Opinion ID: 148680
Heading Depth: 2
Heading Rank: 1

Heading: Individual Liability for Infringement

Text: Khatemi and Assadian appeal the district court's denial of their motions for JMOL and new trial, arguing that they cannot be individually liable for direct infringement, contributory infringement, or inducement. We review denial of post-trial motions for JMOL and new trial under regional circuit law. Revolution Eyewear, Inc. v. Aspex Eyewear, Inc., 563 F.3d 1358, 1370 (Fed.Cir.2009). The Ninth Circuit reviews a jury's verdict for substantial evidence in ruling on a properly made motion under Rule 50(b). Equal Employment Opportunity Comm'n v. Go Daddy Software, Inc., 581 F.3d 951, 961 (9th Cir.2009). However, in ruling on a Rule 50(b) motion based on grounds not previously asserted in a Rule 50(a) motion, we are limited to reviewing the jury's verdict for plain error, and should reverse only if such plain error would result in a manifest miscarriage of justice. Id. (quotation and citation omitted). Under Rule 50, a party must make a Rule 50(a) motion for judgment as a matter of law before a case is submitted to the jury. Id. Rule 50(a) requires that a pre-verdict JMOL motion specify the judgment sought and the law and facts that entitle the movant to the judgment. See Tortu v. Las Vegas Metro. Police Dep't, 556 F.3d 1075, 1082-83 (9th Cir. 2009) (quoting Fed.R.Civ.P. 50(a)(2)). The Ninth Circuit reviews a ruling on a motion for a new trial under Rule 59(a) for an abuse of discretion. Go Daddy, 581 F.3d at 962. The trial court may grant a new trial, even though the verdict is supported by substantial evidence, if `the verdict is contrary to the clear weight of the evidence, or is based upon evidence which is false, or to prevent, in the sound discretion of the trial court, a miscarriage of justice.' United States v. 4.0 Acres of Land, 175 F.3d 1133, 1139 (9th Cir.1999) (citation omitted). We may reverse the denial of a Rule 59(a) motion where the District Court has made a mistake of law. Molski v. M.J. Cable, Inc., 481 F.3d 724, 729 (9th Cir.2007) (quotation omitted).
According to Khatemi and Assadian, INSC's corporate veil shielded them from direct infringement liability under 35 U.S.C. § 271(a) because they acted as company employees, and INSC was a valid corporation during all periods of alleged infringement. They insist that the validity of INSC's corporate status was not an issue at trial and that Wordtech introduced insufficient evidence to justify piercing INSC's corporate veil. Defs.' Principal Br. 38-39. In their motions for JMOL and new trial, Defendants preserved these arguments by contending that they were not liable as INSC officers and did not personally participate in infringement. See Defs.' Mot. for JMOL Pre-Verdict 5-7 (Rule 50(a) motion); Defs' Memo. in Support of JMOL Post-Verdict 8-9, 16-17 (Rule 50(b) motion); Defs.' Memo. in Support of New Trial 4-7 (Rule 59(a) motion). Patent infringement is a tort, Mars, Inc. v. Coin Acceptors, Inc., 527 F.3d 1359, 1365 (Fed.Cir.2008), and [i]n general, a corporate officer is personally liable for his tortious acts, just as any individual may be liable for a civil wrong, Hoover Group, Inc. v. Custom Metalcraft, Inc., 84 F.3d 1408, 1411 (Fed.Cir.1996). However, the corporate veil shields a company's officers from personal liability for direct infringement that the officers commit in the name of the corporation, unless the corporation is the officers' alter ego. See Wechsler v. Macke Int'l Trade, Inc., 486 F.3d 1286, 1295 (Fed.Cir.2007). To determine whether corporate officers are personally liable for the direct infringement of the corporation under § 271(a) requires invocation of those general principles relating to piercing the corporate veil. Orthokinetics, Inc. v. Safety Travel Chairs, Inc., 806 F.2d 1565, 1579 (Fed.Cir.1986). [2] On appeal, Wordtech defends the verdict on two grounds. First, Wordtech claims that INSC was non-existent during the alleged infringement because, under Nevada law, INSC permanently forfeited its corporate charter when it neglected to file required annual statements for five consecutive years and cannot be reinstated. See Nev.Rev.Stat. § 78.180(4) (2006); Wordtech's Br. 16. Defendants respond that they successfully revived INSC in 2006, with retroactive effect, by filing appropriate paperwork. See Nev.Rev.Stat. § 78.740 (2007); Redl v. Sec'y, 120 Nev. 75, 85 P.3d 797, 799-800 (2004). Alternatively, Wordtech contends that even if INSC was a valid corporation, the jury heard substantial evidence that supported piercing INSC's corporate veil. We do not evaluate these arguments because the jury instructions did not address any issue relating to corporate status. We have held that the doctrine of piercing the corporate veil involves general principles, Orthokinetics, 806 F.2d at 1579, that do not apply only to patent cases, Wechsler, 486 F.3d at 1295 (noting that the alter ego issue is not unique to patent law). More generally, a court may exert its equitable powers and disregard the corporate entity if it decides that piercing the veil will prevent fraud, illegality, injustice, a contravention of public policy, or prevent the corporation from shielding someone from criminal liability. Manville Sales Corp. v. Paramount Sys., Inc., 917 F.2d 544, 552 (Fed.Cir.1990). Here, the district court never instructed the jury on INSC's corporate status. Neither the jury instructions nor the jury's verdict form mentioned piercing the corporate veil or the Nevada statutory scheme that Wordtech asserts on appeal. Jury Instructions; Joint Verdict Form. When Wordtech's counsel claimed that the instructions included corporate issues, the court replied: That's not a jury instruction here. Reporter's Tr., Trial Proceedings, Nov. 10, 2008, 35:5-11. Because the jury was not instructed about INSC's corporate status, we must determine whether this omission requires a new trial. For issues not unique to patent law, we review jury instructions under the law of the relevant regional circuit. See Amgen Inc. v. F. Hoffmann-La Roche Ltd., 580 F.3d 1340, 1368 n. 13 (Fed.Cir. 2009). In the Ninth Circuit, if a party does not object properly to jury instructions at trial, the instructions are reviewable only for plain error. See Warfield v. Alaniz, 569 F.3d 1015, 1029 (9th Cir.2009); Fed. R.Civ.P. 51(d)(2) (2007) (A court may consider a plain error in the instructions that has not been preserved as required by Rule 51(d)(1) if the error affects substantial rights.). The Advisory Committee Notes to the 2003 revision of Rule 51(d)(2), which explicitly authorized plain error review for jury instructions in the situation where no party objects, counsel that plain error depends on the obviousness of the mistake, the importance of the error, the costs of correcting an error, and the impact a verdict may have on nonparties. Notes of Advisory Committee on 2003 Amendments, Fed.R.Civ.P. 51(d)(2) (2003); see also United States v. Treadwell, 593 F.3d 990, 996 (9th Cir.2010) (noting, in criminal context: On plain error review, we correct an error not raised at trial only if it is plain, affects substantial rights, and `seriously affects the fairness, integrity, or public reputation of judicial proceedings.'). In this case, the jury's verdict of Khatemi and Assadian's individual liability, despite the lack of instructions on INSC's existence or piercing its corporate veil, was plain error that requires a new trial. Defendants concede that they did not object to the jury instructions. Nevertheless, failure to instruct the jury was plainly erroneous because [p]ersonal liability under § 271(a) ... requires sufficient evidence to justify piercing the corporate veil. Al-Site Corp. v. VSI Int'l, Inc., 174 F.3d 1308, 1331 (Fed.Cir.1999). Because resolution of INSC's corporate status was a legal prerequisite to finding Khatemi and Assadian individually liable, the jury omissions were obvious, important, and seriously affected the trial's fairness. Wordtech needed to prove either that INSC was not a valid corporation when Khatemi and Assadian committed infringing acts on its behalf, or that INSC's corporate veil should be disregarded under state law. We recognize that if the error in the jury instruction is harmless, it does not warrant reversal. Dang v. Cross, 422 F.3d 800, 805 (9th Cir.2005). In this case, however, we cannot deem the errors harmless. While Wordtech identified evidence that INSC did not exist or served as Defendants' alter ego, a correctly instructed jury could have concluded otherwise. Moreover, the trial record shows that even though the district court ruled that Wordtech waived its arguments about INSC's corporate status, it nonetheless allowed Wordtech to introduce evidence on these issues. The Final Pretrial Order did not mention any corporate issues. Accordingly, when Wordtech's counsel tried to examine Assadian about INSC's corporate filings, the court told the parties: Nobody has asked to add in the issue of the corporate entity, corporate veil, anything else.... That's not an issue. It was never brought up. In the Complaint, where did you say that they are not a valid corporation? Reporter's Tr., Trial Proceedings, Nov. 10, 2008, 33:2-9, 35:12-14. On the trial's final day, Wordtech moved to amend its complaint to address the identity of the corporation, but the court denied the motion, noting that [a]nything with respect to issues of corporate ownership, filing of corporate documents, could have been brought up prior to the time of the Final Pretrial Order being issued.... Id., Nov. 12, 2008, 3:16-4:22. However, in closing arguments later that day, the court allowed the parties to argue to the jury about whether Khatemi and Assadian were INSC officers. Id. 69:21-73:21, 86:12-87:17. The court then denied Defendants' post-trial motions on individual liability because Plaintiff produced evidence tending to prove that INSC was not operating as a corporation during the time of infringement. Order at 6. However, because the jury instructions were plainly erroneous, we conclude that the proceedings rested on a mistake of law that warrants retrial. Molski, 481 F.3d at 729. We therefore reverse the district court's denial of Defendants' Rule 59(a) motion and remand for further proceedings on whether a new trial is warranted on Khatemi and Assadian's personal liability for direct infringement. Because Defendants have not clearly established that Wordtech waived its arguments about INSC's corporate status or failed to present substantial evidence on which a properly instructed jury could find Khatemi and Assadian personally liable, we affirm the denial of Defendants' motion for JMOL.
Defendants also challenge their individual liability for inducement. Whoever actively induces infringement of a patent shall be liable as an infringer. 35 U.S.C. § 271(b). [I]nducement requires that the alleged infringer knowingly induced infringement and possessed specific intent to encourage another's infringement. DSU Med. Corp. v. JMS Co., 471 F.3d 1293, 1306 (Fed.Cir.2006) (en banc) (quotations and citations omitted). Khatemi and Assadian claim that Wordtech produced insufficient evidence of inducement to support the verdict. However, Defendants did not raise inducement in their Rule 50(a) or Rule 50(b) motions. Therefore, they may not challenge the sufficiency of the evidence on this issue. See Go Daddy, 581 F.3d at 961-62. Defendants argued generally that INSC shielded them from personal liability. The corporate veil can shield officers from liability under § 271(a). See Orthokinetics, 806 F.2d at 1578-79. However, corporate officers who actively assist with their corporation's infringement may be personally liable for inducing infringement regardless of whether the circumstances are such that a court should disregard the corporate entity and pierce the corporate veil. Manville, 917 F.2d at 553; see also Hoover, 84 F.3d at 1412. [3] Thus, Defendants' argument for JMOL was irrelevant to inducement. As a result, we review only their motion for new trial on inducement, asking whether the verdict conflicts with the clear weight of the evidence or involved a mistake of law. Molski, 481 F.3d at 728-29. We begin with the jury's verdict form. In Part I, the jury was asked whether the Robocopier 8000 and 600 devices infringed by (A) Inducing Infringement in the U.S. Joint Verdict Form 2-14. These verdict questions were nonsensical: inducement requires intent, and as Wordtech's counsel acknowledged at the oral argument, a device cannot induce infringement. Oral Arg. 24:57-25:01, available at http://oralarguments.cafc. uscourts.gov/mp3/XXXX-XXXX.mp3. The verdict form included no other inducement questions or instructions that might have mitigated these errors. Moreover, the legal test for inducement was never presented to the jury. As Wordtech's counsel confirmed, inducement was not raised in the Final Pretrial Order, in the jury instructions, or in the closing arguments. See id. 27:41-29:34. Wordtech argues that the instructions did not mislead the jury because the jury received proper instructions on willful infringement, and in fact found willfulness. Wordtech's Br. 56-57. However, the legal standards for willfulness and inducement, such as the requisite intent, are not identical. Cf. Broadcom Corp. v. Qualcomm, Inc., 543 F.3d 683, 699 (Fed.Cir.2008). Therefore, these mistakes of law precluded legitimate verdicts on inducement.
Khatemi and Assadian also challenge their individual liability for contributory infringement. Under 35 U.S.C. § 271(c), a party who sells a component with knowledge that the component is especially designed for use in a patented invention, and is not a staple article of commerce suitable for substantial noninfringing use, is liable as a contributory infringer. See Ricoh Co. v. Quanta Computer Inc., 550 F.3d 1325, 1337 (Fed.Cir. 2008). Wordtech argues that Khatemi and Assadian waived any challenge to the sufficiency of the evidence for contributory infringement by failing to raise it in their pre-verdict Rule 50(a) motion. The district court denied Defendants' post-verdict Rule 50(b) motion on the grounds that Defendants failed to raise any contributory infringement theory in a pre-verdict Motion. Order at 6. We agree. Defendants did not refer to contributory infringement in their Rule 50(a) motion, contesting only their individual liability as INSC employees. The district court thus correctly denied Khatemi and Assadian's motion for JMOL on contributory infringement. As with inducement, a corporation does not shield officers from liability for personally participating in contributory infringement. See Hoover, 84 F.3d at 1411 (When personal wrongdoing is not supported by legitimate corporate activity, the courts have assigned personal liability for wrongful actions even when taken on behalf of the corporation.); Reynolds v. Bement, 36 Cal.4th 1075, 1089-90, 32 Cal. Rptr.3d 483, 116 P.3d 1162 (2005) (recognizing that corporate directors ... `may be joined as defendants if they personally directed or participated in the tortious conduct.'). We therefore affirm the denial of Defendants' motion for JMOL and review only their motion for new trial. The district court's legal error in presenting the contributory infringement issue to the jury requires a new trial. While the jury received no instruction on inducement, it did receive an instruction on contributory infringement, which Defendants did not oppose. Jury Instructions No. 21. However, the verdict form asked the jury the confusing question of whether the Robocopier devices infringed by (B) Contributing to infringement in the U.S., even though devices cannot possess knowledge required under § 271(c). Joint Verdict Form 2-14. A new trial is also required because Wordtech fails to identify proof of elements required for contributory infringement. Wordtech points to no evidence that Assadian (who testified that he was an engineer) personally participated in any sales of Robocopiers or nonstaple components. The record also fails to show that any parts that Defendants may have sold were especially designed for infringing products. Wordtech cites INSC invoices that show customer orders for abbreviated items such as RC-8800 16X BARE, RIBBON RIMAGE BLACK, and Labor. However, Wordtech identifies no evidence that these items are a material part of the invention, or especially made or especially adapted for use in an infringement of such patent, and not a staple article or commodity of commerce suitable for substantial noninfringing use. § 271(c). Moreover, the jury did not find any direct infringement corresponding to Khatemi and Assadian's alleged contributory infringement. A defendant's liability for indirect infringement must relate to the identified instances of direct infringement. Dynacore Holdings Corp. v. U.S. Philips Corp., 363 F.3d 1263, 1274 (Fed. Cir.2004). Although [c]ircumstantial evidence can support a finding of infringement, Golden Blount, Inc. v. Robert H. Peterson Co., 438 F.3d 1354, 1362 (Fed.Cir. 2006), when asked at oral argument, Wordtech's counsel could not identify any findings of direct infringement by INSC customers. See Oral Arg. 25:48-26:54. While the jury found that INSC infringed, § 271(c) requires a sale or offer to sell by the accused contributory infringer to a direct infringer. Here, no evidence shows that Khatemi or Assadian sold or offered to sell nonstaple components to INSC. Overall, multiple errors in the jury charge and the verdict form, across all infringement theories, compel the conclusion that, looking to the instructions as a whole, the substance of the applicable law was [not] fairly and correctly covered. Dang, 422 F.3d at 805 (citation omitted).