SRI International (SRI) appeals from a final judgment of the United States District Court for the Northern District of California granting summary judgment of non-infringement to Matshushita Electric Corporation (MEI). 591 F. Supp. 464, 224 USPQ 70 (1984). We reverse.
Familiarity with the district court's opinion being assumed, only those factors necessary to an understanding of this court's decision will be discussed here.
The district court's opinion contains an excellent explication of the technology involved, reflecting a clear recognition of the undisputed fact that the filter and camera embodiment described in the specification of SRI's United States Patent No. 3,378,633 (the '633 patent) issued to SRI as assignee of the inventor Dr. Albert Macovski on April 16, 1968, operate somewhat differently from the MEI filter and camera accused of infringement.
Each claim charged to have been infringed is drawn to a structure. Because of its central role as the broadest, claim 1 is set forth:
1. A spatial filter for affording a monochrome recording from which upon subsequent scanning, information for reproducing an image in color of the object photographed may be derived, said filter comprising a first grid of parallel spaced lines having the color of a subtractive primary, a second grid relatively angularly superimposed over all of the said first grid, said second grid having parallel spaced lines having the color of another subtractive primary, each grid having the same line density.
Claim 2 depends from claim 1, adding only "the relative angle between the first and second grids is 45?." Claim 7 and dependent claim 8 are drawn to a camera in combination with the filter of claim 1. Claim 9 and dependent claim 10 are drawn to "apparatus for generating the color representative electrical signals required for a color television receiver to reproduce a scene in color," and include the filter of claim 1.
Claim 3 was not charged to have been infringed. It is set forth because it affects the question of claim interpretation:
3. In a camera of the type wherein light from a scene being photographed is focused by a lens on black and white, monochromatic sensitive film, the improvement for affording a recording of the color information in the scene being photographed on said film in a manner so that said color information may be electronically derived therefrom comprising a filter adjacent said film, said filter having a first grid of vertical spaced lines which are colored cyan, and superimposed over all of said first grid a second grid having its lines at a 45? angle to the lines of the first grid, said second grid lines being yellow in color, both said grids having the same line density. [Emphasis added.]
The district court's Memorandum Opinion included helpful illustrations, that of SRI's filter being based on Figure 1 of the '633 patent drawings. Figure 1 shows an embodiment of the invention set forth in claim 1, in which one grid is superimposed over all of the other grid, the equi-width stripes of one are vertical and those of the other are angled to the vertical. In the operation of that embodiment, the horizontal distance travelled by the scanning beam in a single pass ("scan line") across and between angularly disposed stripes is greater than that across and between vertical stripes. Thus, the frequency range generated by interruptions in a single pass across the angular grid is lower than that across the vertical grid, and two basically discrete (red and blue) carrier frequency ranges are generated at that point. The frequencies are then decoded by low and band pass filters.
In the MEI filter, one grid is superimposed over all of the other grid and both grids have equi-width stripes, but the stripes of the two grids are at equal and opposite angles to the vertical. In operation, the horizontal distance travelled by the scanning beam in a single pass across and between stripes of both grids is the same, and the red and blue carrier frequency ranges thereby generated are the same at that point. However, the phase difference between successive, timed scanning passes produces a concentration of red and blue components at alternating, overlapping, or interleaved frequencies. To delay successive passes and decode the interleaved frequencies, MEI employs a 1-Hertz (1-H) delay comb line filter.
District Court Proceedings
On July 19, 1982, SRI filed a complaint and jury demand, alleging MEI's willful infringement of claims 1, 2, and 7-10 and seeking treble damages, costs, attorney fees, and an injunction. That same day, the district court scheduled a status conference for October 22, 1982. On September 29, 1982, MEI filed answer, alleging invalidity, unenforceability, and non-infringement, and a counterclaim for declaratory judgment of invalidity and non-infringement.
In April, 1983, the parties filed extensive briefs.
On October 19, 1983, the district court issued a comprehensive Second Order for Pretrial Preparation, setting April 30, 1984 for "Trial before the Jury".
The October 19, 1983 order required the filing of exhibits, witness lists, summaries of all proposed testimony, statements of experts' theories with conclusions and bases therefor, experts' curriculum vitae, and reports prepared for testimony. The order form also contained a requirement applicable "In non-jury cases", i.e., the filing of a written narrative statement of the proposed direct testimony of each witness.
The October 19, 1983 order also required the filing of objections to testimony or exhibits, with the ground for each objection. Pursuant to another order of the same date, the parties were required to prepare statements of fact which each party contends should be submitted to a jury for determination.
In response, on January 20, 1984, counsel for SRI wrote the court, listing among the issues for the jury the question of whether MEI's filter is "so far changed in principle" that SRI's and MEI's filters are different inventions (MEI's position) or different versions of the same invention (SRI's position), quoting Westinghouse v. Boyden Power Brake Co., 170 U.S. 537, 568, 18 S. Ct. 707, 722, 42 L. Ed. 1136 (1898).
On February 2, 1984, counsel for MEI wrote the court, saying that: no issue required jury determination; the issue is whether the claims can cover MEI's filter; that issue is one of claim language scope and a matter of law; and whether MEI's camera functions in a basically different manner is a legal question, citing Kalman v. Kimberly Clark Corp., 713 F.2d 760, 218 USPQ 781 (Fed. Cir. 1983).
(b) February 10, 1984 Pretrial Conference
A February 10, 1984 pretrial conference to narrow the issues began with a late attempt by MEI's counsel to bar the inventor (Dr. Macovski) as an expert witness because of his financial interest in the outcome of the litigation. MEI's counsel said they had originally considered objecting on the ground that " [t]he subject matters [sic] as to which Dr. Macovski is going to testify is so far outside of anyone's real world experience that it's almost impossible to evaluate without appropriate technical background and credentials," and was therefore not appropriate "to go to a jury." That objection was not made. The court overruled the objection with respect to financial interest on the ground that SRI would be prejudiced if denied its witness on the eve of trial.
The court then turned to the purpose of the conference, i.e., determining "whether there are any issues here involving conflicts of facts." Having read the papers then on file, the court concluded:
It seems to me, under the particular recent decisions under the Federal Circuit, it's a pure question of deriving ultimate facts from undisputed evidence which is properly done by the judge. Mr. Gregg, I have read your papers carefully, but I don't see any factual issues that would be proper for a jury.
SRI's counsel then said: "That if there are no evidentiary facts in dispute, this is a case that is ripe for summary judgment. And I would suggest under those circumstances and with your Honor's consent, that the defendants bring a motion for summary judgment." When the judge asked whether SRI wished also to bring a summary judgment motion, SRI's counsel said it did not because counsel believed there were factual disputes present.
Asked to identify the disputes, SRI's counsel responded:
The dispute with respect to infringement largely evolves around this: There is no question but what the words of the claim, as we say, "read on," cover, define, not only the structure in the 633 patent, which is in suit here, but the structure which the defendants used.
And in accordance with the Supreme Court's decision in Graver vs. Linde, you look to the words of the claim, and do you determine whether or not they cover what the accused device is; and if it does, infringement is made out, and that is the end of it.
But there is another side of the coin, and the other side of the coin is this: That if the invention, if whatever the defendant has, if his device is so utterly different in principle from the device which is described in the patent, then regardless of the wording of the claims, the claims have not validly covered it. And that is the issue with respect to infringement, the principle [sic] issue as to whether or not the system which is used by the defendants in this case is so different in principle that it's an altogether different invention. One is an apple; the other is an orange.
And that seems to me to be mainly a fact of determination, and so on down the line.
To that statement the court responded:
Well, I don't think so.... [I]f the issue in this case is whether a thing which is colored orange, has [a] peel about an eighth-inch thick, ... and once it's peeled, it's sectioned, those facts are undisputed. The question is whether the ultimate fact may be derived from that evidence that it is an orange.
That doesn't strike me as a jury issue. That strikes me as an issue that is appropriate for a judge to decide, particularly if oranges are rather obscure kind [sic] of things in the common experience of a jury. There is no dispute it has certain kinds of seeds inside. There is no conflict, in other words, in the evidence. There is only a conflict in the interpretation of the evidence.
It strikes me that is appropriate for a judge to decide. Whether it should be decided on summary judgment or not is another question. I wouldn't keep anybody from making a motion for summary judgment, but it would be useful in this case for the court to hear the testimony of the experts because I think the court needs some enlightenment on some rather technical questions.
After some discussion of evidence of obviousness, the court stated:
I just don't see any dispute here, and it seems to me that these are all legal issues, that is, they are issues of ultimate fact concerning the application of principles such as obviousness, anticipation, infringement, to undisputed facts.
Of course, Mr. Gregg, the two sides will present different evidence, but that doesn't mean there is any conflict in the evidence. And in the absence of an evidentiary conflict, I don't see a jury issue in a patent case.
MEI's counsel at that point said he would move for summary judgment "if it were done in a manner which I think would be permitted by the rules, where on the motion the court could hold an evidentiary hearing which would permit the court to hear the experts at least, and in a live situation develop an education as to the subject matter."
The court then described its procedure in bench trials, under which, to preclude surprise and facilitate preparation for trial, written narrative statements of testimony are exchanged, and the record after trial would become those narrative statements plus testimony adduced at trial. The court added:
And that way the record will be a combination of the narrative statement of testimony, plus the testimony adduced here. Now, that is not summary judgment, but it is a bench trial, and it anticipates the testimony and provides everybody with a complete statement of testimony and exhibits in advance.
Now, that will be my way of proceeding in this case. I don't think it's appropriate for summary judgment just because I would want the live witnesses. But I do think we can resolve these questions fairly and intelligently in a reasonable fashion in this way, and also I think more economically and expeditiously.
Usually when trials are conducted in this fashion, they don't take as long as people anticipate.
The February 10, 1984 conference ended with the setting of March 30 for submission of pretrial briefs and April 30 for a bench trial.
On February 23, 1984, the court issued a Third Order for Pretrial Preparation and Trial in which it denied SRI's request for jury trial and ordered the bench trial discussed in the foregoing quote:
It appearing that there are no disputed issues of fact requiring determination by a jury; it is hereby
ORDERED, ADJUDGED, AND DECREED that the liability phase of this case shall be tried to the Court in accordance with the following schedule ...
The order then repeated the bench-trial requirement for filing narrative statements of testimony, exhibits, and objections.
(c) April 13, 1984 Pretrial Conference
On April 13, 1984, at what proved to be the last pretrial conference and last courtroom event, the court conducted an extended dialogue with SRI's counsel, beginning with the court's demand that counsel state the "essence" of the '633 patent and "the novel element on the basis of which that patent was issued." The court asked SRI's counsel whether the assertions in MEI's brief (claims are limited to filters so operated that the angle difference of the stripes creates different frequencies) stated "the essence of the patent".
Counsel for SRI began correctly by stating the structural limitations of the claims. When the court said the "essence" was "the difference in the angles of the two sets of stripes creates different frequencies for the transmission of red and blue color," counsel said "stripes at an angle to one another and creating different frequencies" was old and that the "novel feature" was the equal width and spacing of the stripes.
Pressed by the court on whether "the basis on which the patent was issued" was "two sets of stripes being at an angle to one another" and "for the purpose of generating different frequencies," SRI's counsel finally, and inexplicably, said, " [t]hat's correct."
The court then said MEI's filter does not generate frequency differences. When SRI's counsel said it did, the court demanded an explanation. Pleading that inventor Macovski could explain it better, counsel said MEI's 1-H delay resulted in frequency differences without which no camera would work.
Pointing to a statement in a brief filed a year earlier (April 29, 1983) by SRI's counsel (that MEI's was a "phase" system), the court deemed counsel's statement in the April 13, 1984 conference (that MEI's system generated two frequencies, albeit in a different way) an improper and possibly punishable change of position.
Counsel said he had learned more during the year, and that his expert witnesses and a paper by MEI's employee, Nakabe, would at trial show the correctness of his present statement.
When the court pointed out that "tenth grade geometry" shows no difference in spacing across and between MEI's stripes, SRI's counsel agreed, saying that, " [t]here is no frequency difference on a given scan line," but that "MEI's 1-H delay produced frequency differences."
When the court asked whether the real issue was whether the '633 patent "protects a system" which generates color differences by a time delay in rate of scanning between different lines, counsel answered, "Yes." The court then asked whether the patent or file wrapper said anywhere that "an essence or novel idea in this patent to be protected is the generation of frequency differences through time delays." Counsel for SRI sought to answer by citing references in the specification to frequency overlap.
Invited to comment, MEI's counsel simply agreed, in three sentences, with what the court had been saying, i.e., that use of "phase" and "frequency" was mere "semantics" and that nothing in the '633 patent suggests MEI's "technique", at which point the court said, "Well, I don't see why I shouldn't grant summary judgment in this case."
Referring repeatedly to the statement about "phase" in the year-old brief of SRI's counsel, the court rejected counsel's promise of what Dr. Macovski would show at trial and counsel's assertions that those skilled in the art would immediately on reading the '633 patent recognize the availability of what counsel called the minor changes made by MEI.
The court then asked MEI's counsel whether he desired a trial or summary judgment. MEI's counsel responded by offering to have his narrative witness statements sworn. The court said there was no need for any statements, because MEI's exhibits and the year-old statement of SRI's counsel removed all controversy.
Recognizing that it had surprised SRI, the court set a schedule for briefing on summary judgment. SRI accompanied its brief with an affidavit of Dr. Macovski. MEI filed no affidavit.
On August 1, 1984, after considering counsels' voluminous submissions, the district court entered summary judgment in favor of MEI.
Whether the district court erred in granting summary judgment of non-infringement.
The Federal Rules of Civil and Appellate Procedure and of Evidence are and should be applied in patent cases no differently from their application in any other type of case. Hence summary judgment under Rule 56, Fed. R. Civ. P., is entirely appropriate, in a patent as in any other case, where there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. See Molinaro v. Fannon/Courier Corp., 745 F.2d 651, 653-54, 223 USPQ 706, 707 (Fed. Cir. 1984); Chore-Time Equipment, Inc. v. Cumberland Corp., 713 F.2d 774, 778, 218 USPQ 673, 675 (Fed. Cir. 1983). The movant bears the burden of demonstrating absence of all genuine issues of material fact, Cooper v. Ford Motor Co., 748 F.2d 677, 679, 223 USPQ 1286, 1287-88 (Fed. Cir. 1984), the district court must view the evidence in a light most favorable to the nonmovant and draw all reasonable inferences in its favor, United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S. Ct. 993, 994, 8 L. Ed. 2d 176 (1962), Martin v. Barber, 755 F.2d 1564, 1566, 225 USPQ 233, 234 (Fed. Cir. 1985), and must resolve all doubt over factual issues in favor of the party opposing summary judgment, Palumbo v. Don-Joy Co., 762 F.2d 969, 973, 226 USPQ 5, 7 (Fed. Cir. 1985).
The party opposing the motion must point to an evidentiary conflict created on the record; mere denials or conclusory statements are insufficient. Barmag Barmer Maschinenfabrik AG v. Murata Machinery, Ltd., 731 F.2d 831, 836, 221 USPQ 561, 564 (Fed. Cir. 1984). Because, however, infringement is itself a fact issue, a district court must approach a motion for summary judgment of infringement or non-infringement with a care proportioned to the likelihood of its being inappropriate. D.M.I., Inc. v. Deere & Co., 755 F.2d 1570, 1573, 225 USPQ 236, 238 (Fed. Cir. 1985); Palumbo v. Don-Joy Co., 762 F.2d 974, 226 USPQ at 8.
Though speedy and inexpensive, summary judgment is nonetheless a "lethal weapon" capable of "overkill". Brunswick v. Vineberg, 370 F.2d 605, 612 (5th Cir. 1967). See generally Louis, Federal Summary Judgment Doctrine: A Critical Analysis, 83 Yale L.Rev. 745 (1974). It denies the non-movant its "day", i.e. a trial, in court. Moreover, experience has shown that a trial often establishes facts and inferences not gleanable from papers submitted pre-trial. Further, a reversal of summary judgment on appeal is not dispositive, but merely remits the case for trial. If reversal be error, that error will manifest itself at close of the non-movant's case, when the district court may direct a verdict or enter judgment accordingly.
In the present case, the admirable and extensive pretrial preparation system designed and vigorously managed by the district court, moved from preparation for a jury trial, through determination of whether the jury demand should be granted, to preparation for a bench trial, to the court's examination of unsworn counsel, to the court's study of exhibits and unsworn narrative statements, and finally to a grant of summary judgment. Counsel did not supply the clear, candid, and uncompromising explication of the law required to protect the pretrial preparation system in this instance from error.
As was stated in Cable Electric Products, Inc. v. Genmark, Inc., 770 F.2d 1015 (Fed. Cir. 1985), "the circumstances appropriate to summary judgment are those in which a district court is able to conclude that, with regard to any factual issues material to granting judgment as a matter of law, no genuine dispute exists." Here there was no dispute on the structure of MEI's filter and camera, and no dispute on the manner in which that structure is operated, but there was a dispute, as discussed infra, on whether that manner of operation meant that MEI's structure was so far changed in principle that it performed the same or similar function as the claimed invention in a substantially different way. As discussed, infra, that disputed question raises a genuine issue of material fact and the answer to that question controls the issue of infringement in this case.
Focusing exclusively on the way the structure of the Figure 1 embodiment in the specification operates, the district court allowed that focus to control its claim interpretation and its grant of summary judgment. In so doing, it erred.
(2) The Claims Read on MEI's Structure
The claims are structural, not method, claims. MEI did not in its brief before us concede that the claims as written read directly on its filter and camera. Because MEI's argument is based entirely on its " technique", i.e., on how its structure and that disclosed in Figure 1 of SRI's specification (or SRI's commercial embodiment) are operated, a concession that its structure falls literally within the words of the structural claims in suit would have saved time and cost for all concerned by focusing on the sole actual infringement issue present, which, as discussed below, centers on the so-called "reverse doctrine of equivalents", i.e. no infringement in law, in spite of literal correspondence with the claim language, because the product or process alleged as an infringement is not actually the invention patented.
The factual issue is whether MEI's filter and camera infringe properly interpreted claims. Fromson v. Advance Offset Plate, Inc., 720 F.2d 1565, 1569, 219 USPQ 1137, 1140 (Fed. Cir. 1983). Nothing in the present record would justify a determination that literal correspondence with claim 1, for example, is avoided by a composite filter structure formed of grids with equi-width stripes superimposed in their entireties at equal and opposite angles to the vertical to derive information for reproducing an image in color, i.e., the MEI filter.
The language of the claims themselves is clear, definite, and unambiguous. It reads directly, unequivocally, and word-for-word on MEI's structure. As above indicated and as the district court correctly noted, there is no factual dispute concerning the structure of MEI's filter. It is undisputed that MEI's filter employs "relatively angularly superimposed" grids. The asserted claims, as the district court appeared to sense, are therefore literally met. If literal correspondence with the language of the claims were the sole consideration, SRI would on the present record be entitled to summary judgment, because there is no issue of genuine material fact that could affect that consideration.
Determination of actual infringement is not in every case, however, limited to literalism. An accused infringer, as here, may argue that the claim language, as properly interpreted, does not actually read on his device. See Leesona v. United States, 530 F.2d 896, 906, 208 Ct. Cl. 871, 887-88, 185 USPQ 156, 163 (aff'd 192 USPQ 672) (1976) ("more than a literal response to the terms of the claims must be shown to make out a case of infringement"). Where, as here, a defendant says the claim language, as interpreted in light of the specification, prosecution history, and prior art, does not actually read on his device, claim interpretation is required. If the presently asserted claims must be interpreted as limited to a structure that is operated in the precise manner in which Figure 1 of the specification is operated, a structure not operated in that manner would not be an actual infringement. As appears below, however, nothing of record requires that the asserted claims be so limited.
(3) Claim Interpretation
Claim interpretation or construction is a legal matter subject to review free of the clearly erroneous standard applicable to fact findings. Raytheon Co. v. Roper Corp., 724 F.2d 951, 956, 220 USPQ 592, 596 (Fed. Cir. 1983); Fromson, supra, 720 F.2d at 1569, 219 USPQ at 1140. In construing claims, the prosecution history is a useful tool, McGill Inc. v. John Zink Co., 736 F.2d 666, 673, 221 USPQ 944, 949 (Fed. Cir. 1984), as is the patent specification, Fromson, 720 F.2d at 1569, 219 USPQ at 1140.
A claim is construed in the light of the claim language, the other claims, the prior art, the prosecution history, and the specification, not in light of the accused device. Contrary to what MEI's counsel wrote the district court, claims are not construed "to cover" or "not to cover" the accused device. That procedure would make infringement a matter of judicial whim. It is only after the claims have been construed without reference to the accused device that the claims, as so construed, are applied to the accused device to determine infringement. See Palumbo v. Don-Joy Co., 762 F.2d at 974, 226 USPQ at 8.(i) Prosecution History
Responding to the examiner's initial rejection of certain claims in view of Kell, U.S. Patent No. 2,733,291, SRI entered extended Remarks in which it distinguished Kell on a number of different bases. Among those Remarks were these:
Claim 1, as amended, distinguishes over Kell in calling for a spatial filter which is comprised of a first grid of parallel spaced lines having the color of a subtractive primary, and a second grid which is relatively angularly superimposed over all of said first grid, said second grid having parallel spaced lines which are the color of another subtractive primary.... Claim 1 further distinguishes over Kell in calling for each grid to have the same line density. Every teaching in Kell, both in the specification and in the drawings, ... is that the line density is different for each grid. [Emphasis in original.]
The reason why Kell makes his line density different for each grid is that that is the way that he generates his two different modulating frequencies. This applicant insures two different modulating frequencies by virtue of placing one grid at an angle to another grid. As a result, the scanning beam, which traverses the line grids in successive parallel lines, is interrupted at two different frequencies by the two angularly disposed lines of the two grids.
At the April 13, 1984 conference, the court intensively examined SRI's counsel, focusing on and reading aloud the second of the two paragraphs above quoted. Continuing, the court said:
Do you accept that statement?
MR. GREGG: That's correct.
THE COURT: And that's the essence of the '633 patent, is it not?
MR. GREGG: That's part of the essence, bearing in mind what the statute ... 35 U.S.C. § 103, has to say, ... that you must look at the invention as a whole. And in connection with claim one, it is the filter; in connection with claim seven, for example, it is the entire camera, with the filter in it.
The district court in its Memorandum Opinion quoted the middle sentence of the paragraph it read aloud: " [T]his applicant insures two different modulating frequencies by virtue of placing one grid at an angle to another grid," and held that the claims must therefore be interpreted as limited to composite filters with angled stripes that themselves generate "two different modulating frequencies" when scanned in one pass. 591 F. Supp. at 470, 224 USPQ at 75. Because it found that MEI's angled stripes themselves generate the same modulating frequency in one pass, the court thought there could be no infringement of the structural claims in suit.
Unlike the patentees in Prodyne Enterprises, Inc. v. Julie Pomerantz, Inc., 743 F.2d 1581, 223 USPQ 477 (Fed. Cir. 1984) and Builders Concrete Inc. v. Bremerton Concrete Prods. Co., 757 F.2d 255, 225 USPQ 240 (Fed. Cir. 1985), SRI did not amend a claim to avoid a prior art reference by insertion of a structural limitation. SRI did not rely on incorporation by reference, as did the patentee in Envirotech Corp. v. Al George, Inc., 730 F.2d 753, 760, 221 USPQ 473, 477 (Fed. Cir. 1984). Nor, as did the patentee in SSIH Equipment S.A. v. U.S. Intern. Trade Com'n, 718 F.2d 365, 376, 218 USPQ 678, 687 (Fed. Cir. 1983), did SRI amend a claim to escape prior art by inserting language which could be understood only by reference to the prosecution history. SRI not only did not amend to escape prior art, it did not insert "relatively angularly superimposed" to do so, and at no time did it insert language into either the claims or the specification that would limit the "information" (set forth in claim as produced by its crossed grids) to that consisting of two rather than one frequency.
Nor did SRI insert in any claim any limitation to a particular manner of operation of its claimed structure. Nor in its Remarks did it distinguish Kell on the basis of Kell generating only one frequency in his single scan pass. On the contrary, SRI expressly recognized in the above-quoted Remarks that Kell generated two ("that is the way he generates his two different modulating frequencies").
Nowhere in the prosecution history is there any discussion of a composite filter that generates one modulating frequency. As the first above-quoted paragraph indicates, SRI recognized that Kell angularly superimposed parts of striped grids and that Kell got two frequencies in a single pass, but pointed out that Kell did so with partially superimposed grids of different line density. SRI could not have properly relied for patentability over Kell on admittedly old features.
The claims being structural, the quoted Remarks distinguished them over Kell, as those Remarks were required to do, on the basis of structure, i.e., grids angularly superimposed in part (Kell) vs. grids angularly superimposed in their entireties (SRI) and different line densities (stripe widths) (Kell) vs. same line densities (SRI). The claims were necessarily allowed on the basis of those structural differences. SRI's Remarks cannot be read, therefore, as strictly limiting (actually rewriting) the claims as though they were drawn to a method of operation in which angled stripes themselves generate two frequencies. Cf. Hughes Aircraft Co. v. United States, 717 F.2d 1351, 1361, 219 USPQ 473, 480 (Fed. Cir. 1983). SRI's explanation that Kell and SRI used different structures to get two frequencies illustrated the claimed structural distinction between partial vs. entire superimposition and different vs. same stripe widths; it did not convert the claims in suit to method claims.
In determining that SRI had "argued to the Patent Office a narrow construction of the claims," and was "precluded from arguing a broader construction for purposes of infringement," 591 F. Supp. at 470, 224 USPQ at 75, the district court misconstrued the nature and effect of the prosecution history. Nothing appearing in that history in relation to Kell required a "narrow construction" limiting the structural claims in suit to a method of operation. It was therefore not necessary for SRI to argue "a broader construction" to prove infringement.
We review the district court's construction of the claims in light of the prosecution history as a question of law and we hold it to have been in error.
(ii) The Specification
The district court also focused on the specification, saying, 591 F. Supp. at 470, 224 USPQ at 74:The specifications of the '633 patent make clear that the claims allegedly infringed envision a filter with grids superimposed at different angles from the vertical to generate frequency variations for the two primary color signals.
Quoting the specification's description of a composite filter structure comprised of two grids having lines at "relative angles such that ... an adequate separation is obtained between carrier sidebands derived from said scanning," the district court said "the specifications assume one of the two grids to be oriented vertically with the other diagonally imposed on it to form a 45? angle." Id. at 470, 224 USPQ at 74. The district court correctly described the specification, but the difficulty is this: claims are infringed, not specifications.
When claim construction is required, claims are construable, as above indicated, in light of the specification, United States v. Adams, 383 U.S. 39, 49, 86 S. Ct. 708, 713, 15 L. Ed. 2d 572, 148 USPQ 479, 482 (1966), yet " [t]hat claims are interpreted in light of the specification does not mean that everything expressed in the specification must be read into all the claims." Raytheon Co. v. Roper Corp., 724 F.2d at 957, 220 USPQ at 597. If everything in the specification were required to be read into the claims, or if structural claims were to be limited to devices operated precisely as a specification-described embodiment is operated, there would be no need for claims. Nor could an applicant, regardless of the prior art, claim more broadly than that embodiment. Nor would a basis remain for the statutory necessity that an applicant conclude his specification with "claims particularly pointing out and distinctly claiming the subject matter which the applicant regards as his invention." 35 U.S.C. § 112. It is the claims that measure the invention. Aro Mfg. Co., Inc. v. Convertible Top Replacement Co., Inc., 365 U.S. 336, 339, 81 S. Ct. 599, 600-01, 5 L. Ed. 2d 592, 128 USPQ 354, 356-57 (1961); Bandag, Inc. v. Al Bolser's Tire Stores, Inc., 750 F.2d 903, 922, 223 USPQ 982, 996 (Fed. Cir. 1984); Jones v. Hardy, 727 F.2d 1524, 1528, 220 USPQ 1021, 1022 (Fed. Cir. 1984). Here the claims, which must be read as a whole, set forth structures distinguished from the prior art and were allowed on the basis of structural differences (e.g., claim 1's limitation to superimposition of entire grids, each having equi-width stripes).
Infringement, literal or by equivalence, is determined by comparing an accused product not with a preferred embodiment described in the specification, or with a commercialized embodiment of the patentee, but with the properly and previously construed claims in suit. See ACS Hospital Systems, Inc. v. Montefiore Hospital, 732 F.2d 1572, 1578, 221 USPQ 929, 933 (Fed. Cir. 1984); Teledyne McCormick Selph v. United States, 558 F.2d 1000, 1007, 195 USPQ 261, 267 (Ct. Cl. 1977).
The law does not require the impossible. Hence, it does not require that an applicant describe in his specification every conceivable and possible future embodiment of his invention. The law recognizes that patent specifications are written for those skilled in the art, and requires only that the inventor describe the "best mode" known at the time to him of making and using the invention. 35 U.S.C. § 112.
As the Supreme Court said in Smith v. Snow, 294 U.S. 1, 11, 55 S. Ct. 279, 283, 79 L. Ed. 721, 24 USPQ 26, 30 (1935):
We may take it that, as the statute requires, the specifications just detailed show a way of using the inventor's method and that he conceived that particular way described was the best one. But he is not confined to that particular mode of use since the claims of the patent, not its specifications, measure the invention. Paper Bag Patent Case, 210 U.S. 405, 419 [28 S. Ct. 748, 751, 52 L. Ed. 1122]; McCarty v. Lehigh Valley R. Co., 160 U.S. 110, 116 [16 S. Ct. 240, 242-43, 40 L. Ed. 358]; Winans v. Denmead, 15 How. 330, 343 [56 U.S. 330, 14 L. Ed. 717]. While the claims of a patent may incorporate the specifications or drawings by reference, see Snow v. Lakeshore R. Co., 121 U.S. 617, 630 [7 S. Ct. 1343, 1351, 30 L. Ed. 1004] and thus limit the patent to the form described in the specification, it is not necessary to embrace in the claims or describe in the specifications all possible forms in which the claimed principle may be reduced to practice.
As one of our predecessor courts stated in Autogiro Co. of America v. United States, 384 F.2d 391, 398, 181 Ct. Cl. 55, 64, 155 USPQ 697, 703 (1967):
The specification "set [s] forth the best mode contemplated by the inventor of carrying out his invention." 35 U.S.C. § 112. This one embodiment of the invention does not restrict the claims. Claim interpretation must not make use of "best mode" terms inasmuch as the patentee need not guard against infringemment by listing every possible infringing device in the specification. Adams v. United States, 330 F.2d 622, 165, Ct. Cl. 576 (1964), aff'd 383 U.S. 39 [citations omitted] (1966) ...
The specification language on which the district court focused was excerpted from that describing and explaining the operation of the structure shown in Figure 1, the embodiment employing a set of vertical grid stripes and a second set of grid stripes disposed at a relative angle to the vertical of 45?. The specification, however, expressly states that Figure 1 "by way of example" shows a version of the claimed invention in which a filter has vertical stripes and stripes angled at 45? to the vertical.
The language of no asserted claim requires that any stripes be vertical. Claim 2 is expressly more narrow than claim 1 in that it specifies "45? " as the relative angle between the stripes of the two grids. Non-asserted claim 3, supra, however, does contain a limitation requiring that one set of grid stripes be "vertical".
The district court thus read, via the specification, the "45?" limitation of narrower claim 2, and the "vertical" limitation of narrower claim 3, into broader claim 1 and the other asserted claims. It is settled law that when a patent claim does not contain a certain limitation and another claim does, that limitation cannot be read into the former claim in determining either validity or infringement. Fromson, supra, 720 F.2d at 1570, 219 USPQ at 1141; Environmental Designs, Ltd. v. Union Oil Co. of California, 713 F.2d 693, 699, 218 USPQ 865, 871 (Fed. Cir. 1983); Palumbo v. Don-Joy Co., 762 F.2d at 977, 226 USPQ at 10.
The reason for the rule is well illustrated here. Non-asserted claim 3 is specifically drawn to the structure of Figure 1. To interpret the asserted claims as though they were also drawn to that structure (or to its manner of operation) would be to render the asserted claims superfluous.
In interpreting the asserted claims in light of the specification, the district court read limitations into them from other claims. That was error as a matter of law.
(4) The Reverse Doctrine of Equivalents
As counsel for SRI told the court, the "principal issue" of fact was whether MEI's filter is "so different in principle that it's an altogether different invention," an apparent attempt to paraphrase the judicially stated reverse doctrine of equivalents. As a basis for its grant of summary judgment, the district court found non-infringement under that doctrine. Because in this case there is a genuine issue of material fact respecting whether MEI's filter and camera structure is so far changed in principle that it performs the same or a similar function in a substantially different way, a trial of that issue is required.
Availability of the reverse doctrine of equivalents was set forth by the Supreme Court in Graver Tank & Mfg. Co., Inc. v. Linde Air Prods. Co., Inc., 339 U.S. 605, 608-09, 70 S. Ct. 854, 856-57, 94 L. Ed. 1097, 85 USPQ 328, 330 (1950):
The wholesome realism of [the doctrine of equivalents] is not always applied in favor of a patentee but is sometimes used against him. Thus, where a device is so far changed in principle from a patented article that it performs the same or a similar function in a substantially different way, but nevertheless falls within the literal words of the claim, the doctrine of equivalents may be used [in reverse] to restrict the claim and defeat the patentee's action for infringement.
As made clear in Graver Tank, in which the Court upheld a finding of infringement under the doctrine of equivalents as "supported by the record" and "not clearly erroneous", the ultimate finding of infringement, or "actual infringement," may depend on facts and circumstances unique to the case.
Infringement is defined in 35 U.S.C. § 271(a) as the unlicensed making, using, or selling of a patentee's claimed invention. Recognizing frailties of language and limitations on human foresight, the law acknowledges that one may appropriate another's patented contribution not only with a product precisely described in a patent claim (literal infringement) but also with a product that is not quite so described but is in fact "substantially the same thing, used in substantially the same way, to achieve substantially the same result" (doctrine of equivalents). The law also acknowledges that one may only appear to have appropriated the patented contribution, when a product precisely described in a patent claim is in fact "so far changed in principle" that it performs in a "substantially different way" and is not therefore an appropriation (reverse doctrine of equivalents). One who takes a claimed structure and merely uses it in a way that differs from that in which a specification-described embodiment uses it, does not thereby escape infringment. Smith v. Snow, supra.
The patentee bears the burden of proving infringement by a preponderance of the evidence. Envirotech Corp. v. Al George, Inc., 732 F.2d 1572, 221 USPQ 929 (Fed. Cir. 1984); SSIH Equipment S.A. v. United States International Trade Commission, 718 F.2d 365, 218 USPQ 678 (Fed. Cir. 1983). Initially that burden is carried when literal infringement has been proved. See Graver Tank, 339 U.S. at 607, 70 S. Ct. at 855-56, 85 USPQ at 330. When a patentee establishes literal infringement, the accused infringer may undertake the burden of going forward to establish the fact of non-infringement under the reverse doctrine of equivalents. If the accused infringer makes a prima facie case, the patentee, who retains the burden of persuasion on infringement, must rebut that prima facie case.
The doctrine of equivalents raises a fact question determinable upon inquiry into whether a product is substantially the same thing used substantially the same way to achieve substantially the same result. Graver Tank, 339 U.S. at 609, 70 S. Ct. at 856-57, 85 USPQ at 330 ("A finding of equivalence is a determination of fact."). See also Autogiro Co. v. United States, 384 F.2d 391, 181 Ct. Cl. 55, 155 USPQ 697 (1967). As above indicated, the reverse doctrine of equivalents also raises a fact question, determinable on inquiry into whether a product has been so far changed in principle that it performs the same or similar function in a substantially different way. Though the second inquiry differs (literal infringement being present) it is nonetheless directed to a fact issue.
The district court here addressed the factual inquiries listed in Autogiro, but said it was doing so "as a matter of law" because, as it construed the claims in suit, the "gist of the ... patent is the creation of two carrier frequencies to encode color information." But a court's election to ignore the structural claims, and to substitute a "gist" drawn from the operation of a disclosed embodiment, cannot convert the fact question raised by the reverse doctrine of equivalents into a legal question of claim construction. That fact question is simple and direct: Is the accused product so far changed in principle that it performs the function of the claimed invention in a substantially different way?
There is no question, as the district court found and as SRI from the outset admitted, that MEI's filter and camera are so operated as to perform their functions in a way that differs from the way in which the structure of SRI's Figure 1 performs those functions. SRI and MEI had the right, however, to adduce documentary and testimonial evidence at trial in an effort to convince the fact finder that the MEI filter is or is not "so far changed in principle" that it performs "in a substantially different way."
The test mandated in Graver Tank leaves room for the fact finder's application to varying circumstances. Words like "so far", "principle" and "substantially" are not subject to rigid pre-definition; nor will the "principle" of a structural invention be always and immediately apparent. It is precisely the role of a trial to apply the test in light of all the live testimony and physical evidence adduced.
At trial, SRI and MEI can cross-examine each other's witnesses on their narrative statements, and may sustain all or some of their objections filed pursuant to the October 19, 1983 order. (Those objections asserted conflict with witnesses' other statements and writings.) The SRI and MEI filters and cameras may be demonstrated. The principle of the claimed invention, and that of MEI's product, and the degree of change, if any, in the latter, may be determined in light of all the evidence, as may the question of whether the latter performs in a substantially different way. In sum, the key infringement question, i.e., whether a principle has been so far changed that the way is substantially different, depends on the evidence.
The Supreme Court supplied guidance useful here in Graver Tank, 339 U.S. at 609, 70 S. Ct. at 856-57, 85 USPQ at 330 (e.g., equivalence is not the prisoner of a formula, nor an absolute to be considered in a vacuum; it does not require identity in every purpose and respect; it is determined against the context of the patent, the prior art, and particular circumstances of the case; one factor is whether the accused product resulted from independent research; an important factor is whether persons reasonably skilled in the art would have known of the interchangeability of an ingredient not contained in the patent with one that was). A major factual dispute in this case, for example, is whether the parties employ substantially different ways of encoding color (MEI's position) or readily interchangeable ways long known to those skilled in the art for whom patents are written (SRI's position). See Thomas & Betts Corp. v. Litton Systems, Inc., 720 F.2d 1572, 1580, 220 USPQ 1, 6 (Fed. Cir. 1983) (known interchangeability of elements is evidence of equivalence).
(5) Reason for In Banc Action
MEI relies on one phrase in a single case, Kalman v. Kimberly-Clark Corp., 713 F.2d 760, 218 USPQ 781 (Fed. Cir. 1983), for the proposition that non-infringement under the reverse doctrine of equivalents is a legal question. In Kalman, this court determined that the district court's fact finding of identity of invention (reached after a four day bench trial) was not clearly erroneous, and that "the stipulation by the parties, coupled with [Kimberly Clark's] failure to counter Kalman's affidavits and evidence submitted in his motion for summary judgment" dictated a finding of infringement. On that undisputed record, this court affirmed the judgment based on that finding. In response to an argument of appellant, the question of the reverse doctrine of equivalents--in a case involving that particular record of stipulation and unchallenged affidavits--was termed "a legal question". Id. at 771, 218 USPQ at 788.
Because the statement respecting the reverse doctrine of equivalents, i.e., that it raises a legal question, may be considered a holding to that effect, the court has sua sponte taken this case under consideration in banc. See South Corp. v. United States, 690 F.2d 1368, 1370 n. 2, 215 USPQ 657, 658 n. 2 (Fed. Cir. 1982). To the extent that the statement constituted a holding in Kalman, it must be and is hereby overruled.
It is settled that the question of infringement (literal or by equivalents) is factual. Graver Tank, supra. It would be anomalous to hold that the question of noninfringement (literal or by the reverse doctrine of equivalents) is not factual. Equivalence and non-equivalence, as the terms indicate, are but opposite sides of the same coin. In determining each, a court must say whether an accused device operates in substantially the same way (equivalence) or in a substantially different way (non-equivalence). The doctrine of equivalents may be employed, as was said in Graver, to expand or restrict a claim.
Indeed, the Supreme Court in Graver Tank, supra, and one of our predecessor courts in Decca Limited v. United States, 420 F.2d 1010, 1014, 190 Ct. Cl. 454, 459-463, 164 USPQ 348, 351, cert. denied, 400 U.S. 865, 91 S. Ct. 102, 27 L. Ed. 2d 104 (1970), said "the doctrine of equivalents may be used to restrict the claim," (emphasis added), and this court in Kalman, 713 F.2d at 771, in rejecting appellant's argument on the reverse doctrine of equivalents, employed the classic statement of equivalence, saying: "the Berlyn devices do the same work, in substantially the same way, to accomplish substantially the same result."
The question of non-infringement under the reverse doctrine of equivalents, as above indicated, raises in this case a genuine issue of material fact which renders the issued summary judgment inappropriate. See Martin v. Barber, 755 F.2d 1564, 225 USPQ 233 (Fed. Cir. 1985).(6) Conclusion
The genuine and material fact question of whether MEI's filter and camera are "so far changed in principle" that they "perform the same or a similar function in a substantially different way" being present and disputed, the district court erred in granting summary judgment.
MARKEY, Chief Judge, with whom PAULINE NEWMAN, Circuit Judge, joins, additional views.
The court, sitting in banc, has declined to decide whether the denial of the jury demand was improper in this case, considering that step unnecessary and adhering to the rule that courts should not, unless compelled, decide constitutional questions.
Because of this court's mandate to contribute to uniform guidance in the national law of patents (as well as in that governing federal personnel, government contracts, international trade, and claims against the government), and because of what is seen as the mistaken belief by some members of the bar and some district courts, including the district court in this case, that this court has created or is creating a dichotomy between the rules governing the right to jury trials in patent suits for damages and the rules governing the right to jury trials in other suits for damages, these additional views are offered.
The district court here abandoned the initial pretrial preparation for jury trial, converting it into preparation for a bench trial. In denying the presence of a "factual issue that would be proper for a jury" the district court, as above quoted, responded to the metaphorical reference by SRI's counsel to MEI's position that operation of the embodiment shown in Figure 1 and MEI's "technique" were as different as apples and oranges:
That doesn't strike me as a jury issue. That strikes me as an issue that is appropriate for a judge to decide, particularly if oranges are rather obscure things in the common experience of a jury. [Emphasis added.]
The district court, in deciding at that point to conduct a bench trial in place of the demanded jury trial, referred to unidentified "decisions" of this court (which hears appeals of district court judgments in patent cases) as indicating a dichotomy between factual issues appropriate for a jury and factual issues appropriate for a judge:
It seems to me, under the particular recent decisions under [sic] the Federal Circuit, it's a pure question of deriving ultimate facts from undisputed evidence, which is properly done by the judge.
Mr. Gregg, I have read your papers carefully, but I don't see any factual issues that would be proper for a jury. [Emphasis added.]
At another point, the court appeared to specifically distinguish demands for jury trials in patent cases from those in other types of cases:
Of course, Mr. Gregg, the two sides will present different evidence, but that doesn't mean there is any conflict in the evidence. And in the absence of an evidentiary conflict, I don't see a jury issue in a patent case. [Emphasis added.]
To the extent that the district court's denial of the jury trial demand and decision to proceed with a bench trial (two months before the court's indication of intent to consider summary judgment) rested on an understanding that this court's decisions have distinguished between considerations governing the right to a jury trial in patent infringement cases for damages and the right to a jury trial in other types of cases, it is appropriate to affirm unequivocally that patent litigants are entitled to neither a greater nor a lesser but to the same right to a jury trial, under the same governing considerations, as are all other litigants.
Those who would create a basis for distinguishing the right to jury trial of patent litigants from the same right of other litigants point to the "complexity" present in some patent cases.
Despite the clear directive of the Seventh Amendment--that "the right to jury trial shall be preserved " (emphasis added)--one federal appellate court and three federal district courts have remanded or struck jury demands in "complex" civil cases, relying on a judge-created "complexity exception". See In re Japanese Elec. Prods. Antitrust Litigation, 631 F.2d 1069 (3d Cir. 1980); Bernstein v. Universal Pictures, Inc., 79 F.R.D. 59 (S.D.N.Y. 1978); ILC Peripherals Leasing Corp. v. IBM Corp., 458 F. Supp. 423 (N.D.Ca.1978), aff'd on other grounds sub nom. Memorex Corp. v. IBM Corp., 636 F.2d 1188 (9th Cir. 1980); In re Boise Cascade Securities Litigation, 420 F. Supp. 99 (W.D. Wash. 1976). One court has noted in passing the possible availability of that exception. See Davis-Watkins Co. v. Service Merchandise Co., Inc., 500 F. Supp. 1244 (M.D. Tenn. 1980), aff'd, 686 F.2d 1190 (6th Cir. 1982).
Proponents of a "complexity exception" say legally or factually complex matters, e.g., those appearing in some antitrust, securities, or patent cases, are "too complex" for juries to comprehend, and those cases should therefore be tried by a single judge. One line of argument looks to the distinction made in England in 1791 between "suits at common law" and "proceedings at equity". Professor Arnold's research would undermine the acceptance of the historical basis for that position. See Arnold, A Historical Inquiry Into The Right To Trial By Jury in Complex Civil Litigation, 1 28 U. Pa. L. Rev. 829 (1980). Arnold was promptly challenged. See Campbell and Le Poidevin, Complex Cases and Jury Trials: A Reply to Professor Arnold, 128 U. Pa. L. Rev. 965 (1980); see also ILC Peripherals, supra, 458 F. Supp. at 447; Devlin, Jury Trial of Complex Cases: English Practice at the Time of the Seventh Amendment, 80 Colum. L. Rev. 43 (1980); Note, Complex Civil Litigation and the Seventh Amendment Right to a Jury Trial, 51 U. Chi. L. Rev. 581 (1984). It is argued, nonetheless, that the Seventh Amendment right to jury trial, placed in our Constitution in 1791, was never "intended" to extend to certain "complex cases" of today.
A second line of argument for a "complexity exception" is that trying a complex case before an "incompetent" jury denies the due process protection of the Fifth and Fourteenth Amendments. See In re Japanese Electric Prods. Antitrust Litigation, supra, 631 F.2d at 1086; see also Oakes, The Right to Strike the Jury Trial Demand in Complex Litigation, 34 U.Miami L.Rev. 243, 289 (1980); Note, The Right To An Incompetent Jury: Protracted Civil Litigation and the Seventh Amendment, 10 Conn.L.Rev. 775 (1978). Proponents of that view argue that a jury "incapable" of understanding the evidence, or the legal rules to be applied, provides no "constitutional" safeguard against an "erroneous" result. The argument confuses the route with the destination, for "due process" is just that, a process. It is an important and constitutionally required process. It is not a result.
One commentator, apparently recognizing that not all judges are inevitably more competent than all juries, has suggested that the "complexity exception" should encompass judges. See 5 J. MOORE'S FEDERAL PRACTICE p 38.02 (1984). Empirical support is simply lacking for the assumption that the process provided in a properly conducted jury trial is necessarily less "due" than that provided in a bench trial.
However some may view what they see as a "better system", and however one may weigh its effect on the due process clauses of the Fifth and Fourteenth Amendments, judges are nowhere authorized to exercise their personal predilection by revising or repealing the Seventh Amendment. The arguments supporting denial of a jury demand in complex civil cases are clearly submissible to the Congress or to the States in support of a proposal under Article V of the Constitution; they are not appropriately submissible to judges sworn to uphold that Constitution. To permit a judicial interpretation of a constitutional provision that destroys another constitutional provision is to place at risk the entire Constitution. See Ullman v. United States, 350 U.S. 422, 428-29, 76 S. Ct. 497, 501-02, 100 L. Ed. 511 (1956).
The call for injection of "expertise" into our jurisprudence can be as alluring, and as fatal, as the sirens' song. Exhibiting no desire to convert our jurisprudence into "juriscience", Congress has repeatedly rejected calls for "specialized" courts limited to decision making solely on technological considerations, see Atari, Inc. v. JS & A Group, Inc., 747 F.2d 1422, 1436, 223 USPQ 1074, 1084 (Fed. Cir. 1984), and has cautiously limited reliance on "expertise" to its employment by administrative agencies.
Those few courts that have referred to a "complexity exception" have pointed to dicta in Ross v. Bernhard, 396 U.S. 531, 90 S. Ct. 733, 24 L. Ed. 2d 729 (1970). After holding that the Seventh Amendment did guarantee a right to jury trial in a stockbroker's derivative action, the Court stated that " [t]he Seventh Amendment question depends on the nature of the issue to be tried rather than the character of the overall action." 396 U.S. at 538, 90 S. Ct. at 738, adding this footnote:
As our cases indicate, the "legal" nature of an issue is determined by considering, first, the pre-merger custom with reference to such questions; second, the remedy sought; and, third, the practical abilities and limitations of juries. Of these factors, the first, requiring extensive and possibly abstruse historical inquiry, is obviously the most difficult to apply. See James, Right to Jury Trial in Civil Actions, 72 Yale L.J. 655 (1963).
Id. at 538 n. 10, 90 S. Ct. at 738 n. 10.
A footnote to the dissent stated:
... Certainly there is no consensus among commentators on the desirability of jury trials in civil actions generally. Particularly where the issues in the case are complex ... much can be said for allowing the court discretion to try the case itself.
Id. at 545 n. 5, 90 S. Ct. at 741-42 n. 5.
Though the Third Circuit majority in Japanese Electronic Products, supra, rejected contentions that "extraordinary complexity renders a suit equitable in nature," 631 F.2d at 1081, and that complexity warranted discretionary exercise of equitable jurisdiction, id. at 1083, it remanded for a determination of whether a balancing of Fifth and Seventh Amendment interests showed that "a jury will not be able to perform its task of rational decisionmaking with a reasonable understanding of the evidence and the relevant legal standards." Id. at 1086. The court then promptly cautioned:
We do not believe that a due process limitation allows the district courts a substantial amount of discretion to deny jury trials. Because preservation of the right to jury trial remains a constitutionally protected interest, denials of jury trial on grounds of complexity should be confined to suits in which due process clearly required a nonjury trial. This implies a high standard. It is not enough that trial to the court would be preferable. The complexity of a suit must be so great that it renders the suit beyond the ability of a jury to decide by rational means with a reasonable understanding of the evidence and applicable legal rules.
Id. at 1088.
The Ninth Circuit, in which sits the district court in this case, has repeatedly rejected calls for a "complexity exception", stating that "we do not believe any case is so overwhelmingly complex that it is beyond the abilities of a jury." In re U.S. Financial Securities Litigation, 609 F.2d 411, 432 (9th Cir. 1979), cert. denied, 446 U.S. 929, 100 S. Ct. 1866, 64 L. Ed. 2d 281 (1980); see also Davis & Cox v. Summa Corp., 751 F.2d 1507, 1516 (9th Cir. 1985). The Seventh and Fifth Circuits have reserved judgment on the constitutionality of a complexity exception and have declined to apply it. See, e.g., Soderbeck v. Burnett County, Wisconsin, 752 F.2d 285, 289 (7th Cir. 1985); Pinemont Bank v. Belk, 722 F.2d 232, 238 (5th Cir. 1984). No circuit has affirmed an actual jury denial on the ground of complexity.
We discern no authority and no compelling need to apply in patent infringement suits for damages a "complexity" exception denying litigants their constitutional right under the Seventh Amendment. See generally Ropski, Constitutional and Procedural Aspects Of The Use Of Juries In Patent Litigation, 58 J.Pat. Off Soc'y 609 (Part I) (1976); Sperlich, The Case for Preserving Trial by Jury in Complex Civil Litigation, 65 Judicature 394 (1982); accord Pell, Patent Law Cases--A Retrospective View From A Lame Swan Appellate Judge, 9 APLA Quarterly J. 105, 112-125 (1981). There is no peculiar cachet which removes "technical" subject matter from the competency of a jury when competent counsel have carefully marshalled and presented the evidence of that subject matter and a competent judge has supplied carefully prepared instructions.
There is thus no warrant for limiting even complex patent litigation to an exclusive professional ritual engaged in only by lawyers and judges. Elbowing to one side the Seventh Amendment, and the compelling social and democratic (much less constitutional) bases for its existence, would be at best an unseemly judicial exercise.
Jury demands are made before jury selection. The "competency" of the jury that will be selected cannot at that time be reliably measured. Doubtless juries vary in "competence" but, as appears below, denial of a jury demand should not be premised on the notion that the jury will be allowed to function as though it were left twisting in the wind. " [J]udicial management of the complex case tried to a jury is key to the effective disposition of the case." See Constantino and Master, The Seventh Amendment Right To Jury Trial In Complex Civil Litigation: Historical Perspectives And A View From The Bench, 12 AIPLA Quarterly J. 279, 284 (1984); Connell v. Sears, Roebuck & Co., 722 F.2d 1542, 1547, 220 USPQ 193, 197 (Fed. Cir. 1983) ("So long as the Seventh Amendment stands, the right to a jury trial should not be rationed, nor should particular issues in particular types of cases be treated differently from similar issues in other types of cases."). See also POSNER, supra n. 24, at 219 ("If Congress abolished the right to jury trial in federal civil cases, it would take a very loose construction of the Seventh Amendment to avoid a declaration of unconstitutionality.").
The constitutional right to jury trial should not depend on which judge is assigned; i.e., on whether a particular judge views particular fact issues as "too complex" for what the judge assumes will be the jury's "common experience." "One of the principal objections to the draft of the Constitution was its failure to guarantee jury trials ... the colonists jealously guarded the rights and powers of juries, with judges and juries being more or less co-equals in the judicial process." Schwarzer, Communicating with Juries: Problems and Remedies, 69 Cal. L. Rev. 731, 734.
In the case at bar, the district court indicated that this court had distinguished between fact issues "appropriate" for a jury and those "appropriate" for a judge. There is, however, no such distinction in the Seventh Amendment. Fact issues are no less such because they are "complex" or "ultimate". The district court, in announcing its decision to deny a jury trial and employ a bench trial, said "these questions" could be resolved in that way "more economically and expeditiously." But whether judicial economy and expedition might be served is irrelevant. The Seventh Amendment contains no "economy" exception.
For those whose concern for jury competence would deny patent litigants the same right to jury trial available to others, reassurance abounds. To begin, the same governing Rules apply. First, if genuine material fact issues are absent, jury trial may be denied and summary judgment granted as a matter of law. Rule 56, Fed. R. Civ. P. Second, a court may remove a case from the jury on motion for a directed verdict, the facts presented at that point being undisputed by the movant and failing in law to support any possible verdict for the non-mover. Rule 50(a), Fed. R. Civ. P. Third, after the jury has returned its verdict, the court may set it aside on motion for JNOV when, on the totality of the evidence, and after drawing all inferences and credibility determinations in favor of the non-movant, no reasonable jury could have reached that verdict. Rule 50(b), Fed. R. Civ. P. Lastly, judges exercise substantial control over jury trials in choosing to require a general or special verdict, Rule 49(a), Fed. R. Civ. P., in admitting and excluding evidence, in instructing the jury on the law, in choosing to employ interrogatories, Rule 49(b), Fed. R. Civ. P., and in granting new trials, Rule 59, Fed. R. Civ. P. See generally Ropski, Constitutional and Procedural Aspects of the Use of Juries in Patent Litigation (Part II-Conclusion), 58 J.Pat.Off.Soc'y 673 (1976).
Reassurance resides also in the role of judge and counsel in managing, simplifying, and assuring presentation of complex evidence with clarity to the fact-finder. That effective trial management is the route to fair resolution of "complex" matters in jury trials is a truism unchallenged by extant empirical evidence.
As they have in varying degrees for almost 200 years, trial judges daily require, as did the district court here, pretrial procedures in an effort to identify and focus the issues. They discourage unnecessary pleadings and encourage stipulation of undisputed matters. They precharge the jury and explain legal and technical terms to be used. They shield the jury from irrelevant, non-probative evidence and from unnecessarily lengthy or complicated "foundation" laying. They encourage use of charts, graphs, and other visual devices to focus and clarify the evidence. Following summations, trial judges greatly facilitate the jury's function when they give clear-cut, comprehensible jury instructions in plain and simple English. See generally Schwarzer, supra.
And if further reassurance be demanded, it can be found in the availability of the appellate process.
DAVIS, Circuit Judge, concurring in the result.
I believe that (1) application of the reverse doctrine of equivalents presents a factual (not a legal) issue; (2) there is a question whether MEI's device literally infringes the claims in suit; and (3) the reverse doctrine of equivalents and prosecution history estoppel having been raised as a defense to literal infringement, there is sufficient doubt about the relevant facts and circumstances to call for a full trial and to make erroneous the grant of summary judgment below. In a comparable recent case, in which there was similar doubt as to the relevant facts bearing on equivalents, we overturned a summary judgment and directed that a trial be had. Palumbo v. Don-Joy Co., 762 F.2d 969, 973-77, 226 USPQ 5, 7-10 (Fed. Cir. 1985). I concur with the majority of the court that we should do the same here, especially since the District Court seems to have treated application of equivalents as essentially a legal issue.
But I do not agree that this court should decide on this appeal the issue of prosecution estoppel against appellee as a matter of law. Rather, that question, too, should be remitted for trial, as was done with respect to the prosecution history questions in Palumbo, supra, 762 F.2d at 976-77, 226 USPQ at 10, and in Lemelson v. TRW, Inc., 760 F.2d 1254, 225 USPQ 697 (Fed. Cir. 1985). In my view, the meaning and impact in this case of the cited prosecution history is sufficiently uncertain that explanatory testimony and fuller ventilation could well be helpful.
I add explicitly that (a) I believe that the trial court dispensed with a jury trial here for no other reason than that it wrongly concluded that there were no disputed factual issues needing any type of trial, (b) there never has been in this case, and is not now, any question relating to the so-called "complexity exception" to the right to a jury trial, (c) the "complexity exception" issue was neither raised nor briefed nor argued by either side in this case, and (d) it would be wholly gratuitous, unnecessary, and inappropriate to decide that issue in this case.
KASHIWA, Circuit Judge, with whom BALDWIN, BENNETT, NIES, and BISSELL, Circuit Judges, join, dissenting.
I disagree with the lead opinion to reverse the district court's grant of summary judgment of noninfringement. The claims asserted by SRI, interpreted in view of the '633 patent specification, file history and prior art, are not infringed by the MEI device. As a separate and independent basis for finding noninfringement, I believe that under the reverse doctrine of equivalents, the MEI device does not infringe SRI's asserted claims.
The lead opinion starts on the first page in its BACKGROUND section with this statement:
The district court's opinion contains an excellent explication of the technology involved, reflecting a clear recognition of the undisputed fact that the filter and camera embodiment described in the specification of SRI's United States Patent No. 3,378,633 (the '633 patent) issued ... April 16, 1968, operate somewhat differently from the MEI filter and camera accused of infringement. (Emphasis as in lead opinion).
Since there is disagreement in this case whether material facts are in dispute, instead of just referring to the district court opinion and merely stating that it contains an "excellent explication of the technology involved," I choose to quote the undisputed facts as found by the district court. It is significant that the lead opinion in its opening paragraph recognizes the "undisputed fact that the filter and camera embodiment described in the specification of SRI's United States Patent No. 3,378,633 (the '633 patent) issued ... April 16, 1968, operate somewhat differently" from the MEI filter and camera accused of infringement. The trial judge chose to find the undisputed material facts to be as follows:
"The '633 patent describes a method by which single tube color television cameras can perceive and transmit color images. Although the detailed technology of the patented and accused devices is complex, the gist of the '633 patent and its only teaching at issue in this action is the way in which a special light filter employs geometric principles to register the color of an object being televised. To understand how the filter facilitates color transmission, however, it is helpful to briefly note the functioning of the camera itself.
"Single tube television cameras operate by focusing the image to be televised onto a photosensitive image area in a part of the camera called a pick-up tube. The pick-up tube converts the image into a series of electrical signals by means of a sequence (or 'raster') of horizontal lines across the image area. The amplitude of the electrical signals varies according to the intensity of light at any given point on the image area. These signals are then transmitted to a receiver and used to reproduce, the original image on a television screen. When generated directly from the pick-up tube, the signals can record the intensity of the image but not its color.
"An image in color is made up of various light components: a general brightness component called 'luminance,' and components of each of the three primary colors: red, blue, and green. To reproduce an image in color, the pick-up tube of a television camera must subdivide the image area into three primary color areas so that electrical signals corresponding to each of these colors can be generated simultaneously by a single raster scan of the pick-up image area.
"Both systems at issue in this action accomplish color subdivision by placing a composite filter in front of the pick-up tube. The composite filter consists of two super-imposed filters each with a grid of different colored stripes. The stripes of one grid are yellow, a color that passes all light except blue (and is referred to as 'subtractive blue'), and the other's stripes are cyan, a color that passes all light except red (and is referred to as 'subtractive red'). As the scanning beam moves across the image over which the composite filter has been placed, the output signal generated includes two signal components representing the red and blue portions of the image. If the yellow stripes are of a different width than the cyan stripes, the beam of light moving at a constant speed will generate output signals of different frequency for the light (i.e. colors) passing the yellow stripes than for that passing the cyan stripes. These output signals, which are said to have 'encoded' the color information from the image, are then 'decoded' by a series of electrical filters and ultimately used to reproduce the image on a television screen.
"2. PRIOR ART: THE KELL PATENT
"The way in which striped filters 'encode' color information is further explained by reference to U.S. Patent No. 2,733,291, issued in 1956 to Ray Kell for a color television camera ('the Kell Patent'), which both parties concede to be the most analogous prior art.
"Kell teaches the use of a composite filter consisting of two grids of stripes, one colored cyan and the other yellow as shown in Figure # 1:
NOTE: OPINION CONTAINS TABLE OR OTHER DATA THAT IS NOT VIEWABLE
The stripes on the two grids vary in width so that all the yellow stripes, of uniform width, are either wider or narrower than the cyan stripes, also of uniform width. As the scanning beam moves across the image area covered by the composite filter, the blue light component of the image is periodically interrupted when the beam passes over each yellow stripe. This periodic interruption generates an electrical signal rerpresenting the blue content of the image at a frequency corresponding to the frequency with which yellow (subtractive blue) appears in front of the image area. At the same time the filter generates a signal representing the red content of the image at a frequency corresponding to the frequency of cyan (subtractive red) stripes.
"Under the Kell patent, because the cyan and yellow stripes vary in width, the frequency of the red and blue signals differ from each other and from the frequency of the luminance or general brightness component. Thus if the filter has more yellow stripes than cyan stripes, the frequency of the three light components can be diagrammed as appears in Figure # 2
NOTE: OPINION CONTAINS TABLE OR OTHER DATA THAT IS NOT VIEWABLE
where the horizontal axis represents frequency measured in megahertz (MHz) and the vertical axis represents amplitude or intensity of the light. Each color is said to have a 'carrier frequency' at the central hump of its frequency range and 'side bands' on either side of the carrier frequency. As can be seen, the luminance component has the lowest frequency range while the red and blue components have higher frequency ranges depending on the spacing of the subtractive color grids.
"The output signals thus generated are then 'decoded' by three electrical filters called 'low pass' and 'band pass' filters which are able to separate out luminance, red, and blue signals by virtue of the variations in their carrier frequencies: In a process not relevant to this action, the green color component is obtained by subtracting out the blue and red components from the luminance component. The separated signals are then funnelled out through different output channels and are ultimately recombined to reproduce the colored image by means of a second scanning beam projected on the television screen.
"The Kell patent suggests a number of minor variations to this basic scheme, one of which is relevant to this action. Kell recognized that the superimposition of one vertical grid on another creates the possibility of 'beats' or 'moire' interference which takes the form of light and dark bands across the filter. The Kell patent teaches that moire interference can be reduced if the stripes are placed at an angle, rather than parallel, to one another. Figure 4D of the Kell patent shows striped grids so angled, and the specification explains that:
the orientation of the different negative grids with respect to the scanning direction as shown in Figure 4D decreases any moire effects that might otherwise be produced.
"3. THE '633 PATENT
"Plaintiff's '633 patent teaches basically the same system as Kell except that the two grids have stripes of equal width. The grids are placed at an angle to one another, however, so that as the scanning beam moves horizontally across the filter, the frequency ranges of the red and blue components will still differ. As shown in Figure # 3, the scanning beam moves across a yellow grid of 1 centimeter-wide stripes placed vertically on the pick-up tube.
NOTE: OPINION CONTAINS TABLE OR OTHER DATA THAT IS NOT VIEWABLE
In Figure # 4, it moves across a cyan grid of stripes also 1 centimeter wide but placed at a 45? angle to the vertical; the resulting distance traveled by the beam over each cyan stripe is, as a matter of pythagorean geomety, 1.4 centimeters.
Court of Appeal, Third District, California.
JRS PRODUCTS, INC., Plaintiff and Appellant, v. MATSUSHITA ELECTRIC CORPORATION OF AMERICA, Defendant and Appellant.
Decided: January 26, 2004
A franchisor that wrongfully terminates a franchise is liable to the franchisee for breach of contract, not for intentional interference with prospective economic advantage. In this case, the franchisee's first cause of action against the franchisor was, in fact, predicated on a breach of contract theory, but the trial court erroneously granted a summary adjudication of that claim. After we dismissed the franchisee's appeal on the contract claim as an appeal from a nonfinal judgment, the franchisee was compelled to try the case solely on a tort theory and prevailed. We reverse the ensuing judgment because, as the franchisor argues on appeal, its conduct, though wrongful, consisted exclusively of breaching the contract. We also reverse the judgment dismissing the contract claim because, as the franchisee argues in the cross-appeal, the California Franchise Relations Act (Act; Bus. & Prof.Code, § 20000 et seq.) 1 does not bar a franchisee from recovering damages for breach of contract.
Plaintiff JRS Products, Inc. (JRS), objects to defendant Panasonic's concise summary of the facts, insisting that a detailed chronology of Panasonic's wrongdoing is essential to resolution of its appeal.2 We disagree. Panasonic reiterates the significant concession it made at trial that its termination of the contract was wrongful under franchise and unfair competition law. In the context of Panasonic's concession and the issues we must resolve on appeal, the relevant facts can be briefly stated.
JRS became a copier dealer for Panasonic in 1989 and a fax machine dealer in 1991. The dealer contract gave Panasonic the right to terminate the agreement without cause with 90 days' notice and to compete with its dealers. In 1996 JRS sold the copier business and became a “dedicated” fax machine dealer, meaning it sold only a Panafax line of products. Doing business under the name XEL Imaging Systems, JRS sold fax machines to numerous business customers, including the State of California and Intel Corporation. Panasonic's western region sales manager for facsimile, Henry “Ski” Shekoski, provided JRS a boilerplate letter stating JRS was an authorized Panasonic dealer.
In November 1997 JRS began to market remanufactured original Panasonic toner cartridges and to sell them at lower prices than Panasonic charged for its new toner cartridges. Unbeknownst to Panasonic, JRS included a copy of the 1996 authorization letter as part of its solicitation package to potential customers. There was evidence to suggest that Shekoski and others concealed from JRS that JRS would be terminated if it did not stop using the authorization letter. Jack Scarzella, the chief executive officer of JRS, testified that Shekoski asked him to stop using the letter in a telephone conversation, but he did not tell him he would be terminated if he continued to use the letter. Shekoski prepared, but did not send, a letter warning JRS that continued misuse of the authorization letter could result in termination of the dealership. Scarzella testified that if he had been told the dealership would be terminated for misuse of the letter, he would have stopped using it.
Panasonic executives were very concerned that remanufacturing was cutting into profits and adversely impacting business. There was evidence that Panasonic decided to terminate dealers who were recharging and selling Panasonic cartridges. In December 1997 Panasonic management made the decision to terminate JRS. However, according to JRS, to obtain approval of the termination, these managers concealed from higher-ranking Panasonic executives that JRS had not been given a written warning.
Panasonic also sold directly to customers under its national account program (NAP). Panasonic believed its dealers were undermining the program by soliciting sales from NAP customers. In March 1998 Panasonic sent a memo to all fax dealers threatening to terminate their dealerships if they solicited sales from NAP customers. Scarzella believed his Intel account was a prospective NAP account and therefore the memo was directed at him. His suspicion was confirmed, from his point of view, when Shekoski asked Scarzella for information about Intel's sales. Shekoski also attempted to get information about Intel from an out-of-state dealer.
On April 1, 1998, JRS received a letter from Panasonic terminating the dealership in 90 days. The notice did not give a reason for the termination. The internal termination sheet stated “inactivity & conflict of business” as the reason for termination. It also stated, “They are recharging Panasonic toner cartridges and selling them to Panasonic dealers incorporating a letter to solicit business that includes the Panasonic logo. Written efforts were made to resolve the issue but the customer did not cease.” Efforts to persuade Panasonic to reinstate the dealership proved unsuccessful.
JRS's first amended complaint alleges eight causes of action, including a cause of action for breach of contract by wrongfully terminating the dealership agreement and a cause of action for the tort of interference with prospective economic advantage. The trial court overruled Panasonic's demurrers to these two causes of action. The court granted, however, Panasonic's subsequent motion for summary adjudication of all but the eighth cause of action for interference with prospective economic advantage.
The parties agreed that JRS would dismiss its eighth cause of action without prejudice to allow JRS to appeal the rulings as to the other causes of action. JRS appealed. After the case was briefed, we dismissed the appeal on our own motion as an appeal from a nonfinal judgment.
JRS's motion to reinstate the appeal was prophetic.3 JRS urged us to reinstate the appeal because “[o]rdinarily, a party to a contract ․ cannot be liable under the tort of intentional interference with its own relationship[.]” JRS clearly articulated the very issue we now must decide: “Can a company be held liable for tortious interference because it failed to perform its contract, knowing that the other party to the contract has contractual obligations to third parties?” JRS cited the dispositive authorities and warned that failure to reinstate the appeal could result in a trial on the wrong theory. And so it was. We denied the motion and the case was tried as a tort rather than a contract action.
The trial court denied Panasonic's motion for a nonsuit on the interference claim. The jury awarded JRS compensatory damages of $720,620 and punitive damages of $2,500,000. Panasonic appeals the judgment on the tort claim; JRS cross-appeals the dismissal of the contract claim. Both appeals have merit. We reverse.
The cross-appeal raises the threshold issue whether a franchisee is entitled to contract damages for wrongful termination of a franchise agreement. The trial court granted summary adjudication of the cause of action for breach of contract because “[t]he remedy plaintiff seeks in the first amended complaint-reinstatement as a Panasonic dealer-is not available under the Franchise Relations Act.” JRS, however, sought contract damages, as well as reinstatement, for wrongful termination of the franchise. Panasonic insists the ruling is correct because JRS cannot recover damages for breach of the franchise agreement as a matter of law. We review the ruling de novo. (Merrill v. Navegar, Inc. (2001) 26 Cal.4th 465, 476, 110 Cal.Rptr.2d 370, 28 P.3d 116.)
The Act prohibits a franchisor from terminating a franchise without good cause and requires the franchisor to give a franchisee notice to cure any transgressions. (§ 20020.) On appeal, Panasonic does not assert that it had good cause or that it gave JRS adequate notice; in fact, it concedes the termination was wrongful under the Act and under the unfair competition law. Rather, it contends that the repurchase of inventory is the exclusive remedy for wrongful termination of a franchise pursuant to section 20035. We disagree. Panasonic's argument disregards both the letter and the spirit of the law.
Section 20035 does, as Panasonic suggests, compel a franchisor to repurchase the franchisee's inventory if it terminates the franchise or fails to renew the franchise agreement. Section 20035 provides: “In the event a franchisor terminates or fails to renew a franchise other than in accordance with the provisions of this chapter, the franchisor shall offer to repurchase from the franchisee the franchisee's resalable current inventory meeting the franchisor's present standards that is required by the franchise agreement․” There is nothing in this provision, however, or in any other part of the Act to indicate that this remedy is exclusive. It is not.
Section 20037 plainly states: “Except as expressly provided herein, nothing in this article shall abrogate the right of a franchisee to sue under any other law.” This statute provides that a franchisee may seek any common law or statutory remedy for wrongful termination of the franchise, including a breach of contract action. By expressly affording franchisees the right to pursue their remedies under any other law, the Legislature did not restrict a franchisee's remedy to reimbursement for inventory, as Panasonic insists. Section 20037 expressly qualifies the applicability of section 20035. If the Legislature had intended for section 20035 to provide the exclusive measure of damages, it certainly would not have qualified the section with the wholesale availability of remedies accorded by section 20037. Interpreting section 20035 to provide the sole remedy for a wrongful termination, as Panasonic insists we must do, would render section 20037 a nullity.
Because the language of section 20037 is plain, we need not consider the legislative history of the Act.4 (Kavanaugh v. West Sonoma County Union High School Dist. (2003) 29 Cal.4th 911, 919, 129 Cal.Rptr.2d 811, 62 P.3d 54.) Moreover, our interpretation is consistent with the purpose of the Act to protect franchisees. The Legislature could not possibly have intended to allow franchisors to wrongfully terminate franchises simply if the franchisors are willing to repurchase inventory and at the same time divest franchisees of their common law remedies. If repurchase of inventory is construed as an exclusive remedy, franchisors would have no incentive to refrain from wrongfully terminating franchises and taking over the businesses with the very inventory they need to continue the franchisee's business. We cannot accept such an absurd result in the face of legislation designed to expand, not retract, a franchisee's remedies.
Two federal cases gave rise to the mischief here. Panasonic urges us to adopt the reasoning of Boat & Motor Mart v. Sea Ray Boats, Inc. (9th Cir.1987) 825 F.2d 1285 (Sea Ray ). Sea Ray was thereafter cited in dicta in Dale Carnegie & Associates, Inc. v. King (S.D.N.Y.1998) 31 F.Supp.2d 359, 365. Neither case persuades us that the Act limits JRS's recovery to a repurchase of its inventory.
In Sea Ray, the franchise agreement allowed the franchisor to terminate the franchise with 30 days' written notice and expressly waived liability for any losses arising out of the agreement. (Sea Ray, supra, 825 F.2d at p. 1288.) The Act, however, provides that a franchisor, exercising its right not to renew a franchise agreement, must give 180 days' notice. (§ 20025.) The franchisor violated this provision of the Act. (Sea Ray, supra, 825 F.2d at p. 1290.) The dispositive issue was whether the franchisee had a statutory right to damages under the Act because it had waived its common law right to damages under the contract. The efficacy of the waiver, therefore, turned on whether the Act created a statutory right to damages.
The Ninth Circuit Court of Appeals held that the Act did not create an independent basis for damages. (Sea Ray, supra, 825 F.2d at p. 1291.) The court observed that, although both the Franchise Investment Act and the Franchises Act, dealing with franchises to sell gasoline, expressly provided injured franchisees a right of action for damages, the Act did not accord franchisees a similar remedy. (Ibid.) Rather, the only remedy provided by the Act was the repurchase of inventory. The court concluded, “[T]he Act itself provides no remedy in our case except repurchase.” (Ibid.)
The court considered whether the franchisee had a right to damages “under any other law.” (§ 20037; Sea Ray, supra, 825 F.2d at p. 1291.) It did not. The court held that the only unlawful provision in the franchise agreement was the termination clause. The franchisee therefore had no basis for recovery of damages. Its waiver of damages was valid because the Act did not create a statutory right to damages and the agreement itself precluded the recovery of damages for a common law breach of contract action as authorized by section 20037. (Sea Ray, supra, 825 F.2d at p. 1291.)
Thus, Business and Professions Code section 20037 did not help the Sea Ray franchisee because, unlike JRS, it had no common law action for breach of contract. JRS did not waive its right to damages for Panasonic's breach. Nor is it relying on any statutory right to damages under the Act separate and apart from the contract damages to which it is entitled under Civil Code section 3300. JRS did not limit its claim for damages to those authorized under the Act; it sued for breach of contract and specifically sought common law contract damages.
Panasonic insists that Sea Ray precludes JRS's recovery of contract damages because it sued for wrongful termination of the franchise under the Act. But Panasonic ignores the key factual distinction between Sea Ray and its franchise agreement. In Sea Ray, the parties lawfully waived their common law right to damages. Consequently, the franchisee had no contractual right to damages and the Act did not provide statutory damages. Here, the parties could not lawfully waive what the Act compelled-good cause to terminate the franchise. Therefore, the provision allowing Panasonic to terminate without good cause is void because it contravenes the express terms of the Act. The fact that one provision of the agreement is void as a matter of law under the Act does not mean, as Panasonic argues, that the cause of action for breach of contract is brought under the Act and limited to a recovery for inventory.
Coast Plaza Doctors Hospital v. UHP Healthcare (2002) 105 Cal.App.4th 693, 129 Cal.Rptr.2d 650 (Coast Plaza ) provides an apt analogy. In Coast Plaza, a health care provider attempted to recover the cost of medical services from the insurer of many of its patients. The provider did not have a written agreement with the insurer. It alleged multiple causes of action for breach of contract under the Knox-Keene Health Care Service Plan Act of 1975 (Knox-Keene Act) (Health & Saf.Code, § 1340 et seq.), breach of contract as a third party beneficiary or assignee, open book account, quantum meruit, unfair competition, unjust enrichment, and violation of the Knox-Keene Act. The trial court ruled that the Department of Corporations has exclusive jurisdiction to enforce the Knox-Keene Act. (Coast Plaza, supra, 105 Cal.App.4th at pp. 697-699, 129 Cal.Rptr.2d 650.) The Court of Appeal reversed, concluding the Department of Corporations does not have exclusive jurisdiction and the provider has a right to pursue common law and other statutory causes of action. (Id. at p. 707, 129 Cal.Rptr.2d 650.)
The court explained: “Not every cause of action is based on the Knox-Keene Act. As to the cause of action for violation of Business and Professions Code section 17200, which is, at least in part, based on violations of [the] Knox-Keene Act, ․ that conduct ․ may be the basis for a cause of action under Business and Professions Code section 17200.” (Coast Plaza, supra, 105 Cal.App.4th at p. 706, 129 Cal.Rptr.2d 650.) The Knox-Keene Act, like the Act, itself contemplates recovery based on other law. Section 1371.25 of the Health and Safety Code, reminiscent of Business and Professions Code section 20037, expressly provides, in part: “Nothing in this section shall preclude a finding of liability on the part of a plan, any entity contracting with a plan, or a provider, based on the doctrines of equitable indemnity, comparative negligence, contribution, or other statutory or common law bases for liability.” 5 (Coast Plaza, supra, 105 Cal.App.4th at p. 706, 129 Cal.Rptr.2d 650.)
Nevertheless, the insurer, like the franchisor here, argued that the Knox-Keene Act offered the exclusive remedy to an aggrieved provider. Rejecting the insurer's suggestion to defer to the Department of Managed Health Care under the Knox-Keene Act, the court allowed the provider to pursue its common law remedies based on the clear statutory language of Health and Safety Code section 1371.25.
The provider in essence imported part of one cause of action, an alleged violation of the Knox-Keene Act, to state another cause of action for unfair competition. Thus, violation of the Knox-Keene Act itself could become the basis for an unfair competition claim. Similarly, the violation of the Act became the basis of JRS's common law breach of contract claim. The remedies available to JRS based on the common law breach of contract are independent of the additional remedy provided by the Act.
Nor do the pleadings limit JRS to a claim exclusively under the Act. Count One is entitled “For Damages and Specific Performance for Breach of Contract for Termination of the Franchise Dealer Contract without ‘Good Cause.’ ” In paragraph 27 of the first amended complaint, JRS alleges that portions of the contract “are void as being in violation of California law and public policy pursuant to Civil Code §§ 1667, 1668 and 3513, the Franchise Relations Act (Business & Professions Code § 20020 et seq.) and the Franchise Investment Law (Corporations Code § 31512). Pursuant to Civil Code §§ 1667 and 1668, all contractual provisions which have for their object, directly or indirectly, to exempt anyone from obeying the laws of California are unlawful and void. Pursuant to Civil Code § 3513, attempts to waive laws established for a public reason are void.”
In paragraph 40, JRS further alleges: “As a result of the wrongful termination of the franchise dealership without cause, JRS Products has suffered damages under Civil Code §§ 3274, 3282, 3283 and 3300, in that JRS cannot continue to service the ongoing product needs of its customers, with loss of the ongoing profits from said business, and JRS will lose its substantial capital and personal investment built up over the years.”
Hence, JRS did not merely state a cause of action under the Act. It stated a cause of action for breach of contract seeking damages under the common law. The fact that the Act renders a provision in the agreement void as a matter of law, as JRS plainly alleged in the amended complaint, does not convert a common law claim into a statutory claim. To accept Panasonic's argument would be to abolish any breach of contract claim predicated on a contractual provision that is unlawful under a law that does not provide damages as a remedy. That is clearly not the law. We therefore conclude that JRS can pursue its breach of contract claim against Panasonic for wrongful termination of the franchise agreement contrary to the court's ruling on summary adjudication.
JRS's justifiable frustration seeps through the briefing. Indeed it foresaw, and tried mightily to prevent, a trial on the wrong theory. It resisted Panasonic's demurrer and motion for summary adjudication. It articulated the problem and formulated the dispositive issue in its motion to reinstate the appeal that we dismissed on our own motion. It understood, as it represented to us, that a party to a contract cannot generally sue for the tort of intentional interference with economic advantage. Not surprisingly, JRS is now in the unenviable position of trying to preserve a handsome jury verdict including punitive damages after a long and arduous trial. In that context, JRS makes a valiant effort to convince us that Panasonic waived its challenge to the tort claim. But Panasonic is not to blame for judicial error. We can find no waiver.
JRS cites to an impressive assemblage of authority on waiver. (See, e.g., Telles Transport, Inc. v. Workers' Comp. Appeals Bd. (2001) 92 Cal.App.4th 1159, 1166-1167, 112 Cal.Rptr.2d 540; Mesecher v. County of San Diego (1992) 9 Cal.App.4th 1677, 1685-1687, 12 Cal.Rptr.2d 279 (Mesecher ); Brown v. Boren (1999) 74 Cal.App.4th 1303, 1316, 88 Cal.Rptr.2d 758 (Brown ); Mattco Forge, Inc. v. Arthur Young & Co. (1997) 52 Cal.App.4th 820, 847, 60 Cal.Rptr.2d 780; Robinson v. Grossman (1997) 57 Cal.App.4th 634, 648-649, 67 Cal.Rptr.2d 380.) As these cases make clear, fairness is at the heart of a waiver claim. Appellate courts are loath to reverse a judgment on grounds that the opposing party did not have an opportunity to argue and the trial court did not have an opportunity to consider. (Brown, supra, 74 Cal.App.4th at p. 1316, 88 Cal.Rptr.2d 758.) In our adversarial system, each party has the obligation to raise any issue or infirmity that might subject the ensuing judgment to attack. (Mesecher, supra, 9 Cal.App.4th at p. 1686, 12 Cal.Rptr.2d 279.) Bait and switch on appeal not only subjects the parties to avoidable expense, but also wreaks havoc on a judicial system too burdened to retry cases on theories that could have been raised earlier.
None of these fundamental concerns, however, are relevant here. Panasonic challenged the efficacy of the tort claim in its demurrer to the first amended complaint. In that demurrer, Panasonic argued that the interference claim was defective as a matter of law because it contained no allegation that Panasonic's alleged interference was tortious separate and apart from the alleged breach of the JRS dealer agreement. While Panasonic's demurrer to the eighth cause of action may not have been as specific as its argument on appeal, the viability of a tort claim is a question of law that could have been raised for the first time on appeal. (Ward v. Taggart (1959) 51 Cal.2d 736, 742, 336 P.2d 534.) In any event, a Court of Appeal is at liberty to reject a waiver claim and consider the issue on the merits. (Redevelopment Agency v. City of Berkeley (1978) 80 Cal.App.3d 158, 167, 143 Cal.Rptr. 633.)
JRS attributes an assortment of nefarious motives to Panasonic for failing to raise the issue again. We will not speculate about Panasonic's litigation strategy. Certainly, the dubious viability of the tort claim was not hidden from the court or from JRS. It is indeed ironic that it was JRS that tried repeatedly to salvage its breach of contract claim so as not to try the case on the wrong theory. Although its efforts failed, the record discloses there was no waiver. Because the parties were aware of the issue and the appeal involves important questions of public concern regarding the Act, we will exercise our discretion to decide Panasonic's appeal on the merits.
The parties are at odds over the characterization of the dispositive issue on appeal. The issue is not, as JRS suggests, whether there is substantial evidence to support the jury's finding that Panasonic intentionally interfered with its prospective economic relationships with its customers. There is abundant evidence to support each of the elements of the tort. We are confronted with a question of law, not the sufficiency of the facts. But the issue is not, as Panasonic asserts, whether a tort claim for interference can be sustained in the absence of evidence that the tortfeasor directed its actions toward a third party. The target of the interference is not an element of the tort. Rather, the issue is whether damages can be recovered for interference with prospective economic advantage by one contracting party against another based on conduct that would otherwise constitute a breach of the parties' contract. The effect of the judgment is to award JRS, a party to a contract, tort damages for Panasonic's breach of contract on the theory that Panasonic's breach constitutes an interference with prospective economic advantage. As JRS pointed out much earlier in this litigation, a party to a contract cannot recover damages in tort for breach of contract. We therefore reverse the judgment on the tort claim.
The jury was properly instructed on the elements of the tort of intentional interference with prospective economic advantage as follows: “One, an economic relationship existed between the plaintiff and its Panasonic Product customers, containing a probable future economic benefit or advantage to the plaintiff; [¶] Two, the defendant knew of the existence of that relationship; [¶] Three, the defendant intentionally engaged in wrongful conduct designed to interfere with or disrupt this relationship; [¶] Four, the economic relationship was actually interfered with or disrupted; [¶] And five, the wrongful conduct of the defendant which was designed to interfere with or disrupt this relationship caused damage to the plaintiff.” (BAJI No. 7.82; Westside Center Associates v. Safeway Stores 23, Inc. (1996) 42 Cal.App.4th 507, 521-522, 49 Cal.Rptr.2d 793.) As to the third element, the defendant must engage in an act that is wrongful apart from the interference itself. (Della Penna v. Toyota Motor Sales, U.S.A., Inc. (1995) 11 Cal.4th 376, 45 Cal.Rptr.2d 436, 902 P.2d 740 (Della Penna ).) The plaintiff need not prove, however, that “the defendant engaged in wrongful acts with the specific intent of interfering with the plaintiff's business expectancy.” (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1154, 131 Cal.Rptr.2d 29, 63 P.3d 937 (Korea Supply ).) Alternatively, to satisfy the intent requirement of the third element, the plaintiff can prove that “the defendant knew that the interference was certain or substantially certain to occur as a result of its action.” (Id. at p. 1154, 131 Cal.Rptr.2d 29, 63 P.3d 937.)
At trial, Panasonic conceded all but the third element of the tort, a concession it reiterates for purposes of this appeal. As to the third element, however, Panasonic insists that the wrongful conduct must be “directed at” a third party, not a party to the contract. Panasonic cites to Della Penna as authority for its understanding of the third element. We agree with JRS that Della Penna does not expand the third element to encompass the target of the conduct as an element of the tort. If Panasonic's “directed at” language is meant to suggest a requirement of specific intent to disrupt the business relationship, then the Supreme Court's recent decision in Korea Supply clarifies that specific intent is not an element of the tort. If, on the other hand, Panasonic is attempting to apply the basic principle that a party to a contract is not entitled to tort damages for breach of contract to convince us that JRS did not prove one of the elements of the tort, we need not distort the elements of intentional interference to reach the fundamental issue as to whether JRS can recover in tort for breach of contract. That issue requires careful analysis of the law and of the record.
In Khoury v. Maly's of California, Inc. (1993) 14 Cal.App.4th 612, 17 Cal.Rptr.2d 708 (Khoury ), a beauty shop filed a complaint against a distributor of hair products for, among various other causes of action, breach of contract and for the intentional interference with advantageous business relationships. The trial court sustained the distributor's demurrer without leave to amend. (Id. at p. 615, 17 Cal.Rptr.2d 708.) The Court of Appeal reversed the demurrer as to the contract cause of action but otherwise affirmed the judgment. (Id. at pp. 619-620, 17 Cal.Rptr.2d 708.) The court explained: “The sole alleged conduct of respondent was the breach of contract to supply the JPM products to appellant. The effect on appellant's customers (with whom respondent had no relations) and the damage to appellant's business were simply consequences of breach of contract․ Appellant's third cause of action is simply duplicative of his contract claim.” (Id. at p. 618, 17 Cal.Rptr.2d 708.)
In Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 28 Cal.Rptr.2d 475, 869 P.2d 454 (Applied Equipment ), the California Supreme Court held there is no tort action for interference against a party to the contract. The court wrote: “[C]onsistent with its underlying policy of protecting the expectations of contracting parties against frustration by outsiders who have no legitimate social or economic interest in the contractual relationship, the tort cause of action for interference with contract does not lie against a party to the contract.” (Id. at p. 514, 28 Cal.Rptr.2d 475, 869 P.2d 454.) The court rejected the notion that a party to a contract could tortiously conspire with another to breach the contract. Explaining the difference between contract and tort in greater depth, the court stated: “Applied's conspiracy theory is fundamentally irreconcilable with the law of conspiracy and the tort of interference․ One contracting party owes no general tort duty to another not to interfere with performance of the contract; its duty is simply to perform the contract according to its terms. The tort duty not to interfere with the contract falls only on strangers-interlopers who have no legitimate interest in the scope or course of the contract's performance.” (Ibid.)
Applied Equipment involved an interference with contract, a sibling of the tort of interference with a prospective economic advantage. In Kasparian v. County of Los Angeles (1995) 38 Cal.App.4th 242, 45 Cal.Rptr.2d 90 (Kasparian ), the Court of Appeal applied the same logic “where there is no contractual but only a prospective relationship․ In short, nothing said by the court in Applied Equipment requires or even suggests that the ‘injured’ plaintiff should be given a tort remedy to ‘replace’ the contract remedy he would not have been entitled to in any event.” (Id. at p. 266, 45 Cal.Rptr.2d 90.)
Thus, our job is to determine whether the essence of the claim is fundamentally based on conduct that sounds in contract or in tort. Arntz Contracting Co. v. St. Paul Fire & Marine Ins. Co. (1996) 47 Cal.App.4th 464, 54 Cal.Rptr.2d 888 (Arntz ) provides a fitting example. A general contractor filed a broadly based complaint against a surety for terminating their bonding relationship. The court pointed out that the contractor's grievance was “a mosaic of varied pieces of discord.” (Id. at p. 478, 54 Cal.Rptr.2d 888.) “But, fundamentally, [the contractor] complains that [the surety] terminated the parties' bonding relationship without good cause. Such a complaint sounds in contract, not tort. A contracting party's unjustified failure or refusal to perform is a breach of contract, and cannot be transmuted into tort liability by claiming that the breach detrimentally affected the promisee's business.” (Id. at p. 479, 54 Cal.Rptr.2d 888.)
JRS contends that these cases, as well as the out-of-state authority offered by Panasonic (Hein v. Chrysler Corp. (1954) 45 Wash.2d 586, 277 P.2d 708; Tractor and Farm Supply, Inc. v. Ford New Holland, Inc. (W.D.Ky.1995) 898 F.Supp. 1198), do not apply because none of them involved the breach of an independent statutory duty. In other words, according to JRS, because Panasonic violated the franchise law and engaged in unfair competition, its termination of the franchise was wrongful apart from being a breach of contract. The cases cited by Panasonic, JRS continues, are inapposite because the only wrong arose from breach of contract. Based on this purported distinction, JRS would have us focus on duty rather than on conduct. Although superficially seductive, if accepted, the argument would convert any wrongful termination of a franchise agreement into a tort claim.
JRS cites no authority to support its novel proposition that the breach of a franchise agreement exposes a franchisor to tort liability based on its “independent duty” to adhere to its “social obligation not to violate franchise laws or engage in unfair competition.” Although JRS would have us expand tort liability to allow for a tortious breach of contract as long as the breach violates a statute, it fails to consider the dangers implicit in such a radical departure from well-established limits to commercial recovery. “Because ours is a culture firmly wedded to the social rewards of commercial contests, the law usually takes care to draw lines of legal liability in a way that maximizes areas of competition free of legal penalties.” (Della Penna, supra, 11 Cal.4th at p. 392, 45 Cal.Rptr.2d 436, 902 P.2d 740.) Thus motive, regardless of how malevolent, remains irrelevant to a breach of contract claim and does not convert a contract action into a tort claim exposing the breaching party to liability for punitive damages. (Arntz, supra, 47 Cal.App.4th at p. 477, 54 Cal.Rptr.2d 888.)
As Khoury and Arntz make clear, the essential nature of the conduct determines whether the action sounds in contract or in tort. In both cases, the alleged wrongful conduct constituted the breach of contract. It was the analysis of the conduct, not the duty, that gave rise to the appropriate cause of action. Similarly, we have scrutinized the record and the briefs to identify what conduct JRS alleged gave rise to its tort claim.
In the first amended complaint, JRS's second count alleges: “Defendant Panasonic has breached its duties owed to plaintiff JRS Products by terminating the franchise relationship without good cause. Plaintiff is informed and believes that Panasonic's purpose for terminating the franchise relationship was wrongful, in order to reduce competition for accounts which it wishes to pursue as ‘National Accounts' and to injur[e] plaintiff JRS as a competitor of remanufactured cartridges.”
The trial echoed the same theme. The conduct was the termination; it was wrongful because it was done without good cause and to reduce competition. JRS's lawyer argued to the jury that the case was about Panasonic's termination of JRS, which JRS contended violated the Act, was anticompetitive, and was effected without good cause.
And JRS reiterates the nature of the wrongful conduct on appeal. JRS argues that “Panasonic had violated franchise laws by terminating JRS without good cause, then attempted to fabricate ‘good cause’ through misrepresentations and concealments.” “Evidence was also substantial that Panasonic engaged in unfair competition. Panasonic had clearly terminated JRS for remanufacturing toner cartridges․ The evidence was overwhelming that Panasonic terminated JRS in order to put JRS out of business and rid themselves of a competitor. [Citation.] Moreover, Panasonic has conceded that it terminated JRS for being a competitor and in order to take JRS's best customers.”
Like the general contractor in Arntz, JRS assails Panasonic for a multitude of sins. But fundamentally, as in Arntz, JRS complains that Panasonic terminated the contract without good cause. This complaint sounds in contract, not tort. JRS introduced voluminous evidence at trial to prove how and why the termination was wrongful. But that evidence, voluminous as it may have been, did not change the essential nature of the claim. The termination itself may have been wrongful for any number of reasons, but it remained essentially a breach of contract. Thus, the basis for JRS's claim at trial that Panasonic violated the Act and engaged in anticompetitive conduct is the very same activity that gave rise to the claim of intentional interference-Panasonic's termination of the JRS dealer agreement. We agree with Panasonic that, wrongful or not, the termination is not “independent” of Panasonic's interference with JRS's interest. As the court concluded in Arntz, a breach of contract claim cannot be transmuted into tort liability by claiming that the breach interfered with the promisee's business.
Since we have concluded that JRS's remedy for the wrongful termination of its franchise is limited to contract damages, we must reverse the compensatory and punitive damage awards.
The judgments are reversed and the case is remanded to the trial court for litigation of the breach of contract claim. Both sides must bear costs on appeal.
1. All further statutory references are to the Business and Professions Code unless otherwise indicated.
2. JRS filed its complaint against Panasonic Office Products Company Division of Panasonic Communications & Systems Company, a Unit of Matsushita Electric Corporation of America; and Ski Shekoski (the western region Panafax manager for Panasonic). Consistent with the parties' briefs, we refer to defendants collectively as Panasonic, although judgment was entered against Matsushita Electric Corporation of America.
3. We grant JRS's request to take judicial notice of its motion for reinstatement of the appeal filed in this court on February 21, 2001.
4. We therefore deny JRS's request to take judicial notice of the legislative history of the Act.
5. Health and Safety Code section 1371.25 expressly voids any contractual provision at odds with its terms. It states: “A plan, any entity contracting with a plan, and providers are each responsible for their own acts or omissions, and are not liable for the acts or omissions of, or the costs of defending, others. Any provision to the contrary in a contract with providers is void and unenforceable.” While the Act does not expressly render contracts that include provisions in violation of the Act void and unenforceable, the result is the same. The court in Sea Ray acknowledged that a contract clause could not stand if it violated the Act. (Sea Ray, supra, 825 F.2d at p. 1290.) Panasonic's clause purportedly allowing it to terminate a franchise without cause is void and unenforceable because it is in clear violation of Business and Professions Code section 20020.
We concur: DAVIS, Acting P.J., and NICHOLSON, J.