ADASA Inc. v. Avery Dennison Corporation, Appeal No. 2022-1092 (Fed. Cir. Dec. 16, 2022) 

In the Federal Circuit’s only precedential opinion this week, the Court considered issues arising from infringement litigation concerning appellee ADASA’s U.S. Patent No. 9,798,967 (the ’967 patent), which is directed to systems and methods for encoding radio-frequency identification (RFID) tags.  Following a $26.6 million jury verdict in ADASA’s favor, Avery Dennison appealed the district court’s orders (1) granting summary judgment that claim 1 of the ’967 patent was directed to patent-eligible subject matter under 35 U.S.C. § 101 and valid under §§ 102 and 103; (2) denying Avery Dennison’s motion for a new trial, on the basis that the district court had improperly excluded certain damages evidence and testimony and improperly instructed the jury on damages; and (3) imposing $20 million in discovery sanctions under Fed. R. Civ. P. 37(c)(1).  The Federal Circuit affirmed the district court’s ruling on patent eligibility under § 101, reversed its ruling on anticipation and obviousness, affirmed its denial of a new trial, vacated the sanctions award, and remanded for further proceedings.

Claim 1 of the ’967 patent was the only claim at issue on appeal, and claims RFID tags encoded with serial numbers subdivided into a data field comprising a series of “most significant bits” “uniquely corresponding” to an allocated block of serial numbers authorized by a central commissioning authority, and remaining bits comprising a unique serial number for the RFID.  The ’967 patent discloses that this subdivision helps ensure the uniqueness of RFID serial numbers when a continuous connection to a central commissioning authority may be unavailable, as the pre-authorized allocated blocks of serial numbers may be utilized by remote manufacturers or manufacturing lines to ensure uniqueness of each complete serial number without each RFID needing to be authorized by the commissioning authority.

Avery Dennison contended that claim 1 was patent-ineligible because it was directed only to the abstract idea of subdividing a set of numbers into blocks, similar to how RFID serial numbers had already been subdivided by global standards to include “object class” information as distinct from serial numbers for particular items.  The Federal Circuit disagreed, agreeing with the district court that the claim is “directed to a specific, hardware-based RFID serial number data structure designed to enable technological improvements to the commissioning process.”  Focusing on the logistical advantages enabled by the “uniquely corresponding” limitation and relying on precedent finding other claims directed to the structure of data fields to be patent-eligible, the Court affirmed the district court’s summary judgment ruling on § 101 eligibility.

However, the Court reversed the district court’s summary judgment ruling that claim 1 was not anticipated or rendered obvious by the prior art.  Avery Dennison relied in part on the prior art book RFID for Dummies, which described a method for ensuring the uniqueness of serial numbers when a central numbering authority is inaccessible or impractical, including the pre-allocation of specific ranges of serial numbers to manufacturers and then to manufacturing lines, thereby effectively subdividing the serial number “into a facility number, line number, and subserial number in which the allocation hierarchy is maintained….”  The district court had found that RFID for Dummies—as well as a prior art patent similarly disclosing hierarchical RFID numbering for pallets and cartons within a facility—did not disclose the invention of the ’967 patent because they contained no reference to “most significant bits” encoded on the RFID tag as required by claim 1.  Collecting precedent for the proposition that a prior art reference “need not satisfy an ipsissimis verbis test”—or describe the invention in the same terms used in the patent—the Federal Circuit found that the prior art raised at least an issue of fact as to anticipation or obviousness, and reversed the grant of summary judgment to ADASA on §§ 102 and 103 invalidity.

The Federal Circuit also found that the district court did not err in denying Avery Dennison’s motion for a new trial on infringement and damages.  Avery Dennison contended that the district court erred in declining to instruct the jury on “lump sum” damages—as opposed to a running royalty—or to include a lump sum option in the verdict form, on the grounds that ADASA’s only prior licensing evidence consisted of licenses that Avery Dennison contended were all for lump sum amounts.  The Federal Circuit found that even assuming that characterization was correct, because Avery Dennison had not advanced a lump sum damages theory and had otherwise attacked the relevance of the licenses at issue, there was insufficient evidence to support a “lump sum” instruction and the district court did not err in declining to so instruct the jury.  The Court also found that the district court did not err in excluding testimony from Avery Dennison’s damages expert concerning certain portfolio patent licenses entered into by Avery Dennison, finding that the district court was within its discretion to find conclusory statements that the portfolios included patents directed to RFID technology (including patents cited during prosecution of the ’967 patent) were insufficient to establish “comparability” for purposes of making a reasonable royalty calculation.

Finally, the Federal Circuit considered the district court’s monetary sanctions award for discovery violations.  Following trial, Avery Dennison reported it had discovered some additional two billion RFID tags that it had failed to disclose during discovery, and which would have been found infringing.  While Avery Dennison had stipulated to pay an additional $9.4 million in damages (subject to appeal) for the undisclosed tags at the jury’s royalty rate of $0.0045 per tag, the district court ultimately also entered a sanctions award of $0.0025 per tag for both the properly-disclosed and late-disclosed RFID tags, amounting to an additional $20 million in sanctions.  The Federal Circuit found that while the district court was within its discretion to order monetary sanctions, it was improper to tie the amount of sanctions to any number of RFIDs that had been properly disclosed during discovery, as this “divorced the remedy from the harm that flowed from Avery Dennison’s discovery violation.”  As such, the Court vacated the sanctions award and remanded for further proceedings.

The opinion can be found here.

By Jason A. Wrubleski

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This article summarizes aspects of the law and does not constitute legal advice. For legal advice for your situation, you should contact an attorney.

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