Addressing claim construction, enablement, damages and willfulness, the US Court of Appeals for the Federal Circuit found that evidence of a defendant’s knowledge of the asserted patent and proof of infringement were, by themselves, legally insufficient to support a finding of willfulness. Bayer Healthcare LLC v. Baxalta Inc., Case No. 19-2418 (Fed. Cir. Mar. 1, 2021) (Stoll, J.)
Bayer owns a patent on certain recombinant forms of human factor VII (FVIII), a protein that is critical for blood coagulation. Recombinant FVIII is useful as a treatment for coagulation disorders, primarily Hemophilia A. Natural FVIII has a short half-life, making therapeutic administration expensive and inconvenient. Adding polyethylene glycol (a process known as PEGylating) to FVIII at random sites was found to increase the protein’s half-life but reduce its function. Bayer invented FVIII that is PEGylated in a specific region (the B-domain) so that it retains its function and maintains the longer half-life.
After Baxalta developed a PEGylated FVIII therapeutic, Adynovate®, Bayer sued Baxalta for infringement of its patent. During claim construction, the district court construed the claim preamble “an isolated polypeptide conjugate” to mean “a polypeptide conjugate where conjugation was not random,” finding that Bayer had disclaimed conjugates with random PEGylation. The district court also construed “at the B-domain” to mean “attachment at the B-domain such that the resulting conjugate retains functional FVIII activity,” rejecting Baxalta’s proposal of “at a site that is not any amine or carboxy site in FVIII and is in the B-domain” because Bayer had not disclaimed PEGylation at amine or carboxy sites. Before trial, Baxalta moved for clarification of the term “random” in the construction of the preamble, but the district court “again” rejected Baxalta’s argument that Bayer defined “random” conjugation as “any conjugation at amines or carboxy sites.”
Before trial, Baxalta moved to exclude the testimony of Bayer’s damages expert regarding his proposed reasonable-royalty rate. The expert had defined a bargaining range and proposed to testify that the royalty rate should be the midpoint of the range based on the Nash Bargaining Solution. The district court permitted the expert to testify as to the bargaining range but excluded the opinions regarding the midpoint as insufficiently tied to the facts of the case.
After trial, the district court granted Baxalta’s pre-verdict motion for judgment as a matter of law (JMOL) of no willful infringement. Subsequently, the jury returned a verdict that the claims were infringed and not invalid for non-enablement, and awarded damages based on an approximately 18% royalty rate for the period for which the parties had presented sales information. Baxalta moved for JMOL or a new trial on infringement, enablement and damages. Bayer moved for pre-verdict supplemental damages for the period between the presented sales data and the date of judgment, and for a new trial on the issue of willfulness. The district court denied all of Baxalta’s motions and Bayer’s motion for new trial, but granted Bayer’s motion for supplemental damages, applying the jury’s ~18% rate to sales data for the later period. Both parties appealed.
Claim Construction
On appeal, Baxalta challenged the claim construction, contending that the claims should be limited to PEGylation of cysteine amino acids (as in the specific embodiments described in the asserted patent) and not lysine amino acids (where the PEGylation is in Adynovate®). Baxalta argued that the specification and prosecution history disparaged “random” PEGylation and taught that random PEGylation could be achieved by targeting lysine amino acids. The Federal Circuit affirmed, however, finding that the specification only required “site-directed PEGylation” in the B-domain and not at any particular amino acid(s), reasoning that although lysine PEGylation could be used to achieve random PEGylation (disclaimed by the patentee), it could also (as in Adynovate®) be used to achieve non-random, site-directed PEGylation.
The Federal Circuit also rejected Baxalta’s argument under O2 Micro that the district court should have sub-construed the term “random” in the construction of the preamble, relying on the principle that “a sound claim construction need not always purge every shred of ambiguity.” Among other reasons, the Court wrote that Baxalta’s argument represented “another attempt to arrive at the same construction Baxalta sought for the claim term ‘at the B-domain’ because it attempts to equate ‘random’ with [lysine] PEGylation” such that the same reasons for rejecting Baxalta’s first argument also supported rejecting the second.
Infringement
The Federal Circuit affirmed the jury verdict of infringement, finding it was supported by substantial evidence. Bayer had presented expert testimony based on testing results and communications from Baxalta to the US Food & Drug Administration (FDA) indicating that the PEGylation in Adynovate® is “not random.”
Enablement
Baxalta argued that the claims were not enabled to the extent they embraced lysine PEGylation because the specification only taught cysteine PEGylation. However, the Federal Circuit found that Bayer had presented evidence that both random and non-random lysine PEGylation were known techniques at the critical date such that a person of ordinary skill could have, without undue experimentation, followed the teachings of the specification regarding non-random PEGylation of the B-domain using lysine rather than cysteine. Baxalta also argued that it was error for the district court to admit post-priority evidence of the specific lysine PEGylation used to manufacture Adynovate®. The Court agreed but held that the error was harmless because the district court cited other evidence establishing that the person of ordinary skill could use non-random lysine PEGylation. Finding substantial evidence supporting the jury verdict, the Court affirmed.
Damages
Baxalta argued that it was error to permit Bayer’s damages expert to present a royalty range and ask the jury to pick a rate within the range. The Federal Circuit disagreed, stating that it was “aware of no precedent that requires an expert to provide a single proposed royalty rate.” The Court further relied on the fact that the district court found that the end points of the royalty range were supported by substantial analysis, and that Baxalta cross-examined the expert regarding the end points of the range.
Baxalta also directly challenged the amount of damages found by the jury. The Federal Circuit found that this was an issue of fact and that the verdict was supported by substantial evidence (including expert testimony, about which Baxalta had cross-examined the expert) and, accordingly, affirmed.
Pre-Verdict Supplemental Damages
Baxalta challenged the award of pre-verdict supplemental damages as a violation of the Seventh Amendment. The Federal Circuit disagreed, relying on 35 USC § 284’s text that “[w]hen the damages are not found by a jury, the court shall assess them,” and on precedent that “[t]he methodology of assessing and computing damages . . . is within the sound discretion of the district court.” The Court found that applying the jury’s reasonably royalty rate to actual sales data for the pre-verdict period was not an abuse of discretion and, accordingly, affirmed.
Willfulness
Finally, Bayer cross-appealed the district court’s JMOL ruling on willfulness. Bayer had presented evidence that Baxalta was aware of the patent application that issued as the asserted patent; that Baxalta had represented to the FDA that Adynovate®’s activity was due to controlled, targeted PEGylation at the B-domain; that Baxalta’s internal documents described Adynovate®’s PEGylation process as controlled; that Baxalta had initially tried to use random PEGylation; and that Baxalta later switched to targeted, B-domain PEGylation. Bayer argued that “Baxalta knew from prior dealings that random pegylation failed, found out about Bayer’s B-domain pegylation work that underpins the [asserted] patent, and consciously redirected its own research to B-domain pegylation after learning about Bayer’s invention.” Nonetheless, the Federal Circuit found that “[e]ven when accepting Bayer’s evidence as true and weighing all inferences in Bayer’s favor,” the record did not establish that Baxalta’s conduct “rose to the level of wanton, malicious, and bad-faith behavior required for willful infringement.” Reasoning that “[k]nowledge of the asserted patent and evidence of infringement is necessary, but not sufficient, for a finding of willfulness,” the Court affirmed.
Practice Note: After Halo, which was interpreted as eschewing rigid rules, district courts have generally rejected sufficiency challenges to willfulness allegations. Here, the Court seems to hold that the Halo standard is not so permissive. It remains to be seen whether district courts will rely on Bayer to keep the question of willfulness from the jury.
