Court Opinion

ID: 4370551
Source: CourtListenerOpinion
Date Created: 2019-02-23 02:00:47.47829+00
Date Added: 2024-06-11T14:49:23.854314
License: Public Domain

Case: 18-50097      Document: 00514846862         Page: 1    Date Filed: 02/22/2019

           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT

                                      No. 18-50097                 United States Court of Appeals
                                                                            Fifth Circuit

                                                                          FILED
                                                                  February 22, 2019
NAUTILUS, INCORPORATED,
                                                                     Lyle W. Cayce
              Plaintiff - Appellee                                        Clerk

v.

ICON HEALTH & FITNESS, INCORPORATED,

              Defendant - Appellant

                  Appeals from the United States District Court
                        for the Western District of Texas
                            USDC No. 5:16-CV-00080

Before CLEMENT, OWEN, and HO, Circuit Judges.
PER CURIAM:*
       Nautilus sued ICON Health & Fitness for breach of contract after ICON
stopped paying royalties on a licensed patent. The district court granted
summary judgment to Nautilus. Because we find no error, we AFFIRM.
       Nautilus and ICON are exercise equipment companies. After a series of
assignments, ICON became a non-exclusive licensee of some of Nautilus’s
patents. Under the Patent Licensing Agreement, ICON was required to pay

       * Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
    Case: 18-50097      Document: 00514846862      Page: 2   Date Filed: 02/22/2019

                                    No. 18-50097
royalties on all licensed “Products” it made or sold during the term of the
respective patents. “Products” is a defined term: “any apparatus, systems or
products covered by at least one Claim of any of [Nautilus’s] Patent Rights.”
      The parties dispute whether ICON owes royalties for a Chinese
elliptical-machine patent.       After years of paying royalties, ICON stopped
making payments because it determined that it was not manufacturing a
royalty-generating “Product.”        Because ICON manufactured and sold a
partially assembled machine, it believes that it did not manufacture anything
“covered by” Nautilus’s patent for a fully assembled machine.
      Nautilus sued ICON for breach of the Agreement and ICON
counterclaimed in equity to recover some royalty payments it made on the
Chinese patent.       The parties cross-moved for summary judgment on the
contract claim. The district court granted summary judgment to Nautilus. It
concluded that ICON’s manufacture was covered by Nautilus’s patent, and
thus ICON’s failure to pay royalties breached the Agreement. We agree with
the district court.
      To begin with, we agree that Nautilus’s right to royalties is coextensive
with its right against infringement. So we must determine whether ICON’s
machines “infringed” Nautilus’s patent.       Nautilus argues that ICON has
“admitted” or otherwise waived its right to contest that ICON’s activities
violate Nautilus’s patent. We reject these arguments for essentially the same
reasons as the district court.
      We also agree with the district court that ICON’s activities infringed the
patent. Nautilus’s patent protects two innovations: the component parts of
the elliptical machine and the structural relationship between the component
parts. The parties agree that ICON’s machines include all the component parts
protected by the patent. Moreover, they agree that if ICON had assembled the
elliptical machine and sold that assembled product, it would have violated
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                                  No. 18-50097
Nautilus’s patent. But ICON argues that its manufacture and export of a
partially assembled machine does not “practice” the structural elements of the
patent, and therefore does not infringe the patent.
      In the district court, both parties offered expert reports on Chinese
patent law. The experts agreed on the basics: To infringe a patent, the
infringing party must “practice” all elements of the patent (the “all-elements
rule”) within China. But they disagreed whether the all-elements rule requires
structural relationships to be practiced through full assembly, or whether
those relationships can be practiced through partial assembly with
instructions. ICON contends that structural elements may only be practiced
through assembly. Thus ICON argues that the district court improperly closed
a “gap” in Chinese patent law that existed under American patent law—one
that was only closed by legislation. See Microsoft Corp. v. AT&T Corp., 550
U.S. 437, 442–45 (2007) (describing the loophole first recognized by Deepsouth
Packing Co., Inc. v. Laitram Corp., 406 U.S. 518, 526–29 (1972), and
acknowledging its later closure by 35 U.S.C. § 271(f)(1)).
      We agree with the district court and Nautilus. We are not persuaded by
ICON’s arguments that any “gap” exists in Chinese law, and we therefore
cannot reverse the district court for “improperly filling” it.
      We AFFIRM the judgment.

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