November 2013

Patently-O Bits & Bytes by Lawrence Higgins

Jury Orders Newegg To Pay $2.3 Million To TQP Development

  • The online retailer Newegg has lost a patent case centering on Web encryption, after a Texas jury rejected its argument that a claim from the company TQP Development was invalid. The jury ordered Newegg to pay $2.3 million. Newegg's Chief Legal Officer Lee Cheng stated that "the company does not agree with the verdict and they fully intend to take the case up on appeal and vindicate our rights." [Link]

No Patent Trolls in Nebraska!

  • Nebraska's Attorney General Jon Bruning wants to start a task force to end, what he calls patent scams. Bruning, states that, he "plans to call for a coalition of states, like with the tobacco cases," referring to the partnership of state attorneys general that collected billions from cigarette makers in the 1990s as compensation for health-care costs related to treating smokers. [Link] [Link]

Teaching Fellow for Stanford Law School LLM Program in Law, Science and Technology

  • The Teaching Fellow for the Stanford Law School LLM Program in Law, Science and Technology will work with candidates in the LLM specialization in Law, Science and Technology. The fellow will assume significant academic, advising and administrative responsibilities. He or she will be responsible for organizing and teaching two quarters of a colloquium addressing current issues and scholarship in intellectual property, cyberlaw, bioethics, and related fields.  The fellow will also organize and facilitate informal workshops, outside speakers, and academic and social events; be responsible for day-to-day administrative management of the LLM program; advise and counsel LLM candidates on academic and personal issues; respond to inquiries from prospective LLM applicants; and interact with our faculty in support of the LLM program goals and needs. The fellow will work with the Executive Director of International Graduate Programs, and under the supervision of the Faculty Director of the Law, Science and Technology program. The fellow will also fully participate in the admissions process, working under the guidance of the Associate Dean for Admissions to admit the new class. Although this is a full time position, the fellow should have a reasonable amount of time to conduct his or her own research, and will have ready access to affiliated faculty for that purpose.

    Candidates for this position are expected to have strong academic records and references.  Professional experience in the area is also valuable. This position is intended primarily for people who expect to pursue an academic career in a field that is reasonably related to the specialization and who hold a JD, JSD or LLM from a U.S. law school.  Applicants are expected to commit to this position in one year increments, starting in August 2014, with a two-year commitment preferred.

    Those interested should apply by letter, summarizing their complete educational qualifications and experience, as well as any other information that might help us in making selections. Each applicant should also send us an official law school transcript, a resume, copies of any publications, and three letters of recommendation (at least two from law professors) commenting on the applicant's suitability for the position in terms of teaching ability, analytic capability, interpersonal skills, and writing ability.

    Apply by January 15, 2014! Your application package should be sent to: aarroyo@stanford.edu

Upcoming Events:

  • IQPC is hosting its Patent Infringement Litigation Summit on December 9th and 10th in San Francisco. The Summit will bring together in-house counsel from major companies, law firm attorneys and representatives from other vendors to facilitate strategy and information sharing among these key stakeholders. [Link]
  • American Conference Institute is holding its Advanced Forum on Modern Patent Litigation Practice on December 10-11, 2013 in New York, NY. The American Conference Institute's (ACI's) Advanced Forum on Patent Litigation is the only event that advises all litigators, be they in-house or outside counsel, of the changing landscape of patent litigation caused by recent legislation, government agency guidelines, and court determinations. This conference will not only serve as the standard for Patent Litigation Conferences going forward, but also as an annual meeting place for the "who's who" of the industry. [Link]
  • IBC Legal is hosting the 5th annual International Patent Litigation conference on 10th & 11th December 2013 in London. Register with 10% discount at: [Link]
  • Momentum Event Group is hosting its conference IP Counsel Exchange for Biosimilar Applicants & Sponsors on January 23-24 in New York. Register with discount code PJ10. [Link]
  • IBC Legal will hold its 22nd annual Biotech $ Pharmaceutical Patenting Conference February 25 & 26 in Munich, Germany. The keynote speaker will be Heli Pihlajamaa, Director of Patent Law at the European Patent Office. [Link]
  • Momentum Event Group is hosting its conference The IP Counsel Summit on Post-Grant Patent Challenges on February 27-28 in Paola Alto, CA. Register with discount code PJ10. [Link]
  • The Chisum Patent Academy is now accepting registrations for their 2014 Advanced Patent Law seminars, to be held
    • March 5-7, 2014: Cincinnati, Ohio
    • August 13-15, 2014: Seattle , Washington
    • August 18-20, 2014: Seattle, Washington

The Academy applies for 18 CLE credits in each state where seminars are held. [Link]

Constitutional Challenge to Administrative Patent Challenges – Part III

By Dennis Crouch

Consumer Watchdog v. Wisconsin Alumni Research Foundation (WARF) (Fed. Cir. 2013)

A major limitation on judicial power comes from the doctrine of standing. A U.S. court has no power to hear a dispute between parties unless the plaintiff has or imminently will suffer injury-in-fact caused by the challenged action of the defendant that is redressable by a favorable court decision. This limitation has been derived from Article III of the U.S. Constitution that states "The Judicial Power shall extend to all Cases . . .[and] to Controversies . . ." To be clear, this limitation on power is placed on Article III courts at the district, appellate, and supreme court level. However, the limitation has not been applied to adjudicative processes that take place within administrative agencies since the government's authority to perform those activities is not seated in Article III. The conflicting approach to standing between these two adjudicative regimes regularly comes into conflict when parties appeal adverse agency decisions to an Article III court. The general rule for resolving this conflict is Constitutional supremacy – i.e., an Article III court cannot hear a case unless the standing requirement is met.

In the patent world, this issue is most focused in the area of post-issuance administrative patent challenges, particularly including inter partes review, post-grant review, covered-business-method review, and inter partes reexamination. In those regimes, any third party can administratively challenge a patent. Under the statute, the third-party then has a right to appeal an adverse decision to the Court of Appeals for the Federal Circuit. One question on appeal in the Consumer Watchdog case is whether there is standing for the appeal. Here, Consumer Watchdog is a public interest group that has not claimed any direct impact due to the WARF stem-cell patent, but certainly had standing to file its inter partes reexamination. I discussed this issue in some detail here:

The parties have now briefed the issue of standing and the court holds oral arguments on Monday, December 2.

Consumer Watchdog's brief does a nice job of drawing a parallel between the post-issuance challenges and Freedom-of-Information-Act (FOIA) requests. In each case, the relevant statute has no standing requirement but authorizes appeal to Federal Courts.

The Supreme Court has described FOIA as a "judicially enforceable public right" (EPA v. Mink, 410 U.S. 73, 80 (1973)) and made clear that no injury is required of a person who seeks to enforce that right. NLRB v. Robbins Tire & Rubber Co., 437 U.S. 214, 221 (1978).

The essential idea here that the statute goes a long way toward creating standing by (1) creating a right to petition and then (2) granting a right to appeal to unsuccessful petitioners. And then, the injury-in-fact or "concrete injury" is completed at least when the PTO finds against the petitioner. At that point, the only party with a right of appeal is the petitioner. This particularization before getting to court helps to distinguish the present case from the leading Supreme Court case of Lujan where a statute provided that "any person" could file suit in federal court.

Idea of a patent challenge as a "judicially enforceable public right" also has precedential support. See Lear v. Adkins, 395 U.S. 653 (1969)

Consumer Watchdog also makes an important point here, that the PTO should be a party to the appeal and that the Federal Circuit should at least invite briefing from the US Government on the issue of standing.

For its part WARF relies heavily on Lujan:

To satisfy Article III standing, Watchdog, a nonprofit taxpayer and consumer-rights organization, must establish an injury in fact—i.e., an actual and imminent, concrete and particularized invasion of a legally protected interest—caused by WARF. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992). But Watchdog does not and has not claimed to make, use, or sell the patented invention; has not and could not be threatened with suit; and has not named another real party in interest, either in this appeal or before the PTO. Watchdog therefore cannot establish standing, and Watchdog's appeal should be dismissed.

The result then is that WARF here is inherently arguing that the statute providing for a right to appeal is unconstitutionally broad. The question then is the extent that this crumbles the regime even further. [Updated to clarify that WARF does not explicitly argue the statute is unconstitutional.]

IP Law Professors Rise-Up Against Patent Assertion Entities

By Dennis Crouch

A group of sixty US intellectual property law professors have signed a letter to Congress supporting anti-troll patent reform legislation. This effort was driven by Professor Love of Santa Clara and is also signed by Professors Bessen, Goldman, Ghosh, Lemley, Meurer, Samuelson, Sprigman, and others. [Download ProfessorsLetterOnTrolls].

A key introductory line from the letter:

Despite our differences, we all share concern that an increasing number of patent owners are taking advantage of weaknesses in the system to exploit their rights in ways that on net deter, rather than encourage, the development of new technology.

The basic argument is that patent litigation is expensive and frontloaded in such a way that "creates an opportunity for abuse" because early-state settlement is focused more on the cost of litigation rather than the value of the patent or its underlying technology. And, it is the recent "rise of patent assertion entities" that has "disrupted [the] delicate balance" of the patent system.

The professors propose the following six general reforms:

  1. To discourage weak claims of patent infringement brought at least in part for nuisance value, we recommend an increase in the frequency of attorneys' fee awards to accused patent infringers who choose to fight, rather than settle, and ultimately defeat the infringement allegations levelled against them.
  2. To reduce the size and front-loaded nature of patent litigation costs, we recommend limitations on the scope of discovery in patent cases prior to the issuance of a claim construction order, particularly with respect to the discovery of electronic materials like software source code, emails, and other electronic communications.
  3. To further protect innocent retailers and end-users that are particularly vulnerable to litigation cost hold-up, we recommend that courts begin to stay suits filed against parties that simply sell or use allegedly infringing technology until after the conclusion of parallel litigation between the patentee and the technology's manufacturer.
  4. To facilitate the early adjudication of patent infringement suits, we recommend that patentees be required to plead their infringement allegations with greater specificity.
  5. [To increase transparency and confidence in the market for patent licensing, we recommend that Congress require] patentees … to disclose and keep up-to-date the identity of parties with an ownership stake or other direct financial interest in their patent rights.
  6. [To increase transparency and confidence in the market for patent licensing, we recommend that] Congress consider additional legislation designed to deter fraudulent, misleading, or otherwise abusive patent licensing demands made outside of court.

Without a doubt, there is merit to the professors' case, although I bristle at the letter's broad-brush statements and overt stance that is pro-large-corporate-entity. I have a few thoughts regarding the specific suggestions:

(1): Anti-plaintiff fee shifting will have the obvious impact of altering the availability of contingency-fee counsel which may be the motivation of the suggestion. One problem is that almost every patent in litigation is amenable to a good-faith challenge on either invalidity or non-infringement grounds. Predicting winners and losers is a difficult prospect and this gives me little faith that the fee-shifting proposal will primarily target low-quality claims but instead will target risk-averse plaintiffs. The professors' suggestion here to reward non-settlement does not provide me with any confidence that overall litigation costs will be reduced. On the other hand, this proposal (especially if focused on invalidating patents) could serve as something like a bounty for attorneys to challenge bad patents and, as a consequence, would lessen the free-rider problem associated with a single company challenging a patent that is also being asserted against competitors.

(2) & (4): I agree that there is plenty room for reducing discovery costs and for raising pleading requirements without substantially harming patentee rights. However, one problem for both software and method patents is that some forms of infringement are difficult to truly pin-down absent discovery. Some work must be done on any particular proposals to ensure that the result is not a clear pathway unactionable infringement.

(3) Regarding customer lawsuits, we have a difficulty in line drawing because, for the most part, these are not simply customer lawsuits. Rather, the patents being asserted cover particular methods or systems that take advantage of a particular device on-the-market (such as a wireless router or flat-panel television). In this situation, the differences are such that the manufacturer and retailer typically refuse to honor their implied warrantee that the good is "free of the rightful claim … of infringement or the like." UCC 2-312(3). And so, the question is whether these use cases will fit within the definition. One reason for the downstream lawsuits is that downstreamers typically value the technology more than upstreamers with the result of greater damage award. (We know the downstreamers valued it more because they purchased it from the upstreamers). Since the exhaustion doctrine only allows a patentee to recoup at one point in the stream-of-commerce, it makes sense that they would focus on the highest valued user.

= = = = =

Text of the letter:

To Members of the United States Congress:

We, the undersigned, are 60 professors from 26 states and the District of Columbia who teach and write about intellectual property law and policy. We write to you today to express our support for ongoing efforts to pass patent reform legislation that, we believe, will improve our nation's patent system and accelerate the pace of innovation in our country.

As a group we hold a diversity of views on the ideal structure and scope of our nation's intellectual property laws. Despite our differences, we all share concern that an increasing number of patent owners are taking advantage of weaknesses in the system to exploit their rights in ways that on net deter, rather than encourage, the development of new technology.

Several trends, each unmistakable and well supported by empirical evidence, fuel our concern. First, the cost of defending against patent infringement allegations is high and rising. The American Intellectual Property Law Association estimates that the median cost of litigating a moderately-sized patent suit is now $2.6 million, an amount that has increased over 70% since 2001. These and other surveys suggest that the expense of defending even a low-stakes patent suit will generally exceed $600,000. Moreover, the bulk of these expenses are incurred during the discovery phase of litigation, before the party accused of infringement has an opportunity to test the merits of the claims made against it in front of a judge or jury.

The magnitude and front-loaded nature of patent litigation expenses creates an opportunity for abuse. Patent holders can file suit and quickly impose large discovery costs on their opponents regardless of the validity of their patent rights and the merits of their infringement allegations. Companies accused of infringement, thus, have a strong incentive to fold and settle patent suits early, even when they believe the claims against them are meritless.

Historically, this problem has largely been a self-correcting one. In suits between product-producing technology companies, the party accused of infringement can file a counterclaim and impose a roughly equal amount of discovery costs on the plaintiff. The costs, though high, are symmetrical and, as a result, tend to encourage technology companies to compete in the marketplace with their products and prices, rather than in the courtroom with their patents.

In recent years, however, a second trend – the rise of "patent assertion entities" (PAEs) – has disrupted this delicate balance, making the high cost of patent litigation even more problematic. PAEs are businesses that do not make or sell products, but rather specialize in enforcing patent rights. Because PAEs do not make or sell any products of their own, they cannot be countersued for infringement. As a result, PAEs can use the high cost of patent litigation to their advantage. They can sue, threaten to impose large discovery costs that overwhelmingly fall on the accused infringer, and thereby extract settlements from their targets that primarily reflect a desire to avoid the cost of fighting, rather than the chance and consequences of actually losing the suit.

To be sure, PAEs can in theory play a beneficial role in the market for innovation and some undoubtedly do. However, empirical evidence strongly suggests that many PAEs have a net negative impact on innovation. Technology companies – which, themselves, are innovators – spend tens of billions of dollars every year litigating and settling lawsuits filed by PAEs, funds that these tech companies might otherwise spend on additional research and design. Surveys also reveal that a large percentage of these suits settle for less than the cost of fighting, and multiple empirical studies conclude that PAEs lose about nine out of every ten times when their claims are actually adjudicated on their merits before a judge or jury.

The impact of these suits is made more troubling by the fact that PAE activity appears to be on the rise. Empirical studies suggest that at least 40%, and perhaps as high as 59% or more, of all companies sued for patent infringement in recent years were sued by PAEs. PAE suits were relatively rare more than a decade ago, and they remain relatively rare today elsewhere in the world.

More worrisome than these bare statistics is the fact that PAEs are increasingly targeting not large tech firms, but rather small business well outside the tech sector. Studies suggest that the majority of companies targeted by PAEs in recent years earn less than $10 million in annual revenue.

When PAEs target the numerous small companies downstream in the supply chain, rather than large technology manufacturers upstream, they benefit in two ways. First, for every product manufacturer, there may be dozens or hundreds of retailers who sell the product, and hundreds or thousands of customers who purchase and use the technology. Patent law allows patent owners to sue makers, sellers, or users. Suing sellers or users means more individual targets; some PAEs have sued hundreds of individual companies. And, more targets means more lawyers, more case filings, more discovery, and thus more litigation costs overall to induce a larger total settlement amount.

Second, compared to large manufacturers, small companies like retailers are less familiar with patent law, are less familiar with the accused technology, have smaller litigation budgets, and thus are more likely to settle instead of fight. In fact, many small businesses fear patent litigation to such an extent that they are willing to pay to settle vague infringement allegations made in lawyers' letters sent from unknown companies. Like spammers, some patent owners have indiscriminately sent thousands of demand letters to small businesses, with little or no intent of actually filing suit but instead with hopes that at least a few will pay to avoid the risk.

This egregious practice in particular, but also all abusive patent enforcement to some extent, thrives due to a lack of reliable information about patent rights. Brazen patent owners have been known to assert patents they actually do not own or, conversely, to go to great lengths to hide the fact that they actually do own patents being used in abusive ways. Some patent owners have also sought double recovery by accusing companies selling or using products made by manufacturers that already paid to license the asserted patent. Still others have threatened or initiated litigation without first disclosing any specific information about how, if at all, their targets arguably infringe the asserted patents.

In short, high litigation costs and a widespread lack of transparency in the patent system together make abusive patent enforcement a common occurrence both in and outside the technology sector. As a result, billions of dollars that might otherwise be used to hire and retain employees, to improve existing products, and to launch new products are, instead, diverted to socially wasteful litigation.

Accordingly, we believe that the U.S. patent system would benefit from at least the following six reforms, which together will help reduce the cost of patent litigation and expose abusive practices without degrading inventors' ability to protect genuine, valuable innovations:

  1. To discourage weak claims of patent infringement brought at least in part for nuisance value, we recommend an increase in the frequency of attorneys' fee awards to accused patent infringers who choose to fight, rather than settle, and ultimately defeat the infringement allegations levelled against them.
  2. To reduce the size and front-loaded nature of patent litigation costs, we recommend limitations on the scope of discovery in patent cases prior to the issuance of a claim construction order, particularly with respect to the discovery of electronic materials like software source code, emails, and other electronic communications.
  3. To further protect innocent retailers and end-users that are particularly vulnerable to litigation cost hold-up, we recommend that courts begin to stay suits filed against parties that simply sell or use allegedly infringing technology until after the conclusion of parallel litigation between the patentee and the technology's manufacturer.
  4. To facilitate the early adjudication of patent infringement suits, we recommend that patentees be required to plead their infringement allegations with greater specificity.

And finally, to increase transparency and confidence in the market for patent licensing, we recommend:

  1. that patentees be required to disclose and keep up-to-date the identity of parties with an ownership stake or other direct financial interest in their patent rights, and
  2. that Congress consider additional legislation designed to deter fraudulent, misleading, or otherwise abusive patent licensing demands made outside of court.

In closing, we also wish to stress that as scholars and researchers we have no direct financial stake in the outcome of legislative efforts to reform our patent laws. We do not write on behalf of any specific industry or trade association. Rather, we are motivated solely by our own convictions informed by years of study and research that the above proposals will on net advance the best interests of our country as a whole. We urge you to enact them.

Sincerely,

John R. Allison (Texas); Clark D. Asay (Penn State); Jonathan Askin (Brooklyn); Gaia Bernstein (Seton Hall); James E. Bessen (BU); Jeremy W. Bock (Memphis); Annemarie Bridy (Idaho); Irene Calboli (Marquette); Michael A. Carrier (Rutgers); Bernard Chao (Denver); Andrew Chin (UNC); Ralph D. Clifford (UMass); Jorge L. Contreras (American); Rebecca Curtin (Suffolk); Samuel F. Ernst (Chapman); Robin Feldman (Hastings); William T. Gallagher (Golden Gate); Jon M. Garon (Northern Kentucky); Shubha Ghosh (Wisconsin); Eric Goldman (Santa Clara); Leah Chan Grinvald (Suffolk); Debora J. Halbert (Hawaii); Bronwyn H. Hall (Berkeley); Yaniv Heled (Georgia State); Christian Helmers (Santa Clara School of Business); Sapna Kumar (Houston); Mary LaFrance (UNLV); Peter Lee (Davis); Mark A. Lemley (Stanford); Yvette Joy Liebesman (SLU); Lee Ann W. Lockridge (LSU); Brian J. Love (Santa Clara); Glynn S. Lunney, Jr. (Tulane); Phil Malone (Stanford); Mark P. McKenna (Notre Dame); Michael J. Meurer (BU); Joseph Scott Miller (Georgia); Fiona M. Scott Morton (Yale); Lateef Mtima (Howard); Ira Steven Nathenson (St. Thomas); Laura Lee Norris (Santa Clara); Tyler T. Ochoa (Santa Clara); Sean A. Pager (Michigan State); Cheryl B. Preston (BYU); Jorge R. Roig (Charleston); Jacob H. Rooksby (Duquesne); Brian Rowe (Seattle); Matthew Sag (Loyola Chicago); Pamela Samuelson (Berkeley); Jason Schultz (NYU); Christopher B. Seaman (W&L); Carl Shapiro (Berkeley); Lea Shaver (Indiana); Jessica Silbey (Suffolk); Christopher Jon Sprigman (NYU); Madhavi Sunder (Davis); Toshiko Takenaka (Washington); Sarah Tran (SMU); Jennifer M. Urban (Berkeley); Samson Vermont (Charlotte)

PTO Transitions: Director and Deputy Director Positions Open

In September 2013, USPTO Acting Director Teresa Stanek Rea gave notice that she would step down from the agency in the near future. She has now acted-on that notice and has left the agency. Rea has been Acting Director since January 2013 when David Kappos left to take at the NY Corporate firm of Cravath. Congratulations to Director Rea on her successful tenure that will largely be seen as working toward practical goals of implementing the first-to-file and post-issuance review provisions of the America Invents Act (AIA) in a time of budget cuts and Washington contention. Prior to joining the USPTO in 2011, Rea was a partner at Crowell & Morning.

Peggy Focarino, the commissioner of patents, has now stepped in with the duties of acting director. The PTO’s closest link with the White House now is through its Chief of Staff Andrew Byrnes. Unfortunately, Mr. Byrnes has only been in the role since September 2013. Prior to that Byrnes was a litigator at Covington & Burling.

Under the patent statute, the USPTO Director “shall be appointed by the President, by and with the advice and consent of the Senate. The Director shall be a person who has a professional background and experience in patent or trademark law.” 35 U.S.C. § 3. The Deputy is then chosen by the Secretary of Commerce upon nomination by the PTO Director. The next director is expected to be a PTO outsider, but no names are forthcoming at this point.

In an email this morning, Hal Wegner distributed the above screen-shot with the caption: Whither Administration Leadership in Patents?

Mullin on Spangenberg

Joe Mullin is probably the country’s leading out-of-the-beltway journalist who regularly covers patent law issues. He writes for ArsTechnica and tends to take favor defendants (accused infringers) in his stories, although not as much as his colleague Timothy B. Lee.

Mullin’s recent story on the Newegg patent trial and Erich Spangenberg is a really interesting read.

http://arstechnica.com/tech-policy/2013/11/newegg-on-trial-mystery-company-tqp-re-writes-the-history-of-encryption/

Shooting Blanks: Federal Circuit finds Knock-Off Manufacturer not a “Willful Infringer”

By Dennis Crouch

Jake Lee v. Mike’s Novelties (Fed. Cir. 2013)

Jake Lee’s patent No. 6,419,936 is directed to a novelty pipe whose bowl looks like a revolver cylinder and is actually rotatable so that there is more than one chamber for holding “tobacco.”

The accused device a knockoff version. In the infringement case, the jury awarded $40,000 in lost profits and the district court enhanced damages to $70,000 for willful infringement. The court also awarded $230,000 in attorney fees after finding an exceptional case.

On appeal, the Federal Circuit affirmed the infringement award but reversed on willfulness – finding that the defendant’s non-infringement arguments were “not objectively unreasonable.” Because the exceptional-case attorney fee award was partially based upon the finding of willful infringement (and also litigation misconduct), the court remanded for a determination as to whether the litigation misconduct alone was sufficient to warrant the exceptional case finding.

Technical experts testify in almost every patent case and explain to the jury how the accused product does (or does not) meet the limitations as construed by the court. In a low-value case such as this, an expert would have blown the budget wide open and so the patentee did not present expert testimony. On appeal, the Federal Circuit affirmed that expert testimony is not required to win a patent case – especially where the technology is “easily understandable” Quoting Centricut, LLC v. Esab Group, Inc., 390 F.3d 1361, 1369 (Fed. Cir. 2004).

Enhanced Damages: The text of the patent statute seemingly provides courts with broad discretion to award up-to treble damages. Under 35 U.S.C. § 284, “the court may increase the damages up to three times the amount found or assessed.” Despite the seeming broad discretion offered by the statute, the Federal Circuit tightly controls enhanced damage awards and requires that any award be based upon “willful patent infringement.” The willful component is further defined as requiring both (1) clear-and-convincing evidence that the infringer took steps to infringe the patent despite an objectively high likelihood that its actions constituted infringement of a valid patent and (2) that the accused infringer subjectively knew of the “objectively-defined risk” or should have known because the risk was so obvious. In re Seagate Tech., LLC, 497 F.3d 1360, 1368 (Fed. Cir. 2007). Further, this willfulness determination is not given to the discretion of the district court but instead reviewed de novo on appeal. Finally, a correct finding of willfulness permits the award of enhanced damages but does not require such an award.

In this case, the defendant had survived summary judgment based upon a “genuine issue of material fact” as to whether the accused turret met the weight limitation found in the claims. And, in oral arguments at the Federal Circuit, plaintiffs’ counsel admitted that the defendants’ argument was reasonable. One thing that is unclear from the case is when the defendant recognized its reasonable-but-wrong defense to infringement. Was there some time-period when the defendant continued to infringe prior to concocting its defense? And, would the infringement during that period constitute willful infringement?

Litigation Misconduct: The district court found several instances of litigation misconduct by the defendant and defendant’s counsel, including bad-faith settlement offers, bad faith conduct during discovery, and unacted-upon threats to report Lee’s counsel to state bar associations. However, the exceptional case award was based both on that misconduct and the willfulness finding. On remand, the district court will need to determine whether the misconduct alone is sufficient to make an exceptional case finding and award attorney fees. Depending upon the circumstances, the plaintiff in this case may do well to ask the district court to delay its determination until after the Supreme Court decides the two pending attorney-fee-award cases later this term.

Notes:

Patent Reform 2013: Demand Letter Transparency Act of 2013

By Dennis Crouch

In many ways, a patent infringement demand letter is akin to a debt collection action. And, we know that debt collection is highly regulated under both Federal and State consumer protection laws. The current mood in Congress and amongst the state attorneys general is that patent demand letters should also be regulated to control their negative impact on the marketplace. The particular focus is on patentees who threaten litigation against the users of off-the-shelf technology (such as WiFi technology or Flat-Panel Screens) with little or no due diligence or pre-threat investigations. In some cases, patentees are threating litigation with no intention of actually filing suit and are hoping to use the high cost of patent litigation to drive settlement value rather than the underlying value of the patented invention.

Senators Leahy and Lee have proposed the Patent Transparency and Improvements Act (PTIA) of 2013 (S. 1720) as a quite weak form of regulation that would only address the most egregious cases of threats that operate as an unfair competition.

Now, Representatives Jared Polis (D-Co) and Tom Marino (R-Pa) have proposed their own legislation that would have more teeth. See the Demand Letter Transparency Act of 2013 (H.R.3540).  Download HR3540

H.R. 3540 includes a number of interesting features:

  • Any demand letter must include:
    • A listing of each claim being asserted and a listing of each accused device;
    • If indirect infringement is claimed, an explanation of the underlying direct infringement;
    • A description of the principle business of the party alleging infringement;
    • A list of other cases and review proceedings where the patent was asserted;
    • Identifying of any licensing term or pricing commitments associated with the asserted patent.
    • A listing of all people who have a direct financial interest in the outcome of the action, and a description of the agreements providing the legal basis for these financial interests; and
    • A statement to the recipient that 'You are not required to respond to this letter by law.'
  • A 20-demand-level threshold that raises heightened requirements, including the submission of demand information regarding the demands to the USPTO that will then be publicly available. (i.e., once a patentee sends out 20 demand letters, then it must begin complying with certain reporting requirements).
  • Failure to abide by the demand letter requirements would result in abandonment of the patent; other financial penalties; and also action by the FTC.
  • Under the statute, a demand letter is defined broadly as any "written communication directed to an unaffiliated third party stating or indicating, directly or indirectly, that the intended recipient or anyone affiliated with that recipient is or may be infringing a patent, or may bear liability or owe compensation to another because of such patent."

While the Leahy-Lee proposal is likely under-inclusive, H.R. 3540 is over-inclusive and would serve as a trap for unwary business leaders looking to license their company's technology. Two tweaks would bring focus: (1) only apply the demand letter requirements to instances where more than 20-demand letters have been sent-out; and (2) narrow the definition of demand letters so that some amount of written technology license negotiations can occur without raising the threat of abandonment (perhaps this could be done through some sort of safe-harbor).

Patent Reform 2013: Measured Reform Proposals from the Senate

Senators Leahy (D-VT), Lee (R-UT), and Whitehouse (D-RI) have proposed their own patent reform bill titled the Patent Transparency and Improvements Act (PTIA) of 2013 –this one much more narrowly focused on egregious patent enforcement abuses. As compared with the Goodlatte proposal, the Leahy-Lee proposal is much more measured and limited in its action. Democratic leaders on the House Judiciary Committee (Representatives Conyers and Watt) have announced their support of the Leahy-Lee approach over Goodlatte's that would include "far ranging changes to the litigation system, such as limits on pleadings and discovery, and intrusive mandates on the court system." 

The Leahy-Lee PTIA includes a number of interesting provisions. Most of the provisions are replicas of those already proposed in other bills. One new provision here is a statement authorizing the FTC to act against unfair and deceptive practices associated with the sending of fraudulent or materially misleading demand letters in connection with the assertion of a patent. Although not stated, the new law would also be tangentially useful for both state attorneys general and for private class-action plaintiffs to seek compensation against egregious actions.

A key element of the proposal would be to require that any demand letters include a statement of (A) patent asserter's identity; (B) the patent being asserted; and (C) the reasons for the assertion.

Under the proposal, the new statute would state that:

It shall be an unfair or deceptive act … for a person, in connection with the assertion of a US patent, to engage in the widespread sending of written communications that state that the intended recipients or any affiliated persons are infringing or have infringed the patent and bear liability or owe compensation if –

(1) the communications falsely threaten that administrative or judicial relief will be sought if compensation is not paid or the infringement issue is not otherwise resolved;

(2) the assertions contained in the communications lack a reasonable basis in fact or law, including, for example, because—

(A) the person asserting the patent is not a person, or does not represent a person, with the current right to license the patent to, or to enforce the patent against, the intended recipients or any affiliated persons; or

(B) the communications seek compensation on account of activities undertaken after the patent has expired; or

(3) the content of the written communications is likely to materially mislead a reasonable recipient, including, for example, because the content fails to include such facts reasonably necessary to inform the recipient of—

(A) the identity of the person asserting a right to license the patent to, or enforce the patent against, the intended recipient or any affiliated person;

(B) the patent issued by the USPTO alleged to have been infringed; and

(C) the reasons for the assertion that the patent may be or may have been infringed.

The Senators will readily admit that this statute is only directed toward the worst offenders and would not serve the goal of generally weakening the ability of a patent holder to assert its rights.

In addition to the bad faith demand letter rules, the proposal would also improving post-issuance review procedures to require that the PTO apply the same claim construction as used in court rather than the “broadest reasonable interpretation.”  In my view, this change should be implemented across the board so that all interpretations made on the record at the PTO will have a direct and foreseeable impact on the scope actually given to claims during litigation. At the same time, the PTO should be able to maintain wide authority to object to claim terms that are indefinite or poorly defined. 

A full outline of the bill is here and the text is here.  Up next – the Demand Letter Transparancy Act of 2013.

Ohio Willow Wood v. Alps South

By Jason Rantanen

The Ohio Willow Wood Company v. Alps South, LLC (Fed. Cir. 2013) Download 12-1642.Opinion.11-13-2013.1
Panel: Dyk, Bryson, and Reyna (author)

There are three main isues addressed in this opinion:

1) Collateral Estoppel based on similar claims in a different patent;

2) Obviousness involving the addition of numerical limitations in dependent claims; and

3) Inequitable conduct: reversal of SJ of no IC.

Background: The Ohio Willow Wood Company (OWW) asserted Patent No. 5,820,237 against Alps South.  The '237 patent relates to directed to cushioning devices that go over the residual stumps of amputated limbs to make the use of prosthetics more comfortable.  The district court granted summary judgment that OWW was collaterally estopped from challenging the invalidity of set of claims in the '237 patent, that the second set of asserted claims was invalid for obviousness, and that there was no inequitable conduct.  OWW appealed the collateral estoppel and obviousness issues while Alps cross-appealed the inequitable conduct issue. 
Collateral Estoppel: The collateral estoppel issue in this case is notable because it involves a separate (albeit related) patent.  OWW sued Thermo-Ply, Inc. for infringement of Patent No. 7,291,182, which issued from a continuation of the '237 patent, in a separate proceeding.  The court in that litigation held the claims of the '182 patent invalid for obviousness, a ruling that was affirmed on appeal.  Based on this previous disposition, the district court in the OWW v. Alps litigation ruled that a set of claims from the '237 were invalid due to collateral estoppel. 

The Federal Circuit affirmed, holding that collateral estoppel can apply across patents.  "Our precedent does not limit collateral estoppel to patent claims that are identical. Rather, it is the identity of the issues that were litigated that determines whether collateral estoppel should apply….If the differences between the unadjudicated patent claims and adjudicated patent claims do not materially alter the question of invalidity, collateral estoppel applies."  Slip Op. at 11.

Here, the differences between the patent claims did not materially alter the question of invalidity: 

As reflected in the claim language above, these patents use slightly different language to describe substantially the same invention. For example, where the ’237 patent recites a “tube sock-shaped covering,” an “amputation stump being a residual limb,” and “fabric in the shape of a tube sock,” the ’182 patent analogously recites the same claim scope in the form of a “cushion liner for enclosing an amputation stump, said liner comprising a fabric covering having an open end for introduction of said stump and a closed end opposite said open end.”  Thus, the mere use of different words in these portions of the claims does not create a new issue of invalidity. 

Id. at 12.

Obviousness – Exercise of Ordinary Skill: OWW also challenged the district court's summary determination that a second set of claims was invalid for obviousness. The crux of OWW's argument was based on the addition of numerical limits on certain characteristics of the "gel composition" and "fabric" elements in dependent claims.  The CAFC agreed with the district court that the addition of these numerical limits was nothing more than the exercise of ordinary skill in the art:

[N]othing in the record indicates that confining the otherwise obvious “gel composition” and “fabric” limitations to the recited numerical limits in the disputed dependent claims was anything other than the exercise of routine skill. Each of these features were well-known in the prior art and their use would have been predictable by one of ordinary skill in the art.

Slip Op. at 15.  Nor did the analysis fo secondary indicia of non-obviousness change the outcome.  OWW failed to show the requisite nexus between the secondary indicia and the patented invention (which in this case was specifically the claimed invention with the numerical limitations as distinguished from the invention minus the numerical limitations).  Furthermore, "where a claimed invention represents no more than the predictable use of prior art elements according to established functions, as here, evidence of secondary indicia are frequently deemed inadequate to establish non-obviousness."

Inequitable Conduct: While the litigation was pending, Alps initiated two ex parte reexaminations of the '237 patent.  Alps supported its second ex parte reexam request with the testimony of a Mr. Comtesse, who had been affiliated with the company that produced the prior art product that Alps relied upon.  The examiner accepted this testimony as evidence that the prior art possessed certain characteristics, resulting in the rejection of all of the claims of the '237 patent. 

In its appeal to the BPAI, OWW argued "that the examiner’s rejection was improper because it relied on the uncorroborated testimony of Mr. Comtesse, whom OWW characterized as a highly interested party." Slip Op. at 7.  OWW denied the existence of any other evidence that would support the relevant testimonty of Comtesse.  The BPAI subsequently reversed the examiner, finding that Comtesse was an interested third party and that his testimony was uncorroborated.

During the district court proceeding, Alps argued that there was contrary evidence that became known to OWW during the course of the litigation and should have disclosed to the PTO.  Applying Therasense, however, the district court granted summary judgment in favor of OWW. 

On appeal, the Federal Circuit reversed, finding that when viewing the evidence in a light most favorable to Alps, genuine issues of material fact remained.  Here, the allegedly material information went to the issue of whether disclosure would have led the BPAI to credit Comtesse's testimony.  The CAFC concluded that there was at least a genuine issue of fact.  Furthermore, the CAFC concluded that viewing the facts in a light most favorable to Alps, OWW's (allegedly false and unfounded) assertions regarding the interested nature of Mr. Comtesse "would be tantamount to the filing of an unmistakably false affidavit."  

Design patents, trade dress & Apple III

By Sarah Burstein, Associate Professor of Law at the University of Oklahoma College of Law

Apple, Inc. v. Samsung Electronics Co., Ltd. (Fed. Cir. Nov. 18, 2013) (Apple III) Download 2013-1129

Panel: Prost (author), Bryson, O’Malley

As Dennis reported yesterday, Apple has scored another win at the Federal Circuit. Specifically, the Federal Circuit has vacated and remanded Judge Koh’s denial of a permanent injunction with respect to Apple’s utility patents.

But it wasn’t a complete win. The Federal Circuit affirmed Judge Koh’s denial of a permanent injunction with respect to Apple’s design patents and product-design trade dress. This post will focus on the design-related portions of the Federal Circuit’s decision.

Design patents: Last summer, the jury found Samsung liable for infringing three design patents—U.S. Patent Nos. D618,677 (“the D’677 patent”), D593,087 (“the D’087 patent”) and D604,305 (“the D’305 patent”).

The D’677 and D’087 patents claim partial designs for smartphone configurations. Here are representative drawings from each of them:

The D’305 patent claims a design for a graphical user interface. Here is one of the claimed embodiments:

(Although the D’305 patent was published in black-and-white, one of the drawings was submitted in—and therefore claims—color. The image shown above is from one of Apple’s district court filings.)

Judge Koh denied Apple’s request for a permanent injunction with respect to these design patents. In her order, Judge Koh concluded that Apple “simply [had] not established a sufficient causal nexus between infringement of its design patents and irreparable harm.”

On appeal, Apple challenged that conclusion, pointing to: (1) evidence indicating “that design is important [to] consumer choice” in smartphones; and (2) “evidence of quotations from Samsung consumer surveys and from an industry review praising specific elements of both Apple’s and Samsung’s phone designs, including some elements of Apple’s patented designs.” According to Apple, this evidence was sufficient to establish a causal nexus.

The Federal Circuit did not exactly disagree. The court took some pains to point out that it “might not reverse the entry of an injunction based on [that] evidence.” But, emphasizing the deferential standard of review, the Federal Circuit decided that Judge Koh had not abused her discretion in denying an injunction.

According to the Federal Circuit, Judge Koh “correctly noted . . . that evidence showing the importance of a general feature of the type covered by a patent is typically insufficient to establish a causal nexus.” She “was also correct that isolated, anecdotal statements about single design elements do not establish that Apple’s broader patented designs are drivers of consumer demand.” Therefore, the Federal Circuit affirmed the denial of a permanent injunction with respect to the design patents.

Comment: This decision could make it more difficult for patent owners to get injunctions for partial designs—that is, when they assert design patents that claim portions (instead of all or most) of a product’s design. The Federal Circuit specifically distinguished this case from Apple I, which involved a design patent that claimed the entire configuration of a tablet computer.

Trade dress: The jury also found that Samsung infringed Apple’s unregistered iPhone 3G trade dress and registered iPhone trade dress (Reg. No. 3,470,983). Here is the illustration from the trade dress registration certificate:

Judge Koh denied Apple’s motion for injunctive relief on its trade dress claims, based on “Samsung’s cessation of its diluting conduct.”

On appeal, the Federal Circuit looked to the controlling regional circuit law—in this case, the law of the Ninth Circuit. The Federal Circuit noted that, under Ninth Circuit precedent, “ongoing diluting behavior is not necessary to obtain an injunction.” But, according to the Federal Circuit, that does not mean “that a court commits legal error if . . . it considers a defendant’s voluntary cessation of diluting behavior as a reason to deny injunctive relief.”

In this case, the undisputed evidence showed that Samsung stopped selling the offending products. And there was no evidence that it would sell them in the future. In light of that evidence, the Federal Circuit concluded that Judge Koh did not abuse her discretion in denying an injunction.

Comment: One particularly interesting issue raised by Judge Koh’s order remains unresolved. In ruling on Apple’s motion for a permanent injunction, Judge Koh concluded that Apple did not have to make a “showing of irreparable harm beyond the harm of dilution itself.” She based this conclusion on the text of 15 U.S.C. § 1125(c)(1). The Federal Circuit did not reach this issue in Apple III. But it might not be able to avoid it for long. Many plaintiffs assert trade dress claims along with their design patent claims. And, as readers of this blog no doubt are aware, those cases are within the Federal Circuit’s exclusive appellate jurisdiction. So the Federal Circuit will likely be confronted with this issue again—quite possibly before the regional circuits have a chance to weigh in.

A Computer Encompassing a Human

By Dennis Crouch

Ex Parte Ciprian Agapi, 2013 WL 6039024 (PTAB 2013)

The PTAB continues to decide a large number of subject matter eligibility issues. In this case, IBM is attempting to patent a "computer implemented" method and system for producing, brokering, and distributing digital content. The examiner rejected the pending claims under 35 U.S.C. § 101 as encompassing (1) a human organism and (2) an abstract idea, either of which is sufficient to render the claims unpatentable. The method of claim 1 includes ten steps that basically follow the process shown in the flowchart below. Claims 22 and 23 offer the same substantive limitations in the form of a "machine-readable storage" and "computer-implemented system" respectively. The claims do provide for "computer implemented … distribution" and "digitally conveyable content" but do not otherwise claim any particular technological implementation.

In interpreting the claims, the PTAB basically found that the claim form was critical for its analysis. In particular, the Board found that the system claim (23) is unpatentable because it encompasses a human being or group of human beings.

[W]e agree with the Examiner that the claimed content systems encompass a human being or a group of human beings, when given the broadest reasonable meaning in light of the Specification. We see nothing in the meaning of system itself or the Specification that would preclude these systems from being reasonably construed as encompassing a human being or a group of human beings. Further, we note that the Specification describes embodiments where these systems include both humans and computers, as well as, embodiments where these systems are fully automated.

In considering the machine-readable medium claim (22) and the method claim (1), the Board found that neither "reasonably encompass" human beings. Rather, the one is directed to "an article … that causes a machine" to act and the other is directed to the "use [of] human interaction but [does] not encompass the humans themselves."

Regarding the abstract idea, the Board found that the method claim (1) failed the machine-or-transformation test since it neither required a "particular" machine and because the "mere manipulation or reorganization of data . . . does not satisfy the transformation prong." CyberSource Corp. v. Retail Decisions, Inc., 654 F.3d 1366, 1375 (Fed. Cir. 2011).

[Update] According to the examiner, the only claims that passed subject-matter-eligibility muster were those written in Beauregard form and directed to software stored on a machine readable device. However, [as LB correctly points out in the comments], the Board found cause to reject those as well – holding the claims are unpatentable because they closely track the unpatentable method and system claims. In addition, the Board also found the claims unpatentable as ineligible signals since the storage media could be a transitory signal.

http://e-foia.uspto.gov/Foia/ReterivePdf?system=BPAI&flNm=fd2011010208-11-12-2013-1

Federal Circuit offers Apple Second Chance to Block Sales of Samsung Galaxy Nexus Devices

By Dennis Crouch

Apple Inc. v. Samsung Electronics Co., Appeal No. 2013-1129 (Nov. 18, 2013)

In a unanimous opinion, the Federal Circuit has vacated Judge Koh’s decision denying Apple injunctive relief to stop Samsung’s ongoing infringement of Apple’s utility patents. These utility patents cover software features such as the “bounce-back” feature for scrolling; a multi-touch display for distinguishing between single-finger actions and multi-fingered actions such as “pinch-to-zoom”; and a “double-tap-to-zoom” patent. See U.S. Patent Nos. 7,469,381, 7,844,915, and 7,864,163. The appellate panel affirmed the finding of no irreparable harm (and thus no injunctive relief) for Samsung’s adjudged infringement of the related design patents and trade dress.

Injunctive relief requires a showing of irreparable harm due to ongoing infringement. In a prior Apple case (Apple II), the Federal Circuit explained that this showing can be broken-down into a two part requirement of “(1) that absent an injunction, it will suffer irreparable harm, and (2) that a sufficiently strong causal nexus relates the alleged harm to the alleged infringement.” Apple II. Following the jury determination of infringement, District Judge Koh held hearings on injunctive relief and found that Apple failed to prove a causal nexus. On appeal, the Federal Circuit partially rejected Judge Koh’s analysis – finding basically that Judge Koh had set-up the causal nexus test as too-difficult of a hurdle. In particular, the appellate panel determined that (1) ongoing infringement can be seen as the cause of irreparable harm even of not the sole-reason for the harm; (2) in considering irreparable harm a court should consider all of the infringed patents and patent claims rather than looking at each patent or claim one-at-a-time. See also, Apple I.

On remand, the district court will reconsider Apple should now be awarded injunctive relief. The Federal Circuit has been somewhat demanding on Judge Koh. Originally, Judge Koh had granted injunctive relief, but that award was rejected because Koh did not consider the new causal nexus requirement. Now, the her opinion denying injunctive relief has been rejected for placing too much emphasis on the causal nexus requirement.

In general, this case should be seen as relaxing the test of injunctive relief and will have its greatest impact in markets such as the smartphone market where devices include a large number of features and where market players have a large variety of patents covering those features.

Cases:

  • Apple III (This Case): Apple Inc. v. Samsung Elecs. Co., __ F.3d__ (Fed. Cir. 2013)(Prost, J.);
  • Judge Koh’s Decision reversed here: Apple Inc. v. Samsung Elecs. Co., 909 F. Supp. 2d 1147 (N.D. Cal. 2012);
  • Apple II: Apple Inc. v. Samsung Electronics Co., 695 F.3d 370 (Fed. Cir. 2012); and
  • Apple I: Apple Inc. v. Samsung Electronics Co., 678 F.3d 1314 (Fed. Cir. 2012).

Guest Post by Prof. Risch: Functionality and Graphical User Interface Design Patents

Guest Post by Michael Risch, Professor of Law, Villanova University School of Law

Read the whole draft here, forthcoming in the Stanford Tech. L. Rev.

Before I was a patent guy, I was a copyright guy, and I did much of my work and research in user interfaces. In the 1980’s and 1990’s, there was a lot of uncertainty about how user interfaces would be protected by copyright. The latest version of the Copyright Act had just become effective, and graphical user interfaces (GUIs) were just taking off. Following a lot of litigation, and despite seemingly contradictory appellate rulings and an equally divided Supreme Court in one case, things eventually settled down.

It is against this backdrop that I took great interest in the Apple v. Samsung case, which is in trial right now on damages issues. Buried in all the talk about rectangles with rounded corners and pinch to zoom is a graphical user interface design patent.

Fig 1

Several of Samsung’s phones infringed this patent. In my article, I consider the implications of design patents, functionality, and graphical user interfaces. This is a realm previously limited to copyright. The difference in protection is important because design patents do not traditionally allow the same defenses — like fair use — associated with copyright.

The article answers three emerging questions:

1. Aren’t GUIs something that should be protected by copyright only? Why should there be a patent? The answer is relatively simple: the law has, since 1870, contemplated dual protection. The article traces the history to explain why the law could have evolved differently, but simply did not.

2. Display screens change, both before and after sale. How can someone patent an ephemeral screen design? It also turns out that ephemeral designs have been protected for some time. Even so, the article proposes some limitations on the protection of GUIs that should address the special nature of GUI design patents.

3. There are many differences between Apple’s patent and Samsung’s product. How can Apple own the idea of square icons in a grid with a dock bar at the bottom? This last question is the most intractable: determining when a design is infringing, and the role that functionality should play in that consideration. The bulk of the article is dedicated to answering this question. 

To answer the third question, the article draws on lessons from prior copyright disputes about GUIs. It first suggests that courts must act as gatekeepers, rather than allowing juries to determine which elements to disregard as functional. It then develops economic factors that can help the court determine whether a design element is functional, and whether to allow reuse by a competing program.

While the economic factors, such as consumer switching costs, apply to both copyright and design patents, the legal doctrine to achieve economic ends will necessarily differ. As noted above, there is no fair use doctrine in design patent law. Even so, there is a form of filtration, and the article proposes that such filtration be expanded to exclude functional elements from infringement analysis. The full article is available here.

PTAB Backlog

By Dennis Crouch

After an examiner twice-rejects a patent application, the applicant can then appeal that case to the Patent Trial and Appeal Board (PTAB). The appeal process has a number of problems, one of which is exemplified by the chart above. The backlog of pending ex parte appeals is large – over 25,000 pending cases. Over the past two years, the PTAB has been taking action by both adding some efficiencies, reducing opinion writing duties, and also by hiring a large number of additional judges. As the chart shows, those efforts are having some impact on the backlog and hopefully turning the corner. On average, new PTAB decisions in these cases take a little over 2 ½ years from the applicant's appeal brief until issuance of the PTAB decision.

A Few Upcoming Events

By Dennis Crouch

My Upcoming Patent Events: Earlier this week I spoke at the 51st Annual Conference on Intellectual Property at the Center for American and International Law in Plano. My topic was on functional patent claims and the historic cycle of attacks on that claim type followed by novel approaches and work-arounds by patent applicants. In a few weeks from now, Bart Starr and I will be leading a discussion at the annual meeting of state Attorneys General (NAAG) on the topic egregious patent licensing behavior. AGs are looking for ways they can use the consumer protection laws in this arena. In the program, we are in the difficult position of speaking immediately following Kevin Costner. In January, I'll join the Association of Corporate Patent Counsel at their 2014 Winter Meeting and then in February I will be down in Naples at an interesting gathering put together by Hal Wegner and Judge Linn and sponsored by the University of Akron School of Law titled the Naples Midwinter Patent Experts Conference. Faculty for the Naples conference include Judge Linn, Judge Kathleen O'Malley, PTO Director Terry Rea, former PTO Deputy Sharon Barner, Former Commissioner, Robert Stoll, PTAB Chair James Smith, and Bob Armitage. A number of us law professors will be there as well, including Tim Holbrook (Emory), Timo Minnsen (Copenhagen), Christal Sheppard (Nebraska), Dennis Crouch (MU), Jason Rantanen (Iowa), W. Keith Robinson (SMU), William Hubbard (Baltimore) and Dr. Heinz Goddar. Register for the Naples event here http://www.uakron.edu/law/ip/naples-midwinter.dot or by calling conference coordinator Shannon Aupperle at (330) 972-7988.

Lawsuit Abuse Reduction Act of 2013

The House of Representatives has passed H.R. 2655 titled Lawsuit Abuse Reduction Act of 2013 and the Bill now moves to the Senate for consideration. Although not a patent-focused bill, if enacted, the law could have a substantial impact on patent cases by amending Rule 11(c) by basically making sanctions mandatory for violations of Rule 11(b) certifications. In addition, the amendment would mandate that any sanctions compensate the reasonable expenses of the opposing side and also permit additional monetary and non-monetary sanctions as appropriate. The bulk of the amendment is as follows:

FRCP 11(c) Sanctions.

(1) In General. If, after notice and a reasonable opportunity to respond, the court determines that Rule 11(b) has been violated, the court shall may impose an appropriate sanction on any attorney, law firm, or party that violated the rule or is responsible for the violation. Absent exceptional circumstances, a law firm must be held jointly responsible for a violation committed by its partner, associate, or employee.

. . .

(4) Nature of a Sanction. A sanction imposed under this rule must be limited to what suffices to deter repetition of the conduct or comparable conduct by others similarly situated. The sanction may include nonmonetary directives; an order to pay a penalty into court; or, if imposed on motion and warranted for effective deterrence, an order directing payment to the movant of part or all of the reasonable attorney’s fees and other expenses directly resulting from the violation situated, and to compensate the parties that were injured by such conduct. Subject to the limitations in paragraph (5), the sanction shall consist of an order to pay to the party or parties the amount of the reasonable expenses incurred as a direct result of the violation, including reasonable attorneys’ fees and costs. The court may also impose additional appropriate sanctions, such as striking the pleadings, dismissing the suit, or other directives of a nonmonetary nature, or, if warranted for effective deterrence, an order directing payment of a penalty into the court.

The House vote was almost strictly along party lines with Republicans voting in favor, Democrats against.

Hricik on 101

Prof Hricik has a new post on the Ethics Blog focusing on subject matter eligibility under 35 U.S.C. § 101 walking through how the Supreme Court has treated intangible laws of nature as compared with tangible natural phenomenon (or as he calls them ‘natural products’).

With that framework, here is what the Supreme Court cases teach: If a method claim is deemed to embrace intangible subject matter, or if a product claim embraces a natural product, the claim is at least suspect.

The point here is that the Supreme Court’s precedent is really tied-in to claim type – product versus method.

Read it here: http://www.patentlyo.com/hricik/2013/11/my-second-belated-post-about-101.html

Cisco on the Wrong Side of Xenophobia and Anti-Religious Jury Tactics

Update – After thinking reading through this post, it is probably too harsh against Cisco. I was primarily set-off because I read this case involving Cisco's problematic litigation tactics immediately after I read about Cisco's general counsel complaining to Congress about the problematic litigation tactics of patent licensing companies.

= = = = =

By Dennis Crouch

Foreign litigants often have a real fear of American juries. Back in 2003, Judge Moore (then Professor Moore) authored an interesting article titled Xenophobia in American Courts. In her article, Judge Moore looked at a large dataset of patent cases and found substantial support for the hypothesis that foreign parties are treated worse by juries than their domestic counterparts. This issue has been explored in a number of ways by academics and has parallels to other jury bias issues based upon race or religion. In general, the notion is that it is cognitively easier for people to negatively judge the actions of someone considered an "other."

The recent case of Commil v. Cisco raises some of these issues. And, although Judge Moore was not on the panel, the Federal Circuit agreed that anti-foreign and anti-Semitic tactics before the jury create prejudice that warrant a new trial.

The patentee, Commil, is an Israeli company that filed an infringement suit against Cisco in the Eastern District of Texas. In the first trial, the jury awarded $3.7 million in damages. However, Judge Everingham ordered a new trial based upon the prejudicial effect of "Cisco's counsel's improper religious comments." In the new trial, the jury awarded $63.7 million in damages. On appeal, Cisco asked that the first trial judgment be reinstated. On appeal, however, the Federal Circuit affirmed the new trial finding.

The particular prejudicial are as follows:

  • While being cross-examined, Mr. David (the Commil inventor and co-owner) mentioned eating at a barbeque restaurant to which Cisco's counsel responded "I bet not pork." Counsel then went-on to ask Mr. David whether his cousin was a "bottom-feeder who swims around on the bottom buying people's houses that they got kicked out of for next to nothing."
  • In closing arguments, Cisco's counsel began with a reference of the trial of Jesus – saying "You remember the most important trial in history, which we all read about as kids, in the Bible had that very question from the judge. What is truth?"

Considering these statements, Judge Everingham wrote:

This argument, when read in context with Cisco's counsel's comment regarding Mr. David and Mr. Arazi's religious heritage, impliedly aligns Cisco's counsel's religious preference with that of the jurors and employs an "us v. them" mentality – i.e., "we are Christian and they are Jewish."

Commil USA, LLC v. Cisco Sys., Inc., No. 2:07–CV–341, slip op. at 3 (E.D.Tex. Dec. 29, 2010).

On appeal, the Federal Circuit found that these actions warranted review and additionally highlighted other aspects from the trial:

For instance, during the voir dire, Commil's counsel explained that the case began in Israel, "the Holy Land for many religions." Later, during closing argument, Commil's counsel argued with respect to damages that Cisco wanted the jurors to "split the baby" and "You know, that wasn't wise at the time of King Solomon. It's not wise today."

Based upon these elements, the Federal Circuit had no trouble finding that the new trial was warranted.

 

[Updated to delete my harsher remarks]

= = = = =

The interesting and important legal issue in this case is how the Federal Circuit allowed a partial-new-trial rather than a full trial.

= = = = =

See also, Hal Wegner, Commil v. Cisco, a Sidebar: Judicial Denunciation of Anti-Semitic Jury Tactics, http://www.laipla.net/commil-v-cisco-a-sidebar-judicial-denunciation-of-anti-semitic-jury-tactics/ .

Recent Posts on Patently-O

We have published a number of important essays this week. Here is a breakdown: