\[the patentee\] leave to amend" its complaint to add a new party.).
Rule 15(a) provides that a party may amend its pleadings "only by leave
of court or by written consent of the adverse party; and leave shall be
freely given when justice so requires." Fed. R. Civ. P. 15(a). Rule 21
states that "parties may be dropped or added by order of the court on
motion of any party or of its own initiative at any stage of the action
and on such terms as are just." Fed. R. Civ. P. 21. In applying Rule 21,
the court is governed by the liberal amendment standards of Rule 15(a).
[See]{.underline} [McLellan v. Miss. Power & Light]{.underline}, 526
F.2d 870, 873 (5th Cir. 1976). The decision to grant or deny a motion
for leave to amend thus lies within the sound discretion of the trial
court. [Jacobsen v. Osborne]{.underline}, 133 F.3d 315, 318 (5th Cir.
1998); [Datascope Corp.]{.underline}, 962 F.2d at 1045. The Fifth
Circuit has stated that leave should be granted "in the absence of any
apparent or declared reason---such as undue delay, bad faith or dilatory
motive on the part of the movant, repeated failure to cure deficiencies
by amendments previously allowed, undue prejudice to the opposing party
by virtue of allowance of the amendment, \[or\] futility of amendment."
[Jacobsen]{.underline}, 133 F.3d at 318.

The district court exercised its discretion in this case fully aware of
plaintiffs' alleged misrepresentation in the 1994 joint motion and
determined that defendants would suffer no prejudice were Insituform
Netherlands joined as a party. [District Court Opinion]{.underline},
slip op. at 21-22. We discern no abuse of discretion in this decision,
and thus affirm the district court's ruling.[^5] We have considered the
defendant's other arguments on this point and find them not persuasive.

B. [Joinder of Giulio Catallo]{.underline}

Defendants appeal the joinder of Giulio Catallo as a defendant in his
individual capacity. According to defendants, the addition of Catallo as
a party to this suit violated due process and was contrary to the
Supreme Court's decision in [Nelson v. Adams U.S.A., Inc.]{.underline},
529 U.S. 460 (2000). For their part, plaintiffs distinguish
[Nelson]{.underline} and rely on our decision in [Fromson v. Citiplate,
Inc.]{.underline}, 886 F.2d 1300 (Fed. Cir. 1989). Plaintiffs assert
that Catallo is the main executive officer of both CAT and Firstliner
and (1) had controlling authority of their day-to-day operations, (2)
was directly and actively involved in all aspects of the litigation, and
(3) was individually responsible for all of the conduct that led the
district court to increase damages and award attorney's fees. As
explained below, the district court's ruling on this point is supported
by our decision in [Fromson]{.underline}, and we see no clear error in
the court's interpretation of the facts. We accordingly affirm the
court's decision on this point.

Giulio Catallo is the sole owner of defendants CAT and Firstliner. He
also is president of both corporations. Plaintiffs first attempted to
join Catallo in his individual capacity in January of 1991, before the
first infringement trial in the case. That motion was denied without
prejudice and without opinion. Plaintiffs renewed their motion after the
infringement trial (the trial for damages was bifurcated) in July 1991.
This motion also was denied without prejudice and without opinion. In
each case, the reason asserted for the joinder of Catallo was that he
was "directly responsible for all of the activities of CAT and INLINER
\[and\] was clearly the moving force behind infringement \[and\]
personally financially benefited from the payments made \[under one of
the contracts found to be infringing.\]" Additionally, plaintiffs
asserted that Catallo was personally a licensee of the accused process
because he signed a license agreement twice, on behalf of himself and as
President of Firstliner.

The damages portion of the case was tried in September 1997. After
trial, the court found that defendants' infringement had been willful.
In July 1999, plaintiffs moved again to add Giulio Catallo as a
defendant. In so doing, they argued that Catallo's corporations were a
"real credit risk." They also argued that Catallo was a personal
tortfeasor. Finally, they urged that in the intervening years
(1991-1999) many facts had come to light that weighed in favor of making
Catallo personally liable as an individual party.

Defendants acknowledge that a corporate entity may be disregarded if
doing so will prevent fraud, illegality, injustice, a contravention of
public policy, or prevent the corporation from shielding someone from
criminal liability. [See]{.underline} [Manville Sales Corp. v. Paramount
Sys., Inc.]{.underline}, 917 F.2d 544, 552 (Fed. Cir. 1990). They argue,
however, that none of these reasons were present in this case. They
state that Catallo "was merely acting in accordance \[with\] the duties
and scope of his position" and that he "had a good faith belief and
basis that the Firstliner process did not infringe any Insituform
patents when the contracts were performed." In short, defendants contend
that there was no reason to pierce the corporate veil in this case.

In an August 30, 1999 order, the district court granted plaintiffs'
motion to join Giulio Catallo. [Joinder Order]{.underline}, slip op. at
9. In granting this third request to add Catallo as a defendant, the
district court recognized that it was faced "with the uncommon situation
where an individual is sought to be added as a party after the
conclusion of trial." [Id.]{.underline} at 5. With respect to the
propriety of adding Catallo as a defendant, the district court relied on
our decision in [Ohio Cellular Products Corp. v. Adams, U.S.A.,
Inc.]{.underline}, 175 F.3d 1343 (Fed. Cir. 1999), [rev'd sub
nom.]{.underline} [Nelson v. Adams, U.S.A., Inc.]{.underline}, 529 U.S.
460 (2000), which was, at that time, pending before the Supreme Court.
The court also pointed to our decision in [Fromson]{.underline}. With
respect to the personal liability of Catallo, the court relied on
[Walker v. Federal Deposit Insurance Corp.]{.underline}, 970 F.2d 114,
122 (5th Cir. 1992), where the Fifth Circuit stated that "\[a\]n officer
is individually liable for any tortious conduct that he committed in
connection with his corporate duties . . . . If a corporate officer
knowingly participates in a tortious act, there is no need to pierce the
corporate veil in order to impose liability." In light of the facts that
led to a finding of willful infringement, and because the court believed
that Catallo "was personally responsible for many, if not all, of the
aggravating facts which led this court to award attorney's fees and
enhanced damages," [Joinder Order]{.underline}, slip op. at 7, it
granted the motion to add Catallo as a defendant in his individual
capacity, [id.]{.underline} at 9.

As noted above, because the amendment of a pleading to add a party is
not unique to patent law, we apply the law of the regional circuit.
[McGinley]{.underline}, 262 F.3d at 1357. We thus review a district
court's decision to add a party pursuant to Rules 15 and 21 of the
Federal Rules of Civil Procedure for an abuse of discretion.
[Jacobsen]{.underline}, 133 F.3d at 318. Our decision in [Ohio
Cellular]{.underline}, upon which the district court relied, was
subsequently overturned by the Supreme Court. [Nelson]{.underline}, 529
U.S. at 472. Resolution of this issue thus turns on whether the facts of
this case fall more closely under the Supreme Court's decision in
[Nelson]{.underline}, or our decision in [Fromson]{.underline}, which
the Supreme Court distinguished in [Nelson]{.underline}. If the facts
are closer to [Nelson]{.underline}, then the district court decision is
incorrect as a matter of law, and Catallo was improperly joined. If the
facts are closer to [Fromson]{.underline}, then the district court
decision should be affirmed.

In [Nelson]{.underline}, Ohio Cellular Products Corp. ("OCP") sued
Adams, U.S.A., Inc. ("Adams") for patent infringement. Eventually, the
action was dismissed and Adams was awarded costs and attorney fees.
[Nelson]{.underline}, 529 U.S. at 462. Adams, fearful that OCP would be
unable to pay, moved to amend its pleadings pursuant to Fed. R. Civ. P.
15 to include Nelson, the sole shareholder of OCP, as a party.
[Id.]{.underline} The district court granted the motion and
simultaneously subjected Nelson to the judgment, a decision we
subsequently affirmed in [Ohio Cellular]{.underline}.

The Supreme Court reversed our decision in [Ohio Cellular]{.underline}
on due process grounds. The Court determined that Nelson was never
afforded a proper opportunity to respond to the claim against him.
[Id.]{.underline} at 467. He was never served with an amended pleading,
nor was any such pleading actually composed and filed in the court.
[Id.]{.underline} at 466. Nor, after the amendment naming him as a
party, was Nelson accorded ten days to state his defenses against
personal liability for costs and fees. [Id.]{.underline} Instead,
judgment was entered against him the moment permission to amend the
pleading was granted. [Id.]{.underline} The Court stated that "appeal
after judgment, in the circumstances this case presents, did not provide
an adequate opportunity to defend against the imposition of liability."
[Id.]{.underline} Finally, the Court noted that Adams never once sought
to sue Nelson individually until after judgment was entered against Ohio
Cellular. [Id.]{.underline} at 467.

In [Fromson]{.underline}, Citiplate, Inc. ("Citiplate") was sued by
Howard A. Fromson ("Fromson") for patent infringement. Fromson moved
[before trial]{.underline} to add the individual owners of Citiplate as
parties, because he suspected that the defendant corporation might not
be able to pay a judgment against it. [Fromson]{.underline}, 886 F.2d at
1301. The district court initially denied the motion because of
defendant Citiplate's assurances that its financial condition was sound.
[Id.]{.underline} These assurances turned out to be false. After
judgment had been entered, the court allowed Fromson to amend its
original complaint to add the individual owners of Citiplate as parties
pursuant to Fed. R. Civ. P. 15(c). [Id.]{.underline} at 1302.

We affirmed the district court's decision. In so doing, we relied upon
the test articulated by the Supreme Court in [Schiavone v. Fortune,
Inc.]{.underline}, 477 U.S. 21 (1986), to determine whether the
requirements of Rule 15(c) had been met. In [Schiavone]{.underline}, the
Court articulated a four-part test:

> Relation back is dependent upon four factors, all of which must be
> satisfied: (1) the basic claim must have arisen out of the conduct set
> forth in the original pleading; (2) the party to be brought in must
> have received such notice that it will not be prejudiced in
> maintaining its defense; (3) that party must or should have known
> that, but for a mistake concerning identity, the action would have
> been brought against it; and (4) the second and third requirements
> must have been fulfilled within the prescribed limitations period.

[Schiavone]{.underline}, 477 U.S. at 29. Based on this test, we
determined that the "identity of interests between Citiplate and \[its
individual owners\] is virtually complete and that \[the individual
owners\] should have known all along that joinder was a possibility."
[Fromson]{.underline}, 886 F.2d at 1304. We concluded that the owners of
Citiplate "themselves created the 'mistake' respecting the identity of
the proper party rightfully to be sued and capable of responding to
damages." [Id.]{.underline}

The original 1991 motions to add Giulio Catallo presumably were denied
because the district court believed defendants' assertions that Catallo
"was merely acting in accordance \[with\] the duties and scope of his
position" and that he "had a good faith belief and basis that the
Inliner process did not infringe any Insituform patents when the
contracts were performed." When all the facts were determined following
the 1997 damages trial, the court concluded that these assertions were
not true, finding that Catallo "was personally responsible for many, if
not all, of the aggravating facts which led this court to award
attorney's fees and enhanced damages." [Joinder Order]{.underline}, slip
op. at 7. Furthermore, the court found that "Catallo diligently acted to
protect his interests at every stage of the proceedings."
[Id.]{.underline} The court subsequently exercised its discretion and
granted the motion requesting that Catallo be added as a defendant.

Applying the Fifth Circuit's abuse of discretion standard, we cannot say
that the district court abused its discretion in adding Catallo as a
defendant in his individual capacity. In our view, the controlling case
is [Fromson]{.underline}, which the Supreme Court distinguished in
[Nelson]{.underline}. As in [Fromson]{.underline}, plaintiffs in this
case sought from the very beginning to add Catallo as a defendant in his
individual capacity on the theory that he was liable as an individual
tortfeasor. We have stated that "it is well settled that corporate
officers who actively aid and abet their corporation's infringement may
be personally liable for inducing infringement under § 271(b) regardless
of whether the corporation is the alter ego of the corporate officer."
[Orthokinetics, Inc. v. Safety Travel Chairs, Inc.]{.underline}, 806
F.2d 1565, 1579 (Fed. Cir. 1986). The facts of this case are closer to
[Fromson]{.underline} than to [Nelson]{.underline}. Accordingly, we
affirm the decision of the district court.

C. [Damages]{.underline}

The overarching issue with respect to damages is the propriety of the
district court's procedure in reassessing damages in light of our
decision in [Insituform II]{.underline}. The issues of infringement and
damages were bifurcated in the case. The damages trial concluded while
the appealed infringement decision still was pending before us in
[Insituform II]{.underline}. The damages trial was conducted under the
assumption that Process 1 (using cups) and Process 2 (using needles)
both infringed the '012 patent. We determined, however, that only
Process 1 infringed and that Process 2 did not. [Insituform
II]{.underline}, 161 F.3d at 694. Not knowing that the damages trial had
already concluded, we stated that "the bifurcated damages trial will
determine for what amount \[defendants are\] actually responsible . . .
." [Id.]{.underline} at 695.

Following our decision in [Insituform II]{.underline}, the district
court, over the objection of defendants, chose to allow only limited
discovery to address the issue of damages, instead of again opening up
trial proceedings. [District Court Opinion]{.underline}, slip op. at
3-4. The primary issue on which the final damages award turned was one
of fact. Specifically, the district court had to determine the date on
which defendants stopped using infringing Process 1 and started using
the non-infringing Process 2. [Id.]{.underline} at 35-36. To that end,
the court turned to the June 1991 trial testimony of Giulio Catallo,
which indicated that defendants switched to Process 2 "sometime after
June of 1991." [Id.]{.underline} at 35.[^6] Defendants urged the court
to rely instead on Catallo's February 1995 trial testimony, where he
indicated that defendants had shifted to needles exclusively by March of
1991. [Id.]{.underline} During the discovery period, defendants
presented deposition testimony of two additional witnesses to support
their assertion that February 14, 1991, was the actual date by which
they had stopped using Process 1. This testimony was offered to
establish a specific date and to buttress Catallo's February 1995
testimony. [Id.]{.underline} at 35-36.

Based on Catallo's previous testimony at the 1991 and 1995 trials, and
the new evidence presented during discovery, the district court amended
its damages ruling. The court stated that the deposition testimony of
the two additional witnesses "do\[es\] nothing to persuade the Court
that needles were actually being used for production purposes during the
first quarter of 1991." [Id.]{.underline} In conclusion, the court found
that "the totality of the testimony of these witnesses does make it
appear credible that Defendants had switched to needles for production
by the end of 1991 . . . . Therefore, for purposes of these damages
calculations, the court finds that a preponderance of the evidence
necessitates that the Court enter a finding that Defendants had switched
to the use of Process 2 for production by the beginning of 1992."
[Id.]{.underline} at 36.

Defendants argue on appeal that rendition of judgment without a trial
specifically focusing on damages relating to Process 1 violated their
due process rights and our mandate in [Insituform II]{.underline}. For
their part, plaintiffs respond that there was no procedural error in the
district court's damages calculation because, in their view, the
district court did not make credibility choices except as to Catallo's
testimony in open court. Additionally, plaintiffs argue that the due
process requirements in a civil case, where only property interests are
at stake, are much less stringent than in criminal cases.

We agree with defendants that "the procedure chosen by the district
court in this case was tantamount to a 'trial by affidavit' which has
long been disapproved in our federal judicial system." [Anderson v.
Liberty Lobby, Inc.]{.underline}, 477 U.S. 242, 255 (1986). Defendants
characterize the trial court's action as a "[de]{.underline}
[facto]{.underline} summary judgment" proceeding because the district
court essentially ruled based on deposition and affidavit testimony
without the opportunity to observe or assess the credibility of the new
witnesses. We agree with defendants' characterization and accordingly
review the district court's decision on this point under the summary
judgment standard.

We review summary judgment [de]{.underline} [novo]{.underline}. [Merck &
Co., Inc. v. Mylan Pharms., Inc.]{.underline}, 190 F.3d 1335, 1338 (Fed.
Cir. 1999). Summary judgment is appropriate where the record indicates
"that there is no genuine issue as to any material fact and that the
moving party is entitled to a judgment as a matter of law." Fed. R. Civ.
P. 56(c). We believe that the deposition testimony of the two additional
witnesses, combined with the inconsistent testimony of Catallo at the
two trials created a disputed issue of material fact upon which the
quantum of damages turns. The district court should have resolved this
issue with trial-type proceedings. We therefore vacate and remand on
this issue so that the trial court may properly weigh the new evidence
regarding the quantum of damages attributable to infringing Process 1.

D. [Willful Infringement]{.underline}

The district court determined that defendants CAT and Firstliner's
infringement had been willful. [District Court Opinion]{.underline},
slip op. at 55. One crucial aspect of the district court's willfulness
determination was the failure of CAT and Firstliner to obtain an opinion
of counsel. [Id.]{.underline} at 52-54. The district court stated that
"[due to a complete absence of competent advice regarding possible
infringement of the '012 patent]{.underline} and a flagrant display of
deliberate misconduct by CAT/\[First\]liner throughout this proceeding,
the Court finds that actions of CAT/\[First\]liner's evidenced the
degree of willfulness necessary to support the award of enhanced
damages." [Id.]{.underline} at 54 (emphasis added). In our recent
[en]{.underline} [banc]{.underline} decision in [Knorr-Bremse Systeme
Fuer Nutzfahrzeuge, Gmbh v. Dana Corp.]{.underline}, Nos. 01-1357,
-1376, 02-1221, -1256, slip op. at 11 (Fed. Cir. Sept. 13, 2004), we
addressed, [inter]{.underline} [alia]{.underline}, whether the failure
of a defendant in a patent infringement suit to obtain an opinion of
counsel "will provide an inference or evidentiary presumption that such
opinion would have been negative." We held in [Knorr-Bremse]{.underline}
that "the failure to obtain an exculpatory opinion of counsel shall no
longer provide an adverse inference or presumption that such an opinion
would have been unfavorable." [Id.]{.underline} at 12. Such an inference
was one factor upon which the district court based its willfulness
determination in this case. A determination of willfulness is made on
consideration of the totality of the circumstances. [See]{.underline}
[Gustafson, Inc. v. Intersystems Indus. Prods., Inc.]{.underline}, 897
F.2d 508, 510 (Fed. Cir. 1990). Because elimination of the adverse
inference arising from failure to obtain an opinion of counsel is a
material change in the totality of the circumstances in this case, a
fresh weighing of the evidence is required. For this reason, we vacate
the district court's willfulness finding and remand for further
proceedings.

E. [Inducement of Infringement]{.underline}

The district court determined that CAT and Firstliner were liable for
induced infringement under 35 U.S.C. § 271(b) on account of work done by
their licensees. [District Court Opinion]{.underline}, slip op. at 45.
CAT and Firstliner raise two issues related to their alleged induced
infringement. First, they contend that there was a lack of proof with
regard to the scienter element of induced infringement. Second, they
contend that there was insufficient evidence to sustain the district
court's determination of damages related to the licensees' use of
infringing Process 1.

Section 271(b) provides that "\[w\]hoever actively induces infringement
of a patent shall be liable as an infringer." In order to succeed on a
claim of inducement, the patentee must show both direct infringement and
a certain level of intent on the part of the alleged inducer that the
patent be infringed. [Water Techs. Corp. v. Calco, Ltd.]{.underline},
850 F.2d 660, 668 (Fed. Cir. 1988). However, there is a lack of clarity
concerning whether the required intent must be merely to induce the
specific acts or additionally to cause an infringement.
[See]{.underline} [Manville Sales Corp. v. Paramount Sys.,
Inc.]{.underline}, 917 F.2d 544, 553 (Fed. Cir. 1990) ("The plaintiff
has the burden of showing that the alleged infringer's actions induced
infringing acts [and]{.underline} that he knew or should have known his
actions would induce actual infringements."). [But see]{.underline}
[Hewlett-Packard Co. v. Bausch & Lomb, Inc.]{.underline}, 909 F.2d 1464,
1469 (Fed. Cir. 1990) ("Proof of actual intent to cause the acts which
constitute the infringement is a necessary prerequisite to finding
active inducement."). Nevertheless, we need not resolve any ambiguity in
the case law on this point because there is sufficient evidence to
support the district court's finding under either standard.

The district court relied on [Manville]{.underline} and applied the
stricter standard for induced infringement, requiring that "the alleged
infringer's actions induced infringing acts [and]{.underline} that he
knew or should have known his actions would induce actual infringement."
[District Court Opinion]{.underline}, slip op. at 40 (citing
[Manville]{.underline}, 917 F.2d at 553). In finding the requisite
intent, the court noted a response to a questionnaire submitted by one
of CAT/Firstliner's licensees. [Id.]{.underline} at 47. The licensee
claimed to have used infringing Process 1 in 100 percent of its
contracts and that, with regard to how it acquired knowledge of the
impregnation process, "\[w\]e expected to get directives from
\[Firstliner\] representatives, and we did." [Id.]{.underline} at 47-48.
The district court thus concluded that defendants taught their licensees
to use Process 1. Additionally, Firstliner did not begin its licensing
program until 1992, which was after the original June 1991 trial. CAT
and Firstliner's licensing activity thus occurred with full knowledge
that Process 1 had been accused of infringing the '012 patent. On this
evidence, the court determined that the intent requirement was met.

Intent is a factual determination particularly within the province of
the trier of fact and may be inferred from all of the circumstances.
[Water Techs.]{.underline}, 850 F.2d at 669. We review factual
determinations by the court for clear error. [Tegal Corp. v. Tokyo
Electron Am., Inc.]{.underline}, 257 F.3d 1331, 1345-46 (Fed. Cir.
2001). "A finding is 'clearly erroneous' when although there is evidence
to support it, the reviewing court on the entire evidence is left with
the definite and firm conviction that a mistake has been committed."
[United States v. United States Gypsum Co.]{.underline}, 333 U.S. 364,
395 (1948). There is evidence in the record to support the district
court's finding that CAT/Firstliner induced infringement of the '012
patent and we are not left with the definite and firm conviction that a
mistake has been committed.

We now turn to the method the district court used to arrive at the
quantum of damages. To assess damages, the court had to make findings as
to the percentage of CAT/Firstliner licensees that were instructed to
use infringing Process 1. The issue before us is whether the district
court correctly determined the extent to which defendants CAT and
Firstliner instructed their licensees to use the infringing Process 1,
thereby inducing infringement under 35 U.S.C. § 271(b). Specifically,
the issue is whether the district court's method for determining the
percentage of licensees who were instructed to use infringing Process 1
was flawed. The parties agreed to resolve this aspect of the lawsuit by
licensees' questionnaire answers, subject to correction by deposition if
either party so desired. [District Court Opinion]{.underline}, slip op.
at 45-46. It appears that the district court resolved this issue on the
basis selected by the parties, and properly exercised its discretion in
so doing. Accordingly, we affirm the district court's ruling on this
point.

Defendants assert that the district court clearly erred in its
methodology in determining the extent to which CAT/Firstliner instructed
their licensees to use infringing Process 1. Primarily, defendants argue
that plaintiffs failed to carry their burden of proof with respect to
the royalty revenue received by defendants CAT and Firstliner from use
of the accused Process 1. Plaintiffs respond that the parties stipulated
to a procedure for establishing the extent to which CAT and Firstliner
instructed their licensees to use Process 1. Plaintiffs argue that the
district court, having resolved the issue in the manner selected and
stipulated to by the parties, should be given full deference as the
factfinder in the case.

As part of the stipulated procedure for determining the extent of
induced infringement, a formal questionnaire was prepared and
distributed to CAT/Firstliner's licensees. Only two licensees responded.
The first licensee said it was instructed to use Process 1; the second
licensee said it was instructed to use Process 2. The district court
noted that the response to the questionnaires was "admittedly less than
satisfactory." [District Court Opinion]{.underline}, slip op. at 46.
However, the court judged that the poor response "was due in no small
part to actions of Defendants in publishing statements in trade
publications and in disseminating letters which implied that the finding
of this Court would be reversed." [Id.]{.underline} at 46-47. The court
concluded that "\[b\]ecause this limited statistical sampling was caused
by no fault of Insituform, the Court will not, as Defendants have
requested, limit Insituform's damage claim for lack of supporting proof.
Instead, the Court will rely on these questionnaires in making its
determination regarding the extent to which the licensees used the
infringing methods and were induced to do so by the Defendants."
[Id.]{.underline} at 47. Accordingly, the district court determined that
half of CAT and Firstliner's licensees were instructed to use infringing
Process 1, while half used non-infringing Process 2.

"\[C\]ertain subsidiary decisions underlying a damage theory are
discretionary with the court, such as . . . \[determining\] the
methodology for arriving at a reasonable royalty \[citations omitted\].
Such decisions are, of course reviewed under the abuse of discretion
standard." [SmithKline Diagnostics, Inc. v. Helena Labs.
Corp.]{.underline}, 926 F.2d 1161, 1164 (Fed. Cir. 1991). "\[A court\]
may . . . adopt in its discretion a reasonable way to determine the
number of infringing units. Such subsidiary choices are left to the
court's sound discretion under our precedent." [Id.]{.underline} at 1165
n.2. "Discretion, in this sense, is abused if the record contains no
basis on which the district court rationally could have made its
decision or if the judicial action is arbitrary, fanciful, or clearly
unreasonable." [Datascope Corp. v. SMEC, Inc.]{.underline}, 879 F.2d
820, 827-28 (Fed. Cir. 1989).

We do not believe that CAT/Firstliner has shown an abuse of discretion
in this case. Accordingly, we will not disturb the district court's
ruling that at least half of defendants' licensees used Process 1, while
the other half used Process 2. [District Court Opinion]{.underline},
slip op. at 48.

III\.

We now address plaintiff's cross-appeal. Plaintiffs appeal the district
court's decision declining to hold KS liable for infringement based on
an alter-ego theory of induced infringement. We begin with a brief
review of the key entities and the facts surrounding the alleged alter
ego relationship.

KS is a German corporation, and is one of the named defendants in the
lawsuit. As noted above, it is a sewer rehabilitation company, owned by
Hans Mueller. KS was (legally) using the Firstliner process in Germany
under a patent owned by Mueller, United States Patent No. 4,770,562
("the '562 patent"). KS is also the entity that initially met with
Giulio Catallo and demonstrated to him use of the accused process in
Germany. At that time, KS informed Catallo that it had been involved in
patent litigation involving certain European patents held by one of the
Insituform entities. Nevertheless, Catallo remained interested in the KS
process, and KS signed a letter of intent to license the process to him.
KS also prepared a "To Whom it May Concern" letter identifying Mr.
Catallo as a "qualified licensee" of the process under the '562 patent.
It is undisputed that at the time of these activities, KS was not aware
of the '012 patent. [Insituform II]{.underline}, 161 F.3d at 695.

The non-party to whom plaintiffs are trying to link to KS via their
alter ego argument is Kanal Mueller Gruppe International GmbH & Co, a
German corporation also owned by Hans Mueller, which we refer to as
"Gruppe." Gruppe is an export licensing company that was formed on
January 1, 1990. Gruppe is a separate corporate entity from KS.
According to KS, Gruppe took over responsibility for licensing the
accused process and Catallo, from that point forward, dealt with Gruppe.
It appears that, at all times, Hans Mueller himself owned the relevant
German patent and rights to license the accused process. He did not
officially transfer those rights to Gruppe until 1995.

The present lawsuit was filed on February 2, 1990. At that time, Gruppe,
KS, and Catallo first became aware of the '012 patent. Despite the
lawsuit and notice of the '012 patent, Catallo persisted in pursuing a
license for the accused process, which Gruppe granted. The license
agreement was executed in July 1990 and provided that Gruppe was
obligated to provide instruction to CAT/Firstliner employees sent to
Germany, and to provide CAT/Firstliner with continued technical support.
Plaintiffs assert that KS, the sewer rehabilitation company first
contacted by Catallo, and not Gruppe, would have been the entity to
provide such instruction and technical support to CAT/Firstliner. In
other words, plaintiffs essentially seek to impute the post-lawsuit
licensing activity of non-party Gruppe to KS, who is the current party
in the suit. In doing so, plaintiffs argue that KS is the alter ego of
Gruppe.

The issue before the district court, as directed by this court in
[Insituform II]{.underline}, was whether Gruppe was the alter ego of KS.
Because the alter ego issue is not unique to patent law, this court
applies the law of the regional circuit. [Panduit Corp. v. All States
Plastic Mfg. Co, Inc.]{.underline}, 744 F.2d 1564, 1574-75 (Fed. Cir.
1984). In the Fifth Circuit, "resolution of the alter ego issue is
heavily fact-specific and, as such, is peculiarly within the province of
the trial court." [United States v. Jon-T Chems., Inc.]{.underline}, 768
F.2d 686, 649 (5th Cir. 1985); [Bridas Sapic v. Gov. of
Turkmenistan]{.underline}, 345 F.3d 347, 360 (5th Cir. 2003) ("Alter ego
determinations are highly fact-based and require considering the
totality of the circumstances in which the instrumentality functions.").
The Fifth Circuit reviews alter ego determinations only for clear error.
[Bridas Sapic]{.underline}, 345 F.3d at 360. We will thus reverse only
if, after reviewing the evidence as a whole, we are "left with the
definite and firm conviction that a mistake has been committed." [United
States v. United States Gypsum Co.]{.underline}, 333 U.S. 364, 395
(1948). "Errors of law, however, are not entitled to deference." [Bridas
Sapic]{.underline}, 345 F.3d at 359. It is an error of law if a district
court fails to take into account all of the aspects of the relationship
between the entities alleged to have an alter ego relationship.
[Id.]{.underline} at 359-60.

The district court correctly noted that, "\[u\]nder Texas law, a finding
by the court that \[KS\] is the alter ego of \[Gruppe\] permits the
Court 'to disregard the corporate fiction and pierce the corporate veil,
thereby attributing \[Gruppe's\] infringing conduct to \[KS\]."
[District Court Opinion]{.underline}, slip op. at 42 (citing [Gundle
Lining Constr. Corp. v. Adams County Asphalt, Inc.]{.underline}, 85 F.3d
201, 208 (5th Cir. 1996)). The court noted that "under the alter ego
theory, the court may disregard the corporate form 'where a corporation
is organized and operated as a mere tool or business conduit' for
another entity." [Id.]{.underline} at 43 (citing [Zahra Spiritual Trust
v. United States]{.underline}, 910 F.2d 240, 245 (5th Cir. 1990)). The
court went on to list a number of factors typically considered when
determining whether an entity is the alter ego of a corporation, noting
that resolution of the issue is based on the totality of the
circumstances. [Stuart v. Spademan]{.underline}, 772 F.2d 1185, 1197
(5th Cir. 1985).

The district court then set forth the evidence that plaintiffs presented
to show the alter-ego relationship:

\(1\) \[KS\] and \[Gruppe\] are both 100% owned by Hans Mueller.

> \(2\) In 1989, \[KS\] held itself out as the owner and licensor of the
> '562 patent but in July of 1990, \[Gruppe\] held itself out as the
> owner and licensor, although legal title remained at all times in Hans
> Mueller.
>
> \(3\) The German defendants actively participated in and were
> represented by counsel in this litigation throughout its history, and
> all defendants, German and domestic, used the term "Kanal-Mueller" to
> identify both the German defendants \[KS\] and the German licensor
> \[Gruppe\].

[District Court Opinion]{.underline}, slip op. at 44.

The district court concluded that "\[t\]he evidence does not show that
either \[KS\] or \[Gruppe\] owned stock in the other at any relevant
time. Nor did Insituform present any proof that \[KS\] and \[Gruppe\]
failed to follow separate corporate formalities. In fact, Insituform
does not submit any evidence relevant to the \[[Stuart]{.underline}\]
factors listed above. Absent such proof, \[KS\] cannot be held liable as
the alter ego of \[Gruppe\]." [Id.]{.underline} at 45. Thus, the
district court essentially pointed to a failure of proof on the part of
plaintiffs to show that KS was the alter ego of Gruppe.

The district court accurately stated the law with respect to plaintiffs'
alter ego theory of induced infringement. Moreover, although plaintiffs
attempt to characterize the district court's ruling as an error of law,
they do not tell us exactly what legal error the district court
comitted. For that reason, and because we discern no legal error, we are
left to review the district court's factual findings.

The district court accurately summarized the totality of plaintiffs'
evidence. On appeal, plaintiffs appear to merely reargue their version
of the facts. Indeed, plaintiffs praise the district court for "making
no reference whatsoever" to allegedly inadmissible submissions by KS.
Given the highly deferential standard of review, we do not disturb
either the district court's finding that plaintiffs essentially failed
to carry their burden of proof or its ultimate ruling that KS cannot be
held liable as the alter ego of Gruppe.

CONCLUSION

In sum, we decide the issues before us as follows:

\(1\) Because plaintiffs are not barred from asserting infringement
under the doctrine of equivalents, we affirm the judgment of
infringement with respect to\
Process 1.

\(2\) We affirm the ruling of the district court joining Insituform
Netherlands as a party plaintiff.

\(3\) We affirm the ruling of the district court joining Giulio Catallo
as a party defendant.

\(4\) We affirm the ruling of the district court with respect to CAT's
and Firstliner's inducement of infringement, as well as its ruling with
respect to the extent to which CAT and Firstliner instructed their
licensees to use infringing Process 1.

\(5\) We vacate the outstanding award of damages and remand to the
district court for (i) a determination of the factual issue of when
defendants stopped using Process 1 and began using Process 2, and (ii) a
calculation of the quantum of damages based upon that determination.

\(6\) We vacate the district court's finding of willful infringement and
remand for reconsideration in light of our [en]{.underline}
[banc]{.underline} decision in [Knorr-Bremse]{.underline}.

\(7\) On plaintiffs' cross-appeal, we affirm the ruling of the district
court declining to hold KS vicariously liable to plaintiffs under an
alter-ego theory of induced infringement.

COSTS

Each party shall bear its own costs.

AFFIRMED-IN-PART, VACATED-IN-PART, and REMANDED

# United States Court of Appeals for the Federal Circuit

99-1584, 00-1005

INSITUFORM TECHNOLOGIES, INC.,

INSITUFORM (NETHERLANDS) B.V.,

and INSITUFORM GULF SOUTH, INC.,

> Plaintiffs-Cross Appellants,

v\.

CAT CONTRACTING, INC.,

FIRSTLINER U.S.A., INC., and GIULIO CATALLO,

> Defendants-Appellants,
>
> and

MICHIGAN SEWER CONSTRUCTION COMPANY,

Defendant-Appellant,

and

KANAL SANIERUNG HANS MUELLER GmbH & CO. KG,

Defendant-Appellee.

Before MAYER, [Chief Judge]{.underline}, MICHEL, and SCHALL, [Circuit
Judges]{.underline}.

PER CURIAM

[ORDER]{.underline}

The Supreme Court vacated the judgment in this case, [Insituform
Technologies, Inc. v. CAT Contracting, Inc.]{.underline}, 10 Fed. Appx.
871 (Fed. Cir. 2001) (non-precedential decision), and remanded the case
to this court on June 3, 2002, "for further consideration in light of
[Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co.]{.underline}"
[Insituform Techs., Inc. v. CAT Contracting, Inc.]{.underline}, 535 U.S.
1108 (2002). Following the Supreme Court's decision in
[Festo]{.underline}, this court issued a second [en banc]{.underline}
[Festo]{.underline} decision. [See]{.underline} [Festo Corp. v. Shoketsu
Kinzoku Kogyo Kabushiki Co.]{.underline}, 344 F.3d 1359 (Fed. Cir.
2003). Following that decision, we requested that the parties submit
briefs addressing the consequences of both the Supreme Court's decision
in [Festo]{.underline} and this court's subsequent [en banc]{.underline}
decision for this case.

After considering the parties' submissions, we vacated the judgment of
the United States District Court for the Southern District of Texas
awarding damages to plaintiffs for infringement of United States Patent
No. 4,366,012, [Insituform Techs., Inc. v. Cat Contracting,
Inc.]{.underline}, No. H-90-1690, slip op. (S.D. Tex. Aug. 31, 1999),
and remanded the case for further proceedings in light of the
[Festo]{.underline} cases. [Insituform Techs., Inc. v. CAT Contracting,
Inc.]{.underline}, 87 Fed. Appx. 180 (Fed. Cir. 2004) (nonprecedential
order). After considering the subsequent Petition for Rehearing and
Response, we conclude that the case may be decided on the merits based
on the record now before us.

Accordingly,

IT IS ORDERED THAT

\(1\) The Petition for Rehearing is granted.

\(2\) The Order vacating the district court's judgment and remanding for
further proceedings is hereby withdrawn and the decision attached to
this Order is substituted in its place.

> FOR THE COURT

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

Date Jan Horbaly

Clerk

[^1]: The district court ruled that neither Insituform Gulf nor ITI had
    standing to sue. Plaintiffs do not appeal that ruling.

[^2]: In [Insituform II]{.underline}, we referred to KS as "KM."

[^3]: Firstliner's Process 2 is no longer before us, it having been
    determined that it does not infringe claim 1 either literally or
    under the doctrine of equivalents.

[^4]: As noted above, Insituform North America, Inc. is no longer a
    party to the suit.

[^5]: Because we affirm the district court's ruling that Insituform
    Netherlands was properly joined as a party, we need not address
    plaintiffs' additional argument on appeal related to adding
    Insituform North American, Inc. as a party.

[^6]: At that time, the court made no specific finding regarding the
    actual date of the switch as both Process 1 and 2 were found to be
    infringing.