Federal Circuit Upholds Infringement Damages and Validity for Modular Artificial Tree Patent

In a significant decision providing guidance on the admissibility of expert testimony on patent damages, the Federal Circuit has affirmed both the validity and the substantial-damages verdict for infringement of Willis Electric’s modular artificial tree patent in Willis Electric Co., Ltd. v. Polygroup Ltd.

Willis Electric owns U.S. Patent No. 8,454,186, which covers prelit artificial trees with separate and modular trunk connectors that enable automatic illumination when assembled. Asserted claim 15, which depends from claim 10, specifically requires that the recited trunk connectors form coaxial trunk connectors.  

Willis sued Polygroup in the District of Minnesota for infringement of several patents, including the ’186 patent. Polygroup initiated multiple inter partes review (IPR) proceedings, resulting in independent claim 10 being found unpatentable, but claim 15 being found patentable. At trial, a jury found claim 15 both infringed and valid, awarding Willis $42,494,772 in damages. Polygroup’s post-trial motions for judgment as a matter of law (JMOL) of obviousness and for a new trial on damages were denied, leading to the present appeal.

The damages award reflected the jury’s valuation of the patented features, specifically the coaxial trunk connectors’ ability to provide automatic illumination. Despite the IPR ruling on claim 10, the district court allowed the “one-step functionality” to be considered in the damages valuation as an aspect of claim 15.

At trial, the court admitted expert testimony on damages that isolated the incremental value attributable to the patented claims, even those found unpatentable at the USPTO. This approach enabled the jury to award reasonable royalty damages based on the distinct market impact of the entire patented technology.

FEDERAL CIRCUIT’S ANALYSIS AND HOLDINGS

The Federal Circuit’s opinion[1] addressed three central issues: (1) whether the district court properly denied Polygroup’s JMOL of obviousness, (2) whether the court correctly denied a new trial on damages in light of challenges to the admissibility and methodology of Willis’s damages expert, and (3) whether damages should be limited to the incremental value of claim 15 after independent claim 10 was held unpatentable in IPR proceedings. We will focus on the damages-related issues here.

Damages: Expert Testimony, Apportionment, and Comparable Licenses

Polygroup raised several challenges to the damages award, contending that Willis’s damages expert, Michele Riley, failed to meet the reliability standards under Federal Rule of Evidence 702 and the Daubert standard.

The Federal Circuit stressed that the trial court’s gatekeeping role for expert testimony requires it to determine “whether the proponent of expert testimony has shown by a preponderance of the evidence that the testimony is relevant and reliable.” However, the court recognized that calculating a reasonable royalty is inherently approximate and counterfactual and that Riley’s use of both income- and market-based apportionment methods, combined with a Georgia-Pacific analysis, was consistent with established standards.

Here, Riley’s expert testimony employed multiple damages calculation methodologies, which the district court found sufficiently reliable and appropriately apportioned to the value of the patented feature.

Riley’s income-based apportionment analyzed profit premiums associated with both Willis’s and Polygroup’s products to quantify the added value of the patented coaxial barrel connector technology, arriving at a reasonable royalty range of $4.30 to $20 per tree. Riley’s market-based approach analyzed comparable license agreements, deriving a reasonable royalty range of $2 to $5 per tree. Riley then qualitatively applied the Georgia-Pacific framework to select a final royalty of $5 per tree.

Polygroup argued that Riley’s analysis was not based on comparable licenses and that she should have articulated discrepancies in the licenses she relied upon to the jury. The Federal Circuit disagreed as perfect identity between the licenses and asserted patents is not required for comparability. The court further concluded that Riley’s approach was “materially different from EcoFactor” because the issue of whether the license was comparable is “one of fact which reasonable minds can differ.”

The Federal Circuit clarified that these types of methodological critiques, which do not undermine the fundamental reliability of an expert’s approach, do not warrant exclusion. Rather, the “appropriate avenue for such a challenge [is] cross-examination.” Since “admissibility is for the court, while weight and credibility are for the jury,” the fact that Riley’s methodology involved uncertainties, estimation, or qualitative adjustments did not affect the testimony’s admissibility, but rather the weight which a jury might give it.

Damages: Apportionment of Dependent Claim 15 After IPR Proceedings

Polygroup argued that because independent claim 10 was found unpatentable in an IPR, any damages for dependent claim 15 had to be limited to only the incremental value of claim 15’s additional limitation. The Federal Circuit rejected that position because the PTAB and the district court evaluated claim 10 under different claim constructions.

In district court, claim 10 was construed under the Phillips standard to require a simultaneous mechanical and electrical connection regardless of rotational orientation. That construction was narrower than the construction applied by the PTAB in the IPR, which used the then-applicable broadest reasonable interpretation standard.

As a result, the PTAB’s unpatentability finding did not establish that claim 10 was unpatentable under the district court’s narrower construction. Because claim 10 was never found unpatentable under the district court construction, the IPR outcome did not automatically strip the claim 10 functionality out of the damages analysis for claim 15.

KEY TAKEAWAYS

Willis Electric underscores that post-IPR damages arguments turn on what claim scope was actually adjudicated in each forum. Companies should not assume that an IPR unpatentability decision will automatically narrow the damages case for related dependent claims without scrutinizing the claim constructions and the precise ground of the PTAB decision.

What companies should take from this ruling is that an IPR win on an independent claim does not necessarily limit damages for a surviving dependent claim to only the incremental value added by that surviving dependent claim. If the PTAB applied a broader construction than the district court, the patentee may still argue that the incorporated limitations, as narrowly construed in court, contribute value that can be reflected in the royalty analysis.