[00:00:00] Speaker 01:
The United States Court of Appeals for the Federal Circuit is now open and in session.

[00:00:05] Speaker 01:
God save the United States and its honorable court.

[00:00:10] Speaker 02:
The first case this morning is 20-1640, Sunoco Partners Marketing versus US Central Inc.

[00:00:18] Speaker 02:
Mr. Jay, whenever you're ready.

[00:00:21] Speaker 00:
Good morning, Your Honor.

[00:00:22] Speaker 00:
Thank you.

[00:00:23] Speaker 00:
William J. for US Venture.

[00:00:25] Speaker 00:
We've raised a number of issues in our affirmative appeal, and I'm going to begin with the Onsdale bar, touch briefly on the claim construction issues, and finish with the enhanced damages issue.

[00:00:35] Speaker 02:
Mr. Jay, I'm sorry, I don't want to throw you off your stride and you shouldn't worry about the time here, but it would be helpful to me to get a number of housekeeping questions out of the way and that deals with all of these moving parts and how they affect each other.

[00:00:52] Speaker 02:
So let me start on the on-sale bar versus the infringement.

[00:00:57] Speaker 02:
Am I correct that if you were to hypothetically prevail on the on-sale bar, that would leave which claims open to consideration for infringement?

[00:01:11] Speaker 00:
I believe that would leave the claim 17 of the 302 patent and claim 31 of the 629 patent.

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It would potentially also leave open the 948 and 548 claims.

[00:01:26] Speaker 02:
That's what I was going to ask you.

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So the on-sale bar does not affect the claims that issue in dispute at the IPR proceeding?

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I believe that that's right.

[00:01:37] Speaker 00:
I believe that that's right, not for all of them.

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Okay.

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Now let me ask you also just on the reasonable royalty question.

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For example, is this all one bucket so that if you lose on any claim, any infringement claim on either of the two patents, the non-IPR patents, the royalty stays or does the royalty have to be recalculated?

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If you reject the other side's challenge to the damages measurement and affirm the district court's royalty calculation, then venture would have to prevail on each of the issues

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going to infringement or invalidity in order to change the damages judgment.

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We would not ask the court to recalculate the royalty if we prevailed on some but not all of those issues.

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We would, however, if

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If the cross-appeal came out the other way, it would be very important to figure out which claims remain.

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And then likewise, it might conceivably affect the court's handling of enhanced damages to understand which claims remain.

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Because, for example, there would be no basis for enhancement if the only claims remaining were 948 and 548 claims.

[00:02:56] Speaker 02:
Okay.

[00:02:56] Speaker 02:
Well, thank you.

[00:02:57] Speaker 02:
That's been very helpful.

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Now, please proceed.

[00:03:00] Speaker 03:
Council, this is Dr. Rana.

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Just to be clear, tell us which claims are affected by the on-cell bar.

[00:03:09] Speaker 00:
I'm afraid I'm going to get this wrong, but the system claims of the 302 patent and I believe the first of the method claims, Claim 16.

[00:03:25] Speaker 02:
That's 2, 3, and 16 of 302 and 2 of 629?

[00:03:31] Speaker 00:
That's correct.

[00:03:32] Speaker 00:
Yes, that's right.

[00:03:35] Speaker 00:
I hadn't gotten to it.

[00:03:36] Speaker 00:
But it would not include claim 31 of 629.

[00:03:38] Speaker 00:
OK.

[00:03:38] Speaker 00:
Thank you.

[00:03:46] Speaker 00:
Thank you very much, Your Honor.

[00:03:49] Speaker 00:
So to start with the on-sale bar, under this court's objective test,

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Sanoco's predecessor placed the patented invention on sale when it agreed to sell the invention in consideration for a profitable long-term butane supply contract.

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And the district court held to the contrary only by misinterpreting the contract in at least four ways.

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And I'll just run through them quickly.

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The court thought the equipment was provided for free.

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It was expressly in exchange for valuable consideration.

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The court thought the deal was contingent on the outcome of the acceptance testing at Equilon.

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It wasn't.

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The court thought the contract required secrecy.

[00:04:23] Speaker 00:
It didn't.

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The court thought the testing at Equilon was experimental.

[00:04:27] Speaker 00:
It was, in fact, ordinary acceptance testing as set out in schedule 1.10 of the agreement.

[00:04:32] Speaker 00:
Really, the purpose of the sale to Equilon wasn't to experiment with any of the technology.

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It was to commercialize the invention.

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It is the nature of the sale that matters.

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Under Allen, it doesn't matter whether the invention was a prototype, was under development, or was subject to testing.

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The purpose was commercial.

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As the inventors themselves admitted, they wanted to raise money

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in order to make the testing that they did at Wheatland worthwhile.

[00:04:56] Speaker 02:
That is sufficient to reverse the district court on the on-sale bar.

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that even if you prevail on these issues, we can't decide the ready for patenting prong on the on sale bar because there are factual disputes that would have to be resolved by the district court.

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In other words, it would require a remand for ready for patenting.

[00:05:24] Speaker 02:
Do you agree with that?

[00:05:27] Speaker 00:
Well, we in our opening brief explained why we think the

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claims that the invention was ready for patenting.

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The other side didn't join issue with that with any specifics but just said it should be sent back.

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The district court certainly did not reach it and I recognize that it would

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often under those circumstances be appropriate to remand a question like this, but I guess I would just note that Sanoko didn't dispute any of the points that we made in our opening brief.

[00:05:57] Speaker 02:
Well, my recollection, I haven't memorized the briefs obviously, but my recollection is that indeed on page 35 of RED, they do argue that the invention was missing essential software as of the critical date.

[00:06:12] Speaker 02:
So they do raise that as a potential factual question that would have to be resolved below, right?

[00:06:19] Speaker 00:
They do.

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They don't cite anything in the record for that.

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They just cite the robotic case.

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And the question would be whether the supposedly critical software, in fact, is part of the claimed invention.

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But we're not here to fight that point.

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The point I think I'd like the court to take from this is that if it were to remand, it should remand only on ready for patenting.

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It should resolve the commercial sale point.

[00:06:54] Speaker 03:
Counsel, this is Judge Ray.

[00:06:56] Speaker 03:
Now, you argue that the district court erred in determining that butane supplies were auxiliary goods.

[00:07:04] Speaker 03:
But butane is not part of the invention.

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Is that correct?

[00:07:10] Speaker 00:
Butane is certainly not part of the invention, so for purposes of the on sale bar as opposed to the damages case, what matters is that the invention was sold in exchange for valuable consideration and the very substantial butane supply agreement certainly was valuable consideration because Equilon agreed to buy.

[00:07:32] Speaker 03:
Isn't there some confusion then as to exactly what was sold?

[00:07:37] Speaker 00:
No, I don't think so because the invention was sold and what MCE, which is Sunoco's predecessor... That means that the butane supplies were just auxiliary.

[00:07:51] Speaker 00:
No, I don't think so.

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I think that the butane supply arrangement was the consideration for the sale.

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And you don't have to take my word for it.

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That's expressly recited in section 1.01 of the agreement.

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It says that

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in consideration for the Mutane Supply Agreement that MCE is providing the invention, the equipment.

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So the question whether it's auxiliary is something that I'm sure we'll come back to in discussing the cross appeal.

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But what matters for the purposes of whether it's a commercial sale is whether the purpose of selling the invention

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was to raise money, as we've argued, or whether it was to engage in experimentation of the sort that can only be engaged in through a sale to a buyer.

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And the nature of the testing that occurred at Equilon's site just isn't that kind of testing.

[00:08:58] Speaker 02:
Well, why don't you keep, you can keep going, Mr. Jay, because we have a few more questions too.

[00:09:03] Speaker 00:
Thank you, Your Honor.

[00:09:04] Speaker 00:
I appreciate that and I'll try not to abuse the license that you're giving me.

[00:09:09] Speaker 00:
But I think that really is the key point that the valuable consideration, valuable consideration is the agreement to buy butane.

[00:09:19] Speaker 00:
And you see that not just in the provision that I mentioned a moment ago, but also in the fact that

[00:09:25] Speaker 00:
I believe this is in 3.03, that if the butane blending arrangement has to end because the law changes or something happens like that before Equilon has bought all the barrels of butane, then it has to pay what it calls a prorated share of the purchase price for the equipment, which I think makes very clear that these are all wrapped up together.

[00:09:51] Speaker 00:
that the reason the equipment is being provided is in consideration for the profitable butane supply arrangement.

[00:09:59] Speaker 01:
Mr. Jay, this is Judge Stoll.

[00:10:00] Speaker 01:
I want to ask you a couple of questions about the enhancement in willfulness.

[00:10:05] Speaker 01:
One of them is, where in her opinion did the district court judge find willful infringement?

[00:10:11] Speaker 01:
I've looked through and I see no express finding of willful infringement.

[00:10:16] Speaker 00:
I think that that's fair, Your Honor.

[00:10:18] Speaker 00:
The district court certainly enhancement is permitted without an express binding of willfulness.

[00:10:27] Speaker 00:
But you'll see that the district court heads her opinion, willfulness and enhanced damages, which is at page 164.

[00:10:41] Speaker 00:
The way that she, the way that Judge Palmeyer went through it was to say that the facts were evidence of copying that the opinion of counsel did not qualify.

[00:11:01] Speaker 00:
Expansion of the butane blending business was an aggravating factor and then relied on litigation conduct.

[00:11:08] Speaker 00:
And I agree that the court doesn't expressly find that any of those things amounts to willful infringement.

[00:11:15] Speaker 01:
Now you say that you don't have to have willful infringement as a predicate to an enhancement award.

[00:11:22] Speaker 01:
What case do you think or cases support that?

[00:11:26] Speaker 00:
Well, as we read Halo,

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I'm certainly not trying to argue for and to ask this court to expand the concept of

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of district court's authority to award enhanced damages.

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We read halo to say that district courts have discretion in this regard.

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Discretion is not whim.

[00:11:49] Speaker 00:
There are established standards for awarding enhanced damages and the standard the court, this court adopted is very close to the willfulness standard this court had previously applied.

[00:12:04] Speaker 00:
Certainly not urging the court to change its standard, but we are saying that whether the other side would argue that enhancement is appropriate without regard to willfulness or enhancement is appropriately based on willfulness.

[00:12:19] Speaker 00:
There's no basis for enhancement here and certainly not a top of the range enhancement based on this kind of conduct.

[00:12:25] Speaker 00:
And the basic reason, the two, there really are just two basic reasons for that.

[00:12:29] Speaker 01:
One is the opinion of council, which we think I'm familiar with that argument of yours based on the manian opinion, but can you tell me what is the appendix page of the figure mentioned in the manian opinion?

[00:12:44] Speaker 01:
I couldn't figure it out from the record in front of me.

[00:12:48] Speaker 01:
You know how the opinion relies on a particular figure that was provided to Mr. Mannion?

[00:12:54] Speaker 01:
I just don't know what that figure is.

[00:12:57] Speaker 00:
I'm not sure that... I don't have that page number ready to hand.

[00:13:01] Speaker 00:
I will try and have it for you when I stand up.

[00:13:05] Speaker 01:
Thank you.

[00:13:05] Speaker 01:
Because the opinion refers to the figure and there's some testimony about the figure, but nowhere does anyone tell us which page in the appendix is that, you know, corresponds to the figure.

[00:13:15] Speaker 01:
Thank you.

[00:13:16] Speaker 01:
I'd appreciate that.

[00:13:17] Speaker 02:
Can I follow up?

[00:13:18] Speaker 02:
This is Judge Prost.

[00:13:19] Speaker 02:
Just following up on another sort of gap in the record, perhaps, and this is also on the enhancement issue.

[00:13:27] Speaker 02:
At page 168 of the appendix in the district court's opinion, she says, Sinoco argues with some force that this evidence shows that he withheld critical information from Mannion when he drafted the letter.

[00:13:42] Speaker 02:
And the next sentence is followed by some transcript sites.

[00:13:47] Speaker 02:
which I don't think we have in our appendix.

[00:13:53] Speaker 02:
And do you know what I'm referring to, Mr. Jay?

[00:13:56] Speaker 02:
It's on the second paragraph on page 68.

[00:14:00] Speaker 02:
Now you... I do have it in front of me, yes.

[00:14:02] Speaker 02:
Okay, now you do make the argument at 57 of blue that the only concrete failure that she identified, and you do give us some appendix sites about that.

[00:14:14] Speaker 02:
Could you just give us a little more information and tell us if indeed those trial transcript sites are available anywhere in the appendix?

[00:14:25] Speaker 00:
So neither 1149 nor 1308 is in the appendix,

[00:14:30] Speaker 00:
which are the pages that are cited where your owner's looking.

[00:14:36] Speaker 00:
And I guess also 1031 is also not in the appendix.

[00:14:41] Speaker 00:
We certainly can file copies of it and they are on the, I apologize.

[00:14:46] Speaker 00:
1031, which is at Appendix 7323, is available, but the other two are not.

[00:14:52] Speaker 00:
They are available on the district court docket, and we certainly could file copies of them if the court would like to look at them.

[00:14:57] Speaker 02:
But on this point that the district court was raising about the insufficiency of the information that Mr. Manion was provided, you do respond to that, as I said, in Blueberry 57.

[00:15:10] Speaker 02:
And, well, I'll ask Red this, because I don't recall that they responded in kind to anything about this point.

[00:15:21] Speaker 02:
So where are we left in the record?

[00:15:23] Speaker 02:
Your view is that they did not withhold critical information, and this was just a clear error by the district court.

[00:15:30] Speaker 00:
I think that that's right and the district court at one point inferred that something must have been withheld because she was troubled by the fact that the testimony was that some things were provided orally.

[00:15:46] Speaker 00:
But certainly if that's true then nothing was withheld and there's no basis for believing it not to be true.

[00:15:54] Speaker 03:
Just to, on this same point, is it your argument that the court does not have to make an explicit finding a willful infringement, a willfulness?

[00:16:13] Speaker 00:
I want to make sure I understand the question, that in order to enhance damages, the court doesn't have to make an express finding of willfulness.

[00:16:21] Speaker 00:
Our argument does not depend on the district court

[00:16:25] Speaker 00:
on whether or not the district court made a finding of willfulness.

[00:16:29] Speaker 00:
I do think that the best reading of the district court's opinion is that she thought the infringement, the district judge thought the infringement was willful and that that was incorrect for the reasons that we've given.

[00:16:41] Speaker 00:
And so I just don't think that this case presents the question of how broad a district court's authority to enhance

[00:16:49] Speaker 00:
could be on some other grounds, except for the litigation conduct point.

[00:16:53] Speaker 00:
And we've responded to that in our brief by saying that enhanced damages are to punish culpable infringement, not litigation conduct.

[00:17:05] Speaker 03:
Well, is it a factor if we consider we value it so that the district court damages findings should be vacated and remanded?

[00:17:14] Speaker 03:
The lack of an explicit finding?

[00:17:20] Speaker 00:
I think that if that were all the court said, I think the district court has made, if that were all that this court said, I do think that the district court made its view pretty clear.

[00:17:35] Speaker 00:
But if this court were to hold that an express finding of willfulness is required,

[00:17:41] Speaker 00:
and were to vacate the enhanced damages award on that basis.

[00:17:44] Speaker 00:
We certainly wouldn't object, but we do think that the reasoning that the court applied was erroneous for a number of reasons.

[00:17:51] Speaker 00:
We would urge the court to reach those reasons rather than just remand for an express finding.

[00:17:59] Speaker 00:
I think the best reading is that that is the basis on which the court enhanced damages that plus the litigation misconduct that I've just addressed.

[00:18:08] Speaker 03:
Okay, thanks.

[00:18:08] Speaker 02:
One final question, this is Judge Prost and this goes to the infringement.

[00:18:13] Speaker 02:
I think we're talking, I'm talking now about claim 31 and the first measurement claim construction.

[00:18:21] Speaker 02:
I mean, I guess your view and your position

[00:18:26] Speaker 02:
It may make common sense or sense to a normal person, but you don't disagree, do you, that nothing in the express claim language or in the grammar of the claim affirmatively requires that the calculation is based on the first measurement, right?

[00:18:43] Speaker 00:
It certainly expressed, we think that it is implicit from two aspects of the claim language and structure, but I agree that it doesn't specifically say that in the second step.

[00:18:55] Speaker 00:
What we're relying on is first, the meaning of calculating, and then second, the fact that the preamble was held to be limiting.

[00:19:04] Speaker 00:
And indeed, the only reason this claim was not anticipated by the prior art was that the preamble is limiting.

[00:19:10] Speaker 00:
And so all of these steps need to be tied together by the preamble into a computer implemented method for blending a butane stream and a gasoline stream.

[00:19:18] Speaker 00:
So when the step calculating a blend rate at which the butane stream can be blended with the gasoline stream, when you get to that step, immediately after taking the first measurement indicating the vapor pressure of the gasoline stream,

[00:19:34] Speaker 00:
We think that the most natural reading of that language is that the calculation, which has to be based on a figure for it to be a computer-implemented method for blending, that the figure that it's based on is the measurement that the claim is just specified.

[00:19:49] Speaker 02:
Okay, thank you.

[00:19:51] Speaker 02:
If my colleagues have nothing further, we will restore rebuttal time to you, Mr. Jay.

[00:19:58] Speaker 02:
I'm sure you're well into it.

[00:20:01] Speaker 02:
and hear from Mr. Kevil.

[00:20:03] Speaker 02:
Thank you.

[00:20:06] Speaker 05:
Thank you, Your Honor.

[00:20:07] Speaker 05:
I'd like to start, Judge Stoll, you asked the question, I believe, where the district court found willfulness.

[00:20:13] Speaker 05:
That's at Appendix 126.

[00:20:15] Speaker 05:
It says the court also finds that Venture willfully infringed the other asserted claims and award Sunoco damages of $2 million, tripled to $6 million.

[00:20:25] Speaker 05:
So there was an express finding of willfulness.

[00:20:29] Speaker 01:
Thank you.

[00:20:30] Speaker 02:
I wanted you to start if you have any disagreement with the preliminary questions we asked of Mr. Jay about how these moving parts fit together.

[00:20:41] Speaker 05:
No, I think he accurately represented how the moving parts fit together.

[00:20:48] Speaker 05:
Thank you.

[00:20:50] Speaker 05:
Judge Prost, one other housekeeping point.

[00:20:52] Speaker 05:
You asked about withholding critical information.

[00:20:55] Speaker 05:
That's a fact-finding that has substantial evidentiary report.

[00:20:59] Speaker 05:
And one of the things that the district court relied on is at Appendix 10768, the Technics proposal that they had which essentially copied the Sanoco invention which they did not give to Mannion and would have corrected a number of the errors that Mannion had in his opinion.

[00:21:21] Speaker 02:
Is that cited in your brief?

[00:21:23] Speaker 02:
Is that in your

[00:21:25] Speaker 02:
In red, is that cited in red?

[00:21:32] Speaker 05:
I'd have to go back and check, and I will, but I do know from trial that was one of the things that the district court relied on for that portion of the judgment.

[00:21:45] Speaker 05:
And I think that's in our red brief.

[00:21:47] Speaker 05:
I'm looking as we talk at 16.

[00:21:49] Speaker 05:
Thank you.

[00:21:54] Speaker 02:
Could you just respond?

[00:21:56] Speaker 02:
I don't want to interrupt your chain of thought, but one point that we discussed with Mr. Jay was the need for a remand on the second prong of ready for patenting if we hypothetically agree with him on the argument on experimental use.

[00:22:12] Speaker 02:
Do you want to speak to that?

[00:22:14] Speaker 02:
Your position is, I assume, that we would need to remand and that there's fact-finding necessary.

[00:22:19] Speaker 02:
Do you want to amplify that?

[00:22:21] Speaker 05:
No, I think you have that exactly right.

[00:22:24] Speaker 05:
It never needed to be reached and shouldn't be reached here because the contract is primarily experimental.

[00:22:31] Speaker 05:
And the inventors all testified the district court looked at this multiple times, made considered fact findings.

[00:22:37] Speaker 05:
But the district court did not reach that second prong.

[00:22:41] Speaker 05:
And so if it was to need fact finding on that, it would have to be remanded.

[00:22:47] Speaker 03:
How do the sales of the butane figure into whether this is experimental or not, the contract?

[00:22:54] Speaker 05:
Well, because the contract was simply for them to see if this concept would actually work, and they needed two rounds of experimentation to get there.

[00:23:06] Speaker 05:
The butane doesn't kick in until you successfully pass two rounds of experimentation in either one of those rounds, whether it's the Wheatland testing to see if the equipment can communicate successfully or whether it's the separate testing

[00:23:22] Speaker 05:
at the Equalon site when they build it, if either of those fail, then MCE was required to take the equipment back at its cost.

[00:23:31] Speaker 05:
It got paid nothing and there was no butane sale.

[00:23:36] Speaker 03:
So there never has been a butane sale.

[00:23:39] Speaker 05:
So after the successful passing of the two experimental phases, then the equipment was installed and put into use.

[00:23:50] Speaker 05:
And after that, there was a butane cell.

[00:23:55] Speaker 05:
And I will point out that that contract was different from every other contract.

[00:24:00] Speaker 05:
The Equilon contract, because they had no patent, because they didn't know if the equipment would work,

[00:24:06] Speaker 05:
They structured that with this, where they essentially gave the invention for free in exchange for being able to do the testing and experimentation, and then they would sell butane.

[00:24:19] Speaker 05:
In all of the other contracts that come after that, once the patents were filed, there is no sale of butane.

[00:24:26] Speaker 05:
The butane is just a pass-through at cost.

[00:24:29] Speaker 05:
Equilon was the only one that was structured that way.

[00:24:35] Speaker 01:
Could you explain to me in the pre-installation Wheatland testing, what is the evidence for why the Gravner analyzer had to be tested?

[00:24:46] Speaker 05:
That is, hang on.

[00:24:52] Speaker 01:
You can just even summarize it for me.

[00:24:55] Speaker 05:
Well, the summary is this.

[00:24:57] Speaker 05:
The Grabner was a brand new piece of equipment and it was not ever used for this purpose.

[00:25:03] Speaker 05:
It wasn't intended for this purpose.

[00:25:06] Speaker 05:
And the testimony from Mattingly, some of it is at least Appendix 6358, where he said there were difficulties because they were using this in a way that it wasn't intended and they didn't know if it would work to control and communicate with the system.

[00:25:23] Speaker 01:
Specifically, what about it was a way that it was not intended?

[00:25:29] Speaker 05:
So the Gravner was a device that was not intended to be able to communicate with the controller and be able to use that to turn on and off and open valves and be part of that system.

[00:25:43] Speaker 05:
The Gravner was a device that was meant to output, here's what the butane or the pressure is, you know, the read vapor pressure.

[00:25:53] Speaker 02:
Mr. Kettle, I'm a little confused because it seems like the discussion about wheat land really goes more to what we were discussing a few minutes ago, which is whether the invention was ready for patenting and might be germane to that prong rather than to the prong we're discussing here.

[00:26:13] Speaker 02:
Am I completely off on that?

[00:26:17] Speaker 05:
Yes, you are off on that and with respect, what really the inventors had this idea, here's an equipment that can measure read vapor pressure online, but we have no idea whether it will work in a system or not.

[00:26:32] Speaker 05:
And so this was not just building the prototype.

[00:26:36] Speaker 05:
They had substantial questions and difficulty in trying to get it to work.

[00:26:44] Speaker 02:
Can I move you, Judge Still, did you finish that line of questioning?

[00:26:48] Speaker 02:
Yes.

[00:26:48] Speaker 05:
Yes, and I would point, there's some additional testimony on that at 6443 in the appendix as well, if you were to look at that.

[00:26:57] Speaker 05:
But they had to write all of the software from scratch, because this was a new idea that they were working on, and this was a new device that had never been used in this type of installation.

[00:27:13] Speaker 02:
OK, can I move you?

[00:27:14] Speaker 02:
There's another point just in the district court's opinion that I didn't understand.

[00:27:19] Speaker 02:
The district court found that MCE was under a confidentiality agreement based on Equilon's agreements and corporation of another agreement.

[00:27:29] Speaker 02:
Wasn't the district court wrong about that?

[00:27:32] Speaker 02:
The other case required confidentiality regarding products, which was a defined term relating to petroleum products, not equipment, right?

[00:27:44] Speaker 05:
The defined term products goes to the refined petroleum products are correct, but the confidentiality says during the part time of the contract, the parties may disclose to each other time, time, certain business, technical and other information concerning products.

[00:28:01] Speaker 05:
So it wasn't limited to just information about the product.

[00:28:05] Speaker 05:
It was to business and technical information concerning those.

[00:28:08] Speaker 05:
And so the parties operated under that.

[00:28:11] Speaker 05:
And the testimony of the witnesses was that was the understanding as well, which would also underpin that factor.

[00:28:24] Speaker 02:
This is Judge Proust again, Mr. Kevil.

[00:28:26] Speaker 02:
Can you tell me why this case isn't at some level similar to Helson?

[00:28:32] Speaker 02:
where the predicate for Helson was FDA approval, which would have required testing.

[00:28:39] Speaker 02:
And the court nonetheless concluded that this was not experimental.

[00:28:45] Speaker 02:
I know it's not on all fours, but why is this that much different in terms of the post-installation testing, which was just to verify that the system worked?

[00:28:57] Speaker 05:
In this case, this is not to verify the system worked.

[00:29:01] Speaker 05:
There is a lot of testing that had to place, and the invention here isn't on sale.

[00:29:08] Speaker 05:
If the Wheatland test didn't work, if they couldn't make it work, the whole contract is canceled, and MCE absorbs all the expense.

[00:29:17] Speaker 05:
If the secondary testing at Equon didn't work, the whole contract is canceled, and everything is done at MCE's expense.

[00:29:24] Speaker 05:
So it's very different.

[00:29:26] Speaker 05:
from an FDA approval case.

[00:29:28] Speaker 02:
I mean, I guess the testing was provided in order to effectuate the sale rather than the sale being carried out in order to occasion the testing.

[00:29:39] Speaker 02:
And isn't that kind of the point where we draw the line in terms of experimental use?

[00:29:45] Speaker 05:
But this case is more similar to Honeywell in that the inventors in this had no reason to know that this would work.

[00:29:55] Speaker 05:
They had an idea that they hoped would work.

[00:29:57] Speaker 05:
They needed a place to test it, and that was the basis of this contract.

[00:30:03] Speaker 05:
This contract was not to sell an invention that they knew would work.

[00:30:14] Speaker 01:
Why was it that, I understand, please correct me if I'm wrong, but wasn't the Gravner testing done?

[00:30:20] Speaker 01:
Um, it wasn't even at the site of the sale, right?

[00:30:27] Speaker 01:
It wasn't there.

[00:30:28] Speaker 01:
It was elsewhere.

[00:30:29] Speaker 01:
So, so why was that testing necessary to a contract for sale?

[00:30:37] Speaker 01:
I mean, why was it necessary?

[00:30:38] Speaker 01:
Like, why couldn't it be done before there was any kind of offer for sale?

[00:30:45] Speaker 05:
There's no reason, I guess, that it couldn't have been.

[00:30:48] Speaker 05:
It was just part of the experimentation, right?

[00:30:51] Speaker 05:
So they could have tested it at Equon.

[00:30:57] Speaker 05:
They could have brought the software people there and had them write the software and test it there.

[00:31:03] Speaker 05:
But when you're talking about software and whether two pieces of equipment will communicate, there's no reason that had to be done at Equon.

[00:31:12] Speaker 05:
And I don't think there's any requirement

[00:31:14] Speaker 05:
for an experimental contract that all of the experimentation happened at the site.

[00:31:22] Speaker 01:
I understand, but it's something to think about as we're thinking about is the primary purpose of this experimentation or is it a commercial sale?

[00:31:30] Speaker 01:
And so in thinking about it, it does seem to undermine your position a little bit that this part of your alleged experimentation

[00:31:40] Speaker 01:
could have occurred without any sale at all, or it didn't require a particular testing site, right?

[00:31:50] Speaker 05:
Well, remember that the whole point of this is to try and come up with a system that actually works, right?

[00:31:58] Speaker 05:
And so, A, they need a terminal if they can get past the Wheatland testing in order to have the facilities with the gasoline that you can test this on a level.

[00:32:10] Speaker 05:
So the first phase, if the Wheatland test didn't work, the whole contract is canceled, nothing goes forward, and MC absorbs all the expense.

[00:32:21] Speaker 05:
The US venture has tried to portray this as the reason they had the contract was so that they could fund some of these experiments, and that's exactly wrong.

[00:32:31] Speaker 05:
They didn't get paid anything, and they wouldn't get paid anything.

[00:32:35] Speaker 05:
unless they successfully passed both test phases, the Wheatland and the Equilon.

[00:32:40] Speaker 05:
So that, again, goes to show why it's experimental.

[00:32:43] Speaker 05:
They didn't enter this to fund the testing.

[00:32:52] Speaker 05:
I know I'm going past my main time, and I would like to address lost profits if I could, unless there are any other questions on these points.

[00:33:06] Speaker 05:
So in this case where you have evidence of, undisputed in some cases, evidence of infringement, you have US Venture admitting they meet all the claims, you have a district court finding of willfulness supported by fact findings

[00:33:25] Speaker 05:
and you have a established licensing program where you have 14 large customers, many of whom own the prior art in this case, entering these agreements to use Sanoco's patented invention and share the profits.

[00:33:41] Speaker 05:
If this case, which is essentially a two-player market case, because US Venture was only aware of Texon and then used a third party to copy the Texon system,

[00:33:53] Speaker 05:
If there is a stronger case for lost profits than this one, it's hard to imagine.

[00:33:59] Speaker 05:
What happened here was the district court disagreed on the fourth Panduit factor on a fundamental misunderstanding of how the contracts work.

[00:34:11] Speaker 05:
And it's the same fundamental misunderstanding that the other side has because they repeatedly refer to these are contracts for butane supply and Sunoco shouldn't make the profit off the butane supply.

[00:34:24] Speaker 05:
But if you read the contract, it's very clear Sunoco provides butane and then charges the gasoline price for those number of gallons and then rebates its actual cost for the butane.

[00:34:38] Speaker 05:
So it makes no profit on the butane.

[00:34:41] Speaker 05:
It's simply using the invention and it's essentially like a throughput license.

[00:34:46] Speaker 05:
of the invention, we split the profits that you make.

[00:34:51] Speaker 05:
And so there was a fundamental misunderstanding.

[00:34:55] Speaker 05:
And ultimately, the other side, US Ventures expert, agreed that if the court found on factor two that there were no available non-infringing substitutes, then all the Panduit factors were met.

[00:35:09] Speaker 05:
And there's no dispute that Sonoco lost profits because it was a two-player market.

[00:35:15] Speaker 05:
This case needs to be remanded for the district court to do a proper analysis on the lost profits.

[00:35:23] Speaker 01:
Counsel, in this case, the district court wasn't holding as a matter of law that you weren't entitled to lost profits.

[00:35:30] Speaker 01:
Instead, it was a factual determination that was viewed for clear error.

[00:35:34] Speaker 01:
Is that correct?

[00:35:36] Speaker 05:
Well, the factual determinations would be reviewed for clear error, but the issue of whether

[00:35:43] Speaker 05:
there should be lost profit damages available is a legal question that's reviewed de novo.

[00:35:49] Speaker 05:
And in this case, where it's undisputed that lost, I apologize.

[00:35:55] Speaker 01:
I just want to make sure we're in agreement that she ruled as a fact finder and not, she didn't rule as a matter of law that you weren't entitled to lost profits, right?

[00:36:03] Speaker 01:
It's not like it was a Dalbert challenge or something like that.

[00:36:06] Speaker 01:
Instead she was making, she was the fact finder in this case and making this determination, right?

[00:36:13] Speaker 05:
She is the fact-finder, but what happened is there was no facts provided by the other side for her to find, and so she just passed over lost profits.

[00:36:23] Speaker 05:
Under the Georgetown case, we made our prima facie showing, and then the burden shifted to defendants to rebut.

[00:36:32] Speaker 05:
We're entitled to lost profits, and the court ruled that there were zero lost profits, and that's clear error.

[00:36:42] Speaker 02:
OK.

[00:36:43] Speaker 02:
Anything else from my colleagues?

[00:36:45] Speaker 02:
If not, we'll reserve some rebuttal if Mr. Jay deals with your cross-appeal issue.

[00:36:51] Speaker 02:
Anything further, Mr. Neville?

[00:36:56] Speaker 02:
No, Judge Frode.

[00:36:57] Speaker 02:
Thank you.

[00:36:57] Speaker 02:
I'm sorry.

[00:36:59] Speaker 05:
That's okay.

[00:37:00] Speaker 02:
Mr. Jay.

[00:37:01] Speaker 00:
Thank you, Your Honor.

[00:37:04] Speaker 00:
I will respond briefly on the lost profits point to start.

[00:37:10] Speaker 00:
The basic factual point on which the district court made a finding

[00:37:13] Speaker 00:
was Venture's submission that the butane supply agreements, which were the sole measure that Sunoco provided as its computation of its loss profits, those butane supply agreements give Sunoco compensation for much more than just the use of its specific lending technology.

[00:37:31] Speaker 00:
So the court found that it would be inappropriate to conclude that U.S.

[00:37:35] Speaker 00:
Venture would have entered into one of those agreements with Sunoco, and that is what Sunoco's loss profits theory depended on.

[00:37:41] Speaker 02:
Can you respond to the argument of your friend that Tanoko didn't make profit on the butane in the butane supply agreement?

[00:37:51] Speaker 00:
I think the best response to that, Your Honor, is to look at the other agreements in which it continues to get profit sharing even after the patents expire.

[00:38:03] Speaker 00:
So the idea that 100% of the compensation is for the use of intellectual property

[00:38:08] Speaker 00:
And not just its intellectual property writ large, but these specific patents, that's incorrect, because Sanoco's own arrangements show, and this is testified to at 68.19 to 68.20 of the appendix, that it's going to continue to get profit sharing

[00:38:29] Speaker 00:
from butane blending even after these patents expire.

[00:38:33] Speaker 00:
And I think that that underscores that what Sunoco is selling is an exclusive butane supply agreement where it is providing access to its lower costs.

[00:38:47] Speaker 00:
providing access to its access to lower cost butane, its transportation, its ability to hedge, all of those things it says confer value over and above the use of the intellectual property.

[00:39:00] Speaker 00:
It doesn't own a patent on the concept of lending butane with gasoline.

[00:39:03] Speaker 00:
It doesn't even own a concept on doing it with some level of automation.

[00:39:07] Speaker 00:
It only owns patents on these specific methods.

[00:39:10] Speaker 00:
And the district court correctly found that the full measure of profits that would be shared under a butane supply agreement

[00:39:16] Speaker 00:
is wildly overstates the amount of compensation that Senoko would have received, even as a lost-profits measure, from the use of the patented technology.

[00:39:29] Speaker 02:
Just on rebuttal on the main appeal, could you respond just briefly to your friend's discussion of the Wheatland testing point?

[00:39:39] Speaker 00:
Absolutely.

[00:39:42] Speaker 00:
I believe my friend predicated his assertion that the Wheatland testing was not that commercializing based on a couple of things.

[00:39:53] Speaker 00:
One, that they weren't going to get paid for butane yet.

[00:39:57] Speaker 00:
And while that may be true, they had signed a commitment with Equilon to buy 500,000 barrels of butane.

[00:40:05] Speaker 00:
So in other words, they had locked up revenue in the future.

[00:40:07] Speaker 00:
They had locked up Equilon as a customer for butane supply.

[00:40:10] Speaker 00:
So they had certainly derived value.

[00:40:12] Speaker 00:
And then the second point was based on his reading of the contract that if the testing,

[00:40:20] Speaker 00:
If the testing fails at any point, including the testing at Equilon, that the whole contract is canceled.

[00:40:27] Speaker 00:
And that is just simply not correct.

[00:40:29] Speaker 00:
If you look at section 1.10 of the contract, 1.10A, this is at page 9056, is what refers to the, is where the Wheatland testing comes in.

[00:40:43] Speaker 00:
allows MCE to say, okay, it hasn't satisfied our minimum operating standards, and so we're going to terminate the agreement.

[00:40:51] Speaker 00:
But once it passes that testing, which it did before they started installing, and that's testified to at 6450 of the appendix, then you move to the next page, subparagraph B. Upon completion of installation of the equipment and

[00:41:09] Speaker 00:
And it goes on to discuss the validation testing that will occur at Equilon.

[00:41:14] Speaker 00:
There is absolutely no right to terminate at that point.

[00:41:17] Speaker 00:
If it fails validation testing, then MCE needs to fix the equipment or find some way to deliver one or it will be in breach.

[00:41:25] Speaker 00:
Equilon's obligation to buy butane is absolute under both of these.

[00:41:29] Speaker 00:
In other words, as long as the equipment passes the test,

[00:41:33] Speaker 00:
to MCE satisfaction at Wheatland, Equilon is on the hook to buy butane.

[00:41:38] Speaker 00:
As long as the equipment is installed, MCE is on, sorry, Equilon is on the hook to buy butane.

[00:41:45] Speaker 00:
MCE does not have a right to rescind the agreement based on the validation testing that occurs at Equilon.

[00:41:51] Speaker 00:
And that is the testing that matters.

[00:41:52] Speaker 00:
The testing at Wheatland, I think our response to that is the Allen Engineering case, which says that it doesn't matter whether the invention was under development or subject to testing.

[00:42:02] Speaker 00:
The purpose of this, I'm sorry.

[00:42:06] Speaker 02:
No, you can finish your point, but I wanted to move on because time is short.

[00:42:09] Speaker 02:
And for you to respond to the colloquy I had with your friend about the confidentiality agreement and the district court's findings with respect to that.

[00:42:19] Speaker 00:
Okay, yeah, I think the court has my submission on Wheatland, so I'm happy to move to that.

[00:42:26] Speaker 00:
Our submission in our brief was the district court had misread the confidentiality provisions.

[00:42:31] Speaker 00:
The other side did not respond to that in its brief.

[00:42:33] Speaker 00:
So my friend now says that this is actually, this comes in under a provision of the incorporated contract that refers to information relating to products.

[00:42:47] Speaker 00:
And that's a new argument that we're hearing for the first time.

[00:42:53] Speaker 00:
But I don't think that it's true as a factual matter, because if you look back at the definition of products, even construing the confidentiality provision broadly, products are still refined intermediate petroleum products and refined petroleum products.

[00:43:13] Speaker 00:
And this just doesn't cover the equipment.

[00:43:17] Speaker 00:
I would like to give Judge Stoll the site that I promised to have on rebuttal.

[00:43:24] Speaker 00:
The figure itself is at page 8295 of the appendix.

[00:43:28] Speaker 00:
This is the figure referred to in Mannion's letter and that's confirmed in the testimony that appendix 7380 to 81 and then

[00:43:40] Speaker 00:
Page 8277 is where his report says that the proposed system is shown in detail in this process and instrumentation diagram.

[00:43:51] Speaker 00:
I'm sorry for not having that when I was doing the opening argument.

[00:43:56] Speaker 00:
Thank you for that.

[00:44:01] Speaker 00:
And ultimately, just to underscore on willfulness or enhanced damages, that

[00:44:09] Speaker 00:
This is a family-owned company.

[00:44:11] Speaker 00:
I did not have a sophisticated in-house IP function or any in-house IP function at all, and the company relied on Mannion to provide an opinion.

[00:44:21] Speaker 00:
When that opinion came back saying that with this modification, blending to a tank instead of a rack, it does not infringe, that is what the company did, believing that it did not infringe.

[00:44:35] Speaker 00:
the notion that this is copying or that the blending was expanded, you know, both fall under that aspect of the opinion.

[00:44:43] Speaker 02:
Okay.

[00:44:44] Speaker 02:
We thank you and let's turn back to Mr. Kevil for a response on the cross appeal.

[00:44:52] Speaker 05:
Thank you, Your Honor.

[00:44:54] Speaker 05:
Two points that I particularly want to raise.

[00:44:59] Speaker 05:
Council did not really respond to your point about where is the profit and the butane sale, and said, well, there are many things in these agreements.

[00:45:08] Speaker 05:
But that's an issue they're raising here.

[00:45:11] Speaker 05:
Down below, what their expert Malachowski said was the only thing that he pointed to that was not patented, and that Sunoco was making profit, and sense implied that that should be important, was simply butane.

[00:45:27] Speaker 05:
And there is no profit.

[00:45:29] Speaker 05:
from the butane in any of these contracts.

[00:45:31] Speaker 05:
And you can see it when you go through the contracts.

[00:45:34] Speaker 05:
So there isn't zero loss profits.

[00:45:37] Speaker 05:
There isn't any profit on the butane, which is the only thing Malachowski said below needed to be apportioned.

[00:45:43] Speaker 05:
And you can find that at appendix 79, 78 through 79, and that 8025 to 8026.

[00:45:55] Speaker 05:
They did not dispute that there were profits.

[00:45:57] Speaker 05:
He only said you shouldn't get the profits for the sale of butane because butane is not patented and he was simply wrong.

[00:46:05] Speaker 05:
There is no profit from butane in these contracts.

[00:46:10] Speaker 05:
That's one point.

[00:46:11] Speaker 05:
The other point I'd like to reply to is the issue of the contracts going beyond the term of the patents.

[00:46:19] Speaker 05:
The issue in that is like a Kimball issue.

[00:46:23] Speaker 05:
where the patentee is entitled to recoup the costs and structure the deal in a way that they can amortize the costs over time.

[00:46:34] Speaker 05:
Remember the testimony down below was these systems cost between two and five million dollars to install.

[00:46:42] Speaker 05:
And so it's reasonable to extend the life of the contract to cover those upfront installation costs, which is what happened here.

[00:46:56] Speaker 05:
I'm sorry, Your Honor.

[00:47:00] Speaker 02:
No, I was just going to ask my colleagues if they had any questions, but please go on if you have another point to make.

[00:47:06] Speaker 05:
The one point I would make on this is essentially what Venture tries to say on this appeal is that Sunoco should be faulted for not bidding against itself.

[00:47:19] Speaker 05:
Sunoco should have come in and said,

[00:47:23] Speaker 05:
But despite the experts saying here are all these contracts, I've gone through, I've found the ones that are most comparable to this, I've done the economic analysis, here's what the lost profits are, and there's no need to apportion because every part of this falls under the patent.

[00:47:41] Speaker 05:
It's either making or using the invention.

[00:47:44] Speaker 05:
And they did not rebut that at all.

[00:47:48] Speaker 05:
And so in a case like this, essentially what they're saying is, but Sunoco should have said, well, if I do need to apportion out something, here's what I would apportion out.

[00:48:00] Speaker 05:
And if I do need to apportion something else, here's what I would apportion out.

[00:48:04] Speaker 05:
Instead, what Sunoco did was said, look, there is no need to apportion.

[00:48:07] Speaker 05:
Here are the lost profits.

[00:48:09] Speaker 05:
It was unrebudded.

[00:48:11] Speaker 05:
And it's a case where lost profits clearly should be awarded.

[00:48:18] Speaker 05:
you know, undisputably made 40 some odd million in profits and under any of these agreements would have paid a substantial amount to Sunoco, but in essence by litigating and saying, well, these agreements are butane sales, which they're not, ultimately get away for $2 million.

[00:48:39] Speaker 05:
Okay.

[00:48:42] Speaker 02:
Anything further from my colleagues?

[00:48:44] Speaker 02:
Any further questions?

[00:48:46] Speaker 02:
No.

[00:48:49] Speaker 02:
Thank you.

[00:48:51] Speaker 02:
We thank both sides and the case is submitted.

[00:48:55] Speaker 05:
Thank you, Your Honor.