Federal Circuit examines construction of settlement agreement language and patent claimsJune 13, 2006

On June 12, 2006, the Federal Circuit affirmed a district court’s determination that there was no breach of a settlement agreement of a patent infringement suit. The party alleged to have infringed the patent redesigned its product, and the court found this new product did not fall under either of the two definitions in the agreement of products that it agreed not to sell. Thus, the agreement was not breached.Panduit Corporation and HellermannTyton Corporation entered into a settlement agreement shortly after Panduit sued HellermannTyton in 2001 for infringing its patent for a modular offset power box for a multi-channel power and communication wiring system. The settlement agreement prohibited HellermannTyton from making or selling (i) ‘Subject Products’ defined as Part No. MCR-SEB (the specific product accused of infringing the patent in that case) or (ii) any other product covered by any claim in Panduit’s patent. Two years after the settlement, Panduit brought suit against HellermannTyton for breach of the agreement and for infringement of its patent for selling a ‘revised’ product, which was essentially the same as its prior product except for a solid wall where a cutaway had originally been placed. The issue on appeal is whether either section of the settlement agreement was breached by the revised product. Contract interpretation is typically a question of state law. In this case, the settlement agreement specifically stated that it was to be construed under Illinois law, so the court applied Illinois contract law to its interpretation. Panduit argued that the revised product was encompassed in the ‘Subject Products’ designation because the change to a solid wall was only a ‘colorable’ difference, or alternatively, that the settlement agreement was ambiguous and should be construed to encompass the revised product. When determining the meaning of a settlement agreement, a court may not consider more than the plain language unless a contract term is ambiguous. Here, ‘Subject Products’ was specifically defined in the agreement. As a result, whether HellermannTyton’s new product was only colorably different from its old product was immaterial, because its old product was the one specifically covered by the agreement, not the old product and colorable variations. Because there was no dispute that the new product was not the same as the old product, the court affirmed the district court’s finding that HellermannTyton did not breach part (i) of the agreement. Panduit further argued that the revised product breached part (ii) of the agreement, not to sell or make any products which would infringe Panduit’s patent. Infringement is a two-step process, requiring that the court first construe any disputed claim terms, then compare the properly construed terms to the accused product. When construing claim terms, courts look principally to intrinsic evidence of the patent, evaluating the claim language itself, the written description and the prosecution history. The Federal Circuit focused on one claim limitation, the ‘opening’ limitation, which requires the product to have ‘an opening formed in the abutment portion of the projection.’ Based on the claim language, the court held that this limitation required that the opening be formed in an area that hangs down from a top portion of the projection. The written description and the prosecution history of the patent supported this view. HellermannTyton’s revised product did not have such an opening, and thus the court found that the revised product was not literally covered by the Panduit patent. The court also found no infringement under the doctrine of equivalents. Applying the ‘all elements rule,’ the Federal Circuit found that the encompassment of the revised product which included wires that bypass the abutment under the patent would have effectively read the opening limitation out of the claim. Thus, the redesigned product could not infringe under the doctrine of equivalents. Because there was no infringement either literally or under the doctrine of equivalents, sale of the redesigned product did not breach section (ii) of the settlement agreement, and the district court’s decision was affirmed.This case is another of several cases over the past several years in which the Federal Circuit has applied the all elements rule, also known as the doctrine of claim vitiation, to prevent application of the doctrine of equivalents. This trend shows that the court is continuing to limit application of the doctrine of equivalents, making it even more important to have well-drafted patents.To read the complete decision, log on to http://fedcir.gov/opinions/05-1337.pdf