Limelight Networks v. Akamai Tech. (Supreme Court 2014) (inducement requires underlying direct infringement)
Nautilus v. BioSig (Supreme Court 2014) (“reasonable certainty” is touchstone for indefiniteness analysis).
June 2014
Supreme Court: To Be Valid, Patent Claims Must Provide Reasonable Certainty Regarding the Claim Scope
By Dennis Crouch
Nautilus v. BioSig (Supreme Court 2014) [New download here: 13-369_k53m]
Patents provide exclusive rights that are defined by a set of claims. The claims spell out the metes-and-bounds of the invention being claimed and are designed to put the world on notice of what is and what is not infringement. To facilitate this notice function of patent claims, the patent statute requires that the “claims particularly point[] out and distinctly claim[] the subject matter which the inventor or a joint inventor regards as the invention.” 35 U.S.C. § 112(b). The courts have wrapped these requirements in a doctrine known as indefiniteness. A patent claim that fails the test of indefiniteness is deemed unpatentable, invalid, and unenforceable.
Most patent claims have some amount of ambiguity in their scope. The question before the court in this case is how much is too much? Through a series of cases, the Federal Circuit has implemented was arguably a stiff test of indefiniteness – making it quite difficult to find a claim invalid as indefinite. As the Supreme Court writes:
According to the Federal Circuit, a patent claim passes the §112, ¶2 threshold so long as the claim is “amenable to construction,” and the claim, as construed, is not “insolubly ambiguous.”
In its opinion here, the Supreme Court found that the insolubly ambiguous fails to apply the statutory requirement noted above. In its place, the court has created a new test as follows:
A patent is invalid for indefiniteness if its claims, read in light of the specification delineating the patent, and the prosecution history, fail to inform, with reasonable certainty, those skilled in the art [at the time the patent was filed] about the scope of the invention. . . . .
The standard we adopt accords with opinions of this Court stating that “the certainty which the law requires in patents is not greater than is reasonable, having regard to their subject-matter.” Minerals Separation, Ltd. v. Hyde, 242 U. S. 261, 270 (1916). . . .
It cannot be sufficient that a court can ascribe some meaning to a patent’s claims; the definiteness inquiry trains on the understanding of a skilled artisan at the time of the patent application, not that of a court viewing matters post hoc. To tolerate imprecision just short of that rendering a claim “insolubly ambiguous” would diminish the definiteness requirement’s public-notice function and foster the innovation-discouraging “zone of uncertainty,” against which this Court has warned.
On remand, the Federal Circuit will decide whether the particular claims at issue here meet that test.
In the decision, the court highlights the reality that the old rule offers an incentive for patentees to intentionally “inject ambiguity into their claims.” The new standard is intended to help eliminate that standard.
Key points and ongoing issues from the opinion:
- The addition of a reasonableness inquiry into the analysis means that indefiniteness appears to be moving be moving away from a question of law and into factual territory. The issue has traditionally been seen as part-and-parcel of claim construction, but now has the potential of being shifted to a question for trial. Of particular note here is the Supreme Court’s reluctance to decide the particular case and its allusion to the notion that the result “may turn on evaluations of expert testimony.” (quoting Markman).
- The Supreme Court indicates that “a patent” will be invalid based upon the failure of its claims. The longstanding practice of the Federal Circuit is that indefiniteness is done on a claim-by-claim basis, but here the court suggests that approach should change. Assuming that indefiniteness is still considered on a claim-by-claim basis, one outcome of this decision is that it adds additional value to patents with multiple claim formulations.
- The Supreme Court indicates that any ambiguity should be considered “at the time the patent was filed” and also that the patent’s prosecution history are important in the consideration. What is unclear then is whether the court intended to mean that the consideration should be at the patent issuance, the application actual filing date, the application’s effective filing date (taking into account priority claims to prior filed applications), or the date that the claims in question were filed / amended.
Oregon Supreme Court Permits Patent Firm to Claim Privilege Over Communications with Internal Counsel
Given the conversation in posts below about interpreting statutes, this case is interesting for reasons beyond the issue involved. In Crimson Trace Corp. v. Davis Wright Tremaine LLP (Or. May 30, 2014), the court held that a law firm could claim privilege over communications between a lawyer who was concerned about litigating a patent case where one of the firm’s own lawyers was accused of inequitable conduct and the firm’s in-house lawyers.
The court noted that some courts had recognized a “fiduciary exception” to privilege, which basically bars a lawyer who owes a fiduciary duty to a client to assert privilege against it. However, the court noted that those courts that had recognized this exception were in common law jurisdictions, not ones, like Oregon, where the scope of privilege and its exceptions were set by the legislature. Given that the legislature had spoken on the subject, the Oregon court held that it was not free to make-up additional exceptions.
Of course, CLS bank will be just like it in that regard. ha, ha.
Supreme Court Rejects Expanded Inducement Doctrine
By Dennis Crouch
Limelight Networks v. Akamai Tech. (Supreme Court 2014)
In an 11-page unanimous opinion, the Supreme Court has rejected the Federal Circuit’s expansion of the inducement doctrine – holding instead that inducement must be tied to underlying direct infringement. The Patent Act provides that “[w]hoever actively induces infringement of a patent shall be liable as an infringer.”
[O]ur case law leaves no doubt that inducement liability may arise”if, but only if, [there is] . . . direct infringement.” Aro Mfg. Co. v. Convertible Top Replacement Co., 365 U. S 336, 341 (1961) (emphasis deleted).
One might think that this simple truth is enough to dispose of this appeal. But the Federal Circuit reasoned that a defendant can be liable for inducing infringement under §271(b) even if no one has committed direct infringement within the terms of §271(a) (or any other provision of the patent laws), because direct infringement can exist independently of a violation of these statutory provisions.
The Federal Circuit’s analysis fundamentally misunderstands what it means to infringe a method patent. A method patent claims a number of steps; under this Court’s case law, the patent is not infringed unless all the steps are carried out. This principle follows ineluctably from what a patent is: the conferral of rights in a particular claimed set of elements. “Each element contained in a patent claim is deemed material to defining the scope of the patented invention,” Warner-Jenkinson Co. v. Hilton Davis Chemical Co., 520 U. S. 17, 29 (1997), and a patentee’s rights extend only to the claimed combination of elements, and no further.
The opinion is harsh toward the Federal Circuit, but somewhat poorly written. In particular, the Supreme Court seems to have misunderstood that the Federal Circuit holding actually does require all steps of the method to be carried out in order for a finding for inducement. The Court questions:
What if a defendant pays another to perform just one step of a 12 step process, and no one performs the other steps, but that one step can be viewed as the most important step in the process? In that case the defendant has not encouraged infringement, but no principled reason prevents him from being held liable for inducement under the Federal Circuit’s reasoning, which permits inducement liability when fewer than all of a method’s steps have been performed within the meaning of the patent.
Of course, the Federal Circuit’s decision in this case would not allow infringement in this scenario either.
The Supreme Court recognized and concurred with the policy goal behind the Federal Circuit’s doctrine as serving to help prevent “a would-be infringer” from evading liability “by dividing performance of a method patent’s steps with another whom the defendant neither directs nor controls.” However, the Supreme Court concurred with other commentators that a primary cause of this concern stems from the Federal Circuit’s unduly strict “single actor” rule for determining direct infringement. Muniauction. The Court writes:
Any such anomaly, however, would result from the Federal Circuit’s interpretation of §271(a) in Muniauction. A desire to avoid Muniauction’s natural consequences does not justify fundamentally altering the rules of inducement liability that the text and structure of the Patent Act clearly require—an alteration that would result in its own serious and problematic consequences, namely, creating for §271(b) purposes some free-floating concept of “infringement” both untethered to the statutory text and difficult for the lower courts to apply consistently.
On remand, there is a good chance that the Federal Circuit will reconsider (and expand) the single-actor rule for direct infringement to more fully account for common law traditions of respondeat superior liability.
Patents as Collateral
In a prior post, I highlighted Professor William Mann’s recent article on patents as collateral. I asked him to provide a guest post that explains some of his research. – DC
Loan collateral typically calls to mind tangible assets like real estate that are easily valued and sold. However, companies are increasingly relying on the collateral value of their patent portfolios to raise financing. In a recent paper, I trace the growth of this activity from USPTO filings that record a creditor’s security interest in a patent. The volume of these filings has exploded in recent years. By 2012, 20% of patents held by domestic corporations during the 1990s had been pledged as collateral at some point in their lives.
To be clear, filing with the USPTO does not perfect a security interest in patents against future lien creditors – this is accomplished through UCC filings with the relevant state office. However, recording the security interest with the USPTO may still protect against bona fide purchasers, so creditors find it advisable to register the security interest in both places. The filings thus identify cases in which patents are important collateral, since the creditor went to the trouble to protect its security interest by filing with the USPTO as well as with the state.
Indeed, for the borrowers listed in these filings, patents are likely to be the most valuable assets they own, as the industries in which they are clustered feature low tangibility but high rates of patent production – for example, drugs, medical instruments and supplies, computer programming and data processing, and electronic components. And the creation of the patent security interest is associated with large financing and investment: In Compustat data, companies in these industries increase their debt issuance and R&D expense by 10% and 6% of total assets, respectively, in the year when they file with the USPTO. Secured debt seems to be a significant source of financing for many patenting companies, with the collateral value of their patent portfolios contributing heavily to their financing capacity.
In the paper, I further argue that strong creditor protections in bankruptcy increase financing and investment by patenting firms. I provide evidence by comparing patenting companies based on the creditor-friendliness of their state laws, and exploiting the development of caselaw addressing the interaction between state and federal laws governing patent property and contract rights. When creditors expect less delay and uncertainty in foreclosing against a patent portfolio during a potential bankruptcy, I find that they lend more against that portfolio in the first place, and borrowers use the funds to invest in research and produce more patents.
In general, the findings reflect the growing importance of intellectual property as an asset class in the economy, and increasing efforts by firms to monetize that asset class. Proposals to reform the patent system should take into account the effect this would have on patenting firms’ financing capacity, as patents would not be valuable collateral without effective patent protection.
William Mann is an assistant professor of finance at the Anderson School of Management, UCLA. The draft article
Federal Circuit: Firm Cannot Switch Sides in Patent Case
By Dennis Crouch
In re ATopTech (Fed. Cir. 2014)
Professor Hricik already wrote some on this case [link], but I wanted to discuss it in a bit more depth as well.
In 2013, Synopsys sued ATopTech for infringing its U.S. Patent No. 6,507,941. The ‘941 patent covers a sub-grid connectivity method used in chip layout automation software known as electronic design automation (EDA). ATopTech hired the 800-lawyer behemoth firm of O’Melveny & Myers to handle the defense. However, N.D. California Judge Chesney disqualified the O’Melveny firm based upon a conflict of interest.
O’Melveny has some history with the parties. The ‘941 patent was previously owned by Magma Design and O’Melveny represented Magma Design for almost a decade, including in its 2012 merger with Synopsys. O’Melveny had also represented Magma Design in several EDA-patent lawsuits against Synopsys and had apparently considered asserting the ‘941 patent against Synopsys. Further, two of the attorneys on the O’Melveny trial team had been part of the Magma Design team, including Luann Simmons (Managing Partner of OMM San Francisco).
Based upon these facts, the district court found that the relationship between the current and former representation substantial enough to create an irrefutable presumption that confidential material information was transmitted to the attorneys regarding the current dispute. The result of that conclusion is that O’Melvany cannot now switch sides to represent the opposing party. The district court did not, however, go so far as to particularly find that the O’Melveny attorneys had actually breached any ethical duties.
In a Mandamus action, ATopTech asked the Federal Circuit to overrule the lower court decision. However, the appellate panel denied the Mandamus petition – finding instead that the lower court “had a sound basis for disqualifying OMM.”
The OED as Troll Hunter?
First, if you haven’t watched this wonderful movie, Troll Hunter, you should:
Second, what about this:
Some “bad trolls” are owned or controlled by lawyers who are registered to practice before the PTO.
The OED takes the position that it has jurisdiction to discipline practitioners who take frivolous positions in litigation (even unrelated to patent litigation). I don’t agree with that, but I know they believe that to be true.
So… why not report “bad trolls” to the OED?
I can’t take credit for this idea, as someone came up to me in Colorado and told me he had called the OED and they said they would look at this type of complaint….
OED… Troll Hunters.