WARF v. Apple (W.D. Wisconsin 2015)
Following a jury verdict on infringement and validity (October 10) and another verdict on damages awarding $230 million in reasonable royalty (October 19), Judge Conley (W.D.Wisc.) has now quickly disposed of the case by entering judgment in favor of the patentee (WARF) the amount awarded and denying Apple’s motion for judgment as a matter of law. The case is now set for appeal to the Federal Circuit.
During trial the Judge rejected WARF’s willfulness claim – finding that Apple had a pretty good – thought ultimately losing – obviousness argument:
Apple demonstrated at trial that the elements of the asserted claims of the ‘752 patent were all known in the prior art, and many were well-known for those skilled in the art. Indeed, WARF did not meaningfully dispute this. As a result, the only factual dispute as to Apple’s obviousness defense was whether a person of ordinary skill in the art would have combined those elements and had a reasonable chance of doing so successfully.
Under the current requirement of both objectively and subjectively willful behavior, the court found that WARF could not prove with clear and convincing evidence that Apple acted “despite an objectively high likelihood that its actions constituted infringement of a valid patent.”
It turns out that Apple had also presented its obviousness argument to the PTAB in an inter partes review challenge. In that case, the Board refused to grant the IPR petition – finding that Apple “has not shown, under 35 U.S.C. § 314(a), that there is a reasonable likelihood that it will prevail with respect to at least one of the challenged claims.” Back in the lawsuit, Judge Conley rejected WARF’s argument that the PTAB’s denial is relevant. Unfortunately, it appears that the Judge’s ruling is based upon a misunderstanding of PTAB procedure and burdens. In particular, the judge rested his decision upon the incorrect notions that IPR cancellation requires “clear and convincing evidence” and that granting an IPR petition requires proof that the challenger is “likely to prevail” on the merits. The Judge writes:
All PTAB found was that Apple was not likely to prevail on its defense by proving obviousness by clear and convincing evidence. PTAB did not consider whether this defense was objectively reasonable or raised a substantial question. As such, the PTAB finding — like the jury’s finding rejecting the invalidity challenge — does not settle the issue of whether Apple’s defense was objectively reckless.
Of course, the PTAB cancellation is based upon a substantially lower standard – a preponderance of the evidence – not clear and convincing evidence. In addition, the PTAB decision at the petition stage looks only for a “reasonable likelihood” of prevailing rather than simply being “likely” to prevail. (In most cases, the ‘reasonable’ modifier makes it easier to prove a conjecture: compare “certainty” with “reasonable certainty.”)
Although the PTAB decision is not identically written to the willfulness test, it is not clear to me which standard is higher. And, I think that the statistics would play out here to easily show that it is a rare case where a well-pled obviousness argument was rejected by the PTAB at the petition stage and then relied upon by a jury to invalidate a patent.
The comparison:
- In the Inter Partes Review, the Patent Office determined that Apple’s obviousness argument lacked a reasonable likelihood of winning on validity, keeping in mind that the patent is not presumed valid and that obviousness must be proven by only a preponderance of the evidence.
- For willfulness, the patentee must show that an objective observer would perceive a high likelihood that the patent would be found valid (really, not invalid). Since validity is presumed in court challenges, what happens here is that the willfulness burden shifts to the defense to present a obviousness argument strong enough to convince an objective observer that the patentee had less than a high likelihood of winning on validity, keeping in mind the presumption of validity and requirement of clear-and-convincing evidence of obviousness.
I will pause here to apologize for the complexity of the comparison. You can thank the Federal Circuit for creating these tricky rules to replace what has traditionally (and by statute) been a much more open doctrine. The Supreme Court is addressing these issues in Halo and Stryker.
The point here for me is that Apple was unable to pass the petition stage of an IPR – i.e., they did not have a reasonable chance of winning on the lowered standard for invalidity. At least we can say that they had even less of a shot of winning with the same challenge presented in court with the higher burden. In context, this seems to me that the PTAB decision is quite relevant to the question presented here.
= = = = =
I’ll note here that the district court briefing on the issue was all filed under seal and not available. In addition, the district court has just agreed to seal a large set of trial evidence and demonstrative exhibits. It appears that WARF offered no objection – why would they? Here, at the least the court should order a redaction rather than complete sealing to support the strong public interest in patent cases and in an open court system. See also, Secret Patent Trials are OK; Access to Courts; A Call for Restraint in Sealing Court Records.
Apparently, Apple did not fall far from its own tree. It did not meet the relatively high standard of showing a reasonable likelihood that it would prevail with respect to at least one claim in its petition for IPR, and it did not commit the willful act of disregarding an objectively high likelihood that its had infringed a valid patent.
Although the district court mistakenly referred to the clear and convincing evidence standard, rather than preponderance, when it discussed the PTAB’s denial of Apple’s petition, the district court correctly found that the PTAB did not rule that Apple’s petition was objectively reckless. Apple’s failure to persuade the PTAB by a reasonable likelihood that it was likely to prevail (even under the preponderance standard) does not mean that there was an objectively high likelihood that the patent is valid (under the clear and convincing standard).
The burden for instituting and IPR is high, and so the burden for establishing willfulness. Apple fell somewhere in between.
DC: I think that the statistics would play out here to easily show that it is a rare case where a well-pled obviousness argument was rejected by the PTAB at the petition stage and then relied upon by a jury to invalidate a patent.
No doubt. That said, the use of the petition denial as “evidence” in this context would seem to require some analysis of why the petition was denied.
Would a “factual” investigation change the “legal” impact?
I am thinking that the point here is necessarily broader than the underlying facts of any particular single case…
“anon”: I am thinking that the point here is necessarily broader than the underlying facts of any particular single case…
That’s nice. Maybe you could tell everyone what is “the point here” that you are thinking about, and why you chose to discuss this mysterious “point” as a response to my comment.
Would a “factual” investigation change the “legal” impact?
I’ve no idea what the quotation marks are for and I’m not going to even try to guess.
But what I wrote is clear: “[T]he use of the petition denial as “evidence” in this context [i.e., in the context of determining willfulness] would seem to require some analysis of why the petition was denied”.
An example will provide even further clarification. Let’s say ten IPR petititions challenging a particular patent were each denied. On its own, does that fact say anything about the reasonableness of a belief that the patent is invalid? Of course it doesn’t. That’s because the petitions could be denied for any number of reasons that are distinct from the factual bases for the aforementioned belief. For starters, it’s entirely possible that an 11th petition could be accepted and — as a factual matter — will present a close case to the PTAB.
Well, of course, the art that was used in each IPR “on its own” matters.
That’s not the point though, of discussing the larger legal effect, now is it?
That’s just like the finding of “not invalid” as opposed to “valid”
Comity (or lack thereof) between the Article I and Article III courts…
Not even being able to initiate an IPR certainly seems to suggest very low odds of convincing a jury that the asserted claims are invalid over the same prior art patents or publications. What weight that should carry for a willfulness determination is an interesting open question?
For a more direct comparison one assumes the IPR petition initial arguments, and especially its initial expert declarations, were prepared with adequate review by someone with interference or other PTO contested case post grant experience, not just D.C. trial experience or ex parte prosecution experience. However, that is not always the case.
But an unsuccessful IPR petitioner may be stuck with their failure anyway, whatever the reason, since an IPR petition denial is not appealable, and there may not be time left for another attempt.
With respect to the text — In the Inter Partes Review, the Patent Office determined that Apple’s obviousness argument lacked a reasonable likelihood of winning on validity, keeping in mind that the patent is not presumed valid and that obviousness must be proven by only a preponderance of the evidence. –, two of the recent denials of petitions submitted by Kyle Bass (on the MS drugs Ampyra and Tecfidera) illustrate possible issues with making inferences of substance from petition denials. In one case, there was an issue of whether the document was published, and Bass simply filed another petition. In the other, there was the line about –more than a hope– even though the evidence of record (the gadolinium enhanced MRI results) showed the utility of the drug was much more than a hope. As a separate issue, the actual drugs used in the trial were in fact mono and dimethyl fumarate, so the genus/species argument was a bit specious. Yes, petition denials are not appealable, but someone like Bass may just keep on filing and crystallizing the real issues. [As a disclaimer, I am not here taking a position on what the substantive outcome of these challenges should be.]
someone like Bass may just keep on filing and crystallizing the real issues
Or you can just do it right the first time because you actually have a clue and you don’t need the PTO to walk you through the shortcomings. That might cost a bit more but a principled guy like Bass wouldn’t let a minor expense like that stand in the way of the public good.
As to Ampyra, one recalls that in Klopfenstein, the poster session was found to be published prior art. Yes, Bass’s lawyers could have fleshed out the details in the initial petition, and likely are doing so in later petitions. But, the petition denial did not reach the substance of the case, as to whether the poster material did invalidate the patent.
The commenters did not respond as to Tecfidera, wherein the evidence from the trial did show efficacy/utility for treating MS.
LE: the petition denial did not reach the substance of the case, as to whether the poster material did invalidate the patent.
But nobody expects the PTO to grant petitions where the petitioner’s arguments are based on the submission of a document describing the claimed invention without any evidence that the submitted document is published prior art. And without such evidence, why would the PTO waste its resources evaluating the substance of such a document?
In the particular case of of the first Bass/Ampyra petition, the assertion that the poster was published prior art was a bit conclusory. But how much evidence needed to be in the petition for it to be granted? Evidence showing a “substantial likelihood”?
There were a number of Klopfenstein factors. What showing would suffice to move forward?
The commenters did not respond as to Tecfidera, wherein the evidence from the trial did show efficacy/utility for treating MS.
I’m not suggesting that the PTAB is going to get it right every time (nor am I suggesting that your analysis of the facts here is correct — I have no idea because I haven’t closely analyzed the trial transcript or the petition). Nor am I suggesting that there aren’t many thousands of unworthy drug patents out there (quite the opposite).
I am suggesting that if you [not really “you”] have a gadzillion dollars and a decent argument then you should be able to get past the gate in most cases. If that’s not happening, it’s very likely that it’s your own fault and repeated failings will exacerbate your woes.
Returning to Dennis’s point, I am saying I would be careful in using IPR petition denial as evidence of a patent challenger’s unreasonableness.
Of the specific case of Kyle Bass on Ampyra, I talked to an MD in the MS area, and he mentioned the typical custom is for poster presenters to make copies of the poster freely available, which, if practiced in this particular case, would make the poster prior art under Klopfenstein. Yes, Bass could have been more detailed, and likely will be more detailed in the next IPR petition. I would not infer unreasonableness from an incomplete argument. Separately, I understand the PTO has to control the number of granted IPRs.
The Tecfidera denial is another matter.
Lawrence,
I am puzzled by the possible inference with your statement of:
“Separately, I understand the PTO has to control the number of granted IPRs.”
If not on merit, are you suggesting that the Office is cherry-picking what to grant and what not to grant?
That would be on the order of SAWS, would it not? How would such selectivity by possibly sanctioned?
As to –If not on merit, are you suggesting that the Office is cherry-picking what to grant and what not to grant?– there seem to varying statements on the percentage of IPR petitions which are denied.
For example, the Cooley website states: On average, 2 out of 10 patent claims challenged by petitioners in inter partes review proceedings are never subject to review by the Patent Office because the petition fails to persuade the Patent Office that review is warranted.
But data from the USPTO (as of July 2015) suggests more than 50% of petitions are denied (see for example the IPBiz post: How many IPR petitions have been granted ? )
The USPTO has finite resources to place on IPRs, and there is no review of petition denial. There is a lot of discretion here.
Note the IPWatchdog post titled –With dubious logic and inaccurate statements of law, PTAB denies another Kyle Bass IPR petition — including the text — Thus, I have to wonder whether this decision has more to do with Kyle Bass than with the law. —
I do not think that “discretion” is allowed to rise to the level of “arbitrary and capricious.”
The points you share about what others are complaining about go to the illegality of the Office’s actions.
Are you to saying that the Office is acting illegally?
I am not saying that the USPTO acted “illegally.” I am saying that there is a lot of discretion, and there is no review of a petition denial to assess that discretion. The AIA allows the USPTO to “run with” the petition procedure (recall Rehnquist in Eldred as to Congress). The most recent IPR data suggests most petitions are being denied. It might be interesting to see if any of those “denied” cases fared better in district court.
The postgrantproceedings blog noted:
—
Judge Smith explained that the “reasonable likelihood” standard is lower than the “more likely than not” standard: “The reasonable likelihood standard allows for the exercise of discretion but encompasses a 50/50 chance whereas the “more likely than not” standard requires greater than a 50% chance of prevailing.”
—
In the case of the denial of the Ampyra petition, the Bass lawyers presented an incorrect argument about “what is” prior art and did not prove the poster was prior art. The USPTO correctly noted this. However, based on the non-restrictive nature of poster sessions, especially in the MS area, there is a reasonable likelihood that the poster material met the Klopfenstein criteria for published prior art. Would this petition denial be relevant to unreasonableness of the substantive invalidity argument? [Note that Bass is not a pharma producer and is unlikely to be a defendant in a Hatch-Waxman case, so that the Bass petition denials are not likely to appear in a case against Bass. Could they be used against a different party making the same arguments as Bass?]
LE: I am saying I would be careful in using IPR petition denial as evidence of a patent challenger’s unreasonableness.
And I agree with that, mainly because incompetent people are permitted to file IPR petitions.
As to –I am suggesting that if you [not really “you”] have a gadzillion dollars and a decent argument then you should be able to get past the gate in most cases. If that’s not happening, it’s very likely that it’s your own fault and repeated failings will exacerbate your woes. — in the petition of Bass on Tecfidera, the cited trial showed utility of the drug in modifying MS symptoms, based upon gadolinium enhanced MRI results. The evidence of record was exactly the kind of evidence the FDA uses. Yet, Bass did not get past the gate. Given that the PTO has gone on record as stating that these results suggested only a hope, it is unlikely that repeated filings will alter the “denial of petition” result. Whether the criterion employed by the PTO in assessing the utility based upon this trial is the same as employed by the courts for other drug patents can be questioned. There is, of course, no review of denial of petitions.
As to the Ampyra petition of Bass, what standard did Bass have to meet to show that the poster presentation was a publication?
Most poster presentations made at scientific societies meet the Klopfenstain criteria. Bass likely can show this in a later petition, and his “woes” will not be exacerbrated by a later filing.
There has been negative publicity related to the short-selling/IPR filing strategy, which looks like a gaming of the patent system. Yet, after Bass has failed in one petition, the advantages of surprise are gone, and one might ask why Bass would file more petitions on the same patent. Bass argues it is for the patients. But most patients (and doctors) do not like what Bass is doing. Most MS patients do not pay “out of pocket” for these expensive drugs. The beneficiaries of a successful Bass challenge would be the insurance companies.
It is interesting to note that Bass has challenged two drugs of very simple chemical formula (4 amino pyridine and methyl fumarate esters) which can be cheaply produced.
Digging deeper:
The IPR decision did not come down until April 15, 2015. So, at least until then, it did not have any effect on willfulness.
Apple lost solely because the TPAB did not see a motivation to combine. According to WARF, Hesson (the primary reference) “boasts performance within 1% of what is theoretically possible.” Therefor, the Board found no motivation to add the drawbacks of extra complexity (at the time, as attested to by experts) disclosed by Seely. Petition denied.
On the facts just presented, to me, Apple was not objectively reckless before April 15. Digging still deeper is tedious on PACER.
From a WARF press release, dated 10/16/15: “Although patent verdicts like this one are typically appealed, we hope to continue to work with Apple to resolve this matter and build a stronger relationship between our two institutions.”
The issue on willfulness here was the objective analysis: Was there a reasonable basis for believing that the claims were obvious? For that analysis, the date of the IPR decision isn’t relevant.
Prof. Crouch,
I must be confused. I thought since Seagate, that one could have a reasonable belief that one had clear and convincing evidence that a patent was obvious, even though the jury ultimately disagreed. An accused infringer would not know this until the verdict and willfulness would start then. If this is not so, then my appraisal needs rethinking.
If so however, then it would seem that the same would be true of an IPR petition (which could be decided before the trail ended and be the first negative decision starting possible willfulness). This is even more so since the standard is a preponderance of the evidence which should be easier to meet. You seem to be saying that if one can’t even get an IPR instituted, it indicates that no reasonable person could have ever entertained the notion that the patent was obvious. Could you straighten me out?
T, if an IPR is not instituted, it means the PTAB decided that the Petition did not raise a reasonable likelihood of that at least one claim was unpatentable under a preponderance of evidence standard, which is much easier to prove that Clear and Convincing.
The court should have held, based on this evidence, that the patent was not invalid from an objective point of view.
Thus, Apple’s intransigence was unwarranted subjectively — they deliberately and willfully infringed, undoubtedly, on advice of their litigation counsel who, of course, always advise not to settle so that they can make money on the subsequent lawsuit.
Inside counsel should require litigation counsel to agree to pay the enhanced damages their advice causes companies like Apple. That might get litigation counsel to actually start paying attention to the merits.
Ned,
The first paragraph is understood. I don’t know what other shenanigans Apple may have engaged in but, on its face, the IPR decision did not indicate to me that Apple’s petition was a sham. The patent cites Hesson and one other patent. Apple came up with Selly and argued obvious to combine. They lost on motivation, one the more subjective and problematic concepts in obviousness. This was based on a supposed impracticality, not infeasibility. (Lots of luck trying impracticality with an Examiner.)
I think you are saying that a PTAB denial to institute an IPR is at least prima facia evidence of objective recklessness. If so, this is tantamount to saying that any petitioner who is denied should have known this before filing. Of course, that cannot be so or can it?
T, what I am saying is that the patent was not invalid as an objective matter. Apple was not entitled to rely on supposed invalidity to deliberately infringe.
I assume that infringement was a given.
Thus, Apple, having been placed on notice (I assume they were) deliberately and willfully infringed.
Ned,
Now, everyone including probably Apple agrees with you, but that is not the Seagate framework as I understand it. As my last comment, let me rehash as follows:
Assume clear and convincing evidence means an 80% probability. At trial, Apple claimed they had it. “[T]the court finds that Apple’s obviousness defense was objectively reasonable, albeit unsuccessful,” at page 1. Hence, no willful infringement.
Assume, a preponderance of the evidence means 51%. The IPR Board said Apple did not even have that and WARF actually pointed this out to the judge. The judge rejected this argument because “PTAB did not consider whether this defense was objectively reasonable or raised a substantial question. (I don’t think the judge was thinking of an SNQ.)
From the judge’s standpoint, he conducted (it seems) a jury trail involving cross-examined witnesses and experts plus demonstratives. PTAB wasn’t there and the issue of reasonableness wasn’t before it. Thus, PTAB’s IPR denial is not persuasive on willfulness.
T, of course the court was in a better position to judge the obviousness case. That is a given.
But the only question here is his apparent confusion about the legal standard employed by the PTAB in deciding whether to institute. it is not apparent to me that the judge was aware of the proper standard. Had he been aware of the proper standard, would he have decided the issue differently?
Can you tell me from where you are sitting now whether his answer would have been the same or different had he known of the legal standard for institution at the PTAB was using?
Regarding the press release: WARF recently filed another lawsuit against Apple alleging that additional Apple processors infringe. I don’t know about you, but successive lawsuits isn’t the type of strong relationship that I’m looking forward to.
Dennis, the lawsuits tell you that Apple is unwilling to take out a license for one reason or another. Perhaps they do indeed have a good-faith belief that the patents are invalid or not infringed, or that the royalty rate being asked for by WARF are in their view unreasonable. But the law currently seems to be that they are entitled to simply refuse to deal with the University of Wisconsin if they so choose without being labeled a willful infringer if it turns out that they were wrong about infringement or validity as the case may be.
Hopefully, the Supreme Court will reverse this one of the sides Halo.
Reminds me of the adage: strong fences make strong neighbors.
Once Apples realizes that WARF is serious about its rights, then Apple may be willing to do its part of having that “strong relationship.”
Your jab about “not the type of relationship” presumes that WARF is not justified, and that Apple is somehow “innocent.”
It makes a “cute” one-liner, but is rather empty when the context of what is involved is actually contemplated.
There are other factors as well. First, an IPR is often filed relatively early in the life of a patent case, sometimes before unlimited fact discovery has opened if operating under patent local rules. The petitioner may not be proceeding with the best art that could have been known or the best application of the art possible.
Just because the petition is not instituted does not mean willfulness is involved. An element could fail because there was proof but it was not in a patent or printed publication. The economics of a district court defense might not have been seen as practical.
That is a reason, over and above pursuing the defense in court, a defendant really should be trying to develop further non-patent, non-printed publication evidence in case there is no institution of the proceeding. It not only makes possible the pursuit of prior art invalidity defenses in court, it can be used for willfulness defense.
Now why in the world would no one bring the judges error in the IPR standard of proof to the judge in the first place.
Waived!
I don’t know whether WARF preserved its appeal, but I would be surprised if it did not (unless there were other major holes in the willfulness argument).
Dennis, you don’t know how often I have had to caution my fellows that one cannot appeal an issue that was not presented below.
In fact, this goes way back to law school when I was in charge of appellate Moot court. A common tactic on many an appeal were to raise and argue issues not presented below.
Zero grade.
Though generally waived in practice, at the end of the day the appellate court always retains discretion.
David, of course. But the Federal Circuit seems to be a stickler on this issue.
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