Verinata Health, Inc. v. Ariosa Diagnostics, Inc.
This text of 329 F. Supp. 3d 1070 (Verinata Health, Inc. v. Ariosa Diagnostics, Inc.) is published on Counsel Stack Legal Research, covering District Court, N.D. California primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.
Opinion
SUSAN ILLSTON, United States District Judge
Before the Court are the parties' post-trial motions (Dkt. Nos. 648, 649, 650, 661, 662, 666), plaintiffs' motion for a permanent injunction (Dkt. Nos. 660, 666), and two administrative motions to seal (Dkt. Nos. 684, 697). After hearing argument and considering the parties' materials, the Court rules as follows.
*1082LEGAL STANDARD
I. Motion for judgment as a matter of law
"A renewed motion for judgment as a matter of law is properly granted only if the evidence, construed in the light most favorable to the nonmoving party, permits only one reasonable conclusion, and that conclusion is contrary to the jury's verdict." Castro v. Cty. of Los Angeles ,
II. Motion for new trial
Federal Rule of Civil Procedure 59(a)(1) states, "[t]he court may, on motion, grant a new trial on all or some of the issues-and to any party-as follows: (A) after a jury trial, for any reason for which a new trial has heretofore been granted in an action at law in federal court...." Fed. R. Civ. P. 59(a)(1). As the Ninth Circuit has noted, " Rule 59 does not specify the grounds on which a motion for a new trial may be granted...." Zhang v. Am. Gem Seafoods, Inc. ,
DISCUSSION
I. Ariosa's renewed motion for judgment as a matter of law and motion for a new trial on issues for which Ariosa bore the burden of proof (Dkt. No. 648)
Defendant Ariosa Diagnostics, Inc.1 renews its motion for judgment as a matter *1083of law ("JMOL") under Rule 50(b), and for a new trial under Rule 59, based on Ariosa's express license defense and the alleged invalidity of plaintiffs Illumina, Inc. and Verinata Health, Inc.'s patents. The background and procedural history of this case are described in the Court's Summary Judgment Order (Dkt. No. 517). As such, only portions of the record relevant to this motion are recounted here.
Plaintiff Verinata developed and offered non-invasive tests (such as the verifi® prenatal test) for the early identification of fetal chromosomal abnormalities. Dkt. No. 1 ¶ 11.
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SUSAN ILLSTON, United States District Judge
Before the Court are the parties' post-trial motions (Dkt. Nos. 648, 649, 650, 661, 662, 666), plaintiffs' motion for a permanent injunction (Dkt. Nos. 660, 666), and two administrative motions to seal (Dkt. Nos. 684, 697). After hearing argument and considering the parties' materials, the Court rules as follows.
*1082LEGAL STANDARD
I. Motion for judgment as a matter of law
"A renewed motion for judgment as a matter of law is properly granted only if the evidence, construed in the light most favorable to the nonmoving party, permits only one reasonable conclusion, and that conclusion is contrary to the jury's verdict." Castro v. Cty. of Los Angeles ,
II. Motion for new trial
Federal Rule of Civil Procedure 59(a)(1) states, "[t]he court may, on motion, grant a new trial on all or some of the issues-and to any party-as follows: (A) after a jury trial, for any reason for which a new trial has heretofore been granted in an action at law in federal court...." Fed. R. Civ. P. 59(a)(1). As the Ninth Circuit has noted, " Rule 59 does not specify the grounds on which a motion for a new trial may be granted...." Zhang v. Am. Gem Seafoods, Inc. ,
DISCUSSION
I. Ariosa's renewed motion for judgment as a matter of law and motion for a new trial on issues for which Ariosa bore the burden of proof (Dkt. No. 648)
Defendant Ariosa Diagnostics, Inc.1 renews its motion for judgment as a matter *1083of law ("JMOL") under Rule 50(b), and for a new trial under Rule 59, based on Ariosa's express license defense and the alleged invalidity of plaintiffs Illumina, Inc. and Verinata Health, Inc.'s patents. The background and procedural history of this case are described in the Court's Summary Judgment Order (Dkt. No. 517). As such, only portions of the record relevant to this motion are recounted here.
Plaintiff Verinata developed and offered non-invasive tests (such as the verifi® prenatal test) for the early identification of fetal chromosomal abnormalities. Dkt. No. 1 ¶ 11. Plaintiff Illumina develops, manufactures, and markets life science tools and integrated systems for large-scale analysis of DNA. Case No. 15-cv-2216, Dkt. No. 1 ¶ 4. Defendant Ariosa is a molecular diagnostics company that researches, evaluates, and develops non-invasive prenatal tests for chromosomal abnormalities in a fetus. Dkt. No. 283 ¶ 10.
This consolidated patent infringement action concerns the following patents: U.S. Patent Nos. 8,318,430 ("the '430 patent") and 7,955,794 ("the '794 patent"). Verinata owns the '430 patent, which is directed to methods for non-invasive prenatal screening of fetal chromosomal abnormalities. See '430 Patent. Illumina owns the '794 patent, which issued in June 2011 and is directed to methods for simultaneously detecting multiple target nucleic acids in a sample. See '794 Patent.
In January 2012, Ariosa and Illumina entered into a three-year Sale and Supply Agreement ("SSA"), under which Illumina agreed to supply specific consumables, hardware, and software to Ariosa. Dkt. No. 402-6. The SSA provided Ariosa with a non-exclusive license to Illumina's "Core IP Rights in Goods" in the "Customer Field of Use."
Starting late 2012, plaintiffs filed a number of lawsuits accusing Ariosa's Harmony™ Prenatal Test of infringing the patents-in-suit. Dkt. No. 22; Dkt. No. 517 at 8-9. Two versions of the Harmony™ Prenatal Test were at issue-"Harmony V1" and "Harmony V2." Dkt. No. 517 at 6. Harmony V1 was made commercially available in 2012 and relied on sequencing (using Illumina sequencers) to obtain genetic data, while Harmony V2 was released in 2015 and relied on a microarray platform instead of sequencing.
The Court held a jury trial from January 8 to 25, 2018. On January 22, 2018, Ariosa filed a motion for JMOL under Rule 50(a) on Ariosa's defenses and affirmative *1084counterclaims. Dkt. No. 618. Ariosa argued, inter alia , that no reasonable juror could find: that the '794 and '430 patents were not invalid; that the SSA did not grant Ariosa an express license to the '794 patent ; or that Illumina did not breach the SSA by suing Ariosa.
Ariosa moves for JMOL under Rule 50(b) and for a new trial under Rule 59 based on Ariosa's defenses and affirmative counterclaims. Dkt. No. 648. Ariosa argues that the jury's verdict on its licensing defense, affirmative counterclaims, and invalidity defenses is not supported by substantial evidence or is against the clear weight of evidence.
A. Express license and breach of the SSA
The parties dispute whether the license to Illumina IP granted in the SSA encompassed the '794 patent. Ariosa contends that the Court should interpret the terms "Core IP Rights in Goods" and "Secondary IP Rights in Goods" in the SSA as a matter of law and argues that the '794 patent is not "Secondary IP," but rather is "Core IP," to which the SSA gave Ariosa a license. Dkt. No. 650 at 2-6. According to Ariosa, the Court should interpret "Illumina Intellectual Property Rights that pertain to the Goods," Dkt. No. 648 at 3 (quoting Ex. 615 (SSA) § 1.), to mean intellectual property rights that have "a connection with" Illumina's sequencing equipment. Dkt. No. 648 at 5. Ariosa points to the testimony of Illumina's expert witness, Dr. Cooper, who stated that Ariosa's use of an Illumina sequencer met the "detecting" limitation of the asserted '794 patent claims, as evidence that the '794 patent"has 'a connection with' Illumina's sequencing equipment and clearly fits within the definition of 'Core IP Rights in Goods.' " Dkt. No. 648 at 4-5. Ariosa argues that Illumina's position during trial, that "Core IP Rights" included only patents "inherent" in the use of Illumina's sequencers, is contrary to the language of the SSA. Dkt. No. 648 at 5-6.
Ariosa also argues that Illumina's interpretation of the SSA renders the grant of an express license under the SSA "nugatory" because under the doctrine of patent exhaustion, sale of Illumina's sequencer to Ariosa "automatically exhausted Illumina's right to enforce against Ariosa any patents that were inherently practiced in the use of those sequencers."
Illumina responds that whether it granted a license to the '794 patent under the SSA is a question of fact, and there was substantial evidence to support the jury's verdict finding that there was no such grant of license. Dkt. No. 672 at 10-11. Illumina argues that the trial evidence showed that the '794 patent related to the library prep product, which Ariosa did not *1085buy, and not the sequencers; that the SSA gave Ariosa a license to use the sequencer, but not to use products that Ariosa did not purchase; that the SSA explicitly restricted Ariosa's right to "practice any patents supposedly exhausted by the sale of the goods"; and that the trial evidence demonstrated the '794 patent does not require the use of the Illumina sequencer to perform the detection step. Id. at 14-16. Illumina contends that even if the '794 patent were to pertain to "Goods," it would be "Secondary IP" excluded by the SSA. Id. at 16-17.
In California, a trial court employs a three-step process when the meaning of a contract term is disputed. Wolf v. Walt Disney Pictures & Television ,
Furthermore, under California law, "[a] contract must be so interpreted as to give effect to the mutual intention of the parties" when they executed the contract.
The trial testimony of witnesses who were parties to the SSA negotiations presented conflicting extrinsic evidence, rendering the factual dispute proper for a jury's consideration. Illumina's Mr. Naclerio and Ariosa's Dr. Stuelpnagel, for example, presented conflicting evidence of the relevant meaning given by the parties to the SSA's terms. Accordingly, because this trial testimony is relevant to interpreting the SSA so as to give effect to the mutual intention of the parties in forming and executing the SSA, the jury's verdict will stand. Defendant's motion is denied.
Mr. Naclerio, head of Illumina's corporate development from 2010 until 2016, *1086presented testimony relevant to interpreting the meaning of the SSA's disputed terms. Naclerio testified that he was personally involved in the negotiation of the SSA and testified as to Illumina's express intent with regard to the SSA. Trial Tr. at 439:2-4 (Q. "Did you participate in discussions with Ariosa for a Supply Agreement?" A. "Yes."). Naclerio was responsible for corporate strategy, business development, negotiating acquisitions, divestitures, and investments with other companies before moving to Illumina Ventures, an investment fund targeting early-stage companies developing new products, primarily in the fields of genomics and precision medicine. Id. at 394:15-395:6. Naclerio stated Illumina's expressed intent was that Ariosa would simply acquire the sequencer and not the library prep. Trial Tr. at 440:4-6. He testified, "the goal of these agreements was to convey the rights to the kind of commercial diagnostic testing in the NIPT field, and to make sure that we were giving them the rights to use our sequencer, but that we weren't giving up any other rights." Id. at 441:23-442:1.
Naclerio's testimony evidences Illumina's expressed intent to license solely the sequencer and not the library prep universe. Id. at 449:23-450:1 ("I would be surprised if it was their expectation that they were getting rights to sample prep by buying the sequencer. It just doesn't pass the common sense test."). Contradicting Ariosa's assertions, Illumina's intent was limited in scope. Id. at 444:16-18. ("[W]e're giving you the sequencer. You can develop your own stuff with it; but we're not giving you anything else. That was the idea."). Naclerio noted that rights pertaining to the goods were intended to mean "rights to the goods in this case is the sequencer. And we're saying that you have the right to use the sequencer to sequence." Id. at 445:2-4. When asked whether Illumina intended to convey the rights to use the library prep selection step, Naclerio stated, "[C]learly not." Id. at 445:8. Naclerio's testimony makes clear that in Illumina's view, the SSA defined Core IP as related to the product being purchased (i.e., the sequencer), not Core IP in other products, and that all other Secondary IP were excluded from Core IP. Id. at 449:23-450:1.
Dr. John Stuelpnagel, Ariosa's founder and Executive Chairman, presented conflicting evidence that is relevant to understanding the SSA. Id. at 777:13-15 (Q. "In terms of the negotiating team for the Sale and Supply Agreement, that was your general counsel, Ms. DeVore and Ken Song and yourself; is that correct?" A. "Correct"). According to Dr. Stuelpnagel, Ariosa's view was that the terms of the SSA created, "without any doubt, that Ariosa would have 'Freedom to Operate,' with using Illumina Core IP Rights." Id. at 778:24-779:1.2 Dr. Stuelpnagel stated that the '794 patent was Core IP and was included in the license obtained in the SSA. Id. at 809:24-810:1 (Q. "Now, did this agreement cover any patent licenses from Illumina to Ariosa?" A. "It did."). According to Dr. Stuelpnagel, Core IP Rights are defined as "intellectual property rights held by Illumina [that] gives [Ariosa] a license to those Illumina Intellectual Property Rights that we need to use the goods, which is the sequencing, and consumables, and/or pertains or relates to the goods. And so it's anything associated with performing that test." Id. at 810:7-11. Dr. Stuelpnagel's testimony evidenced his belief and Ariosa's expressed intent that the Core IP Rights in Goods at the time of the SSA included the following: "Illumina's *1087intellectual property rights that pertain-relate-to the goods, and use thereof, in accordance with their documentation, other than secondary Illumina IP rights." Id. at 811:9-12. Dr. Stuelpnagel elaborated that "if Illumina held intellectual property-intellectual property means patents and patent applications, and other things-if they owned those, we had the right to use those, if they were sort of general purpose and required to use the sequencer and the sequencing reagents." Id.
The trial testimony demonstrated that the SSA is reasonably susceptible to conflicting interpretations and contradictory expressed intent. The testimony of Mr. Naclerio and Dr. Stuelpnagel presented conflicting extrinsic evidence founded in personal knowledge of the negotiations and are evidence of the relevant meaning that the parties gave to the terms of the SSA. Accordingly, the Court properly submitted the question of whether the '794 patent fell within "Core IP Rights in Goods" under the SSA to the jury. Id. at 1866:5-15. Defendant's motion on express licensing is DENIED.
B. Invalidity of the '794 and '430 patents
Ariosa argues that at least the clear weight of evidence is against the jury's findings that the '794 patent was not invalid as anticipated by U.S. Patent Application No. 09/333,110 ("Straus") under
Under the Patent Act, each claim of a patent is presumed to be valid, and the "burden of establishing invalidity of a patent or any claim thereof shall rest on the party asserting such invalidity."
1. Anticipation of the '794 patent by Straus
As a threshold matter, Illumina argues that Ariosa is barred from challenging the '794 patent under the doctrine of assignor estoppel because Drs. Stuelpnagel and Oliphant are inventors of the '794 patent, they assigned their rights to the patent to Illumina, and they are in privity with Ariosa. Dkt. No. 672 at 2; Dkt. No. 661. The Court agrees with Illumina. As is discussed more fully in part IV, below, the Court finds that assignor estoppel applies to Ariosa and that the asserted claims of the '794 patent are within the scope of the rights assigned by Drs. Stuelpnagel and Oliphant to Illumina. Accordingly, Ariosa's invalidity defense against the '794 patent must fail. See Diamond Sci. Co. v. Ambico, Inc. ,
Ariosa argues its expert, Dr. Cantor, presented "unrebutted testimony" that Straus disclosed all elements of the asserted '794 patent claims. Dkt. No. 648 at 7. Ariosa also contends that Illumina's expert, Dr. Cooper, made "legally spurious" assertions at trial that for there to be anticipation of the '790 patent, Straus must disclose all elements of the claim in one disclosure or figure, such as Figure 5.
Illumina responds that Dr. Cantor's testimony fell short of showing by clear and convincing evidence that Straus discloses "identical universal priming sites," and that Dr. Cooper provided testimony rebutting Dr. Cantor. Dkt. No. 672 at 3-4. Illumina argues that Dr. Cooper did not misstate the legal standard for anticipation. Id. at 4-6.
A prior art reference anticipates a claim if "it discloses all the claimed limitations 'arranged or combined in the same way as in the claim.' " Kennametal, Inc. v. Ingersoll Cutting Tool Co. ,
The Court finds that a reasonable jury could find Ariosa did not prove by clear and convincing evidence that Straus anticipated the '794 patent. Ariosa's expert, Dr. Cantor, testified at trial that Straus disclosed each and every element of the asserted claims of the '794 patent. Trial Tr. at 1467:9-1476:7. In particular, Dr. Cantor relied on Straus's Figure 5, which disclosed "almost everything" needed to demonstrate how Straus disclosed every element of the claims. Id. at 1466:1-5. Dr. Cantor explained that Figure 5 did not disclose all the elements of the asserted claims, including the limitation of "100 different probes [having] identical universal priming sites" in claim 1. See id. at 1471:1-4. Thus, Dr. Cantor relied on, inter alia , the disclosure of "a single pair of amplification sequences" found elsewhere in Straus. Id. Illumina's expert, Dr. Cooper, testified that Straus did not make "clear" that the elements of the claimed method identified by Dr. Cantor by "dancing around the document" should be done "all together." Trial Tr. at 1654:7-17, 1654:25-1655: see Trial Tr. at 1599:10-1600:11.
In view of the conflicting evidence, the jury was entitled to assess the credibility of each party's experts to determine whether Straus disclosed all elements of claim 1 "arranged or combined in the same *1089way as in the claim."4 See i4i Ltd. P'ship v. Microsoft Corp. ,
Ariosa also argues that it was prejudiced when plaintiffs repeatedly raised the IPR proceedings during trial. Illumina contends that it did not specifically refer to IPR proceedings, nor did Ariosa object when Illumina allegedly made the "prejudicial" references to the IPR proceedings.
Although Illumina made reference to the inter partes review proceedings during trial, the Court finds that either the reference fell within the exceptions set forth in the Court's pre-trial order, or was not so prejudicial as to require a new trial on that basis.5 Regardless, assignor estoppel precludes Ariosa from challenging the '794 patent. Accordingly, the Court DENIES Ariosa's motion for judgment as a matter of law, or for new trial, on its defenses.
2. Enablement of the '430 patent
Ariosa argues the evidence at trial showed that the '430 patent does not meet the enablement requirement because the patent fails to disclose an algorithm for "determining the presence or absence of a fetal aneuploidy" in the context of a targeted sequencing approach as claimed.6 Dkt.
*1090No. 648 at 12. Ariosa contends one of ordinary skill in the art would not be able to adapt known algorithms designed for analyzing random shotgun sequencing data for use on targeted sequencing data without undue experimentation. Id. at 13-15. Ariosa also argues evidence showed that the patent failed to disclose necessary steps to eliminate "noise" in the data to detect fetal DNA, or any examples showing that the claimed pooling and indexing worked as intended. Id. at 12. Lastly, Ariosa claims that "Verinata never actually reduced the alleged invention of the '430 patent to practice or used it in any of its own tests." Id. at 12-13 (citing Trial Tr. at 262:15-23, 349:1-5, 351:7-9, 1481:13-17.).
Illumina responds that Ariosa's expert, Dr. Cantor, testified there were prior art references "adequately" disclosing the elements of claim 1, and that Dr. Rava, an inventor of the '430 patent, and Dr. Cooper, Illumina's expert, testified that the patent referenced other patents that disclosed statistical methods to determine fetal aneuploidy. Dkt. No. 672 at 8-10. Illumina argues that Dr. Cooper testified that Ariosa itself used algorithms for analyzing random shotgun sequencing data in its proof of concept study of its Harmony assay. Id. at 10.
Section 112 of the Patent Act requires a patent specification to "contain a written description of the invention, and of the manner and process of making and using it, in such full, clear, concise, and exact terms as to enable any person skilled in the art to which it pertains ... to make and use the same...."
"Enablement is a question of law based on underlying factual findings." MagSil ,
*1091accord Dow Chem. Co. v. Nova Chems. Corp. (Canada) ,
The Court finds a reasonable jury could have weighed the facts presented at trial to provide substantial evidence supporting its finding that Ariosa failed to show, by clear and convincing evidence, that the '430 patent was not enabled. Specifically, there was no dispute as to the amount of guidance provided by the '430 patent regarding the algorithm for "determining the presence or absence of a fetal aneuploidy" because the '430 patent specification does not explicitly disclose such an algorithm. Trial Tr. at 344:18-23, 345:12-19. There was no dispute that the '430 patent claims recite a directed or "nonrandom" sequencing approach to detect fetal aneuploidy from a maternal blood sample. Id. at 321:13-322:12, 349:6-12. It was also undisputed that the specification incorporates by reference publications that disclose known statistical methods for determining fetal aneuploidy based on random sequencing techniques. Id. at 344:24-345:3.
The trial testimony confirms there was conflicting evidence concerning how much experimentation would have been necessary for one of ordinary skill in the art to adapt these previously known methods used for random sequencing data to the targeted sequencing approach as claimed.7 For instance, Ariosa's witness, Dr. Wang, testified as to the technical "challenges" Ariosa faced when developing an algorithm for analyzing targeted sequencing data to detect fetal aneuploidy in maternal blood. Id. at 1343:23-1348:6. Dr. Wang testified that Ariosa tried a "Z score" method, which "didn't work as well" and was rejected for use in the Harmony test. Id. at 1347:17-1348:6. In addition, Dr. Cantor testified that the algorithms for random shotgun sequencing described in the publications referenced in the '430 patent"definitely won't work" without "improv[ing] on them," and that the patent "wouldn't have helped me in the slightest" to make a targeted sequencing approach work. Id. at 1480:19-1481:12.
By contrast, Dr. Rava, a witness for Illumina, testified that the algorithms for random shotgun sequencing described in the publications referenced in the '430 patent"could be very similar to the ones that would be use[d] in a directed sequencing approach" but "would have to be optimized." Trial Tr. at 344:24-345:11. Finally, Dr. Cooper testified that the references cited in the '430 patent describe statistical methods ("Bayesian likelihood method," "Z score") that were similar to those used by Ariosa for "non-invasive detection of Trisomy 21 and 18 using selective sequencing of cell-free DNA from specific chromosomes." Trial Tr. at 1617:8-1621:1.
The Court finds a reasonable jury could have weighed the conflicting evidence and made a factual determination as to the amount of experimentation that would have been required for one skilled in the art to perform step 1(f). The Court also finds that the jury was "provide[d] substantial evidence in support of its conclusion" as to enablement of the '430 patent. See Halliburton Energy ,
Ariosa argues that the inventor's failure to reduce to practice the invention claimed in the '430 patent"is strong evidence that the specification lacks enablement." Dkt. No. 648 at 12-13 (citing *1092Ormco Corp. v. Align Tech., Inc. ,
Here, there is no evidence that the '430 patent inventors attempted and failed to enable the invention. First, Dr. Rava's inability to recall creating a "full algorithm" for analyzing the sequencing data alone is insufficient to show that the inventors attempted and failed to enable the invention. See Trial Tr. at 349:1-5. The evidence suggests the inventors did develop a method of analyzing the sequencing data because Dr. Rava testified that while developing the targeted approach described in the '430 patent, there "would have been a method" to "determin[e] from the [sequencing] results that we were getting whether or not we could differentiate between the aneuploidy samples and the non-aneuploidy samples" using "a lot of analysis in Excel spreadsheets." See id. at 348:15-25.
Nor does the fact that Verinata's prenatal testing product does not embody the invention claimed in the '430 patent demonstrate that the '430 patent inventors "attempt[ed] but fail[ed] to enable [their] invention in a commercial product that purports to be an embodiment of the patented invention." See Ormco ,
Ariosa also relies on Union Pacific Resources Company v. Chesapeake Energy Corporation ,
Here, in contrast, there was conflicting evidence as to whether the step of analyzing the sequencing data was "pivotal" to the invention claimed in the '430 patent. As discussed above, there was conflicting evidence regarding whether the '430 patent's reference to previously-described methods for analyzing random sequencing data to determine fetal chromosome aneuploidy was sufficient to teach one skilled in the art to perform data analysis in the context of a targeted sequencing approach. Dr. Rava, an inventor of the '430 patent, did not deny that the determining step of the claimed method on its own was not novel, and testified that the known algorithms could be used to perform the determining step with "some optimization." Trial Tr. 347:1-349:12. The Court finds that the jury could weigh the conflicting testimonies to provide substantial evidence supporting its verdict. Accordingly, defendant's motion on invalidity is DENIED.
II. Ariosa's renewed motion for judgment as a matter of law and motion for a new trial on issues for which plaintiffs bore the burden of proof (Dkt. No. 649)
Defendant moves for JMOL under Rule 50(b), and for a new trial under Rule 59 based on non-infringement and patent damages. Dkt. No. 649. Defendant argues that the jury's verdicts on infringement of the '794 and '430 patents and on damages are not supported by substantial evidence, or are against the clear weight of evidence.
A. Non-infringement
Defendant moves for judgment as a matter of law, or for a new trial, on non-infringement on the grounds that plaintiffs failed to meet their burden to prove by a preponderance of the evidence that Harmony V1 and V2 perform each step of the asserted claims of the '794 patent, or that Harmony V1 performs each step of the asserted claims of the '430 patent.
Determining whether an accused product infringes a patent involves a two-step analysis: "First, the claim must be properly construed to determine its scope and meaning. Second, the claim as properly construed must be compared to the accused device or process." Carroll Touch, Inc. v. Electro Mech. Sys., Inc. ,
*1094Ecolab, Inc. v. Envirochem, Inc. ,
1. Harmony V2
Claim 1 of the '794 patent is representative, and recites in relevant part:
1. A multiplex method for determining whether a sample contains at least 100 different target sequences, comprising:
a) providing a sample which may contain at least 100 different single-stranded target sequences attached to a first solid support;
b) contacting said target sequences with a probe set comprising more than 100 different single-stranded probes, wherein each of said more than 100 different probes comprises:
i) a first universal priming site ..., and
ii) a target specific domain, such that different double-stranded hybridization complexes are formed, each of the different hybridization complexes comprising one of said more than 100 different single-stranded probes and one of the different single-stranded target sequences from the sample;
c) removing unhybridized probes;
d) contacting said probes of the hybridization complexes with a first enzyme and forming different modified probes;
e) contacting said modified probes with:
i) at least a first primer that hybridizes to said universal priming site;
ii) NTPs; and
iii) an extension enzyme;
wherein said different modified probes are amplified and forming different amplicons;
f) immobilizing said different amplicons to a second solid support, and
g) detecting said different amplicons immobilized to said second solid support, thereby determining whether the sample contains at least 100 different target sequences."
Defendant argues that no reasonable juror could find that Harmony V2 performs steps 1(a), 1(b) in the claimed order, or steps 1(f) and 1(g). Dkt. No. 649.
a. The '794 patent : Steps 1(a) and 1(b)
Defendant contends that the trial evidence failed to show Harmony V2 performs the "providing" (step 1(a) ) before the "contacting" (step 1(b) ) as required by the claims because plaintiffs' expert, Dr. Cooper, testified that in Harmony V2, the beads (solid support) are added after the probes for hybridization.
A method "is defined as 'an act, or a series of acts.' " Kaneka Corp. v. Xiamen Kingdomway Grp. Co. ,
Here, the parties contest whether Harmony V2 follows the order of the steps in the '794 patent for steps 1(a) and 1(b). To uphold a jury verdict of infringement, a court must find that there was "substantial evidence" i.e., if "there is evidence upon which a reasonable jury could have found infringement." Ultradent Prods., Inc. v. Life-Like Cosmetics, Inc. ,
In Garlock , the Federal Circuit noted that whether an imprecise claim limitation is literally met is a question of fact for the trial court. Specifically, the court noted that, when construing the disputed meaning of the term "about," the correct determination was not the meaning assigned by the parties but rather "dependent on the factual situation presented." Garlock ,
In Ultradent , the Federal Circuit held that theoretical evidence provided by an expert can fulfill the substantial evidence requirement. See Ultradent ,
Dr. Cooper's testimony is similarly based on theoretical foundations. Dr. Cooper's assertion that in Harmony V2, at least 100 different single stranded target-sequences are left over after the two hour period of temperature reduction (and that they first hybridize to the solid support before annealing to the probes) is based on probability and scientific theory. Dr. Cooper explained that first, the earlier portions of the reaction at 70 degrees occur above the melting point of the probes, meaning that the hybridization of the target sequences to the probes only has an opportunity to occur in the latter portion of the process. Trial Tr. at 966:1-8. The jury could have reasonably inferred that this increases the chances of 100 different single-stranded target sequences being present after two hours.
Dr. Cooper also opined that there are billions of cell-free DNA fragments (some of which contain a target sequence and others of which do not), 6,800 types of target sequences, and over 20,000 different types of probes. See Id. at 965:10-13; 966:14-19. According to Dr. Cooper, because there are so many probes and fragments, they collide with one another and decrease the chances that the probes will hybridize to the proper target sequences within the first two hours. Id. at 966:25-967:1-4. The probes can only hybridize if they attach to a complementary single-stranded target sequence. Id. 966:20-24. Dr. Cooper testified that, even if one percent of the fragments remained un-hybridized and therefore single stranded, then there would be at least 100,000 different single-stranded DNA fragments left over. Id. at 967:15-21. Accordingly, by sheer number and probability, there would be at least 100 different single-stranded target sequences. Id.
Dr. Cooper also explains how the solid support first attaches to 100 different single-stranded target sequences and how the target sequences then hybridize to the probes. According to Dr. Cooper, after two hours, the solid support is added and the process is "allow[ed] continued time to proceed." See Trial Tr. 464:4-8, 465:1-4. The solid support streptavidin beads can then quickly attach to the target sequences when they are added because of streptavidin's properties and the interactions with biotin-coated cell-free DNA fragments. Trial Tr. 951:14-25-952:1-3. Dr. Cooper testified that the reaction is nonspecific and the strongest covalent reaction known on the order of 10-15. Id. at 952:12-14. Given the additional time to proceed following the addition of the solid support, there is still ample time for the 100 single-stranded target sequences (attached to the beads) to hybridize to their respective three probes. Id. at 964:9-965:4; (Hearing Tr. 6/8/2018; p. 21 Ariosa's Slides).
Just as the Federal Circuit in Ultradent found that expert testimony based on scientific theory fulfilled the requirement for substantial evidence, this Court finds that Dr. Cooper's testimony, founded upon scientific theory, "constitutes substantial evidence of infringement." See Ultradent at 1070. That Ariosa presented conflicting evidence is not enough to conclude Dr. Cooper's testimony is not substantial. As the Federal Circuit held in Ultradent , there was substantial evidence of infringement despite the defendant's presentation of conflicting evidence. See Id. at 1070. In sum, this Court upholds the jury's finding of infringement of steps 1(a) and 1(b) of Harmony V2.9
*1097b. The '794 patent : Steps 1(f) and 1(g)
Defendant contends that evidence at trial failed to show Harmony V2 performs steps 1(f) and 1(g) because Harmony V2 uses "readout cassettes," which are "indisputably different," or at least substantially different, from the claimed "amplicons." Dkt. No. 649 at 10, 12. Defendant argues that Harmony V2 does not detect immobilized amplicons, and asks the Court to reconsider its ruling on claim construction regarding step 1(f) ("immobilizing said different amplicons"). Id. at 10-15. Defendant argues that plaintiffs did not present "particularized testimony" required to support their DOE theory and relied on "conclusory and irrelevant testimony." Id. at 12-15. Plaintiffs respond that whether Ariosa's "readout cassettes" qualified as the claimed "amplicons" was a question of fact for the jury; that Ariosa admitted that it uses "cleaved amplicons"; and that there was detailed testimony describing the insubstantial difference between a readout cassette and an amplicon. Dkt. No. 670 at 7-10.
The Federal Circuit has ruled that "[w]hen addressing the doctrine of equivalents, a court must ask whether an asserted equivalent is an 'insubstantial difference' from the claimed element, or whether it matches the 'function, way, and result of the claimed element.' " Epos Techs. Ltd. v. Pegasus Techs. Ltd. ,
The Court agrees with plaintiffs and finds there was substantial evidence to support the jury's implicit finding that Ariosa performs steps 1(f) and 1(g) of the '794 patent when using "readout cassettes" to perform the Harmony V2 test, at least under the doctrine of equivalents. There was no dispute that in Harmony V2, modified probes are amplified to produce amplicons, and the amplicons are modified to produce the readout cassettes, which are then immobilized. Trial Tr. at 1074:17-1078:10 (Dkt. No. 603), 1398:7-1403:14 (Dkt. No. 598). There was conflicting evidence as to whether by using the readout cassettes, Ariosa was carrying out substantially the same function as steps 1(f) and 1(g) of claim 1, in substantially the same way, to achieve substantially the same result. Ariosa's witness Dr. Quackenbush testified that amplicons were substantially different from readout cassettes because the former "didn't work" but the latter did work, giving "much better accuracy, [and] much higher quality results" for Harmony V2. Trial Tr. at 1402:14-25 (Dkt. No. 598). Dr. Oliphant testified similarly, explaining that immobilizing amplicons was "not useful" and "doesn't work" in the context of Harmony V2. Id. at 178:7-10 (Dkt. No. 603).
In contrast, Dr. Cooper testified that immobilizing the readout cassettes and immobilizing the amplicons serve substantially *1098the same function of "immobiliz[ing] onto a solid support"; the immobilizing is done in substantially the same method of "hybridization of [the] DNA molecule"; and achieves substantially the same result of "detection of the target sequences that were in the original mixture." Id. at 1682:6-1683:1; see Trial Tr. at 979:21-985:22 (Dkt. No. 603). In view of the trial testimony, the Court finds the jury's verdict should not be disturbed. Defendant's motion is DENIED.
2. Harmony V1
Defendant argues that no reasonable juror could find Harmony V1 performs steps 1(a) and 1(b) of the '794 patent because the evidence shows Harmony V1 does not perform the steps in the claimed order. Dkt. No. 649 at 1. Defendant contends the evidence shows that in Harmony V1, "the probes and solid support are added simultaneously to the sample containing target sequences." Id. Plaintiffs respond that in the reaction mixture, the single-stranded target sequences attach to the solid support before the probes hybridize. Dkt. No. 670 at 11-12.
This Court's claim construction determined that there is an order for the steps of the '794 patent ; for claim 1, "providing" must occur before "contacting." Trial Tr. at 1855:6-13. Accordingly, the relevant inquiry is whether adding the probe, target sequences, and solid support simultaneously, as Harmony V1 does, literally infringes the steps 1(a) and 1(b) of the '749 patent. See '794 Patent at claim 1; Kaneka ,
Plaintiffs presented evidence that it did. Even adding the probes, target sequences and solid support simultaneously, Harmony VI still causes the steps in the '794 patent in first "providing" target sequences (with attached solid support) and then "contacting" the targeted sequences with the probes. There is an active step or performance of "providing" in the form of raising the temperature to 70 degrees, which allows at least 100 single-stranded sequences to be attached to the solid support. See Trial Tr. (1/16/2018) at 960:2-961:7. Afterwards, there is an active step of "contacting" in the form of decreasing the temperature from 70 degrees to 30 degrees, as this allows hybridization between the probe and the target sequences (that are already attached to the solid support). Id. at 962:2-962:5 (Dkt. No. 603). Harmony V1, therefore, directly follows the order (of "providing" and then "contacting") and content of claims 1(a) and 1(b).
Plaintiff's expert, Dr. Cooper explained that the melting point of 70 degrees does not allow probes to hybridize to the target sequences, whereas the target sequences are much more likely to attach to the solid support due to their inherent properties. Trial Tr. (1/16/2018) at 955:4-955:25 (Dkt. No. 603). In addition, the binding of the target sequences (through biotin) and the solid support (through streptavidin) is the strongest known non-covalent interaction. Trial Tr. (1/18/2018) at 1439:21-1440:2 (Dkt. No. 598).
The designer of Harmony V1, Dr. Oliphant, confirmed Dr. Cooper's position. Dr. Oliphant stated that the attachment of the solid support to the target sequences occurs first before the hybridization of the target sequences to the probes when stating that "[w]e attempt to-to attach all of the cell-free DNA to the beads," and that the "next step in the process" was to "hybridize the locus-specific oligonucleotides." Trial Tr. (1/16/2018) at 1091:10-1092:8 (Dkt. No. 603). Given the testimony from Dr. Cooper and Dr. Oliphant, the jury's verdict was not against the great weight of the evidence and the jury could reasonably *1099conclude that the simultaneous addition in Harmony V1 is an insubstantial difference.
Accordingly, the evidence presented at trial is sufficient to support the jury's finding of infringement since the simultaneous addition of the solid support, probes, and target sequences in Harmony V1 does not prevent steps 1(a) and 1(b) from occurring in the order specified by the Court.
b. The '430 patent : Step (f)
Claim 1 of the '430 patent is representative, and recites in relevant part:
1. A method for determining a presence or absence of a fetal aneuploidy in a fetus for each of a plurality of maternal blood samples ... comprising fetal and maternal cell-free genomic DNA, said method comprising:
(a) obtaining a fetal and maternal cell-free genomic DNA sample ...;
(b) selectively enriching a plurality of non-random polynucleotide sequences of each fetal and maternal cell-free genomic DNA sample of (a) to generate a library ..., wherein said plurality of non-random polynucleotide sequences comprises at least 100 different non-random polynucleotide sequences selected from a first chromosome tested for being aneuploid and at least 100 different non-random polynucleotide sequences selected from a reference chromosome, wherein the first chromosome tested for being aneuploid and the reference chromosome are different ... [;]
(c) pooling the libraries generated in (b) to produce a pool of enriched and indexed fetal and maternal non-random polynucleotide sequences;
(d) performing massively parallel sequencing of the pool ... to produce sequence reads corresponding to enriched and indexed fetal and maternal non-random polynucleotide sequences ...;
(e) ... enumerating sequence reads corresponding to enriched and indexed fetal and maternal non-random polynucleotide sequences ...; and
(f) ... determining the presence or absence of a fetal aneuploidy comprising using a number of enumerated sequence reads corresponding to the first chromosome and a number of enumerated sequence reads corresponding to the reference chromosome of (e).
Dkt. No. 64-7.
According to the Court's claim construction, the term "comprising" "means including, but not limited to," and the term "reference chromosome" refers to "a chromosome different from the particular chromosome that is being tested for aneuploidy." Trial Tr. at 1854:17-18, 1855:3-5.
Ariosa argues no reasonable juror could find that Harmony V1 performs step 1(f) of the '430 patent because Harmony V1 does not determine the presence or absence of a fetal aneuploidy using "enumerated sequence reads" or a "reference chromosome." Dkt. No. 649 at 16-19. Ariosa points to evidence showing Harmony V1 uses "quantile normalization" derived from median sequence counts pooled from multiple samples, and argues any enumerated sequence reads are "eliminated" in the process. Id. at 17. Illumina points to evidence showing Harmony V1 uses sequence counts as the original input before transforming the data. Dkt. No. 670 at 13-14. Illumina also contends trial evidence showed Harmony V1 "uses sequence reads from chromosome 13 and 18 as references" when testing chromosome 21. Id. at 14-15.
Here, the Court finds that there is at least conflicting evidence properly before the jury, and there was substantial evidence to support the verdict. The claims of the '430 patent require only that enumerated sequence reads be used to determine the presence or absence of fetal aneuploidy, and the use of such reads from "a" reference chromosome. The claims do not *1100say the enumerated sequence reads cannot be transformed or normalized, and do not exclude using the test chromosome "in the denominator" as argued by Ariosa.
B. Damages
Defendant argues that Illumina has not provided evidence to support an award of damages, pointing to its "unintended, de minimis infringement"; Illumina's failure to apportion damages to exclude the value of non-patented features in the Harmony tests; and Illumina's presenting a "skewed [ ] damages horizon" by including lost royalty payments, convoyed sales and revenue from plaintiffs' foreign subsidiaries in its lost profit calculation. Dkt. No. 649 at 19-25. Plaintiffs respond that the jury awarded an amount that was closer to the value presented by defendant's damages expert ($3.3 million) than that offered by plaintiffs' expert ($104.5 million), and therefore the jury "reached a middle ground" that took into account both parties' arguments. Dkt. No. 670 at 16-17. Plaintiffs argue defendant's infringing conduct was "commercial in nature" and all of the Harmony tests are infringing, and therefore the infringement is far from de minimis. Id. at 18-19. Plaintiffs contend that the jury did apportion, and there is no evidence that the jury awarded lost profits, convoyed sales, or lost profits from foreign subsidiaries. Id. at 19-24.
The Federal Circuit has stated that "[i]n reviewing damages awards in patent cases, we give broad deference to the conclusions reached by the finder of fact," and that "a jury's damages award 'must be upheld unless the amount is grossly excessive or monstrous, clearly not supported by the evidence or based only on speculation or guesswork.' " Monsanto Co. v. McFarling ,
In the present case, Illumina's expert calculated $104.5 million in damages, while Ariosa's expert calculated $3.3 million. Trial Tr. at 1197:2-9; at 1546:6-7. The Court finds that is it clear the jury did not wholesale accept the theory of Illumina's damages expert, given that the jury only awarded approximately $27 million of the $104 million that plaintiffs requested. Dkt. 633 at 6-7. Accordingly, while the Court moves through an analysis of damages below, it gives deference to the jury's findings.
1. Whether every Harmony V2 test infringes
Ariosa argues the damages were improperly awarded because there is no evidence every Harmony V2 test infringes. Dkt. No. 649 at 19-20. Specifically, Ariosa repeats its prior argument that there is not substantial evidence to support Dr. Cooper's claim of infringement regarding steps 1(a) and 1(b) of the '794 patent by Harmony V2.
2. De Minimis argument
Ariosa argues the jury's finding of infringement regarding steps 1(a) and 1(b) of the '794 patent are unintended and de minimis because at least 100 target sequences attaching to the solid support before hybridizing to the probes does not add value. Dkt. No. 649 at 20-21. Ariosa contends that as a result, damages were improperly calculated.
The Court disagrees with Ariosa's de minimis infringement argument. De minimis infringement has been " 'very narrowly' construed, providing a 'defense to infringement performed for amusement, to satisfy idle curiosity, or for strictly philosophical inquiry.' " Nichia Corp. v. Seoul Semiconductor Co. , No. C-06-0162 MMC,
In addition, even if the infringement of steps 1(a) and 1(b) of the '794 patent is de minimis (the jury has already acknowledged the value of the steps), the infringement was not limited to steps 1 (a) and 1(b). Ariosa admitted that the jury considered infringement of steps 1(f) and 1(g), and the jury verdict mentions infringement of claims 2, 3, 9, and 13 as well. See Dkt. No. 633 at 2-3. The jury could have determined the value of the infringement based on those claims.
3. Failure to apportion
Ariosa argues that plaintiffs failed to properly apportion damages because their calculations included patented and non-patented components. Illumina counters that substantial evidence supports the "apportioned amount" the jury awarded. Illumina also argues that Ariosa fails to demonstrate this is not what the jury did, and fails to show the jury did not consider apportionment.
A patent expert must "apportion value between the patented features and the vast number of non-patented features contained in the accused products." Virnetx, Inc. v. Cisco Sys. , Inc.,
*1102a. Royalty rate or royalty base
Ariosa argues that Illumina's damages expert, Mr. Malackowski, did not adjust his proposed royalty to account for Harmony's non-patented features. Dkt. No. 649 at 22-23. Illumina responds that Malackowski accounted for non-infringing features through his selection of the royalty rate instead of the royalty base. Dkt. No. 670 at 19-20.
The Federal Circuit has ruled that damages can be apportioned properly "by adjustment of the royalty rate so as to discount the value of a product's non-patented features." Exmark ,
Malackowski did not quantitatively reduce the royalty rate. Trial Tr. at 1259:8-14. However, he claimed to have used the Georgia-Pacific factors to qualitatively reduce the royalty rate.
According to the Federal Circuit, "a 'superficial recitation of the Georgia-Pacific factors, followed by conclusory remarks, [cannot] support the jury's verdict.' " Exmark ,
Exmark's expert acknowledged that other elements of the mowers affect sales and profits of the mowers, including durability, reliability, brand position, dealer support, and warranty. But she failed to conduct any analysis indicating the degree to which these considerations impact the market value or profitability of the mower and therefore impacted her suggested 5% royalty rate.
Exmark ,
Malackowski touched on the Georgia-Pacific factors during trial. For example, when speaking about Georgia-Pacific factor four, Malackowski stated "that we heard Mr. Bird testify that he would be unwilling to license that competitor. And so that's a consideration that would increase, everything else being equal, what the royalty would pay." Trial Tr. at 1189:20-23. Aside from his statement concerning increase, Malackowski does not explain how the increase led to his conclusion of obtaining five percent royalty rate for the '794 patent. Id. at 1191:21-22. When discussing the factors as a whole, Malachowski stated that "in some cases it's just we need to reduce the price, because our comparables had things our hypothetical wouldn't, and in some cases it suggests we had to increase the price." Id. at 1189:6-10.
While this Court finds that Malackowski's assertions are relatively generalized, the Court defers to the jury's verdict for two primary reasons. First, the Court notes that the jury award reflects approximately one quarter of plaintiffs' proposed damages award. Second, the Court is not convinced that the jury did not discount Malachowski's calculations for non-accused features. Accordingly, the jury's verdict stands.
*1103b. Hypothetical sale price
Ariosa also argues that Malackowski used the incorrect value of $761 to calculate his royalty base, and that the value should have been halved since Ariosa ultimately only received half of the amount. Dkt. No. 649 at 23. Illumina responds that Ariosa waived its argument by not including it in its pre-verdict JMOL motion. Dkt. No. 670 at 22. Assuming Ariosa did not waive its argument, Illumina argues that Ariosa represented it would sell Harmony for $700 to $800. Id. at 22.
The Federal Circuit has ruled that "[t]he determination of a reasonable royalty, however, is based not on the infringer's profit margin, but on what a willing licensor and licensee would bargain for at hypothetical negotiations on the date infringement started." State Indus., Inc. v. Mor-Flo Indus., Inc. ,
In 2012, the parties contractually agreed on a royalty through the Sale and Supply Agreement ("SSA"). See Trial Tr. at 461:8-9. Ariosa agreed to pay a three percent royalty to Illumina, which Illumina "intended to be [based] on" the sale price of the Harmony test. Trial Tr. at 461:22-462:2. Subsequent to the SSA, Ariosa entered into a distribution agreement with LabCorp, in which LabCorp would distribute the Harmony test and Ariosa would receive approximately half of that sale price. Trial Tr. at 462:3-7. As a result, Ariosa sought to adjust its three percent royalty fee with Illumina to reflect the new, lower value it was receiving for the Harmony test.
Illumina's Mr. Naclerio testified as to the parties' 2012 arrangement:
And, you know, pretty much as soon as we signed this, there was-there was some contention over-for example, we ended up with a three percent test fee in here, which we intended to be on the price of the test, which-which, when we negotiated this, it was our understanding that they were going to sell the test directly. After we signed this, they signed a deal with LabCorp where LabCorp essentially was the distributor. And then they sort of said, well, we-our arrangement with LabCorp is we get, I think, 3-or $400 upfront, add up the 7-or $800, and so we think we should only pay you on the 3-or 400.
Trial Tr. at 461:22-462:7. As Naclerio's testimony demonstrates, Ariosa initially represented that it would sell the test for $700 to $800, and that Illumina "intended" the "three percent test fee ... to be [based] on the price of the test." See Trial Tr. at 461:22-462:7, 1262:16-1263:15. It was only after signing a deal with LabCorp that Ariosa attempted to modify the three percent test fee. Trial Tr. at 462:3-7.
The Court finds the relevant value for calculating the royalty base is the original figure. Illumina's intention to charge the test fee was based on the original $700 to $800 value. This calculation was closer in time to the day infringement began. Malackowski testified "that Illumina/Verinata, in the negotiation, would say, look, you can charge whatever you, want, but we're not going to let you pay us a royalty because you decide to drop the price in half, our royalty gets cut in half." Trial Tr. at 1193:4-8. Malackowski also explained that "in a hypothetical, if you're licensing your technology, you're not going to let the buyer get away with deciding how they're going to split up their revenue to pay less on a percentage." Trial Tr. at 1263:12-15.
Naclerio and Malackowski's testimony supports the notion that Illumina hypothetically would have bargained to receive a percentage on the $761 on the date infringement began. Based on their testimony, the jury could have reasonably *1104concluded that the royalty base should properly be calculated based on the hypothetical selling price of $761.
c. Skewed damages regarding lost profits
The Federal Circuit has stated the following regarding lost profits:
To recover lost profits, the patent owner must show "causation in fact," establishing that "but for" the infringement, he would have made additional profits. When basing the alleged lost profits on lost sales, the patent owner has an initial burden to show a reasonable probability that he would have made the asserted sales "but for" the infringement. Once the patent owner establishes a reasonable probability of "but for" causation, the burden then shifts to the accused infringer to show that [the patent owner's "but for" causation claim] is unreasonable for some or all of the lost sales.
Grain Processing Corp. v. Am. Maize-Prod. Co. ,
Malackowski explained that there were three components in his lost profits calculations: "sales, test fees, and reagents." Trial Tr. at 1169:6-9.
i. Lost test fees
Ariosa argues that Malackowski improperly attempted to categorize lost test fees as part of lost profits despite the fact that plaintiffs' own construction of them was as lost royalties. Dkt. No. 649 at 24. Ariosa argues that lost royalties cannot fall under lost profits. As a result, Ariosa argues that Illumina should not be awarded the lost test fees.
Plaintiffs argue that Ariosa has not proven that the jury awarded lost profits. Dkt. No. 670 at 22. In addition, according to plaintiffs, precedent dictates that lost royalties can still be awarded under lost profits; therefore, the lost test fees can properly be included under lost profits even if the lost test fees are categorized as lost royalties. Id. at 22-23. Plaintiffs also contend that, even if precedent is not in their favor, the lost test fees are not royalties because the supply agreements say otherwise. Id. at 23.
The Federal Circuit provided guidance regarding lost royalties and lost profits in Warsaw Orthopedic, Inc. v. NuVasive, Inc. ,
To be entitled to lost profits, we have long recognized that the lost profits must come from the lost sales of a product or service the patentee itself was selling. As we explained in Rite-Hite , "[n]ormally, if the patentee is not selling a product, by definition there can be no lost profits."
*1105Malackowski testified that plaintiffs' lost test fees encompassed two parts, valued together at approximately $75. See Trial Tr. at 1109:9-22; 1153:1-10. First, the number included a license to the NIPT patent pool rights; second, it included a license for the rights to use Illumina equipment. Id. at 1109:20-22 ("One, it's a license for the rights to use this IP; but it also conveys the rights to use our actual products, themselves, in the field of NIPT."). Much like the patentee in Warsaw who was only licensing and not practicing a patent, Illumina is only in the business of licensing as related to the lost test fees. Id. at 1109:9-22. Illumina, therefore, cannot recover the lost test fees under lost profits.
However, Ariosa cannot show that the jury awarded Malackowski's supposed lost profits calculation. Although Malackowski included the test fees in the lost profits calculation, the jury instructions only state, "[i]n this case, Illumina and Verinata seek to recover lost profits for some of Ariosa's sales of its Harmony™ Prenatal Test product, and a reasonable royalty on the rest of Ariosa's sales."11 Dkt. No. 625 at 22. The jury verdict does not explain how the jury came to its calculations. Because the jury could have discounted lost test fees in its lost profits award, the jury's verdict stands in relation to sales regarding lost test fees.
ii. Convoyed reagent sales
Ariosa argues that Malackowski should not have included "reagent sales to the third parties who compete with Ariosa" as part of his damages calculation because the sequencing reagents are not a functional unit with the patent itself. Dkt. No. 649 at 24-25. Illumina responds that there is no evidence the jury took into account convoyed reagent sales when calculating the damages. Dkt. No. 670 at 23. Assuming the jury did take into account the sale, Illumina argues that the reagents pertain to the '794 patent because the reagents are used to run the sequencers which Ariosa used for Harmony V1 (which the jury found infringed the '794 patent ). Id. at 24.
The Federal Circuit has held that "[a] patentee may recover lost profits on unpatented components sold with a patented item, a convoyed sale, if both the patented and unpatented products 'together were considered to be components of a single assembly or parts of a complete machine, or they together constituted a functional unit.' " Am. Seating Co. v. USSC Grp., Inc. ,
Still, Ariosa fails to show that the jury did not discount the convoyed reagent sales. The verdict form does not specify, and Ariosa only speculates that the jury considered the sales. In addition, because the jury awarded approximately $27 million instead of $104 million, the Court is *1106persuaded that Ariosa's argument concerning convoyed reagent sales does not warrant JMOL or a new trial.
iii. Foreign subsidiaries
Ariosa argues that the jury was misled by the lost profits calculations because Malackowski took into account revenues of Illumina's foreign subsidiaries. Dkt. No. 649 at 25. Illumina contends that Malackowski's calculations only factored into account damages lost by U.S. entities that are parties to the case, not foreign subsidiaries. Dkt. No. 670 at 24. Ariosa contends there is no evidence that the "foreign portion of [Ariosa's] sales would have been earned by the domestic Illumina or Verinata entities that were parties to this action." Dkt. No. 680 at 15.
When calculating the lost profits, Malackowski took into account all of Ariosa's sales, although only three-fifths of the sales were made in the United States. See Trial Tr. 1214:19-23. The Supreme Court recently ruled on the topic of recovering lost profits from foreign sales. WesternGeco LLC v. ION Geophysical Corp. , --- U.S. ----,
In WesternGeco , the infringer "manufactured the components for its competing system in the United States and then shipped them to companies abroad."
The Supreme Court considered the Patent Act § 284 and § 271(f)(2) and applied the second step of the two-step inquiry in relation to the presumption of extraterritoriality. The second step states that " '[i]f the conduct relevant to the statute's focus occurred in the United States, then the case involves a permissible domestic application' of the statute, 'even if other conduct occurred abroad.' "
Whoever without authority supplies or causes to be supplied in or from the United States any component of a patented invention that is especially made or especially adapted for use in the invention and not a staple article or commodity of commerce suitable for substantial noninfringing use, where such component is uncombined in whole or in part, knowing that such component is so made or adapted and intending that such component will be combined outside of the United States in a manner that would infringe the patent if such combination occurred within the United States, shall be liable as an infringer.
The Supreme Court determined that the focus of Section 284 is infringement. Moreover, the Supreme Court determined that the focus of § 271(f)(2) is the act of "suppl[ying] in or from the United States."
Illumina similarly asserts a damages claim under Section 284 of the Patent Act. Just as the infringing act of supplying components in WesternGeco was domestic, Ariosa's infringement occurred in the United States. Specifically, Malackowski explained that the infringement occurred in the United States in the following statements: "because all of the tests are processed in California , all of Ariosa's tests;
*1107therefore they're all infringing. Both of these companies have their headquarters in the U.S., and then serve a global market." Trial Tr. at 1213:13-17 (emphasis added). The Court finds Malackowski's argument persuasive and holds that the focus inquiry is satisfied.
Nevertheless, precedent dictates that there must be a causal nexus between the lost profits and the infringement. See Grain Processing Corp. v. Am. Maize-Prod. Co. ,
In the end, however, Ariosa cannot show that the jury took into account any revenues from foreign subsidiaries in their damages, especially given that the jury only awarded $27 million of the requested $104 million.
III. Ariosa's motion for judgment under Rule 52 (Dkt. No. 650)
Ariosa moves for judgment on partial findings under Rule 52 (c). Dkt. No. 650. Ariosa contends that Illumina is equitably estopped from obtaining relief on claims of infringement of the '794 patent by Harmony V1 because trial evidence demonstrated that Illumina, through statements, omissions, and other conduct it engaged in, misled Ariosa into reasonably believing that Illumina would not sue Ariosa over the '794 patent ; and that Ariosa's investments in the development and commercialization of its Harmony tests were made in reasonable and detrimental reliance on such statements, omissions, and conduct. Id. at 2:7-3:8.
Federal Rule of Civil Procedure 52(c) allows a district court to find against a party on an issue if the party "has been fully heard" on that issue and to enter a judgment against the party on any claim that can be maintained under the controlling law "only with a favorable finding on that issue." Fed. R. Civ. P. 52(c) ; see Granite State Ins. Co. v. Smart Modular Techs., Inc. ,
Equitable estoppel, which bars a patentee from receiving relief, consists of three elements: (i) the patentee must communicate to the accused infringer (by words, conduct or silence) that the patentee will not pursue an infringement claim; (ii) the accused infringer must rely on that communication; and (iii) the accused infringer must establish that it would be materially prejudiced if the patentee is now permitted to proceed with the infringement claim.
B. Braun Med., Inc. v. Abbott Labs.,
Except where equitable estoppel is based solely upon intentional fraud, the burden of proof is the preponderance of evidence. "[W]hile the facts relied upon to establish equitable estoppel must be clear, positive, and unequivocal in their implication, these facts need not be established by any more than a fair preponderance of the evidence." Aukerman Co. ,
A. Findings of fact (re: misleading conduct, reasonable reliance and material prejudice)
Ariosa and Illumina met in March 2011 and November 2011. The '794 patent issued June 2011. The SSA was executed January 2012. Ariosa purchased $14.4 million worth of Illumina equipment and reagents between 2012 and 2014. Ariosa published a study on its NIPT technology in April 2012. Illumina subsequently sued Arisoa.
Illumina asserts that it discovered the infringement in January 2014. Trial Tr. at 494:3-11. Mr. Naclerio is Illumina's former Head of Corporate Development. Id. at 394:15-16. Naclerio testified that Illumina contacted Ariosa within approximately a week from discovering the infringement. Id. at 456:18-20. ("And, in fact, as soon as we found out about that, within-within a week or so we did contact them and ask them about it."). Mr. Flatley is Illumina's executive chairman. Id. at 575:23. In January 2014, Flatley authorized the sending of a breach letter to Ariosa. Id. at 619:6-9. Flatley testified that Illumina and Ariosa communicated through letters and meetings between January 2014 and April 2014 concerning the infringement of the '794 patent. Id. at 620:12-621:12. Illumina filed a lawsuit against Ariosa in April 2014 alleging patent infringement. Id. at 504:6-11.
Naclerio testified that, before January 2014, he was not aware that Ariosa was infringing the '794 patent. Id. at 456:8-10 (Naclerio) ("So I certainly-I feel very strongly that my representation here was-was accurate that there's nothing that I'm aware of that they're infringing."). Flatley testified that, before January 2014, he was not aware that Ariosa was infringing the '794 patent. Id. at 604:17-19 (Flatley) ("Q . Was that something that you were aware of; that there might be an issue there? A . No, we were not aware of any issue."). Flatley testified that Ariosa carried out a performance analysis and claimed it did not infringe on Illumina's intellectual property. Id. at 603:7-9. ("So when they told us they had done performance analysis, and didn't infringe this intellectual property, we assumed that they were correct about that.").
At trial, Flatley stated, "[a]nd if we're investing in a company, if there ever became an issue, we'd have the ability to license our technology to that company, and they would be close partners and collaborators with us. And so that's very low on the concern list at that point." Id. at 596:12-16. Naclerio testified, ("You know, we were less concerned at this point about whether or not the ligation assay might-might use our technology."). Id. at 431:23-25.
*1109After the breach letter was sent in January 2014, Naclerio met with Dr. Song, an employee at Ariosa, at least twice regarding infringement. Id. at 496:2-19. At the second meeting between Dr. Song and Naclerio, Dr. Song stated, "[y]ou don't want to assert that patent against us." Id. at 496:10-11. Naclerio also testified the following:
And then ultimately they told us that, you know, after-first they told us they don't infringe, and then told us there was something about the patent we didn't want to assert. Then when they finally said, oh, we already have a license, that's when we realized there's no way that they're being open with us, and that they're going to negotiate with us. Trial. Tr. at 566:9-14.
Ariosa challenged the '794 patent's validity. Dkt. No. 648. Ariosa expended a total of $40.2 million for research and development between 2011 and March 31, 2014. Dkt. No. 687-24 at 3.
B. Equitable estoppel analysis
1. Misleading conduct
Ariosa argues the trial evidence demonstrates that Illumina misled Ariosa into reasonably believing that Illumina would not sue under the '794 patent. Dkt. No. 650 at 5. Ariosa contends Illumina did nothing to communicate its intent to sue Ariosa for years after Illumina knew, or should have known, the details of the Harmony V1 assay through investment meetings between the companies' executives and Ariosa's scientific publication; invested in Ariosa; and continued to supply equipment and reagents to Ariosa under the SSA. Id. at 5-9. Thus, Ariosa argues Illumina's "years of pre-suit conduct led to only one inference," that "it did not intend to sue Ariosa on the '794 patent." Id. at 9. Illumina responds it did not mislead Ariosa because the evidence shows that Illumina had no duty to inform Ariosa of the Harmony test's infringement of the '794 patent. Dkt. No. 671 at 5-6. Illumina argues that Ariosa never disclosed to Illumina sufficient details of the Harmony test or any of Ariosa's freedom to operate analysis, and the evidence shows Illumina "became aware of Ariosa's infringement of the '794 patent in January 2014," three months before Illumina filed suit. Id. at 6-13.
"The first element of equitable estoppel concerns the statements or conduct of the patentee which must 'communicate something in a misleading way.' " Aukerman ,
Ariosa claims that the present case is analogous to cases in which courts granted equitable estoppel. See Dkt. No. 686 at 6-8. Two of the cases that Ariosa cites to are readily distinguishable. First, *1110Aukerman is distinguishable because the patentee in that case threatened to sue and then remained silent without action for eight years. See Aukerman ,
However, Ariosa does not find the support it seeks in High Point SARL v. Sprint Nextel Corp. ,
Unlike the patentee in High Point, which explicitly licensed activity related to the patents-in-suit, Illumina did not license the '794 patent to Ariosa. See Dkt. No. 633 at 2. Furthermore, unlike in High Point where the patentee was clearly aware of the infringing activity, there is conflicting evidence as to whether Illumina was aware of the infringing activity before January 2014.
Naclerio and Flatley testified that they did not believe the activity was infringing. Trial Tr. at 604:17-19 (Flatley) (Q . "Was that something that you were aware of; that there might be an issue there?" A . "No, we were not aware of any issue."); Trial Tr. at 456:8-10 (Naclerio) ("So I certainly-I feel very strongly that my representation here was-was accurate that there's nothing that I'm aware of that they're infringing."). Additionally, Flatley testified that Ariosa had carried out a performance analysis and claimed that it did not infringe on Illumina's intellectual property. Id. at 603:7-9 ("So when they told us they had done performance analysis, and didn't infringe this intellectual property, *1111we assumed that they were correct about that."). Finally, contrasted to the patentee in High Point, which waited at least seven years to sue, Illumina filed a lawsuit in April 2014 after finding out about the infringement in January 2014. See id. at 494:3-11, 504:6-11.
Although Flatley and Naclerio testified that Illumina's primary concern was not whether Ariosa infringed on the '794 patent, this does not amount to an admission that Illumina was aware of the infringement. Trial Tr. at 431:23-25 (Naclerio) ("You know, we were less concerned at this point about whether or not the ligation assay might-might use our technology."); Id. at 596:12-16 ("And if we're investing in a company, if there ever became an issue, we'd have the ability to license our technology to that company, and they would be close partners and collaborators with us. And so that's very low on the concern list at that point."). In conclusion, based on the specific circumstances in the present case, the Court finds that Illumina did not engage in misleading conduct.
2. Reasonable reliance
Although the Court does not find that there was misleading conduct, it will now consider the second element of reliance. Ariosa contends the evidence at trial shows that Ariosa invested heavily in developing and commercializing the Harmony V1 assay because Ariosa took Illumina's conduct as tacit approval of Ariosa's Freedom to Operate analysis, and because the SSA assured Ariosa that it had access to a supply of equipment and reagents. Dkt. No. 650 at 9:26-11:13. Ariosa argues that it took "proper precautions" for investing resources to develop the Harmony test. Id. at 10. Ariosa argues that it regarded the SSA as ensuring access to needed supplies and thus the SSA "played a key role in Ariosa's sense of security in commercializing Harmony." Id. Illumina responds that the evidence shows Ariosa did not reasonably rely on Illumina because it was Ariosa's obligation under the SSA to "ensure it had the rights from Illumina" to perform the Harmony test, and because Ariosa acted under its own business judgment to develop and commercialize the Harmony test. Dkt. No. 671 at 14.
To establish reliance, the defendant "must show that, in fact, it substantially relied on the misleading conduct of the patentee in connection with taking some action." Aukerman ,
The Federal Circuit has stated that the second element is not satisfied when "there is a total absence in the record of any showing by [the alleged infringer] that its activities were in reliance upon supposed actions of [the patentee], rather than a business judgment of its own-a judgment which subsequent events may well prove to have been faulty." Hemstreet v. Computer Entry Sys. Corp. ,
*1112
In the present case, when Naclerio, on behalf of Illumina, met with Ariosa regarding infringement, Ariosa's Dr. Song stated that "[y]ou don't want to assert that patent against us." Trial Tr. at 496:10-11. Naclerio also testified that the following occurred:
And then ultimately they told us that, you know, after-first they told us they don't infringe, and then told us there was something about the patent we didn't want to assert. Then when they finally said, oh, we already have a license, that's when we realized there's no way that they're being open with us, and that they're going to negotiate with us.
Trial. Tr. at 566:9-14. In addition, like the patentee in Gasser who believed the patent was invalid, Ariosa believed the '794 patent was invalid and thus challenged the patent's validity. See Dkt. No. 648. That Ariosa repeatedly tried to justify its actions, coupled with Ariosa's accusations of invalidity despite Illumina's letter of infringement, shows that Ariosa relied on its own business judgment and "did not establish that [it] would have acted differently under other circumstances." See Gasser ,
Once again, even if the above precedent did not favor Illumina, because the Court holds that Illumina did not engage in misleading conduct, the element of reasonable reliance on misleading conduct cannot be satisfied.
3. Material prejudice
Ariosa argues the trial evidence shows that Ariosa's $14.4 million investment to purchase Illumina equipment and reagents to develop and commercialize the Harmony test "flowed from Illumina's conduct conveying assurances that it would not sue," and therefore was a change in economic position sufficient to constitute material prejudice. Dkt. No. 650. Ariosa argues that it was prejudiced by Illumina's conduct because "Ariosa could have designed its Harmony test" and adopted the assay format used in Harmony V2, in the event this Court finds that Harmony V2 does not infringe the '794 patent. Id. at 12. Illumina responds that the evidence shows Ariosa did not suffer material prejudice because Ariosa actually "benefitted from its investment" through its use of the purchased reagents and sequencing equipment, "enjoyed everything it bought, reaped profits from selling its test, and fully recouped its monetary investment." Dkt. No. 671 at 16. Illumina avers that Ariosa could not have designed around the '794 patent because the jury found Harmony V2 infringed the patent. Id.
The third element of equitable estoppel is the following: "due to its reliance , the alleged infringer will be materially prejudiced if the patentee is allowed to proceed with its claim." Ecolab, Inc. v. Envirochem, Inc. ,
In Aspex Eyewear , the court stated the following in concluding that there was no material prejudice:
Marketing products, which is all [the alleged infringer] did here, generally does not require the same kind of investment as developing and manufacturing products.... In this case, the record leaves many questions about economic prejudice because [the alleged infringer] did not manufacture any products but simply marketed them.
Aspex Eyewear ,
4. Other equitable factors
Illumina argues the jury's factual findings preclude Ariosa's equitable estoppel defense. Dkt. No. 671 at 2-5. Illumina contends that the jury's verdict implicitly supports a finding that Illumina acted in good faith in filing this lawsuit. Id. at 3. Illumina argues that the trial evidence shows Ariosa threatened Illumina about asserting the '794 patent and made "bad faith" attempts to invalidate the patent by unsuccessfully challenging the patent's inventorship and ownership. Id. at 4-5. Illumina argues the trial evidence shows that the balance of equities weighs against finding equitable estoppel as a matter of law. Id. at 5.
Ariosa responds that the intent behind Illumina's misleading conduct is irrelevant, arguing that a court can find estoppel even when the estopped party did not intend to mislead the other party. Dkt. No. 686 at 3. Ariosa furthers contends that although it informed Illumina of its view of noninfringement, Illumina chose to remain silent despite having the opportunity to ask questions. Finally, Ariosa argues that the jury did not find in the verdict that Ariosa acted willfully regarding infringement.
"[T]he trial court must, even where the three elements of equitable estoppel are established, take into consideration any other evidence and facts respecting the equities of the parties in exercising its discretion and deciding whether to allow the defense of equitable estoppel to bar the suit." Aukerman ,
Since the Court finds that the three elements of equitable estoppel are not satisfied and rules in favor of Illumina, the Court declines to consider the rest of Illumina's contentions.
IV. Plaintiffs' motion for a finding that assignor estoppel bars Ariosa from challenging the validity of the '794 patent ( Rule 52(a) ) (Dkt. No. 661)
On March 16, 2018, Illumina filed a motion for a finding, pursuant to Rule 52(a), that assignor estoppel bars Ariosa from challenging the validity of the '794 patent. Upon considering the parties' papers and the evidence in the record, the Court makes the following finding of facts and conclusions of law.
A. Findings of Fact
The Court's Findings of Fact are based on the Court's independent review of the evidence presented in the case-in-chief.
*1114-Assignment of the patent application giving rise to the '794 patent.
1. Drs. Stuelpnagel and Oliphant assigned the rights to their invention in the '727 application to Verinata.
2. The assignment stated the following:
Assignors sell, assign, and transfer to Assignee, the entire right, title, and interest in and to said invention, said application, any applications entitled to benefit of priority to said application under Title 35, United States Code, Sections 120, 121 or 251, which include divisionals, continuations and reissues, and any Letters Patent that may be granted on said invention or these applications in the United States and throughout the world. Dkt. No. 396-2 at 2.
3. The '727 application, after modifications and changes, eventually led to the '794 patent. See Trial Tr. at 1050:11-14 (Dkt. No. 603).
-Privity between Ariosa and Drs. Oliphant and Stuelpnagel
1. Dr. Stuelpnagel was the founder and Executive Chairman of Ariosa. See Trial Tr. (1/11/2018) at 741:10-18.
2. Dr. Stuelpnagel provided legal advice regarding the Harmony Test.Id. (1/11/2018) at 702:25-703:6.
3. Dr. Oliphant was the Chief Science Officer of Ariosa and was responsible for the development of the Harmony V2 Test. See Trial Tr. (1/16/2018) at 1062:14-19.
-Drs. Oliphant and Stuelpnagel's inventorship
1. The '794 patent lists Drs. Stuelpnagel and Oliphant as inventors. See Trial Tr. at 706:22-25, 1049:15-18.
2. Drs. Stuelpnagel and Oliphant both signed oaths of inventorship for the '727 application. See Trial Tr. at 731:10-12, 1049:19-23.
B. Conclusions of law
"Assignor estoppel is an equitable doctrine that prevents one who has assigned the rights to a patent (or patent application) from later contending that what was assigned is a nullity. The estoppel also operates to bar other parties in privity with the assignor, such as a corporation founded by the assignor." Diamond Sci. Co. v. Ambico, Inc. ,
"This doctrine prevents the 'unfairness and injustice' of permitting a party 'to sell something and later to assert that what was sold is worthless.' " Mentor Graphics Corp. v. Quickturn Design Sys., Inc. ,
1. Timing
Defendant argues that the Court should deny Illumina's motion because it was filed "later than 28 days after the entry of judgment." Dkt. No. 661 at 2 (citing *1115Fed. R. Civ. P. 52(b) ). Plaintiffs respond that "there has not yet been a valid entry of judgment because the Court has not yet ruled on Ariosa's equitable estoppel defense-or resolved the inventorship issue." Dkt. No. 694 at 2. In the unique posture of this case, the Court agrees with plaintiffs, and will consider the motion timely.
2. Privity
Plaintiffs argue that Ariosa is barred from challenging the validity of the '794 patent because Drs. Stuelpnagel and Oliphant were inventors of the '794 patent, who assigned all their rights to the patent to plaintiffs, and Ariosa is in privity with Drs. Stuelpnagel and Oliphant. Dkt. No. 661 at 2. Plaintiffs point to Dr. Stuelpnagel's testimony at trial demonstrating he was founder and Executive Chairman of Ariosa, which "availed itself of his knowledge in evaluating whether Harmony infringed the '794 patent," and "corroborating Dr. Oliphant's role as Chief Scientific Officer in the development of the Harmony test and the infringing DANSR array." Id. at 4-5.
Assignor estoppel prevents "those in privity with the assignor from contending that the patent is a nullity." Shamrock Techs., Inc. v. Med. Sterilization, Inc. ,
If an inventor assigns his invention to his employer company A and leaves to join company B, whether company B is in privity and thus bound by the doctrine will depend on the equities dictated by the relationship between the inventor and company B in light of the act of infringement. The closer that relationship, the more the equities will favor applying the doctrine to company B.
Shamrock Techs. ,
The Court finds there is privity between Ariosa and both Drs. Stuelpnagel (founder and Executive Chairman at Ariosa) and Oliphant (Chief Scientific Officer who worked on the Harmony V2 Test). Trial Tr. at 741:10-18, 796:18-22, 1062:14-19. Notably, Ariosa does not dispute privity. Dkt. No. 486.
3. Inventorship
Plaintiffs argue that Drs. Stuelpnagel and Oliphant assigned their undivided interest in the '794 patent to Illumina when they assigned their interest in the "entire invention" disclosed in the '727 application, which later issued as the '794 patent. Dkt. No. 661 at 5-6. Plaintiffs contend that defendant did not present clear and convincing evidence to negate Drs. Stuelpnagel's and Oliphant's presumptive inventorship because they admitted at trial that they contributed to the '794 patent a "singular idea" that is claimed in the patent; trial evidence showed that the '794 patent claims encompass their "singular idea" even when it is defined narrowly; they admitted at trial to inventing Illumina's Golden Gate product, which the trial evidence showed is covered by the '794 patent ; and the trial evidence showed that Dr. Stuelpnagel never denied his inventorship before this lawsuit was filed. Id. at 7-16.
Defendant argues that Drs. Stuelpnagel and Oliphant (and therefore Ariosa) are not estopped from challenging the validity of the '794 patent because the invention they assigned is outside the claims of the '794 patent. Dkt. No. 683 at 4. Ariosa argues the doctors' singular idea of extension and ligation was embodied in Claim 5, which was removed from the final '794 patent, thus proving the '794 patent does not encompass the doctors' invention. Id. at 11. Illumina *1116contends that the '794 patent still encompasses the assigned invention because the term "substantial complementarity" includes "perfect complementarity," and the allele-specific extension and ligation requirement is fulfilled by claims 2, 13, 19, and 20; for example, it is fulfilled by claim 13 because SNPs are detected and is fulfilled by claim 19 because it adds extension and ligation. Dkt. No. 661 at 10-11. Ariosa responds that the doctors' invention regarding extension and ligation was not embodied in the '794 patent. First, Ariosa argues the "perfect complementarity" requirement is missing because substantial complementarity differs from perfect complementarity. Dkt. No. 683 at 14-17. Second, Ariosa contends the allele-specificity aspect is not fulfilled because the perfect complementarity requirement only pertains to "the approximately four terminal bases of the interrogation position ," meaning that being able "to detect SNPs is irrelevant." Id. at 17 (emphasis in original).
In response to Illumina's argument regarding the Golden Gate assay, Ariosa contends that "[n]owhere does Dr. Cooper address whether the Golden Gate assay employs perfect complementarity at the several terminal bases of an interrogation position as Dr[s]. Stuelpnagel and Oliphant conceived." Id. at 18 (citations omitted). Moreover, Ariosa argues that the prosecution history of the '727 patent shows that the doctors' invention was removed from the final version of the '794 patent. Id. at 19-20.
Alternatively, Ariosa argues that, even if claims 19 and 20 embody the assigned invention, those claims are not the subject of the litigation. Id. at 21. Thus, Ariosa contends assignor estoppel should still not preclude Ariosa from challenging the validity of the patent.
The Federal Circuit has not required that the language of the original application track exactly the language of the patent claims in order for assignor estoppel to apply. See Diamond ,
The Federal Circuit in Diamond did outline the following exception to assignor estoppel:
To the extent that Diamond may have broadened the claims in the patent applications (after the assignments) beyond what could be validly claimed in light of the prior art, Westinghouse may allow appellants to introduce evidence of prior art to narrow the scope of the claims of the patents, which may bring their accused devices outside the scope of the claims of the patents in suit.
Brocade Commc'ns Sys., Inc. v. A10 Networks, Inc. , No. 10-CV-03428-LHK,
The breadth of the assignment language in this case is also significant. In BASF Corp. v. Aristo, Inc. ,
Similar to the BASF assignor who asserted that the claims that were assigned differed from the claims in the final patent, Ariosa argues that assignor estoppel cannot apply to Ariosa because the claims in the '727 application were different from the claims in the final '794 patent. Dkt. No. 683. The language of Drs. Stuelpnagel and Oliphant's assignment is almost the same as the language of the assignment in BASF . Drs. Stuelpnagel and Oliphant's assignment states that "the entire right, title, and interest in and to said invention, said application , any applications ... which include divisionals, continuations, and reissues , and any Letters Patent that may be granted on said inventions or these applications ...." Dkt. No. 396-2 at 2 (emphasis added). Just as the inventor in BASF assigned "what ultimately became the # 210 Patent," the doctors likewise assigned to Verinata what ultimately became the '794 patent. Hence, Ariosa, which is in privity with Drs. Stuelpnagel and Oliphant, is estopped from challenging the validity of the '794 patent, notwithstanding the numerous arguments that Ariosa asserts regarding the differences between the '794 patent claims and the '727 application claims.
Ariosa argues that Leading Edge Tech. Corp. v. Sun Automation, Inc. , Civ. S. No. H-90-2316,
In sum, this Court finds that Ariosa is estopped from challenging the validity of the '794 patent.
V. Plaintiffs' motion for permanent injunction (Dkt. Nos. 660, 666)
Illumina moves to enjoin defendants Ariosa Diagnostics, Inc./Roche Molecular Systems, Inc. from making, selling, offering to sell, using, and importing the Harmony™ test in the United States.
A patent grants to the patentee "the right to exclude others from making, using, offering for sale, or selling the invention throughout the United States or importing the invention into the United States."
A. Irreparable injury
A patentee satisfies the irreparable injury prong by establishing that 1) "absent an injunction, it will suffer irreparable harm"; and 2) "a sufficiently strong causal nexus relates the alleged harm to the alleged infringement." Apple Inc. v. Samsung Elecs. Co. ,
1. Direct competition
Plaintiffs argue they are in direct competition with, and accordingly irreparably harmed by, Roche's use of the DANSR technology. According to plaintiffs, the existence of two competing platforms means that every sale defendant makes is a sale Illumina loses. See Dkt. No. 666 at 8.
Plaintiffs argue that because Roche does not pay for the intellectual property it uses, Roche can undercut the price for NIPT tests and disrupt the market, causing plaintiffs to lose sales. Plaintiffs argue that "[o]nce a laboratory adopts a technology to develop its own NIPT test and that test is verified, it can be difficult to switch technologies." Dkt. No. 659 at 8. As a result, the long term losses are difficult to quantify.
In addition, plaintiffs argue NIPT technology is an emerging market, and as a result Roche's direct competition with Illumina causes lost business opportunities, customers, and sales at a particularly crucial inflection point. Id. at 6, 8. Plaintiff contends that such losses tarnish Illumina's *1119brand as "the most efficacious test, emasculates the exclusivity that is the promise of the patent grant, and frustrates the quantification of losses." Id. at 3.
Defendant responds that the focus of the competition should be between Ariosa and Illumina, not Roche and Illumina. Dkt. No. 682 at 7. Ariosa argues that by Illumina's own admission, Illumina is not a direct competitor with Ariosa. Dkt. No. 684-2 at 14 ("Illumina eliminated its IPT sales force and exited the market in which Ariosa operates.").
Defendant also argues that the Harmony test does not focus on the same market of in-house clinical laboratories that Illumina targets and that the presence of other third-party competitors suggests there is no irreparable harm. Id. at 7-8, 12. Defendant contends that Illumina conflates itself with these third-party licensees, and that competition between Ariosa and third-parties cannot fulfill the requirement of irreparable harm because the test requires a showing that the patentee itself, not a third party, has suffered irreparable harm. Id. at 8.
Defendant also attacks plaintiffs' reliance on Illumina executive Jeffrey Eidel's declaration, arguing that the declaration relies on multiple levels of hearsay. Furthermore, Ariosa disputes plaintiffs' contention that Roche's sales are expanding, emerging, or increasing. Id. at 10-11. According to defendant, Ariosa's Harmony sales have declined each year since the Roche acquisition. Id. at 11.
The Federal Circuit has held that "[d]irect competition in the same market is certainly one factor suggesting strongly the potential for irreparable harm without enforcement of the right to exclude." Presidio Components, Inc. v. Am. Tech. Ceramics Corp. ,
Illumina licenses its NIPT pool of patents along with its products from the Sale and Supply Agreement. Trial Tr. 1109:9-15. The license allows clinical laboratories to "[b]ring in-house their own tests." Dkt. No. 666 at 6. Unlike Illumina, Ariosa does not utilize a licensing model; instead, Ariosa sells the Harmony V2 test directly. As a result, the Court finds that Ariosa is not in direct competition with plaintiffs. Rather, defendant competes with Illumina's licensees, not with Illumina. In ActiveVideo Networks, Inc. v. Verizon Commc'ns, Inc. ,
As in ActiveVideo , where ActiveVideo licensed its patent to Cablevision, Illumina licenses its NIPT patent pool to various licensees. Additionally, as in ActiveVideo , where the plaintiff received a licensing fee per subscriber, here Illumina receives payment from every company that obtains a license to its patent pool. In the same way that Verizon's use of infringing technology to obtain a subscriber would cause quantifiable harm to ActiveVideo, Ariosa's use of Harmony V2 causes quantifiable harm to Illumina by taking away a potential licensee. Similarly, this quantifiable harm to Illumina is not irreparable and there is no direct competition between Illumina and Ariosa. Rather, the Court finds that only third party licensees directly compete with Ariosa.
Both parties contest whether AcfS, a product provided by Ariosa, should also fall under the permanent injunction. See Dkt. No. 697-4 at 1; Dkt. No. 684-2 at 7. Given that the Court finds no direct competition between plaintiffs and defendant, the Court finds that the production of AcfS should not be enjoined. If Harmony V2 is not in direct competition, AcfS cannot be in direct competition.
2. Adequacy of legal remedies
Plaintiffs argue that monetary damages are inadequate to compensate them because plaintiffs are forced to compete with a multi-national conglomerate and because the injury to Illumina's reputation is not compensable with monetary damages. Dkt. No. 666 at 9-11. Illumina argues that because the patent has not been licensed and has been kept for exclusive use by Illumina, as it is not part of the NIPT patent pool, the company is irreparably damaged by defendant's Harmony tests.
Defendant claims that plaintiffs' licensing model shows money damages are adequate. First, Illumina participated in the NIPT market as a licensor. Dkt. No. 682 at 5. Defendant argues that, per plaintiffs' own words, Illumina's business goal remains "to license everyone." Dkt. No. 684-2 at 8. Defendant argues that the trial transcript suggests that Illumina intended to license to as many NIPT companies as possible. Dkt. No. 682 at 5.
Second, defendant points out that Illumina not only represented it was willing to license the '794 patent to Ariosa, but suggested its very purpose in bringing this lawsuit was to get Ariosa to take a license. Id. at 5-6. Defendant argues that Illumina is not seeking to reserve the '794 patent for its own exclusive use, as it does not use the '794 for either NIPT technology or any other purpose. Id. at 5. According to defendant, the '794's primary use was in GoldenGate, which was discontinued in December of 2015. Id.
This Court is unconvinced by Illumina's argument that the harm resulting from competing against Roche is not compensable by monetary damages. The Court finds that, as the Federal Circuit explained in ActiveVideo , in cases such as this one where the licensees compete with the infringer, royalties are adequate forms of compensation. See ActiveVideo , 694 F.3d at 1338.
In addition, the Federal Circuit ruled on injuries to reputation in Douglass Dynamics, LLC v. Buyers Products Co. ,
As both parties contest whether Illumina intended to license the '794 patent, the Court will focus on the issue of whether Illumina deliberately did not license out its patent to retain market exclusivity. Accordingly, the main inquiry is whether there was an intention to keep the '794 patent, not the NIPT pool, exclusive. During trial, Illumina explicitly attributed the instant litigation to the fact that Roche "won't take a license to the intellectual property of Illumina, and pay for the intellectual property it uses." Trial Tr. 128:5-13. In addition, one of the main contentions at trial was whether Ariosa actually had a license to the '794 patent. See Trial Tr. 139:25-140:1. Based on the record before the Court, it is clear that Illumina intended to license the '794 patent to Ariosa; and, given that Illumina did not have an intention to retain market exclusivity, this Court holds Illumina's argument regarding exclusivity fails.
3. Balance of hardships
Plaintiffs argue the balance of hardships between plaintiffs and defendant supports an injunction. See Dkt. No. 666 at 11. Plaintiffs note that Roche bought Ariosa with its "eyes wide open about the litigation," meaning that, having been forewarned of the instant dispute, Roche is precluded from arguing about the resulting hardship of a permanent injunction.
To determine the balance of hardships, the Court must determine whether Ariosa or Roche is the relevant party. Roche Molecular Systems Inc. bought Ariosa around December 2014. Dkt. No. 517 at 8 n.8. Roche was named a party during the course of this action, but was dismissed pursuant to stipulation and subsequently deemed a party to any judgment. Dkt. No. 375 at 2. As a result, the focus of the trial was on Ariosa. In addition, the jury verdict refers only to Ariosa and does not mention Roche. See Dkt. No. 633. Since the jury considered Ariosa as the relevant party, this Court concludes that Ariosa is the relevant party.
In Hynix Semiconductor Inc. v. Rambus Inc. ,
Ariosa's business will likewise be decimated if a permanent injunction is issued. Within a period of thirty-nine months (from 2011 to 2014), Ariosa expended $40.2 million for research and development. See Ex. J at 70 (Dkt. No. 687-24 at 3). In addition, switching from Illumina sequencers would cost "an enormous amount of resources, time, and dollars." Trial Tr. at 1314:2-8. Additionally, Ariosa's claims concerning patent validity were not fully adjudicated until January 2018. At a minimum, based on the specific facts in the present case, the Court finds that the balance of the hardships is neutral and does not favor issuing an injunction.
4. Public interest
Plaintiffs argue that courts rarely find an injunction would disserve the public interest after a finding of infringement and that it is in the public interest for patent rights to be respected. Dkt. No. 666 at 12.
Defendant responds that there is a public interest in competition and consumers should be able to select from a number of different options when choosing a NIPT test. Dkt. No. 682 at 19-20. Defendant also contends there is a strong public interest where, as in here, the patentee does not practice the patent. Id. at 20.
The Federal Circuit has stated that "the public interest nearly always weighs in favor of protecting property rights in the absence of countervailing factors, especially when the patentee practices his inventions." Apple Inc. v. Samsung Elecs. Co. ,
However, the Federal Circuit has noted that the public interest weighs in favor of the patentee "especially when the patentee practices his inventions." Apple , 809 F.3d at 647. Here, the '794 patent is not currently in practice. Its primary iteration was in the now discontinued GoldenGate product. See Trial Tr. (1/8/2018) 133:21-25; Ex. I (McGrath Depo.) at 119:17-19, 121:18-22).
This Court is persuaded that the public interest will not be served by the issuance of a permanent injunction. See Novozymes A/S v. Danisco A/S , No. 10-CV-251-BBC,
Here, much like the defendants in Novozymes who did not practice or license their patent, Illumina does not currently practice the '794 patent. Consequently, this Court similarly holds that granting a permanent injunction could disserve the public interest or at the very most is neutral.
Plaintiffs' motion for a permanent injunction is DENIED.
*1123VI. Plaintiffs' motion for an order of accounting and supplemental damages (Dkt. No. 662)
Plaintiffs have also filed a motion for an order of accounting and an award of supplemental damages. Dkt. No. 662. The Court DENIES plaintiffs' request. Apple, Inc. v. Samsung Elecs. Co. ,
CONCLUSION
For the foregoing reasons, the parties' motions are GRANTED IN PART and DENIED IN PART. In addition, the parties' pending motions to seal (Dkt. Nos. 684, 697) are GRANTED.
IT IS SO ORDERED .
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