Guest post by Professor Lucas Osborn, Campbell University School of Law. Before joining the academy in 2009, Professor Osborn worked on the Transocean case while at Fulbright & Jaworski, which represented Transocean.
Transocean Offshore Deepwater Drilling, Inc. v. Maersk Contractors USA, Inc. (Fed. Cir. 2012)
Panel: Prost, Wallach, Moore (author)
This is the second Federal Circuit opinion in this litigation. Jason Rantanen wrote about the first opinion in 2010. The patented technology involves offshore deepwater drilling vessels have "dual activity" capability, which is roughly a vessel with two advancing stations that can cooperate together to drill and finish a single oil well at the ocean floor. The technology decreases the time it takes to drill and complete an oil well compared to the prior art. Since offshore drilling rigs rent for around $500,000 a day, every time savings counts. In Transocean I, the Federal Circuit overturned the district court's summary judgment finding of obviousness, noting that although Maersk provided prior art that made a prima facie case of obviousness, the summary judgment was improper in view of Transocean's significant secondary indicia of nonobviousness. On remand, the trial jury found Transocean's patents were not obvious and awarded Transocean $15,000,000 in damages. The district court granted Maersk's motion for JMOL notwithstanding the jury's verdict.
Obviousness – Secondary Considerations and Weighing the Strength of the Prima Facie Case
In Transocean I, the Federal Circuit found Maersk had made a prima facie case of obviousness based on two prior art references, and thus the remand was focused on secondary indicia of nonovbiousness. On remand, the parties fought over whether the jury could consider the two prior art references in addition to the secondary indicia evidence. Transocean, apparently believing the prima facie case was weak, wanted the jury to consider the two prior art references for two purposes: (1) to determine whether the references taught each limitation of the claims and provided a motivation to combine, and (2) to consider the strength of the prima facie case. Maersk opposed both, insisting that the only issue was the secondary indicia of non-obviousness. The district court allowed the jury to review the prior art references for both purposes. The Transocean II panel said it was error to allow the jury to reconsider whether the references taught each limitation of the claims and provided a motivation to combine: because that issue was decided in Transocean I, it was the "law of the case." On the other hand, the court held it was not error to allow the jury to weigh the strength of the prima facie case together with the objective evidence of nonobviousness.
This presents a nice strategy for patentees to (essentially) re-litigate the prima facie obviousness determination. While the jury technically does not get to decide whether a prima facie case of obviousness exists, it might be difficult for jurors to avoid forming their own opinion about the prima facie obviousness issue if it is allowed to learn about the prior art in detail.
On the ultimate issue of nonobviousness, the court reinstated the jury verdict as supported by substantial evidence. The evidence of nonobviousness included evidence of commercial success (including customers willing to pay a premium or even requiring rigs with the patented features), industry praise and unexpected results, copying (including by Maersk itself), industry skepticism, licensing, and long-felt but unsolved need. The court concluded that "Few cases present such extensive objective evidence of nonobviousness, and thus we have rarely held that objective evidence is sufficient to overcome a prima facie case of obviousness. . . . This, however, is precisely the sort of case where the objective evidence establishes that an invention appearing to have been obvious in light of the prior art was not."
The panel also held that substantial evidence supported the jury's finding of enablement.
Infringement and Damages – Option to Modify to Avoid Infringement
The court also reiterated its Transocean I holding that Maersk may have infringed even though its original contract for "sale" of the rig contained an option to modify the rig before delivery if any patent infringement was likely. The jury found that Maersk committed infringement when it "offered to sell" and "sold" its rig to Statoil. The contract evidencing the sale/offer expressly indicated that Maersk could modify the final rig design based on the outcome of then-pending district court litigation between Transocean and a third party based on the same patents. Before actually delivering the rig, Maersk modified it to avoid infringement. But the Federal Circuit reiterated that the option to modify and subsequent modification could not save Maersk. The jury found that the specifications of the rig offered and sold met all the claim limitations. Post-offer/sale modifications did not matter even though they occurred before actual delivery.
Moving to damages, the panel reinstated the jury's award, but it was sympathetic to Maersk's apparent good intentions to avoid infringement. The court stated, "We are sympathetic to Maersk's arguments. It offered drilling services which would use an infringing drill, but expressly reserved the right to modify the drill to avoid infringement. It did then modify the drill prior to delivery to avoid infringement – hence never actually using an infringing dual-activity drill." Nevertheless, the court held that the $15,000,000 reasonable royalty verdict was supported by substantial evidence.
What can defendants take away from this? A contract with an option to modify the product will not avoid infringement. It would seem defendants in situations like Maersk's (i.e., watching a patent to see if it issues or is held valid) should contract not for an "option" to modify, but for a mandatory modification to avoid infringement upon the triggering event (patent issuance or litigation upholding the patent's validity).
The Ignored Issue – When is a "Lease" a "Sale" Under Section 271?
As in Transocean I, the court did not reach a potentially dispositive issue that the parties strongly contested at times in the litigation. Section 271(a) provides that "sales" and "offers to sell" can be acts of infringement. Here, however, Maersk did not offer to sell or sell its drilling rig. Rather, it "leased" and offered to "lease" its rig to a third party. While previous cases have found that some leases can be tantamount to a sale (and thus infringe under 271), those cases primarily involved the transfer of property indefinitely or for its entire useful life (think of your typically software "license"). See Minton v. Nat'I Ass'n. of Secs. Dealers, Inc., 336 F.3d 1373, 1378 (Fed. Cir. 2003). This case presented a closer issue: Here, Maersk argued that it (1) the lease did not last for the entire useful life of the drilling rig, and (2) the contract was for the provision of drilling services and at all time Maersk maintained possession of the rig. The court ignored this issue and, as it did in Transocean I, referred to the transaction as a "sale" without comment.
From an economic perspective, "sales" and "leases" would seem to present the same harm to the patentee. On the other hand, the statute only mentions sales, not leases. For whatever reason, the Federal Circuit didn't want to touch this issue. Maybe we will have to wait for Transocean III to know the answer?