GPG v. ITC: Federal Circuit Review of ITC Determinations

Infringement, Patent, Patent Cases 2010,

By Jason Rantanen

General Protecht Group v. International Trade Commission (Fed. Cir. 2010)
Majority opinion authored by Judge Dyk, joined by Judge Prost.  Dissenting opinion by Judge Newman.

ITC determinations are subject to review by the Federal Circuit under the standards of the Administrative Procedure Act, which allows for de novo review of legal determinations and review of factual findings for substantial evidence.  Although the parties in this appeal largely agreed on the meanings of the relevant claim terms, the majority concluded that the ITC's infringement finding lacked substantial evidence.  Writing in dissent, Judge Newman asserted that the majority's conclusion was based on issues never raised by the appellants.  

* * * *

The three appellants in this appeal, GPG, Trimone, and ELE, import ground fault circuit interrupters ("GFCIs") into the United States.  Pass & Seymour, Inc. obtained an exclusion order from the ITC following the Commission's finding that the devices infringed three patents: 7,283,340; 5,594,398; and 7,164,564. 

On appeal, although the appellants raised "numerous issues" challenging the Commission's determination of infringement, the panel found most of them unpersuasive.  Nevertheless, the majority did conclude that the Commission had erred in some respects, finding that (1) GPG's 2003 and 2006 GFCIs and ELE's 2006 GFCIs do not infringe the '340 patent because they lack a "detection circuit; (2) Trimone's 2006 GFCI's and ELE's 2006 GFCIs do not infringe the '340 patent because they lack the "load terminals" of the patent; and (3) GPG's 2006 GFCI's do not infringe the '398 patent because they perform the function of the "latching means" in a substantially different way than the structure disclosed in the patent.  In all other respects, the court affirmed the lower tribunal's determination.

The disagreement between the majority and dissent is illustrated by their positions on the "detection circuit" claim term, although it permeates the determinations on the other two terms as well.  The Administrative Law Judge construed "detection circuit" to mean "at least one detection circuit having a circuit segment connected between the line terminals and configured to generate a predetermined signal in response to detecting a proper wiring condition, which occurs when the line terminals are connected to a source of AC power.”  Neither ELE nor GPG challenged the construction on appeal; however, they argued that the Commission erred in adopting the ALJ's infringement finding.  The majority agreed that this element was not infringed: 

The construed claims require the “detection circuit” to “generate a predetermined signal in response to detecting a proper wiring condition.” Initial Determination, slip op. at 85 (emphasis added). But as Dr. Harman’s own testimony makes clear, his “predetermined signal” is merely the “current flow” originating from the hot line terminal. J.A. 40,396. The identified circuit does not generate this current; it is the current that comes from the AC power connection. So instead of detecting a proper wiring condition and generating a signal in response, as the properly construed claim requires, the accused GFCIs simply have power to operate, or not. Dr. Harman’s testimony is not substantial evidence to support a finding that ELE’s 2006 GFCIs infringe claims 14, 18, and 30 of the ’340 patent.

(Slip Op. at 9).  The majority applied similar reasoning with respect to GLG. 

In describing both ELE and GPG's arguments, the majority paid particular attention to the dissent's assertion that the appellants did not raise this issue, responding in a footnote that:

The dissent suggests that the parties did not raise this argument, but ELE clearly argued that “[b]y treating the ‘predetermined signal’ as including whatever AC power happens to arrive at a building from the local power plant, the Commission has broadened this limitation beyond all recognition and effectively reads it out of the claim.”

(Slip Op. at 8, fn. 3).

In a strident dissent, Judge Newman took a significantly different view of the ITC decision and majority opinion on appeal:

The Initial Decision of 170 pages and the Commission’s supplemental rulings of 32 pages present a full understanding of the technology, with rigorous discussion of the evidence and extensive analysis, findings, and conclusions. This court now finds its own facts, applies theories that were not raised by any party, uses incorrect standards of review, and creates its own electrical technology contrary to the uniform and unchallenged expert testimony.

(Dissent at 2).  With respect to the majority's "detection circuit" reasoning, after an extensive discussion of the Commission findings, Judge Newman concluded that:

[t]he court creates a theory not proposed by any party, and rules that a signal that originates from the line terminal is not generated by the detection circuit and thus is not “generated.” See Maj. Op. at 9 (“The identified circuit does not generate this current; it is the current that comes from the AC power connection.”). There is no support for this theory. The only signal generated in response to proper wiring as described in the ’340 patent is “generated” in the same way as in the accused devices, that is, the detection circuit uses power from the properly wired line terminals to supply a signal (claim 14) or response (claim 30) that allows the device to be reset. That is how the Commission, and the parties, interpreted the term. The court’s new interpretation of “generate” was not debated and is not briefed.

(Dissent at 8-9).

Notes:

  • I understand that Pass & Seymour is seeking a rehearing and rehearing en banc on the ground that the majority's approach is in conflict with the APA, and intends to raise the argument that the court based its determination on issues not preserved or presented by the parties, thus unfairly prejudicing the party against whom the issues were decided and wasting the resources of the parties and ITC.
  • The Federal Circuit also issued a companion opinion addressing Pass & Seymour's appeal from the ITC's determination that GPG's 2003 devices and Trimone's 2006 devices do not infringe the '398 patent, and that ELE's 2003 and 2006 devices, GPG's 2003 and 2006 devices, and Trimone's 2006 devices do not infringe Patent No. 7,212,386.  The appeal turned on questions of claim construction, with the majority opinion affirming the ITC's constructions largely by applying a "plain meaning" approach.  Judge Newman concurred in the result, but took the position that, with respect to the '386 patent, the majority should have adhered to the Commission's construction, rather then adopting its own construction. 

Federal Circuit Holds-Line on Patent Misuse Defense

Doctrine of Patent Misuse, Infringement, Patent, Patent Cases 2010,

By Dennis Crouch

In a split decision, an en banc Federal Circuit has held that the non-statutory equitable doctrine of patent misuse should be narrowly applied. Here, the court held that an anticompetitive agreement between companies to suppress a given technology would not constitute misuse of a patent covering an alternative technology being promoted by the companies. Thus, the patents can still be enforced. Of course, companies following this pathway could still be liable for antitrust violations.

Princo Corp. v. International Trade Commission and U.S. Philips Corp. (Fed. Cir. 2010) (en banc)

The alleged patent misuse was associated with a CD-R/RW patent-pool arrangement between Philips and Sony. The two companies chose a particular method (Raamaker) of encoding location information on the CD to serve as the standard and then allegedly suppressed another method (Lagadec). (Both methods were covered by patents held by the companies.)

Princo argued here that creation of the patent pool licensing the Raamaker method and the suppression of the Lagadec method constituted patent misuse and should render the patents undenforceable.

Patent Misuse:     

The doctrine of patent misuse is … grounded in the policy-based desire to 'prevent a patentee from using the patent to obtain market benefit beyond that which inheres in the statutory patent right.' Mallinckrodt, 976 F.2d at 704. It follows that the key inquiry under the patent misuse doctrine is whether, by imposing the condition in question, the patentee has impermissibly broadened the physical or temporal scope of the patent grant and has done so in a manner that has anticompetitive effects. B. Braun, 124 F.3d at 1426. Where the patentee has not leveraged its patent beyond the scope of rights granted by the Patent Act, misuse has not been found. See Monsanto, 363 F.3d at 1341 ("In the cases in which the restriction is reasonably within the patent grant, the patent misuse defense can never succeed."); Virginia Panel, 133 F.3d at 869 (particular practices by the patentee "did not constitute patent misuse because they did not broaden the scope of its patent, either in terms of covered subject matter or temporally"). . . .

Given that the patent grant entitles the patentee to impose a broad range of conditions in licensing the right to practice the patent, the doctrine of patent misuse "has largely been confined to a handful of specific practices by which the patentee seemed to be trying to 'extend' his patent grant beyond its statutory limits." USM Corp. v. SPS Techs., Inc., 694 F.2d 505, 510 (7th Cir. 1982).

Recognizing the narrow scope of the doctrine, we have emphasized that the defense of patent misuse is not available to a presumptive infringer simply because a patentee engages in some kind of wrongful commercial conduct, even conduct that may have anticompetitive effects. See C.R. Bard, Inc. v. M3 Sys., Inc., 157 F.3d 1340 (Fed. Cir. 1998) ("Although the defense of patent misuse . . . evolved to protect against 'wrongful' use of patents, the catalog of practices labelled 'patent misuse' does not include a general notion of 'wrongful' use."). Other courts have expressed the same view. See Kolene Corp. v. Motor City Metal Treating, Inc., 440 F.2d 77 (6th Cir. 1971) (There is no such thing as "misuse in the air. The misuse must be of the patent in suit. An antitrust offense does not necessarily amount to misuse merely because it involves patented products or products which are the subject of a patented process." (citations omitted)); McCullough Tool Co. v. Well Surveys, Inc., 395 F.2d 230 (10th Cir. 1968) (the defense of patent misuse has been allowed "only where there had been a misuse of the patent in suit"). While proof of an antitrust violation shows that the patentee has committed wrongful conduct having anticompetitive effects, that does not establish misuse of the patent in suit unless the conduct in question restricts the use of that patent and does so in one of the specific ways that have been held to be outside the otherwise broad scope of the patent grant.

On appeal, the en banc Federal Circuit held that this case does not fit with other misuse precedent. "This case presents a completely different scenario from the cases previously identified by the Supreme Court and by this court as implicating the doctrine of patent misuse." In particular, the alleged misuse was alleged agreement to suppress "an entirely different patent that was never asserted." "Even if such an agreement were shown to exist, and even if it were shown to have anticompetitive effects, a horizontal agreement restricting the availability of Sony's Lagadec patent would not constitute misuse of Philips's Raaymakers patents or any of Philips's other patents in suit."

Reduced to its simplest elements, the question in this case comes down to this: When a patentee offers to license a patent, does the patentee misuse that patent by inducing a third party not to license its separate, competitive technology?

The court answered this question with a resounding "no" – such an action "would not fall within the rationale of the patent misuse doctrine as explicated by the Supreme Court and this court." In particular, the patent-in-suit there must be a direct connection between the patents-in-suit and the alleged misconduct.

Dissent: Judge Dyk (joined by Judge Gajarsa) wrote a 32-page dissent arguing that the patent misuse doctrine should be given teeth:

Evidently the majority thinks it appropriate to emasculate the doctrine so that it will not provide a meaningful obstacle to patent enforcement. . . . Indeed, the majority goes so far as to suggest that the misuse doctrine be eliminated entirely. I read the relevant Supreme Court cases and congressional legislation as supporting a vigorous misuse defense, clearly applicable to agreements to suppress alternative technology. The majority cabins the doctrine in contravention of this Supreme Court authority. I respectfully dissent.

Transocean v. Maersk: Speeding Up Deepsea Drilling

Enablement, Infringement, Obviousness, Patent, ,
By Jason Rantanen

Transocean Offshore Deepwater Drilling, Inc. v. Maersk Contractors USA, Inc. (Fed. Cir. 2010)
Panel: Gajarsa, Mayer, Moore (author)

Drilling rigTransocean brought suit against Maersk for infringement of three patents relating to an improved apparatus for offshore drilling.  Offshore drilling involves lowering a variety of equipment, including the drill bit, a series of long pipes, and a blow-out-preventor, to the ocean floor in order to drill and stabilize a borehole that reaches a subterranean oil reservoir.  These components are moved by a derrick (the tower on the picture to the right), which is equipped with a station that raises and lowers them to the ocean floor.  To begin the drilling process, the rig lowers the drill bit to the ocean floor, adding sections of pipe until the bit reaches the floor.  Periodically as the drill descends into the seabed, it must be brought back up to the surface so that casings can be inserted into the borehole.  Conventional rigs utilized a derrick with only a single station for performing these steps, thus requiring that they be performed sequentially – a time consuming process. 

The patents-in-suit describe a derrick that includes two stations – a main advancing station and an auxiliary advancing station – that can each assemble the strings of drilling materials and lower them to the ocean floor.  According to the patent, this "dual-activity" rig can significantly decrease the time required to complete a borehole.  The accused infringer, Maersk, contracted with a U.S. company to build a rig with two stations for use in the Gulf of Mexico.  However, prior to delivery of the rig, Maersk implemented a modification that, it argued, precluded Transocean from claiming infringement.  It also argued that the claims were invalid.

The district court granted summary judgment in favor of Maersk, holding that the asserted claims were obvious and not enabled.  The court further ruled that Maersk's activities did not constitute either an offer for sale or a sale within the United States.  Transocean appealed these rulings, along with the district court's grant of summary judgment of collateral estoppel and no willful infringement.

Obviousness
The Federal Circuit's obviousness ruling is notable because, although it found that the references cited by Maersk created a prima facie case of obviousness, it concluded that the district court had erred by ignoring Transocean's significant objective evidence of nonobviousness.  This included evidence of industry skepticism about a dual drill string approach, industry praise for its dual activity rig, copying, and commercial success, in that its dual activity rigs commanded a higher licensing premium then standard rigs.  Although Maersk presented counter evidence, the Federal Circuit concluded that it was improper to resolve these disputes on summary judgment. 

Enablement
The Federal Circuit also reversed the grant of summary judgment of lack of enablement, finding that factual issues precluded such a ruling.  In particular, it noted that while the patent must enable one of ordinary skill in the art to practice the claimed invention without undue experimentation, it does not need to enable the most optimized configuration (unless it is an explicit part of the claims). 

Infringement
The district court's noninfringement ruling did not rest on a comparison of the accused device to the claim, but rather on a conclusion that there was no offer for sale or sale within the United States.  Although the contract at issue was between two U.S. companies, and specified an "Operating Area" for the rig that was in U.S. territorial waters, it was negotiated and signed outside of the United States.

The Federal Circuit disagreed that these activities fell outside the scope of 35 U.S.C. 271(a).  With respect to the "offer for sale" provision, after reviewing the legislative history of this language, analyzing its literal text, and considering the policy implications, the court concluded that it covered a contract between two U.S. companies for performance in the U.S., regardless of whether it was negotiated or signed within the U.S.  Likewise, the court concluded that, because the contract was for the sale of a patented invention with delivery and performance in the U.S., it constituted a sale for purposes of 271(a) as  a matter of law.

Note: Although the court used the term "patented invention," it was careful to note that there remained a dispute over whether the rig described in the contract actually infringed the patents-in-suit.

The Federal Circuit did, however, affirm the district court's ruling that Transocean was collaterally estopped from arguing that the rig Maersk ultimately delivered infringed the patents.  In another litigation, Transocean had obtained by an injunction requiring the defendant GlobalStantaFe Corp. ("GSF") to make a particular modification to its rig in order to avoid infringing the patents-in-suit.  Prior to delivering the rig to the United States, Maersk had learned about this injunction and made the relevant modification.  The Federal Circuit concluded that the ruling in the GSF litigation estopped Transocean from arguing that rigs with the modification infringed its patents.

The panel also affirmed the district court's ruling of no willful infringement, concluding that Maersk's activities were insufficient to create an objectively high risk of infringement.

NO JOINT INFRINGEMENT despite Strategic Partnership, Joint Distribution Agreement, and Packaged Sales

Inequitable Conduct, Infringement, Patent, Patent Cases 2010,

PatentLawPic1052By Dennis Crouch

Golden Hour Data Systems, Inc. v. emsCharts, Inc. and Softtech (Fed. Cir. 2010)

Opinion by Judge Dyk and joined by Judge Friedman. Dissent by Judge Newman.

After trial, Judge Ward (E.D.Tx.) rejected the jury verdict of infringement and granted JMOL for the defendants — holding that no single party had infringed each element of the asserted claims.  The lower court also held the asserted patent unenforceable due to inequitable conduct during prosecution.

Joint Infringement: EMS delivers web-based medical charting.  Softtech’s software coordinates air-flight information.  The two companies formed a “strategic partnership” and signed a distribution agreement that would allow their two products to combine as a package.  The products were then sold as a package.

Patent law doctrine allows a finding of direct infringement only when a single entity is responsible for practicing each element (or step) of a claimed invention. Federal Circuit law holds that two or more entities can avoid liability for infringement so long as (1) each entity is responsible for practicing only a subset of the claimed elements and (2) no single entity exercises “control or direction” over the entire infringing process. Here, as in other Federal Circuit cases, such as Muniauction v. Thomson and BMC v. Paymentech, the Federal Circuit continued this doctrinal line — holding that the claim against emsCharts must fail because the plaintiff presented insufficient evidence for the “jury to infer control or direction.”

In BMC, Judge Rader acknowledged that strict adherence to the “control or direction” requirement highlighted an easy avenue for avoiding infringement. “This court acknowledges that the standard requiring control or  direction for a finding of joint infringement may in some circumstances allow parties to enter into arms-length agreements to avoid infringement. Nonetheless, this concern does not outweigh concerns over expanding the rules governing direct infringement.”

Dissenting from this opinion, Judge Newman argued that, despite Muniauction and BMC, the law of joint infringement does not strictly require that a single entity have control of the operation. Rather, a “collaborative effort as here . . . is not immune from infringement simply because the participating entities have a separate corporate status.”  Here, the two companies “combined their procedures into an integrated system that met all of the limitations of claims 1, 6-8, and 15-22, thus finding joint infringement and inducement to infringe these claims. The panel majority acknowledges that the defendants in collaboration infringed the claims, but without discussion overturns the jury verdict.”

Inequitable Conduct: The court also addressed inequitable conduct. Golden Hour had failed to submit an un-dated brochure that included undisclosed information that contradicted statements made by the applicant regarding a prior art AeroMed system.

Golden Hour first suggested that it had no duty to disclose the brochure because it was not clearly prior art. The Federal Circuit rejected that argument because the duty of disclosure is not limited to prior art. As stated in the MPEP, “[t]here is no requirement that the [submitted] information must be prior art references in order to be considered by the examiner.” MPEP § 609 (2008).

On materiality, the court held that the brochure was clearly material because it contradicted a statement made by the applicant in the specification. In finding the contradiction, the court looked to English grammar.  The specification stated that the AeroMed system “does not” provide comprehensive integration. According to the court, the present-tense representation indicates the applicant’s contention that the AeroMed system will not provide comprehensive integration at any time “throughout the pendency of the application.”  (DDC Says: What is Judge Dyk thinking?).

On intent to deceive the PTO, the court held that intent could be inferred if there was evidence that either of the prosecuting attorneys actually read the brochure (but if they did not read the reference then they would only be guilty of gross negligence).  Here, the court did not find evidence that the attorneys actually read the reference and therefore vacated the inequitable conduct decision for lack of intent to deceive.  (The appellate court suggests that inequitable conduct will likely be found again on remand.).

In Dissent, Judge Newman wrote:

As for materiality, I do not share the conclusion that the undated AeroMed brochure, obtained at a trade show (the Association of Aeromedical Services) a few weeks after this patent application was filed, and found not to be invalidating prior art, was so clearly and convincingly “material to patentability” that failure to provide a copy of the brochure while quoting its front page, invalidates the patent that was found valid over the entire content of the brochure. The record does not show that the brochure was published before the Golden Hour patent application was filed. The defendants provided no documentary evidence of any publication date, and the district court did not find the brochure to be prior art; their only evidence was the “uh-huh’s” of the brochure’s author, quoted at footnote 1 of the majority opinion. 

The record showed that when the brochure came into Golden Hour’s possession at the trade show, it was given to Golden Hour’s patent attorney, who referred to it in the Invention Disclosure Statement filed with the PTO, including quotation of the cover page but not the inner page. At the trial, the full brochure was in evidence, and stressed by the defendants, and the jury found that it was not invalidating. In view of the majority’s ruling that deceptive intent was not established in the district court, and the jury’s verdict of validity despite the brochure, the charge of inequitable conduct should be laid to rest.  

 

Divorce and Patents

Infringement, Patent, Patent Cases 2010,

Enovsys v. Nextel (Fed. Cir. 2010)

Mundi Fomukong is a co-inventor of the patents-in-suit. At the time of the invention, Fomukong was married to Fonda Whitfield. Sometime after the first patents issued, Fomukong and Witfield divorced. Later, the second patent issued; Fomukong formed Enovsys; and he (along with his co-inventor) assigned their rights to the new company. Later, when Enovsys sued Sprint-Nextel, the defendant challenged the case on standing. Sprint's argument is based on the rule that any patent infringement actions must be brought jointly by all co-owners of the patent. Specifically, Sprint argued that Ms. Whitfield retained an interest in the patent rights even after the divorce and, without Ms. Whitfield's support, Enovsys lacked standing. (Ms. Whitfield assigned her rights to Sprint.)

In the US, patent ownership rights are primarily controlled by state laws. At times, patent attorneys are called to understand their local laws of contracts, employment, inheritance, and (here) divorce. Thus, in deciding this case, the court looked first to the law of California — the site of the marriage, invention, and divorce.

California is a "community property" state and “all assets acquired during a marriage are presumptively community property.” In their divorce filings, however, Fomukong and Whitfield checked the box next to the statement that “We have no community assets or liabilities.” Without citing specific California law, the Federal Circuit held that that the final divorce decree coupled with this box-checking stripped Whitfield of her community property rights in the patent. "[A]lthough the final divorce decree was silent as to particular property, it nevertheless adjudicated the parties’ rights with respect to that property because it was based on an uncontested complaint which alleged that there was no community property."

With the issue of ownership settled, the court then affirmed the lower court's claim construction and infringement verdict.

 

Claim Construction, Infringement, Patent, Patent Cases 2010

Becton, Dickinson and Co. v. Tyco Healthcare Group (Fed. Cir. 2010)

Tyco appealed a jury verdict that its safety needles infringed BD’s US Patent No. 5,348,544.  The claims require a “spring means” that is “connected to said hinged arm” and is designed “for urging said guard along said needle cannula.” 

On appeal, the Federal Circuit reversed the infringement decision based on claim construction — holding that as a matter of English-language-logic, the claims require a spring and hinged arm that are structurally distinct.

The unequivocal language of the asserted claims . . . requires a spring means that is separate from the hinged arm. . . . Where a claim lists elements separately, “the clear implication of the claim language” is that those elements are “distinct component[s]” of the patented invention. (Quoting Gaus v. Conair Corp., 363 F.3d 1284, 1288 (Fed. Cir. 2004)). . .  There is nothing in the asserted claims to suggest that the hinged arm and the spring means can be the same structure.

If the hinged arm and the spring means are one and the same, then the hinged arm must be “connected to” itself and must “extend between” itself and a mounting means, a physical impossibility. A claim construction that renders asserted claims facially nonsensical “cannot be correct.”

Because the hinged arm of the Tyco needles performed the spring function themselves (as opposed to having a separate spring), the court ruled that those needles could not infringe.

In dissent, Judge Gajarsa provides a de-construction of the majority opinion — writing that:

The majority avoids the critical issue upon which this decision turns; i.e., whether 35 U.S.C. § 112, ¶ 6 governs the claim construction of the “spring means” limitation. In a brief footnote, the majority sweeps and brushes aside the means-plus-function analysis as unnecessary in light of the “plain language of the claims.” Without having analyzed the scope of the claims, the majority somehow concludes that the claim language covers only devices having separate “spring means” and “hinged arm” structures. Then applying this simplistic claim construction to analyze the sufficiency of the evidence, the majority improperly overturns the jury’s verdict finding infringement.

PatentlyO071

Attorney Fees and Equal Treatment for Plaintiffs and Defendants

Attorney Fees, Infringement, Patent, Patent Cases 2010,

Media Queue v. Netflix (Fed. Cir. 2010)

This case involves a classic “improvement patent” scenario. Nick Gross was a longtime Netflix user when he came-up with the idea that the service should provide additional user notifications — such as when the movie queue runs dry. Just before filing suit, Gross and partners formed Media Queue as a holding company. Media Queue then sued Netflix, Blockbuster, and others for patent infringement. Nick is also a patent attorney and a nice guy. We met at a conference last spring.

After construing the claims, the district court dismissed the case based on its summary judgment finding of non-infringement.  The court, however, refused to award attorney-fees to the defendants because the case was not entirely frivolous or filed in bad faith.  Media Queue has appealed the summary judgment.  However, the more interesting aspect of the case is the counter-appeal by Netflix asking the Federal Circuit for an en banc hearing to on the issue of when a court may find an “exceptional case” and award attorney fees to the prevailing party. In particular, Netflix argues that the current law of attorney-fee awards is imbalanced in favor of the plaintiff-patentee.

35 USC 285 simply states that “The court in exceptional cases may award reasonable attorney fees to the prevailing party.”  Several decisions have held that a prevailing-patentee may obtain attorney fees based on a finding of willful infringement — i.e., that the accused infringer was aware of an objectively high likelihood that the patentee would prevail.  Willfulness can be found even when the defendant has a non-frivolous non-infringement of invalidity argument. On the flip-side, however, a prevailing-defendant (accused infringer) seeking attorney fees must show a seemingly higher standard of litigation misconduct or inequitable conduct.

The appeal asks the Federal Circuit to apply the Supreme Court precedent of Fogerty v. Fontasy, Inc. (1994) in holding that plaintiffs and defendants in patent cases are entitled to equal treatment in obtaining attorneys' fees.

The appeal is filed by Mark Lemley’s team at Durie Tangri. Amazon, Facebook, Microsoft, Oracle, Toyota, and others “frequent defendants” have filed briefs supporting en banc hearing.

Documents:

Employee and Officer Liability for Inducing Infringement

Damages, Infringement, Patent, Rantanen

By Jason Rantanen, Visiting Scholar at UC Hastings School of Law

Wordtech Systems, Inc. v. Integrated Networks Solutions, Inc. (Fed. Cir. 2010)

In most patent cases, companies are the ones sued as alleged infringers. But sometimes individuals—particularly corporate officers—are also named as defendants.   While this often occurs when the company accused of infringing appears to be merely the officers’ alter ego, corporate officers can be liable for indirect infringement even when the corporate veil is not pierced.

In Wordtech, the patentholder (Wordtech) sued both a corporation (INSC) and the two principal employees of that corporation. A jury found the claims infringed both directly and indirectly by the corporation’s products, and awarded damages against all three defendants. The jury also returned a verdict of willful infringement of the asserted patents, and the trial judge trebled the jury’s damages award. The two employees appealed the verdict of liability entered against them, and all three defendants appealed the damages determination and district court’s denial of a motion for leave to amend their answer.

Individual Liability

Generally, the “corporate veil” shields officers from liability for tortious conduct occurring in the regular course of their employment, and the employees in Wordtech filed a motion for judgment as a matter of law (“JMOL”) based on this doctrine. The district court denied this motion, allowing the jury to find that the employees infringed the patents.

Individual Liability for Direct Infringement

On appeal, the Federal Circuit affirmed the denial of the motion for JMOL with respect to direct infringement because Wordtech presented substantial evidence during trial that the corporation was nonexistent under Nevada law and, even if it existed, the corporate veil should be pierced. However, the appellate court agreed with defendants that the lack of any instruction on corporate status constituted plain error, and remanded for further proceedings on personal liability for direct infringement.

Individual Liability for Indirect Infringement

The most interesting aspect of the opinion was the Federal Circuit’s ruling on the indirect infringement claims against the employees. Although the court addressed inducement and contributory infringement separately, it applied virtually identical reasoning to both.

The panel began by affirming the denial of the defendants’ Rule 50(a) and 50(b) motions based on the corporate veil theory, pointing out that “corporate officers who actively assist with their corporation’s infringement may be personally liable for inducing infringement regardless of whether the circumstances are such that a court should disregard the corporate entity and pierce the corporate veil.” Slip Op. at 12.   It applied the same reasoning to contributory infringement, concluding that “a corporation does not shield officers from liability for personally participating in contributory infringement.” Slip Op. at 14. Under these rules, the court rejected the individual defendants’ corporate veil defense as irrelevant to issues of inducement and contributory infringement.

Nevertheless, the panel concluded that the employees were entitled to a new trial due to flawed jury instructions, which asked only whether the accused product induced or contributed to infringement. Because a product cannot possess the necessary mens rea elements of inducement or contributory infringement, and there were no jury instructions that might have mitigated the error, the court vacated the verdict of liability.[1]

Damages

Addressing the issue of excessive damages in the context of its review of a denial of a motion for a new trial, the panel considered the evidence supporting the jury’s damages finding, which was based on a reasonable royalty under a hypothetical negotiation theory.   The panel reviewed the licenses Wordtech relied upon for the hypothetical negotiation and concluded that the verdict was not supported by the evidence and based solely on speculation and guesswork. This portion of the opinion is noteworthy for the court’s detailed discussion of the licenses and its rejection of them on an array of different grounds.

Denial of Motion to Amend

In a curious twist, the trial and subsequent appeal involved no substantive invalidity issues. This was due to defendants’ failure to raise an invalidity defense in their answer, apparently relying on the fact that a previous co-defendant school district had included the defense in its answer. After INSC and its two employees learned that the school district had settled with the patent holder, they moved to amend their answer to add invalidity defenses. The Federal Circuit declined to find that the district court abused its discretion in denying the motion, as it was filed months after the close of discovery despite the defendants’ prior knowledge of the invalidity defenses they intended to raise.

Notes:

 

  • Ultimately, the favorable result for the individual defendants turned not on the legal question of whether officers can be liable for patent infringement, but rather on flawed jury instructions. This suggests two lessons from this case: first, be aware of potential employee liability, especially for indirect infringement, and second, make sure your jury instructions accurately reflect the elements of the issues being presented to the jury.
  • Although the opinion describes the individual defendants as employees, the rules it applies refer to corporate officers. This may be reconciled by the fact that Wordtech presented evidence at trial supporting the conclusion that they were officers.   See Slip Op. at 11. Nevertheless, this opinion arguably could be used to apply indirect infringement claims to employees, provided that the necessary mens rea elements are present.

[1] The panel also noted that Wordtech failed to identify proof of elements required for contributory infringement, including the existence of any direct infringement corresponding to the alleged contributory actions. With respect to inducement, although the opinion is silent on who the officers were inducing to infringe, the patentee’s brief indicates that its theory was that the officers induced the corporation’s direct infringement, similar to the circumstances in Power Lift, Inc. v. Lang Tools, Inc., 774 F.2d 478 (Fed. Cir. 1985).

About Jason: After spending several years in practice as a patent litigator, Jason Rantanen is now looking at law from the academic side and is currently a Visiting Scholar at UC Hastings. His recent research focuses on the concept of mens rea in patent law.

Business Method Patents: Insurance Companies Fighting over Patented Annuity Plans

Infringement, Patent, Patentable Subject Matter

Lincoln National Life Insurance Co. v. Transamerica Life Insurance Co. (Fed. Cir. 2010)

It is not unusual to see insurance companies in litigation. What is unusual here is that the context is patent infringement. Lincoln is pursuing Transamerica and others for infringement of its patents covering a method of administering a variable annuity plan with a guaranteed minimum payment that continues even after an account had been exhausted. Although clearly a business method, the asserted claims do recite (in the preambles) that the method is "computerized."  U.S. Patent No. 7,089,201.

A jury found the claims valid and infringed and awarded $13 million in damages. On appeal, Transamerica asked for reversal of the infringement verdict and for an opportunity to present its case on patentable subject matter. The Federal Circuit reversed on infringement.

Non-Infringement: The asserted claims require that scheduled payments be made "even if the account value is exhausted before all payments have been made." Transamerica argued that it could not infringe because (1) none of its subscribers had ever "exhausted" their accounts and (2) that its computer system has not been configured to automatically pay on an exhausted account.

On appeal, the Federal Circuit agreed with the patentee that the claim did not require that any accounts actually be exhausted. Rather, the claim only requires a particular action if the accounts are exhausted.

On the second point, however, the Federal Circuit agreed with the accused infringer — finding that "nothing in the record" shows that Transamerica uses a computer system to make scheduled payments once an account has been exhausted.

Legal Obligation to Infringe: As an interesting tid-bit, Transamerica's contracts apparently do required the company to continue making scheduled payments even after its accounts had been exhausted.  The Federal Circuit rejected the legal obligation as proof of infringement — holding instead that the claims require computer implementation of the method. Furthermore, a contractual obligation to perform a method does not constitute infringement. Rather, infringement requires performance: "A contractual obligation to perform an act is not performance; indeed, a party could avoid infringement simply by breaching its contract."

Non-Patentable Subject Matter: Based on its non-infringement holding, the Federal Circuit left the Section 101 question undecided as moot.

    

Reconsidering Divided Infringement

Infringement, Patent

Centillion Data Systems, LLC v. Quest Corp., Appeal No. 2010-1110 (Fed. Cir. 2010)(now on appeal).

Centillon’s patent No. 5,287,270 covers a system used to present user-specified pre-processed summary reports of billing information. In 2004, Centillon sued Qwest for infringement – arguing that the communications company offered this type of functionality to its customers. (LOGIC, eBill Companion, and Insite). The major problem with Centillon’s claims is that they require activity on both a system computer and a customer’s personal computer. This is a situation often termed divided-infringement.

Section 271 of the Patent Act creates a cause of action for unauthorized “use” of a patented invention. Centillon argued that Qwest used its invention by offering the service to its customers. However, in a 2009 ruling, the district court held that Qwest could not be liable because the company did not use each and every element of the asserted claims. Rather, some of the elements of the system were used only by Qwest customers.

In NTP v. RIM, 418 F.3d 1282 (Fed. Cir. 2005), the Federal Circuit broadly defined “use” of a patented system to focus on control and beneficial use of the system as a whole. Although that case defined use within the context of determining whether a system was used “within the United States” the district court found that a similar definition applies when determining whether a single entity used the invention. However, instead of looking at use of the system as a whole, the district court felt bound to consider “use” on an element-by-element basis. Thus:

[A] party is liable for direct infringement for the “use” of a system claim under § 271(a) if it, by itself or in combination with a third party directed by it, put each and every element of the system claim into service, i.e. exercised control over, and benefited from, the application of each and every element of the system claim.

A real trick in divided-infringement situations is that an accused infringer’s actions of intentionally inducing another party to use some of the elements will not create a cause of action for infringement unless the accused infringer is shown to have control over the use of each element.

Centillion submits that the accused systems satisfy the ‘270 patent’s limitation “said personal computer data processing means being adapted to perform additional processing” because the e-Bill client application, for example, is designed to adapt the customers’ personal computers, the customers download the application following Qwest’s instructions and user guide, and the customers “further manipulate” the billing data they receive from Qwest. However, as the Court noted earlier, as a general rule, to hold Qwest liable for direct infringement Centillion must demonstrate that Qwest, by itself, practiced each and every limitation of the system claim. Here, however, Qwest relies on its customers to satisfy this limitation. Although the eBill client application may have been designed to adapt the customer’s personal computer, the designated evidence demonstrates that it does not actually adapt the customers computer until the customer executes the application. Moreover, Qwest does not control whether its customers load the Logic or eBill Companion client applications on their personal computers. . . . Centillion admits Qwest’s customers are not obligated or contractually bound to perform additional processing on individual transaction records provided by Qwest. Rather, Qwest’s customers independently determine whether or not to perform additional processing on individual transaction records by Qwest. Moreover, Qwest does not control whether its customers load the Logic or eBill Companion client applications on their personal computers. Therefore, the Court concludes that Centillion has failed to raise genuine issues of material fact regarding whether Qwest directly infringed independent claims 1 and 8, and dependent claims 10 and 46.

From a practical standpoint, the baseline solution to this problem is to properly draft patent claims to ensure that the claims focus on the operations of a single entity. Here, however, the crux of the invention was way that data from the server was communicated to the PC. The most natural way to describe the invention is to include both of those elements in the claim.

The appeal is now pending although no briefs have been filed yet. On appeal, the Federal Circuit should hold that the district court too narrowly focused its agency doctrine analysis. The courts have never held that strict control over a third-party’s actions is necessary. This case is similar to ones where the actions of doctors & patients have been conflated and the court then determined whether the combined actions constituted infringement. See, for example, Eli Lilly and Co. v. Actavis Elizabeth LLC, — F.Supp.2d —-, 2009 WL 5159650 (D.N.J. 2009)(“The actions of the doctors and patients will be treated together, and will be considered a directly infringing act.”); AstraZeneca LP v. Apotex, Inc., 623 F.Supp.2d 579, 598-600 (D.N.J.2009); Alza Corp. v. Andrx Pharms., LLC, 607 F.Supp.2d 614, 623 (D.Del.2009)

Notes:

Federal Circuit Affirms that Lucent’s $1.5B Patent Victory is Gone

Infringement, Inventors, Patent, Patent Cases 2008

Lucent v. Gateway, Dell, & Microsoft (Fed. Cir. 2008)

Lucent’s two patents cover a compression method for MP3 digital audio files. The case originally resulted in a $1.5 billion jury award for Lucent. The district court, however set aside the jury verdict. That decision is affirmed here on appeal. Lucent’s problems stem from (1) joint ownership of its ‘080 patent and (2) failure to provide even one specific instance when the Microsoft’s encoder actually infringed the ‘457 patent.

“Lucent has failed to provide sufficient evidence to establish that the High Quality encoder actually runs on Windows Media Player and thus it would be too speculative to conclude that Windows Media Player necessarily infringes the ‘457 patent.”

This case provides important lessons for both inventorship and proving infringement. More to come.

Appellate Court Affirms that Generic Omeprazole does not Infringe Prilosec Patent

Infringement, Patent, Patent Cases 2008, Pharma

IN RE OMEPRAZOLE PATENT LITIGATION (Fed. Cir. 2008) (nonprecedential)

Omeprazole is the active ingredient in the best-selling drug Prilosec. Mylan and others challenged Astrazeneca’s patents on grounds that their generic formulations do not infringe two Astra’s listed patents. “After a forty-two day bench trial,” a Southern District of New York district court agreed that the generic formulation do not infringe. On appeal was the question of whether the generic versions contained an “alkaline reacting compound” (ARC) as required by the claims.

Using the Specification as Proof of Non-Infringement: Astra argued that the talc used by the generic products included an ARC.  The CAFC agreed that the lower court had properly rejected that argument based in part on language in the specification. Specifically, the nearly identical specifications listed several different ARCs but did not include talc on the list.  “In contrast, the specifications also lists a number of ordinary excipients, among which is talc. . . Thus, the specifications themselves indicate that ARCs do not include talc.”

Defying conventional wisdom at the time, Mylan launched its generic version of Omeprazole in 2003 — despite ongoing patent litigation.

Non-infringement affirmed.