Ericsson, Inc. v. D-Link Systems, Inc. (Fed. Cir. 2014) Download Ericsson v D-Link Panel: O’Malley (author), Taranto (dissenting-in-part), Hughes
Standard Essential Patents (SEPs) are an integral part of the modern technological landscape. As an example, Ericsson, the patent holder in this case, alleged that the patents at issue were essential to a common Wi-Fi standard, 802.11(n); thus all 802.11(n) compliant devices infringe the patents. Due to their nature (they cover technologies whose widespread use can be as at least as much due to the adoption of the standard as the incremental value of the invention), SEPs pose particular issues when dealing with the question of remedies.
Two well-recognized problems are hold-up and royalty stacking. “Patent hold-up exists when the holder of a SEP demands excessive royalties after companies are locked into using a standard. Royalty stacking can arise when a standard implicates numerous patents, perhaps hundreds, if not thousands. If companies are forced to pay royalties to all SEP holders, the royalties will “stack” on top of each other and may become excessive in the aggregate.” Slip Op. at 7-8. Organizations that develop standards, such as IEEE, typically address these potential problems by seeking pledges from their members “that they will grant licenses to an unrestricted number of applicants on “reasonable, and nondiscriminatory’ (‘RAND’) terms.” Id. at 8. Ericsson promised to offer such licenses for its 802.11(b) SEPs.
Background: In 2010, Ericsson filed an infringement suit against D-Link, accusing it of infringing a set of its 802.11(b) SEPs. Ericsson prevailed at the district court, with a jury finding infringement of three patents, rejecting a validity challenge to one, and awarding Ericsson $10 million in damages (a royalty rate of $0.15 per product). Based on the jury award, the judge found $0.15 per product to be an appropriate running royalty. On appeal, the Federal Circuit affirmed enough of the district court findings as to liability for the issue to be one of damages. (Judge Taranto dissented as to one of the infringement conclusions but agreed with the rest of the majority opinion).
Damages and SEPs: The below paragraph from the court’s opinion summarizes its key holdings on damages:
In sum, we hold that, in all cases, a district court must instruct the jury only on factors that are relevant to the specific case at issue. There is no Georgia-Pacific-like list of factors that district courts can parrot for every case involving RAND-encumbered patents. The court should instruct the jury on the actual RAND commitment at issue and must be cautious not to instruct the jury on any factors that are not relevant to the record developed at trial. We further hold that district courts must make clear to the jury that any royalty award must be based on the incremental value of the invention, not the value of the standard as a whole or any increased value the patented feature gains from its inclusion in the standard. We also conclude that, if an accused infringer wants an instruction on patent hold-up and royalty stacking, it must provide evidence on the record of patent hold-up and royalty stacking in relation to both the RAND commitment at issue and the specific technology referenced therein.
Slip Op. at 56. The first sentence is probably the most widely applicable, and arguably applies beyond the RAND context. It is legal error to simply recite the Georgia-Pacific factors in a set of jury instructions. Courts must be cognizant of which factors actually apply in a given situation. “Although we recognize the desire for bright line rules and the need for district courts to start somewhere, courts must consider the facts of record when instructing the jury and should avoid rote reference to any particular damages formula.” Slip Op. at 50.
Of course, legal error in a jury instruction does not mandate reversal; that error must still be prejudicial. Here, the errors were significant and in combination sufficiently prejudicial. For example, some Georgia-Pacific factors are directly contrary to the RAND commitment, such as factor 4, “'[t]he licensor’s established policy and marketing program to maintain his patent monopoly by not licensing others to use the invention or by granting licenses under special conditions designed to preserve that monopoly.’ Georgia-Pacific, 318 F. Supp. at 1120. Because of Ericsson’s RAND commitment, however, it cannot have that kind of policy for maintaining a patent monopoly.” Slip Op. at 48.
Another important piece of the court’s holding is its clarification of what the patent remedy must relate to in the context of SEPs: the “incremental value of the invention not the value of the standard as a whole or any increased value the patented feature gains from its inclusion in the standard.” In other words, just as modern devices incorporate many different technological components, so too do standards include multiple technologies. “Just as we apportion damages for a patent that covers a small part of a device, we must also apportion damages for SEPs that cover only a small part of a standard.” Id. at 52.
Finally, on patent hold-up and royalty stacking, an accused infringer can obtain such an instruction but there must be record evidence: “The district court need not instruct the jury on hold-up or stacking unless the accused infringer presents
actual evidence of hold-up or stacking. Certainly something more than a general argument that these phenomena are possibilities is necessary.” Id. at 54.
This opinion is notable because it involves an emerging split in the Federal Circuit’s jurisprudence on “X plus function” claim language. At the heart of the split is the presumption that arises from the non-use of the word “means” in a claim. Under the majority’s ruling in this case, that burden is extremely difficult to overcome; a holding that furthers the tension with the Federal Circuit’s recent decision in Bosch v. Snap-On.
Williamson v. Citrix Online, LLC (Fed. Cir. 2014) Download Opinion Panel: Moore,* Linn (author), Reyna (dissenting)
The patent in this case is part of the bankruptcy estate of the @Home Corporation, a late 1990’s venture to provide cable internet and later, a content portal. (Those of you who were online in the late 1990’s may remember the company or the multi-billion dollar merger of @Home and Excite in 1999). Shortly after the dot-com bubble burst, @Home collapsed and entered bankruptcy proceedings. The plaintiff in this case, Richard Williamson, acts as trustee for the At Home Bondholders’ Liquidating Trust and has brought a series of patent infringement suits against major technology companies in an effort to recover assets for the debt holders.
Patent No. 6,155,840 describes and claims “[a] system for conducting distributed learning among a plurality of computer systems coupled to a network.” Williamson brought an infringement suit against an array of defendants, including Citrix, Microsoft, Adobe, Cisco, and IBM. At the district court, the defendants obtained a favorable claim construction at the district court on three key terms, two in independent claims 1 and 17 and one in independent claim 8, leading to a stipulation of noninfringement of claims 1-7 and 17-24 and of invalidity due to indefiniteness of claims 8-12.
On appeal, the Federal Circuit reversed the district court’s claim constructions for both groups of claims. The reversal as to the first group (1-7 and 17-24) is not particularly noteworthy. There, the majority concluded that the district court erroneously imported an extraneous limitation into the claims: the claim element called for “a graphical display representative of the classroom” and the district court construed this as requiring a “pictorial map illustrating an at least partially virtual space in which participants can interact, and that identifies the presenter(s) and audience member(s) by their locations on the map.” “While the specification discloses examples and embodiments where the virtual classroom is depicted as a “map” or “seating chart,” nowhere does the specification limit the graphical
display to those examples and embodiments.” Slip Op. at 10. The proper construction is “a graphical representation of an at least partially virtual space in which participants can interact.”
Judge Reyna disagreed in part. In his view, “the specification and prosecution history make clear that the ‘graphical display representative of a classroom’ terms are properly construed as requiring a visually depicted virtual classroom.” Dissent at 2 (emphasis added). Judge Reyna reached this conclusion based on the specification and prosecution history’s distinguishing of the invention from the prior art based on the presence of this additional element. [Given Judge Reyna’s views, it sounds like these claims may be invalid under the majority’s claim construction].
The Section 112 Issue: The more significant portion of the opinion involves the second group of claims, which implicate issues of claim construction, functional language, and indefiniteness. The district court construed the element “distributed learning control module for…” as being a § 112, ¶ 6 [now § 112(f)] means-plus-function element. Because there was no corresponding structure for the claimed function disclosed in the specification, the claim was indefinite. (I’ve highlighted the relevant section of the claim in the image above).
On appeal, the majority concluded that it was error to treat “distributed control module” as a means-plus-function claim term. Under the court’s precedent, the failure to use the word ‘means’ in a claim limitation creates a strong presumption that 35 U.S.C. § 112, ¶ 6 does not apply. And rebutting this presumption requires meeting a very high standard: “it must be demonstrated that ‘skilled artisans, after reading the patent, would concluded that [the] claim limitation is so devoid of structure that the drafter constructively engaged in means-plus-function claiming.’ Inventio AG v. ThyssenKrupp Elevator Ams. Corp., 649 F.3d 1350, 1357 (Fed. Cir. 2011).’ ” Slip Op. at 13 (my emphasis added). “A claimed expression cannot be said to be devoid of structure if it is used “in common parlance or by persons of skill in the pertinent art to designate structure, even if the term covers a broad class of structures and even if the term identifies the structures by their function.” Lighting World, 382 F.3d at 1359–60.
Applying this “devoid of structure” standard, the majority concluded that the presumption was not rebutted. There are at least some meanings of “module” that connote structure. “The district court, in characterizing the word “module”
as a mere nonce word, failed to appreciate that the word ‘module’ has understood dictionary meanings as connoting either hardware or software structure to those skilled in the computer arts.” Slip Op. at 14. In addition, the full term, “distributed learning control module,” is part of a structure, “distributed learning server,” and interconnects and intercommunicates with that server. “These claimed interconnections and intercommunications support the conclusion that one of ordinary skill in the art would understand the expression “distributed learning control module” to connote structure.” Id. at 16. The specification, too, suggests that “distributed control module” is not “devoid of structure.”
“Module” is a ‘nonce” word: Dissenting Judge Reyna would have agreed with the district court that the language triggered Section 112, para. 6. “Module” is simply a substitution for “means”; the effect is the same, as the claim limitation follows the term with “for” and three functions performed by the “distributed learning control module”:
This claim limitation is in the traditional means-plus-function format, with the minor substitution of the term “module” for “means.” The claim language explains what the functions are, but does not disclose how the functions are performed.[] In this case, the term “module” is a “nonce” word, a generic word inherently devoid of structure.
Dissent at 5. In support of this conclusion that “module” is tantamount to “means,” Judge Reyna cites sources recognizing that terms such as “module for” may invoke Section 112, para 6, including the Manual of Patent Examining Procedure. Furthermore, the majority’s citation of sources indicating that “module” can connote hardware, software, or both does not provide structure: “It refers only to a “general category of whatever may perform specified functions.” Id. at 6, quoting Bosch v. Snap-On. None of the addition material relied on by the majority provides any structural significance.
The Intra-Circuit Split: Setting aside the issue of whether the Federal Circuit’s current algorithmic approach to indefiniteness of functional language conflicts with Supreme Courtprecedent, an issue that Dennis and I have written about, this opinion reflects one of two different approaches to interpreting “X plus function” language in claims. (When “X” is something other than “means” or “step.”).
The majority’s holding in this case is an extension of a line of cases applying a very high threshold for “X plus function” language to trigger application of § 112, ¶ 6. To rebut the presumption in these cases, the “X” must simply “connote” structure to a person of ordinary skill in the art (and arguably under the way the standard is applied in Williamson, merely be capable of connoting structure). Put another way, the presumption is only rebutted if the claim term is “devoid” of structure.
The Federal Circuit’s recent opinion in Bosch v. Snap-On, which Dennis wrote about in October, reflects the second approach, which applies a less-strict threshold for rebutting the presumption. In Bosch, the court described the analysis as asking “if the claim language, read in light of the specification, recites sufficiently definite
structure to avoid § 112, ¶ 6…The question is whether the claim language names
particular structures or, instead, refers only to a general category of whatever may perform specified functions.” Bosch at 7 (emphasis added). There, the court concluded that “program recognition device” and “program loading device” did lack sufficient structure; the term “device” was a “nonce” word. The result was the opposite of Williamson: § 112, ¶ 6 was triggered and, because there was no corresponding structure the specification, the claims were indefinite.
For purposes of direct comparison, I’ve pasted the statements of the law from these two cases below.
From Williamson v. Citrix:
In Personalized Media Commc’ns, LLC v. International Trade Commission, 161 F.3d 696 (Fed. Cir. 1998), and again in DePuy Spine, Inc. v. Medtronic Sofamor Danek, Inc., 469 F.3d 1005 (Fed. Cir. 2006), we stated that the failure to use the word “means” in a claim limitation created a rebuttable presumption that 35 U.S.C. § 112, para. 6 did not apply. See Personalized Media, 161 F.3d at 703–04; DePuy Spine, 469 F.3d at 1023. This presumption is “a strong one that is not readily overcome.” Lighting World, Inc. v. Birchwood Lighting, Inc., 382 F.3d 1354, 1358 (Fed. Cir. 2004). To rebut this strong presumption, it must be demonstrated that “skilled artisans, after reading the patent, would conclude that [the] claim limitation is so devoid of structure that the drafter constructively engaged in meansplus-function claiming.” Inventio AG v. ThyssenKrupp Elevator Ams. Corp., 649 F.3d 1350, 1357 (Fed. Cir. 2011). A claimed expression cannot be said to be devoid of structure if it is used “in common parlance or by persons of skill in the pertinent art to designate structure, even if the term covers a broad class of structures and even if the term identifies the structures by their function.” Lighting World, 382 F.3d at 1359–60.
From Bosch v. Snap-On:
Although both “program recognition device” and “program loading device” are presumed not to invoke § 112, ¶ 6, we must next turn to the issue of whether this “strong” presumption against means-plus-function claiming is overcome. See Lighting World, Inc. v. Birchwood Lighting, Inc., 382 F.3d 1354, 1358 (Fed. Cir. 2004). In undertaking this analysis, we ask if the claim language, read in light of the specification, recites sufficiently definite structure to avoid § 112, ¶ 6. Inventio, 649 F.3d at 1357. The question is whether the claim language names particular structures or, instead, refers only to a general category of whatever may perform specified functions. See Laitram Corp. v. Rexnord, Inc., 939 F.2d 1533, 1536 (Fed. Cir. 1991) (“[t]he recited structure tells only what the means-for-joining does, not what it is structurally”). In the latter case, § 112, ¶ 6 then commands a construction of the limitation as referring to specification identified corresponding structures and their equivalents.
***
The real problem in my mind, however, is less the split over the strength of the presumption against triggering Section 112(f) when the words “means” (or “step”) are not used, and more the conflict with Nautilus. Even if Section 112(f) is not triggered, the claim could still be indefinite under the “reasonable certainty” standard for indefiniteness. In other words, the presumption simply goes to whether or not Section 112(f) is triggered; it does not address the deeper question of what happens when Section 112(f) is not triggered.
*The panel originally included former Chief Judge Rader. Upon his retirement, Judge Moore was appointed to join the panel.
Guest commentary by Peter S. Menell. Professor Menell is Koret Professor of Law and at UC Berkeley School of Law and Director of the Berkeley Center for Law & Technology. Professor Menell filed an amicus brief along with Professors Jonas Anderson and Arti Rai in Teva Pharmaceuticals USA Inc. v. Sandoz Inc., 13-854. That brief can be accessed at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id= 2457958.
The U.S. Supreme Court heard argument six weeks ago in Teva Pharmaceuticals USA v. Sandoz, a case addressing the scope of appellate review of claim construction rulings. While less headline-grabbing than recent cases addressing the patentability of business methods, computer software, and DNA, Teva nonetheless confronts a critical issue that has long plagued the patent adjudication system.
Nearly two decades ago, the Supreme Court sought to promote more effective, transparent patent litigation through its ruling in Markman v. Westview Instruments that “the construction of a patent, including terms of art within its claim, is exclusively within the province of the court.” While carefully avoiding characterizing claim construction as a pure question of law, the court nonetheless removed interpretation of patent claims from the black box of jury deliberations by holding that the Seventh Amendment right of trial by jury did not extend to patent claim construction and that trial judges were better equipped than juries to resolve the mixed fact/law controversies inherent in construing disputed patent claim terms. The decision ushered in a new patent adjudication era in which judges construe patent claims before trial through a process that has come to be known as a “Markman” hearing.
Notwithstanding this shift, the transparency that the Supreme Court sought has only been partially achieved and the quality of claim constructions falls short on evidentiary and analytical rigor. The U.S. Court of Appeals for the Federal Circuit’s sharply divided 1998 en banc decision in Cybor Corp. v. FAS Technologies held that claim construction is purely a legal issue subject to de novo appellate review, downplaying the Supreme Court’s more nuanced description of claim construction as a “mongrel practice.”
The Cybor decision dissuaded district judges from holding evidentiary hearings regarding the meaning of disputed claims and discouraged judges from explaining their reasoning. As several district judges have candidly acknowledged, why go through all of that trouble if the Federal Circuit is going to construe the terms de novo on appeal? Claim construction reversal rates and consternation among district (and some Federal Circuit) judges rose precipitously following Cybor. And although the Federal Circuit has twice revisited this issue en banc since Cybor and reversal rates have subsided (but not as a result of more transparent records), the controversy has festered, leading to the Supreme Court’s review.
Why the Fuss?
Patent law requires that claim terms be construed from the standpoint of persons of ordinary skill in the technical art using the patent specification and prosecution history (intrinsic evidence) as well as pertinent scientific and technical sources (extrinsic evidence) where necessary as of the time of the patent filing.
Federal district judges are thus thrust into challenging, but not unfamiliar, territory. As in other areas of their docket — such as products liability, toxic torts or even criminal cases turning on forensics — in which they are called upon to resolve factual disputes about scientific and technological matters, judges have at their disposal a familiar toolbox — presentation of evidence and expert testimony. And when district courts assemble a record and explain their reasoning, Federal Rule of Civil Procedure 52(a)(6) provides that their determinations “must not be set aside unless clearly erroneous, and the reviewing court must give due regard to the trial court’s opportunity to judge the witnesses’ credibility.”
Patent claim constructions add a few additional twists to this well-established general judicial framework. Even if a district judge found that a patent claim term meant “X” to skilled artisans as of the effective patent filing date, the court would still have to construe the term to mean “Y” if the intrinsic evidence established that the patentee intended such a specialized meaning. Furthermore, many disputes about patent claim meaning turn not on meaning within the technical art but rather on claim drafting conventions. Thus, courts must pay special attention to the intrinsic evidence. But the understandings of skilled artisans will be pertinent in many claim constructions, and such subsidiary factual determinations should be subject to deference under general judicial rules as well as trial judges’ proximity to the extrinsic evidence.
For these reasons, the Supreme Court should adopt a hybrid appellate standard for claim construction: Factual determinations underlying claim construction rulings should be subject to the “clearly erroneous” standard of review, while the Federal Circuit should retain de novo review over the ultimate claim construction decision. In this manner, district court judges, in their capacity as fact-finders, could better surmount the distinctive challenges posed by the technical, mixed fact/law controversies inherent in patent claim construction. The Federal Circuit would ensure that trial judges’ constructions comport with the intrinsic evidence supporting the patents.
Parsing the Supreme Court Argument
The Teva argument began with a colloquy regarding what constitutes a “subsidiary fact” and how it relates to the ultimate claim construction determination. Midway through Teva’s opening argument, Justice Samuel Alito expressed doubt that departing from the de novo standard was worth the candle. He noted that a recent empirical study could not find any case in which a shift from the de novo standard to clear error review of factual determinations would have affected the appellate review outcome.
In an unintended manner, Justice Alito’s query highlights the reason de novo review of factual determinations raises serious concerns for a justice system. The study to which he refers does not and cannot establish the “fact” that it is purported to prove. Its analysis — which is not revealed or scrutinized in the Supreme Court colloquy — boils down to the following logic: (1) three-judge panels of the Federal Circuit will be better than a single generalist district court judge at applying the appellate court’s rules of claim construction; and (2) because most claim construction reversals (77.1 percent) are unanimous, a shift to a clear error standard would not change the outcome of any cases. The first point ignores the distinctive role of judges in fact-finding, a pillar on which our court system is based. The second point does not prove that no cases would come out differently. It also overlooks the norm that appellate judges rarely dissent unless they disagree on legal questions.
More fundamentally, according greater deference to trial courts through clear error review would encourage district judges to use focused evidentiary hearings (in conjunction with the technical tutorials that are common) to substantiate the basis for their claim constructions, thereby promoting more systematic, well-founded claim construction analysis. Contrary to the study to which Alito referred, we have reason to expect clearer substantive analysis, more settlements following claim construction and trial, more effective appellate review, and fewer reversals and remands in a parallel universe in which Rule 52(a)(6) applies to claim constructions — not business as usual in the Cybor regime.
The Court also probed how deference on subsidiary facts would affect uniformity in patent interpretation. At a basic structural level, it is difficult to see how to achieve such uniformity to the extent that claim construction has a factual component. Under Blonder-Tongue Labs., Inc. v. Univ. of Ill. Found., 402 U.S. 313 (1971), the Federal Circuit’s interpretation of a patent in one case cannot be asserted offensively by the patentee in a later infringement action against other defendants to the extent that there are disputed factual underpinnings. At most, that prior adjudication can bar the patentee from seeking an alternative interpretation under judicial estoppel principles. Because the patent system has no mechanism for conclusively establishing patent scope with regard to all potential infringers where subsidiary factual disputes exist, the certainty that flows from appellate interpretations is not ironclad, as subsequent defendants can potentially bring new evidence or more effective advocacy to bear on claim meaning. Nonetheless, district courts routinely consider prior interpretations of patent claim terms in conducting claim construction. Moreover, concerns about the clarity of patent claims are more appropriately addressed through improvements to the patent prosecution process, post-grant review and reexamination, consolidation of claim construction through multi-district litigation, and adjustments to substantive claim construction jurisprudence.
Back to Basics
The Teva case poses a fundamental question going to the heart of the American justice system. Should factual determinations underlying patent claim construction be subject to substantially less deference (or more distrust) than the factual determinations made in every other area of federal adjudication? In view of the Supreme Court’s efforts over the past decade to bring patent adjudication more in line with general civil litigation principles, it is difficult to see why the Court would make an exception here. Combining deferential review of factual findings with de novo review of the overarching claim construction determination — focused on ensuring that claim construction comports with the intrinsic evidence and that the trial court followed generally applicable rules of claim construction — would enhance the quality of claim constructions, produce a more capacious and transparent appellate record, and provide the appropriate appellate safeguard.
Over the past few months, I have heard numerous comments from folks about the perception that patents – or at least, enforcement of patents – is in decline. Major substantive decisions by the Supreme Court – in Mayo, Alice, Nautilus, and Octane Fitness – have provided new tools for patent challengers to draw upon in infringement suits, and inter partes review has become an almost automatic procedure. So far, the empirical evidence has supported this perception. Last month, Dennis wrote about Lex Machina recent report on numbers of new patent case filings, which revealed a substantial drop in patent case filings over the past few months and a 40% decrease in numbers of filings in September 2014 as compared to September 2013. Edit: yesterday Brian Howard of Lex Machina posted an update with October data showing a slight uptick over September.
Case filings tend to be highly stochastic, however, and a case that’s filed one day could be terminated the next or live on for quite a while. To take another look at the state of patent litigation, I wanted to see whether there are changes in numbers of pending cases. If cases are terminating faster than new cases are being filed, then the number of pending cases would drop. On the other hand, if despite the drop in new filings the termination rate is also down, then the number of pending cases would remain stable or even go up. My methodology is at the end of this post, but the bottom line is that the below chart reports the number of patent cases that are pending as of the first of each month using Lex Machina as my database.
The below chart shows the deltas from the above chart; in other words, how big the positive or negative change was from the previous month.
These charts are consistent with the conclusion that the number of patent litigations is indeed in a declining state, although it’s worth observing that the number of pending cases is still well above what it was as of October 2010. Of course, one important piece of context is the anti-joinder provisions of the AIA, which led to at least some of the increase after September 2011. If anyone has ideas for parsing these out (short of manual review), I’d be interested in hearing them. And this data doesn’t tell us anything about the quality of the patent litigation.
In addition to the decline in pending cases, I also thought it would be interesting to consider these numbers in contrast with the numbers of new applications, which, as the below chart indicates, do not exhibit a similar decline. (Note that I set the vertical axis to start at 20,000 in order to improve readability). One explanation is that it takes longer to shift out of application filing mode than it does to shut down a litigation. That said, it’s also possible that companies continue to file patents based on the belief that patent law is like a pendulum and perhaps it will swing back in the other direction. A third possibility is that the real value of patents lies not in their enforcement value, but in other areas: in signalling, in incentivizing employees, or in defensive publication.
Methodology: For the first two charts, go to the “Cases” tab on Lex Machina. Select “Patent” under “Case Type.” Under “Filed On,” choose FROM 2000-01-01 TO YEAR-MONTH-01. Run the search on a monthly basis (i.e.: as of the first of the month). In addition, run a second search adding the TERMINATED “TO” field using the same YEAR-MONTH-01 dates. Record those numbers as well. To obtain the numbers of open cases as of each date, subtract the “Terminated” cases from the cases filed to that date.
For the second charts, the data is obtained from the Patent Dashboard (which appears to be very unstable at the present time and works only intermittently for me). I used the downloadable excel file. Also, as Chris Cotropia pointed out to me, pure continuations are included in the “new application” portion, and these are more like RCEs than new applications, or divisionals or CIPs.
Thanks to my research assistant, Alex Lodge, for help in collecting the Lex Machina data.
Edit: Anon observed that RCEs looked fairly constant and asked about a flipped graph. Here is the graph with RCEs on the bottom.
There are two terrific looking patent law symposia in D.C this month .
On Tuesday, November 11, the American University Washington College of Law and the University of Utah – S.J. Quinney College of Law will co-host a half-day symposium on The Future of Patent Remedies. From the symposium website:
Over the past few years, the once-placid world of patent remedies has been thrown into upheaval. Judicial decisions and pronouncements by enforcement agencies have both put pressure on traditional doctrines relating to damages, fee recovery and injunctive relief. This symposium will explore recent developments and the future trajectory of patent remedies law from a judicial, regulatory and legislative standpoint.
Speakers include Tom Cotter (Minnesota), Suzanne Munck (FTC), Jim Sherwood (Google), and more. More details here: http://www.pijip.org/events/patentpolicy-remedies/
On Friday, November 21, the George Washington University Law School and the Center for Intellectual Property Research at the Indiana University Maurer School of Law are co-hosting a symposium on design patents. Speakers include Mark Janis (Indiana), Sarah Burstein (Oklahoma), Michael Risch (Villanova), John Cheek (Caterpillar), and many more. Topics include remedies, functionality, prior art, and a town hall discussion on whether changes are needed in design patent law. The program is at the GW School of Law. More details here: http://designlaw2014.com/
A central focus of the Professor Lucas Osborn‘s research is infringement by offers to sell. Below, he writes about this aspect of Halo v. Pulse.
Halo Electronics, Inc. v. Pulse Electronics, Inc. (Fed. Cir. 2014) Halo v Pulse Panel: Lourie (author), O’Malley (concurring opinion), Hughes (joining concurrence)
Jason wrote about the damages aspects of this case here, but the case also is interesting for its discussion of § 271(a). Halo accused Pulse of infringing patents covering surface mount electronic packages. At issue in the portion of the opinion was whether Pulse had either sold or offered to sell the devices “within the U.S.” under §271(a).
Sale
The accused infringer, Pulse, is a U.S. corporation who designs, manufactures, and sells the accused components. At a high level of generality, it sells components to Cisco. But it only does so indirectly through Cisco’s contract manufacturers, who are located outside the U.S.A. and who incorporate the components into end products overseas. Eventually, Cisco sells the completed products to consumers around the world. (The district court found that Pulse was liable as an inducer of infringement for any products that ultimately were imported into the U.S., and that decision was not part of the appeal).
Halo tried to establish that Pulse’s sales occurred “within the U.S.” as required by § 271(a), arguing that Pulse engaged in all the truly important sales activities in the U.S. From Halo’s perspective, Pulse reached the overall agreement for the sale of the components with Cisco in the U.S., such as by entering into a general agreement with Cisco about manufacturing guidelines, engaging in pricing negotiations in the U.S. with Cisco, approving prices that could be quoted to foreign buyers, meeting regularly with Cisco design engineers, sending product samples to Cisco for pre-approval, and attending sales meetings with its customers. Furthermore, according to Halo, Cisco masterminded the actions of its foreign contract manufacturers, such as by negotiating with its manufacturers the prices they could pay to their suppliers when purchasing component parts (such as from Pulse). Halo argued that these were the key activities that amounted to the sale of the accused components, and that everything else was mere window dressing.
But the Federal Circuit held that these actions did not constitute a sale “within the U.S.” because too many key events took place abroad. Following earlier decisions, the court looked at factors such as the places of contracting and performance to determine whether a sale occurred “within the U.S.” Here, the accused components were manufactured, shipped, and delivered abroad to foreign buyers. (This is not surprising, because if the products were manufactured in the U.S., it would constitute an infringing “making” under §271(a).) The court pointed out that Pulse’s agreement with Cisco was not a final contract for the sale of any specific products. Finally, the foreign component manufacturers, not Cisco, directed their purchase orders to Pulse’s non-U.S. offices and paid Pulse directly.
Concluding this part of its analysis, the court stated that “[a]ny doubt as to whether Pulse’s contracting activities in the United States constituted a sale within the United States under § 271(a) is resolved by the presumption against extraterritorial application of United States laws.” The court continued to emphasize the presumption against extraterritoriality when rejecting Halo’s argument that the sale occurred in the U.S. simply because Halo suffered harm there.
What remains unanswered is what minimum criteria must exist for a sale to occur “within” the U.S. In a footnote, the court stated that, “On these facts, we need not reach Halo’s argument that the place where a contract for sale is legally formed can itself be determinative as to whether a sale has occurred in the United States.” In earlier opinions, the Federal Circuit seemed to distance itself from this possibility. SeeTransocean Offshore Drilling, Inc. v. Maersk Contractors USA, Inc., 617 F.3d 1296, 1310 (Fed. Cir. 2010) (“[Defendant’s] first argument, that the location of negotiation and contracting should control is contrary to our precedent in [LitecubesLLC v. Northern Light Products, Inc., 523 F.3d 1353 (Fed. Cir. 2008)].”). This footnote in Halo suggests that this possibility is still in play.
Offer to Sell
Halo also argued that Pulse’s negotiations with Cisco amounted to infringing offers to sell within the U.S. The court disagreed. It held that no offer to sell “within the U.S.” occurred, relying on its decision in Transocean, which held that, “the location of the contemplated sale controls whether there is an offer to sell within the United States.” This case shows the Federal Circuit meant what it said in Transocean.
Transocean was the obverse of Halo: in Transocean, the court concluded that “an offer which is made in Norway by a U.S. company to a U.S. company to sell a product within the U.S., for delivery and use within the U.S. constitutes an offer to sell within the U.S. under § 271(a).” Here, any possible offer made by Pulse was not made abroad but was made in the U.S., and the delivery was not to the U.S. but abroad. Thus, this panel (comprised entirely of judges different from the Transocean panel) closed one possible exception to Transocean and confirmed that the location of the contemplated sale – and only the location – controls whether there is infringement for an offer to sell. The court justified this result by noting that otherwise, “the presumption against extraterritoriality would be breached.”
It is therefore clearer than ever that companies need not orchestrate trips abroad (or otherwise direct activities abroad) to ensure negotiations and offers to sell are extended outside the U.S. It is not where the words are uttered or the offer is made, but where the eventual sale will occur.
A high-level takeaway from this case is that for infringement by an “offer to sell,” the location of the prospective sale controls whether infringement is “within the U.S.,” while for infringement by “sale,” the court leaves open both the location of the prospective sale and the location of the contract formation activities as factors.
Halo Electronics, Inc. v. Pulse Electronics, Inc. (Fed. Cir. 2014) Halo v Pulse Panel: Lourie (author), O’Malley (concurring opinion), Hughes (joining concurrence)
This opinions contains two important parts: a discussion of 271(a) in the context of multi-national transactions and Judge O’Malley’s concurrence on the issue of willful infringement. I’ll write more about the 271(a) issue in a separate post, but for now I wanted to focus on the points Judge O’Malley raises.
In this case, Halo accused Pulse of willfully infringing its patent, thus paving the way for enhanced damages under 35 U.S.C. § 284. That statute reads in relevant part:
When the damages are not found by a jury, the court shall assess them. In either event the court may increase the damages up to three times the amount found or assessed. Increased damages under this paragraph shall not apply to provisional rights under section 154 (d).
The court may receive expert testimony as an aid to the determination of damages or of what royalty would be reasonable under the circumstances.
Under longstanding Supreme Court precedent, enhancement of damages under this provision requires either willful or bad-faith infringement.
In countering the infringement claim, Pulse argued that the asserted patent was obvious. Ultimately, the jury rejected Pulse’s argument and found that the “it was highly probably that Pulse’s infringement was willful.” Slip Op. at 7. However, both the district judge and the Federal Circuit panel concluded that Pulse’s obviousness defense was not objectively unreasonable, thus precluding a finding of willfulness under In re Seagate‘s two-prong approach (which contains both objective and subjective components).
While concurring as to the panel outcome, Judge O’Malley (joined by Judge Hughes) wrote separately to issue a public call to “the full court to reevaluate our willfuness jurisprudence in light of the Supreme Court’s decisions in Highmark and Octane Fitness.
Judge O’Malley’s concurrence first notes the linking of the standards for exceptional case and willful infringement. Under Federal Circuit precedent, the test for willful infringement under § 284 parallels that for exceptional case determinations under § 285. The court has stated this explicitly: “The objective baselessness standard for enhanced damages and attorney’s fees against a non-prevailing plaintiff under Brooks Furniture is identical to the objective recklessness standard for enhanced damages and attorneys’ fees against an accused infringer for § 284 willful infringement actions under [Seagate].” iLOR, LLC v. Google, Inc., 631 F.3d 1372, 1377 (Fed. Cir. 2011).
This linkage leads Judge O’Malley to three observations:
1) Both the test for willful infringement and the test for exceptional case determinations were based on the Federal Circuit’s interpretation of Professional Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc., 508 U.S. 49 (1993). But, in Octane Fitness, the Supreme Court rejected the Federal Circuit’s interpretation of PRE in the exceptional case determination context. If the two tests are truly in parallel, then the Federal Circuit should revisit the test for willful infringement.
2) The evidentiary standard for willful infringement should also be revisited. “In Octane Fitness, the Supreme Court also rejected the requirement that patent litigants establish their entitlement to attorneys’ fees under § 285 by ‘clear and convincing evidence’. Id. at 1758. As we used to do for attorneys’ fees, we currently require patentees to prove willfulness by clear and convincing evidence. SeeSeagate, 497 F.3d at 1371. As the Supreme Court explained in Octane Fitness, however, the ordinary rule in civil cases, and specifically patent infringement cases, is proof by a preponderance of the evidence.” Concurrence at 4.
3) The Supreme Court also rejected a de novo standard of review for exceptional case determinations in Highmark. This is important because, although Judge O’Malley doesn’t directly state it, the “objective” prong of willful infringement is currently treated as a question of law, meaning that it is reviewed under a de novo standard. If the two standards are truly parallel, this is inconsistent with Highmark.
Finally, under both §§ 284 and 285, “the court” is the entity that makes the determination. However, the Federal Circuit’s caselaw currently sends some issues of willful infringement to a jury. In Judge O’Malley’s view, whether this is actually correct as a statutory matter should also be addressed by the court en banc.
***
I’m largely in agreement with Judge O’Malley. Like the judge, I see a tremendous tension between the existing willful infringement caselaw and Octane Fitness/Highmark that flows from the treatment of §§ 284 and 285 as being in parallel.
I also think the history here is important – and my sense is that much of the mucky precedent in this area actually comes from the just the last decade. One important piece of context to keep in mind is the totality of the circumstances analysis that comes after the threshold determination. Attorney’s fees and enhanced damages are not a binary question, but rather a multi-step inquiry where the initial determination is just the first part.
I’m a moderately-dedicated baseball fan*, so I’ve been listening** to quite a few baseball games over the past few weeks. And as I’ve been listening to the games, it’s struck me that in many ways, patent litigation is a lot like a baseball game well beyond the Cubs reference. Both are a game of one against many on a field where the participants operate under asymmetric rules. For both, too, the individual success rate in an active contest isn’t all that high.
One of the most distinguishing aspects of baseball is the challenge an individual batter faces in actually achieving a positive result at the plate. Most of the time, players don’t actually get a hit; a batting average of over .300 is considered exceptional. This statistic has sparked the idea that baseball is a game of failure: there are numerous references to even the greatest baseball legends being failures 7 times out of 10. Even when other measures of success are taken into account (such as drawing a walk), it’s still the case that most of the time a batter will make an unproductive out.
But, as other folks have pointed out, a batter’s performance is not so much a question of the individual triumph (or failure) of the batter; rather, it is a contest between the batter and the pitcher. When the batter loses, the pitcher wins.
Or more accurately, when the batter loses, the other team wins. This is a large part of what makes baseball so fascinating to me: it’s a lone batter facing off against a whole squad of nine opponents. One against many. Even the best players in the world are still the underdog here: Ted Williams, the all-time leader in getting on base, did so about 48% of the time over his career.
So too in patent law. A patent holder is only one against many. True, like a batter, the patent holder has an advantage: the patent, with its presumption of validity. But there is only one patent holder and there is a whole world of potential infringers. Including many creative, knowledgeable, and smart players who can develop arguments and theories and ideas that the patent holder could never have anticipated.
The end result is that perhaps we shouldn’t be all that surprised when patent holder success rates in infringement litigation tend to look a lot like batting averages. Added to the challenge of one patent holder against many possible infringers is the difficulty of actually winning a patent suit: there are a multitude of possible validity challenges that an alleged infringer might raise and the patent holder must win on them all – and prove infringement – in order to prevail. As in baseball, patent infringement litigation is an asymmetric contest with different rules for the batting team and the fielding team.***
None of this is to discount the very real challenges that our patent system faces, particularly when it comes to anything other than substantive merits determinations by a court. We don’t really have a good sense from an empirical standpoint about the nature of post-filing settlements, let alone those that occur prior to the filing of the complaint. And none of this should suggest that patent litigation is working as optimally as it might; it’s still extremely costly, complex litigation and there’s always room for improvement in patent law. But thinking of patent litigation as akin to a baseball game also might help to put the Allison/Lemley/Schwartz study I posted about earlier this week in some context.
*By which I mean that I watch a fair number of Giants games via MLB TV, listen to many more, and have been to a dozen games or so over the last seven years. Of course, it’s easy being being a fan when the team you follow makes it to the World Series three times out of the past five years…
**A cost of getting rid of cable tv is that one can only listen to postseason baseball games that are currently being played. Which is actually my preferred way to follow the game. Except for the constant repetition of political advertisements directed at a state in which I do not live.
***There are another analogies I could draw, such as the role of money in paying for players in the game. Of course, that didn’t work out to well for the Dodgers this year…
Also, at some point the analogy stops working; a baseball game in its entirety is not all that asymmetric. The team that bats will get its turn in the field. The team that fields will get its turn at bat. The analogy works best when talking about batting success.
Guest Post by Professor Shubha Ghosh. Prof. Ghosh is the Vilas Research Fellow & George Young Bascom Professor in Business Law at the University of Wisconsin Law School, where he is also the Associate Director of the Initiatives for Studies in Transformational Entrepreneurship (INSITE).
I was fortunate to be able to attend oral argument in Teva v Sandoz before the Supreme Court on October 15. At issue was a highly technical issue at the intersection of civil procedure and patent law: Is the standard of appellate review for patent claim construction de novo or clearly erroneous? The Justices’ engagement with this dry, but fundamental, question extended from hypos about bus crashes and South African Yellow Canaries (don’t ask) to elusive distinctions between facts and law in construing scientific terms like “average molecular weight.”
While the discussion was lively, the big question of what is the appropriate methodology for claim construction was avoided. The Federal Circuit presumably answered that question in Phillips v. AWH, but the Supreme Court has never addressed that issue. Even a lively oral argument cannot cure the failure to address claim construction methodology. I will address that problem at the end of this post after setting forth these highlights.
(1) Justice Alito stated the issue as one of whether a patent is analogous to a statute (for which there is no deference to legislative facts) or to a private contract (for which there is deference on factfinding). That may be just restating the question, but gives some indication on how some of the justices are approaching the matter. The question of right analogy is a bit of a red herring. Which analogy you choose depends on how you view the mix of law and fact in patent claims.
(2) Justice Roberts came out clearly, from my listening, on the side of patent as statute and emphasized the importance of uniformity (and implicitly the need to avoid forum shopping). Go Federal Circuit! Justice Scalia was hard to read although he did make a comparison between a patent and a deed. Also, given his opinion in Medimmune in 2007, he may come out on the side of a patent as a statute.
(3) Justice Breyer came out on the side of 52(a) and pushed back on Sandoz’ argument that the Court had already resolved the question of deference in Markman by concluding that claim construction is a matter of law. Justice Ginsburg pointed out the different context of the 7th Amendment in Markman. I think there were at least four Justices (Breyer, Ginsburg, Kagan and Kennedy) who seemed to be skeptical about special rules regarding fact finding for Markman hearings (which is one way of phrasing Sandoz’ argument). In addition, Justice Scalia’s strict constructionism would lead him to agree with Justice Breyer. Justice Sotomayor’s questions were more searching, but indicated some skepticism with Sandoz’ position.
(4) Even when there was sympathy for the Teva argument, there seemed to be some pushback on how to separate subsidiary facts from legislative facts (a big distinction for Teva and for the SG). I did not find a completely great answer although the SG brief and argument came close to a methodology for parsing facts.
Based on this reading of the oral arguments, I would predict a victory for Teva on the 52(a) issue with Justices Breyer, Ginsburg, Kagan, Kennedy and possibly Scalia or Sotomayor voting for a reversal. The open question is how to distinguish facts and law in patent claims. This question may just be left for another day.
Looming in the background of this case is the issue of how claim construction should be done. Although Philips offers the accepted methodology (and one that seems to have reduced the reversal rate on claim construction by the Federal Circuit), the Supreme Court has neither endorsed the decision nor addressed how district courts should construe claims. But the law/fact question is intimately connected with the methodology of construction.
Treating claim construction as purely a question of law is consistent with the plain meaning approach to construing claims, as endorsed by the Philips decision. The more courts rely on sources other than the words of a claim, such as prosecution history or expert witnesses, the more fact-based claim construction becomes. It is no coincidence that Teva in its arguments emphasized the role of experts and prosecution history in construing the meaning of “average molecular weight.” A ruling in favor of Teva would suggest that claim construction relies more heavily on factors extrinsic to the language of the claims, a position different from the plain meaning approach of Philips.
Of course, the ruling in Teva will just be the start and perhaps the first step in the Supreme Court examining claim construction methodology head on.
In 1998, John Allison and Mark Lemley published a groundbreaking empirical study of patent litigation, Empirical Evidence on the Validity of Litigated Patents. Allison and Lemley’s focus in that article was on written, final validity decisions by either district courts or the Federal Circuit from 1989 through 1996. The basic study design philosophy was to look at patent case outcomes; that is, what was the final outcome for patents that were litigated. That study is still widely cited.
Working with Dave Schwartz, Allison and Lemley recently completed an updated (and much expanded) version of their 1998 study. The results of that study are being published in several articles, but the one that links most closely with the earlier study is Understanding the Realities of Modern Patent Litigation.
Their undertaking in this project is truly quite impressive. The authors expanded their scope to all available decisions (not just those that were published in the U.S.P.Q., as in the earlier study) for utility patent infringement suits filed in 2008 and 2009, and personally coded the relevant case information from the docket sheets, district court opinions, briefs, and Federal Circuit decisions for hundreds of cases. As in the earlier study, the record unit they used were patent cases, with only final decisions for a given patent being counted; in other words, where there was more than one decision in a case, they reported the last final decision on the validity of the patent. Thus, if there was a final Federal Circuit decision, it superceded a previous district court decision; if there was a remand and subsequent final decision by the district court, it superceded the Federal Circuit ruling, and so on. Within this set of cases, Schwartz and Lemley coded information about the cases while Allison coded patent-specific information.
Study Findings
The vast majority of patent cases still settle: Out of the roughly 5,000 patent infringement suits filed in 2008 and 2009, only 290 patents went to trial. All together, less than 10% of the patent suits filed in these years resulted in any merits decision (that is, a summary judgment ruling or trial). The remainder settled before that point (although, the authors note, there are a small number of cases still pending that may add another 2-3% to the number of suits resulting in a merits decision).
More indefiniteness challenges: One notably change from the 1998 study was the dramatically grater number of indefiniteness challenges. Out of the 555 summary judgment motions brought on validity issues by either the patent challenger or the patent holder, 176 decided summary judgment motions involved the issue of indefiniteness, a dramatic increase from the 1998 study. And the authors observed a less substantial, but still noticeable, increase in summary judgment decisions based on patentable subject matter (26), a category that has likely continued to experience growth. For context, there were 149 decided summary judgment motions on obviousness and 154 on anticipation.
Many arrows in the challenger’s quiver: In terms of the success rates on motions for summary judgment of invalidity, challengers tended to lose on individual issues: with the exception of patentable subject matter challenges, the percentage of successful summary judgment motions of invalidity was 20% or below for each individual issue (102, 103, indefiniteness, enablement, written description). But, the overall rate of invalidation on summary judgment was 30% and the overall rate at which patent challengers successfully won on invalidity was 42%. This is an example of what Lemley has called the “fractioning” of patent law; that is, the idea that a patentee must win every issue in a case while the accused infringer must prevail on only one issue; a particular challenge with patent law and its multiple grounds for invalidation.
Overall, patent challengers tend to win: Overall, patent holders tended not to win in cases that went to a definite merits resolution. Overall, patentees won only about 26% of the time (164/636 definitive merits rulings). In addition to invalidity, patent holders lost on frequently-brought motions for summary judgment of noninfringement 54% of the time (257/473) and infrequently obtained summary judgment on more rarely-brought motions for summary judgment of infringement (41/128). Thus, although patentees had a fairly high success rate at trial (winning on 59% of patents when juries made the decision and 64% when the bench did), the 1-2 punch of summary judgment followed by trial meant that most patent cases that went to judicial resolution were resolved in favor of the patent challenger.
I’ve only covered some of the data presented in the paper and barely scratched the surface of the authors’ analysis. If you’re interested in reading more, the article can be downloaded directly from the Texas Law Review’s website or via ssrn: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2442451
The Engelberg Center on Innovation Law & Policy sponsors legal and interdisciplinary work in the area of innovation law and policy, including but not limited to intellectual property. It draws together legal scholars and practitioners, economists, historians, social scientists, and representatives of the innovation industries to study the legal regimes and cultural forces that influence innovation, to explore methods for optimizing the exploitation of intellectual products, and to search for new ways to facilitate the transfer of technology from creator to end-user, across fields, and among nations. The Center produces scholarship and regularly hosts speakers, conferences, workshops, and other events, around these central themes.
Dennis highlighted two calls for papers below. In addition, the American Bar Association’s Intellectual Property Section will be holding an IP scholarship symposium in late March 2015 and is seeking scholars interested in presenting their works. The full description:
The ABA Section of Intellectual Property Law will host its second annual Intellectual Property Law Scholarship Symposium during the ABA-IPL Section’s 30th Annual Intellectual Property Law Conference, March 25-27, 2015. IP Scholars are encouraged to submit an abstract describing a current scholarship project by December 12, 2014, for a chance to present their work during the Intellectual Property Law Scholarship Symposium at the 30th Annual Intellectual Property Law Conference. The symposium seeks authors and papers for three simultaneous sessions (each of which attracted 50-70 attendees in 2014): patent/trade secret; copyright; and trademark/unfair competition.
• Susan Barbieri Montgomery, Northeastern University School of Law
• Andrew Beckerman-Rodau, Suffolk University Law School
• June M. Besek, Columbia Law School
Original panel: Rader (author), Dyk, Newman (dissenting)
Denial of rehearing en banc: Dyk, concurring (joined by Moore and Taranto); Newman, dissenting (joined by Lourie, O’Malley, and Wallach); O’Malley, dissenting (joined by Newman, Lourie and Wallach)
The issue at the core of this appeal was whether a co-owner of a patent can be forced to join an infringement lawsuit brought by another co-owner or instead effectively block the suit by refusing to participate. The Federal Circuit is deeply split on this issue, as evidenced by both the June 2-1 panel opinion and the 6-4 refusal to rehear the decision en banc. The panel majority held that a co-owner may not be forced to join the infringement suit and because the full court denied rehearing en banc, that holding stands unless the Court grants cert. Judge Newman and Judge O’Malley both wrote dissenting opinions.
The patent right and co-owners. Co-owners of a patent may separately exercise all the rights of a patent owner: they may make, use, offer for sale, and import the patented invention without needing the permission of the other co-owner. They may also grant a license to the patent. Importantly, they may do all of this without giving the other co-owner a dime; unlike for copyrighted works, there is no right of accounting for patents.
A consequence of this is that if there are co-owners of a patent, a prospective infringer need only obtain a license from one co-owner. This makes unity of patent rights important for any party who wishes to actually enforce those rights as against future conduct.
This rule is clear as to future conduct; the complexity comes about when dealing with past infringing activities. A patent co-owner may only grant a prospective license to the patent and a release as to its own claims for liability for past infringing conduct; it may not release infringers from liability to the other co-owner for past infringement. However, it is also blackletter law that all owners of a patent must be parties to an infringement suit for there to be standing. But not all co-owners may cooperate with the party wanting to bring the suit. Perhaps they have some contractual obligation to the accused infringer; perhaps they are even directly connected to the accused infringer. Or perhaps, as in this case, the co-owner just wants to remain “neutral.” Does the uncooperative co-owner have the right to do so?
This case can be seen as an old fight renewed. The origins of the split go back to the Federal Circuit’s 1998 decision in Ethicon v. United States Surgical, 135 F.3d 1456. The majority opinion, written by Judge Rader, dismissed the suit on the ground that a co-owner could not and did not consent to the infringement. This conclusion followed the following statement of law:
Further, as a matter of substantive patent law, all co-owners must ordinarily consent to join as plaintiffs in an infringement suit.9 Consequently, “one co-owner has the right to impede the other co-owner’s ability to sue infringers by refusing to voluntarily join in such a suit.” Schering, 104 F.3d at 345.
Footnote 9 referred to two exceptions: where the co-owner has waived its right to refuse to join the suit and where there is an exclusive licensee, the exclusive licensee may sue in the owner’s name.
Judge Newman dissented in Ethicon. While much of her dissent focused on the issue of whether an inventor on only some of the claims is a co-owner of the patent as a whole (Judge Newman would have held no), she also pointed out that Rule 19’s involuntary joinder rule should apply here.
Involuntary Joinder Does Not Apply: Drawing heavily upon Ethicon, the panel opinion in this case – also written by Judge Rader -extended the rule that co-owners of a patent may refuse to voluntarily join an infringement suit to preclude operation of Federal Rule of Civil Procedure 19(a). The relevant portion of that rule states:
(1) Required Party. A person who is subject to service of process and whose joinder will not deprive the court of subject-matter jurisdiction must be joined as a party if:
(A) in that person’s absence, the court cannot accord complete relief among existing parties; or
(B) that person claims an interest relating to the subject of the action and is so situated that disposing of the action in the person’s absence may:
(i) as a practical matter impair or impede the person’s ability to protect the interest; or
(ii) leave an existing party subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations because of the interest.
(2) Joinder by Court Order. If a person has not been joined as required, the court must order that the person be made a party. A person who refuses to join as a plaintiff may be made either a defendant or, in a proper case, an involuntary plaintiff.
A few things to note: First, no one appears to be disputing that Rule 19 has the force of law or that a co-owner may refuse to voluntarily participate in a patent infringement suit. Rather, the disagreement boils down to (1) whether the co-owner has a “substantive right” not to participate in a patent infringement suit and (2) if there is such a right, whether it preclude the application of Rule 19.
Unfortunately, as Judge O’Malley’s dissent points out with particular rigor, the panel majority opinion is is quite short on the basis for this “substantive right.” The basic legal move the majority makes is to rely on precedent holding that a co-owner may refuse to voluntarily participate in a patent suit as providing the basis for a substantive right not to join an infringement suit, with the policy basis that the anti-involuntary joinder rule ” protects, inter alia, a co-owner’s right not to be thrust into costly litigation where its patent is subject to potential invalidation.”
Concurring in the denial of en banc review, Judge Dyk’s opinion fleshes out the argument in more detail. In Judge Dyk’s articulation, the question is whether there is a “substantive obligation” for the co-owner of a patent to join the suit; in the absence of a “substantive obligation,” the co-owner cannot be forced to join through the operation of procedural rules, such as Rule 19. Judge Dyk thus flips the question: while he points to cases where the co-owner did not consent, and thus the suit was dismissed, he also points out the lack of patent cases imposing a “substantive obligation on a patent co-owner to consent to the assertion of an infringement claim.” This allocation of substantive rights cannot be changed by application of Rule 19.
Writing in dissent to the denial of rehearing en banc, Judge O’Malley challenged both the basis for the substantive right as well as way such a “right” interacts with Rule 19. Walking through Ethicon and the other cases cited by Judges Rader and Dyk, Judge O’Malley challenges the precedential basis for such a “right.” Nor, Judge O’Malley argues, is there any basis in statute for this “right;” indeed, it is directly contradicted by other statutory “rights,” particularly Section 154(a)(1), “the right to exclude others.” And in any event, Rule 19 is *mandatory.* “By its terms, therefore, when a person satisfies the requirements of Rule 19(a), joinder of that person is required.”
So what’s going to happen? As Hal Wegner has noted in his email newsletter, a petition for certiorari is expected in this case. And, given that the core issue is one of civil procedure, albeit intertwined with an issue of the nature of the patent right, it may be particularly appealing for the Court – especially coupled with the deep split and thoughtful opinions of two of the Federal Circuit’s sharpest thinkers.
An odd issue raised by the majority rule here: What happens when one co-owner sends out threatening letters to an accused infringer but the other does not. Can the accused infringer bring a declaratory judgment action against both co-owners? If not, must the declaratory judgment action be dismissed for lack of standing? Or is this sufficiently different from an affirmative suit for infringement as to make the “all parties required” rule not apply?
The BCLT is at the core of Berkeley’s extensive law and technology program: it coordinates research funding and the many course offerings in this field at Berkeley Law, organizes terrific conferences and workshops, and serves as a hub for lawyers and scholars interested in IP, privacy, and other aspects of law and technology. The current Executive Director is Robert Barr, former Chief IP Counsel for Cisco and past Executive Dirctors have included Ray Ocampo, former General Counsel for Oracle (and Olympic luger).
The Berkeley Law Center for Law & Technology (BCLT) invites applications for the position of Executive Director. This is a 100% full-time appointment.
BCLT is a research center at the University of California, Berkeley, School of Law. For the past fourteen years, BCLT has been rated by US News & World Report as one of the top intellectual property programs in the country, in part because of the high quality, high impact research conducted by its faculty and students. BCLT’s research includes intellectual property, electronic commerce, telecommunications regulation, cyberlaw, privacy and other areas of law that are affected by new information technologies.
Last month, the American Bar Association’s governing body approved a requirement that all law students at ABA-accredited law schools take a minimum of six credit hours of clinical or other “experiential” coursework during law school. Since most law schools in the United States are accredited by the ABA, this new skills requirement will have a broad reach.
At the same time, several law schools have begun to ramp up their clinical intellectual property programs. And despite the general downturn in faculty hiring over the past few years, there is substantial activity in this particular area. Here are some of the current openings for clinical IP faculty:
Clinical Professor, Center for Intellectual Property Research, Indiana University – Bloomington Maurer School of Law. From the posting: “Indiana University Maurer School of Law (Bloomington) invites applications for a full-time faculty position in the school’s new intellectual property law clinic, a part of the Center for Intellectual Property Research.”
Clinical Professor and Director, Indie Film Clinic, Benjamin N. Cardozo School of Law of Yeshiva University. From Prof. Burstein: “Cardozo seeks a director for its Indie Film Clinic, which provides pro bono legal and business services — drafting and negotiating formation, acquisition, chain of title, and sales agreements and offering advice on licensing and fair use — for emerging and independent filmmakers in New York City. The clinic director will design and oversee all aspects of the clinic’s teaching and client-service missions, including working with partner organizations, supervising students in all aspects of business representation, and preparing and teaching a seminar component of the clinic.” More details available here: Indie Film job description
Transactional clinician, Boston College Law School. Boston College is searching for a transactional clinician, with IP within the search area. More details here: BC Clinical opening
Clinical Professor, Intellectual Property and Transactional Law Clinic, University of Richmond School of Law. From Prof. Cotropia: “The University of Richmond School of Law seeks a full-time clinical faculty member to develop, run, and teach our Intellectual Property and Transactional Law clinic, which provides non-litigation legal services to small businesses, entrepreneurs, non-profits, authors, and artists. The focus of the clinic is business formation, business transactions, and intellectual property issues, but the Clinical Professor will play a major role in determining the clinic’s specific emphasis and operation. ” Details here: https://richmond.csod.com/ats/careersite/JobDetails.aspx?id=418
Director, Intellectual Property and Technology Law Clinic, University of Southern California Gould School of Law. From the posting: “Applicants will be considered for continuous appointment to the Law School’s clinical professor track. The Director will be responsible for all aspects of running the IPTL Clinic, including: course planning and teaching; curriculum development; individual case and project work; client selection; intensive supervision and mentoring of law students in representing clients; and clinic administration. Clinical faculty members also typically teach one non-clinical course per year in addition to the clinic.” To learn more, visit the IPTL Clinic and read the job posting.
On Friday, October 3, I will be moderating a panel of three district court judges at the Iowa Intellectual Property Law Association annual conference. This gives me a great opportunity to seek the collective wisdom of the new, higher quality commenting section! So if there’s a question that you’re dying to pose to a typical district court judge about intellectual property law, or even practice before the court generally, I’d love to hear it.
Other speakers at the conference include: Tom Irving of Finnegan on Section 101 and 112 issues, Chris McKee of Banner and Witcoff on inter partes review, Alan Datri of the Office of the Deputy Director General at WIPO on the International Design System, Jim Voegeli, Assistant Chief Intellectual Property Counsel at 3M on trademark policing programs, and John White of PLI and Berepato & White on post-AIA Sections 102 and 103 at the PTAB.
VirnetX, Inc. v. Cisco Systems, Inc. (Fed. Cir. 2014) Virnetx v Cisco Panel: Prost (author) and Chen
Plaintiffs VirnetX and Science Applications International Corporation obtained a successful verdict against Apple based on infringement by its Facetime and VPN On Demand products. The two accused products are programs that run on Apple’s iOS platforms (e.g.: iPhones, iPads, iMacs, MacBooks, etc.). FaceTime is a videoconferencing platform (similar to Skype) and VPN On Demand is a feature that allows iOS users to establish secure virtual private networks. The patents involved were Nos. 6,502,135 and 7,490,151, which were asserted with respect to VPN On Demand, and 7,418,504 and 7,921,211, which were asserted against FaceTime. The jury found the four patents were valid and infringed, awarding damages of $368,160,000. Apple appealed.
On appeal, the Federal Circuit upheld the jury verdict of no invalidity and infringement as to most of the ‘135 and ‘151 claims (i.e.: the ones being asserted against VPN On Demand). However, it reversed as to a doctrine-of-equivalents finding on one claim of the ‘151 and as to claim construction of a term in the ‘504 and ‘211 patents (i.e.: the ones being asserted against Facetime), thus resulting in a remand as to those claims.
The most important legal aspect of the court’s opinion, however, relates to damages. At trial, VirnetX’s expert offered three reasonable royalty theories: one that began with the lowest sales price of each iOS device containing the accused feature and applying a 1% royalty to that base, and two that relied on the “Nash Bargaining Solution,” a mathematical theorem proved by Nobel Laureate John Nash.
“Smallest Salable Unit”: A key issue in calculating the infringement damages for complex technological products is whether it is appropriate to use the value of the entire device in the damages calculation. Generally speaking it is not appropriate to do so: “when claims are drawn to an individual component of a multi-component product, it is the exception, not the rule, that damages may be based upon the value of the multi-component product.” Slip Op. at 27. Rather, “‘[a] patentee may assess damages based on the entire market value of the accused product only where the patented feature creates the basis for customer demand or substantially creates the value of the component parts.'” Id., quotingVersata Software, Inc. v. SAP Am., Inc., 717 F.3d 1255, 1268 (Fed. Cir. 2013) (emphasis added by court). This is due to the general requirement that damages must be actually attributable to the infringing features within a reasonable degree of precision.
However, there is a line of cases suggesting that royalties may be based off of the “smallest salable patent-practicing unit.” It was this line of cases that the district court presumably drew upon when it issued the relevant jury instruction:
In determining a royalty base, you should not use the value of the entire apparatus or product unless either: (1) the patented feature creates the basis for the customers’ demand for the product, or the patented feature substantially creates the value of the other component parts of the product; or (2) the product in question constitutes the smallest saleable unit containing the patented feature.
On appeal, the Federal Circuit held that the “smallest salable unit” case law does not mean that “when the smallest salable unit is used as the royalty base, there is necessarily no further constraint on the selection of the base.” Id. at 28. Rather, “the smallest salable unit approach was intended to produce a royalty base much more closely tied to the claimed invention than the entire market value of the accused products.” Id. at 29. Thus,
“Where the smallest salable unit is, in fact, a multi-component product containing several non-infringing features with no relation to the patented feature (as VirnetX claims it was here), the patentee must do more to estimate what portion of the value of that product is attributable to the patented technology. To hold otherwise would permit the entire market value exception to swallow the rule of apportionment.”
Id. Since the VirnetX’s expert relied on the iOS devices as the “‘smallest salable units,’ without attempting to apportion the value attributable to the VPN On Demand and Facetime features,” the legal error was not harmless. Put another way, VirnetX sought to have the jury use the sales price of an iPhone when calculating infringement of its patents that covered two specific components of that product, without demonstrating that those components drove customer demand for the phones.
Royalty Base * Royalty Rate Theory: For similar reasons, the Federal Circuit reversed the district court’s ruling to allow the expert’s testimony that used the sales price of iOS devices as the royalty base. The accused products included both hardware and software components; the expert “made no attempt to separate software from hardware, much less to separate the FaceTime software from other valuable software components.” Slip Op. at 31. This was particularly problematic, since in his Nash Bargaining Solution approaches, the expert did attempt to break out the patentable contributions to the devices. More, “a patentee’s obligation to apportion damages only to the patented features does not end with the identification of the smallest salable unit if that unit still contains significant unpatented features.” Id. at 32. Thus, it did not matter that Apple did not sell FaceTime separately on many of its iOS products:
There is no “necessity-based exception to the entire market value rule.” Id. at 70. On the contrary, a patentee must be reasonable (though may be approximate) when seeking to identify a patent-practicing unit, tangible or intangible, with a close relation to the patented feature.
Id. Apple also challenged the expert’s 1% royalty rate, which relied on six allegedly comparable licenses and VirnetX’s “policy” of licensing its patents for 1-2%. The Federal Circuit concluded that reliance on the six challenged licenses was permissible.
Nash Bargaining Solution Theories: In addition to its ruling on the “smallest salable unit” issue, the Federal Circuit also rejected the invocation of the Nash Bargaining Solution as a model for reasonable royalty damages. As described by the court, this theorem states that “under the conditions stated in the premises, where two person bargain over a matter, there is a ‘solution’…in which ‘each bargainer get[s] the same money profit.” (The Nash Bargaining Solution). The Nash Bargaining Solution is invoked to support the argument that the parties would have split between themselves the incremental profit associated with the patent technology.
Here, VirnetX’s expert used the Nash Bargaining Solution to support royalty rate that allocated 45% of the profits from the Facetime feature to VirtnetX. (For these calculations, the expert used a much lower valuation of the feature than in the first approach discussed above).
The Federal Circuit held that the Nash Bargaining Solution may not be invoked “without sufficiently establishing that the premises of the theorem actually apply to the facts of the case at hand.” Id. at 38. That was not done here; rather, the use of the Nash Solution was as much an inappropriate “rule of thumb” as the “25 percent rule of thumb” rejected in Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292, 1320 (Fed. Cir. 2011):
The Nash theorem arrives at a result that follows from a certain set of premises. It itself asserts nothing about what situations in the real world fit those premises. Anyone seeking to invoke the theorem as applicable to a particular situation must establish that fit, because the 50/50 profit-split result is proven by the theorem only on those premises. [The expert] did not do so. This was an essential failing in invoking the Solution.
Slip Op. at 38-39. Indeed, “even if an expert could identify all of the factors that would cause negotiating parties to deviate from the 50/50 baseline in a particular case, the use of this methodology would nevertheless run the significant risk of inappropriately skewing the jury’s verdict.” Id.
Interval Licensing LLC v. AOL, Inc. (Fed. Cir. 2014) Interval v AOL Panel: Taranto and Chen (author)*
One of the most frequent criticisms of Nautilius v. Biosig is that it simply provides a general standard (Section 112 ¶2 requires that “a patent’s claims, viewed in light of the specification and prosecution history, inform those skilled in the art about the scope of the invention with reasonable certainty” ) and fails to offer any substantive discussion of what this meant. In this post-Nautilius opinion affirming the district court’s ruling of indefiniteness, Judge Chen provides some of that guidance when it comes to words of degree.
Background. Interval owns the two patents-in-suit, Nos. 6,034,652 and 6,788,314, that claim priority back to 1996. These patents are directed to a system that “acquires data from a content provider, schedules the display of the content data, generates images from the content data, and then displays the images on a device.” The system does not simply initiate images on the display device, however. Rather, almost all of the asserted claims state that the images are displayed “in an unobtrusive manner that does not distract a user.” The idea is that the images will occupy the peripheral attention of a person in the vicinity of the display device while not interfering with their primary interaction with the device. The main issue on appeal was whether this “unobtrusive manner” language was indefinite.
Representative claim 1 of the ‘314 patent (with emphasis added):
1. A method for engaging the peripheral attention of a person in the vicinity of a display device, comprising the steps of:
providing one or more sets of content data to a content display system associated with the display device and located entirely in the same physical location as the display device;
providing to the content display system a set of instructions for enabling the content display system to selectively display, in an unobtrusive manner that does not distract a user of the display device or an apparatus associated with the display device from a primary interaction with the display device or apparatus, an image or images generated from a set of content data; and
auditing the display of sets of content data by the content display system;
wherein the one or more sets of content data are selected from a plurality of sets of content data, each set being provided by an associated content provider, wherein each associated content provider is located in a different physical location than at least one other content provider and each content provider provides its content data to the content display system independently of each other content provider and without the content data being aggregated at a common physical location remote from the content display system prior to being provided to the content display system, and wherein for each set the respective content provider may provide scheduling instructions tailored to the set of content data to control at least one of the duration, sequencing, and timing of the display of said image or images generated from the set of content data.
Interval sued AOL, Apple, Google, and Yahoo for infringement. In its claim construction order, the district court held the “in an unobtrusive manner” language indefinite under the pre-Nautilius standard, thus rendering invalid most of the asserted claims. (The parties stipulated to noninfringement of the remaining claims based on the court’s claim construction). Interval appealed.
Indefiniteness. Under Nautilus, “[a] claim fails to satisfy [the Section 112, 2] requirement and is thus invalid for indefiniteness if its language, when read in light of the specification and the prosecution history, ‘fail[s] to inform, with reasonable certainty, those skilled in the art about the scope of the invention.'” Slip Op. at 10, quoting Nautilus. However, there is more to the inquiry than just this general statement. Here, the term at issue was a term of degree. That, by itself, was not fatal:
We do not understand the Supreme Court to have implied in Nautilus, and we do not hold today, that terms of degree are inherently indefinite. Claim language employing terms of degree has long been found definite where it provided enough certainty to one of skill in the art when read in the context of the invention….As the Supreme Court recognized in Nautilus, “absolute precision” in claim language is ‘unattainable.'”
Slip Op. at 11 (internal citations omitted). But meaningful boundaries – which Judge Chen indicates must be objective – are necessary; that one might identify some standard for measuring claim scope does not mean the claims meet the § 112 requirement:
Although absolute or mathematical precision is not required, it is not enough, as some of the language in our prior cases may have suggested, to identify “some standard for measuring the scope of the phrase….The Supreme Court explained that a patent does not satisfy the definiteness requirement of § 112 merely because “a court can ascribe some meaning to a patent’s claims.” Nautilus, 134 S. Ct. at 2130. The claims, when read in light of the specification and the prosecution history, must provide objective boundaries for those of skill in the art.
Id. at 12 (internal citations omitted). Here, no such no such “objective boundaries” for those of skill in the art are provided in the patent:
The patents’ “unobtrusive manner” phrase is highly subjective and, on its face, provides little guidance to one of skill in the art….Although the patented invention is a system that displays content, the claim language offers no objective indication of the manner in which content images are to be displayed to the user. As the district court observed, “whether something distracts a user from his primary interaction depends on the preferences of the particular user and the circumstances under which any single user interacts with the display.”
The lack of objective boundaries in the claim language is particularly troubling in light of the patents’ command to read “the term ‘image’ . . . broadly to mean any sensory stimulus that is produced from the set of content data,” including sounds and video. ’652 patent, 6:60–64. The patents contemplate a variety of stimuli that could impact different users in different ways. As we have explained, a term of degree fails to provide sufficient notice of its scope if it depends “on the unpredictable vagaries of any one person’s opinion.”
Id. at 13. Nor did the written description provide the necessary guidance. “Where, as here, we are faced with a “purely subjective” claim phrase, we must look to the written description for guidance.” Id. But Interval’s principal argument, that “unobtrusive manner” is defined through its relationship to the “wallpaper” embodiment, thus informing those of skill in the art that “unobtrusive” has only a spatial meaning in the context of the patents, failed because the link was not clear: other portions of the specification suggest that the phrase may also be tied to the “screen saver” embodiment. The specification is “at best muddled, leaving one unsure of whether the “unobtrusive manner” phrase has temporal dimensions as well as spatial dimensions.” And it’s secondary argument, that the court must adopt a “narrow example” from the specification, failed because the “narrow example” from the specification was just that: an example, not a definition. The patent drafter used the term “e.g.” (“exempli gratia”), which in English usage means “for example.” If the drafter had instead used words of definition, such as “i.e.” (“id est” which in English usage means “that is”), it might have helped provide the necessary clarity. Nor was one example sufficient here: “With this lone example, a skilled artisan is still left to wonder what other forms of display are unobtrusive and non-distracting. What if a displayed image takes up 20% of the screen space occupied by the primary application with which the user is interacting? Is the image unobtrusive? The specification offers no indication, thus leaving the skilled artisan to consult the “unpredictable vagaries of any one person’s opinion.” Slip Op. at 18 (quoting Datamize).
Claim Construction/Noninfringement. The Federal Circuit revised the claim construction of two terms in the four claims of the ‘652 patent that did not contain the “unobtrusive manner” language, vacated the district court’s judgment of noninfringement as to these claims, and remanded for further proceedings.
Nonobviousness: Not at issue here. Are these patents obvious? That’s a different question. After the suit commenced, two of the defendants initiated an ex parte reexamination against the ‘652 patent and a third initiated an inter partes reexamination against the ‘314 patent. While the examiners found the asserted claims of the patents to be patentable over the cited prior art,the PTAB reversed the decision on the ‘314 patent during the appeal in this case and held that all the claims of that patent were obvious, anticipated, or both. The Federal Circuit opinion notes that Interval indicated that it will appeal that decision.
Guest post by Christopher B. Seaman, Assistant Professor of Law at Washington and Lee University School of Law.
As Dennis recently discussed, the idea of creating a private cause of action for trade secret misappropriation under federal law appears to be gaining traction. Bipartisan legislation has been introduced in both the House and the Senate, and congressional action on these bills may occur as early as this fall. A number of influential actors in the intellectual property world, including the AIPLA, former USPTO Director David Kappos, and a coalition of large manufacturing and technology firms, have publicly supported federalizing trade secrecy. And several legal academics have advocated adoption of a federal trade secrets act.[1]
In a forthcoming article in the Virginia Law Review, I contend there are several important reasons why trade secrecy should remain primarily the province of state law. First, despite claims by proponents, the adoption of a federal civil cause of action would not create greater uniformity for trade secret protection. Currently, there is widespread agreement regarding the basic principles of trade secrecy under state law. For instance, to establish the existence of a trade secret, both the UTSA (adopted by 47 states) and the Restatement of Torts (largely followed by the remaining jurisdictions) require the trade secret holder to prove that the allege secret has value because it is not generally known or used, and that the holder of the trade secret took sufficient efforts to keep the information secret from others. Similarly, the UTSA and Restatement largely agree on what conduct qualifies as “improper means” of acquiring a trade secret, and both recognize that reverse engineering and independent invention cannot create liability for misappropriation. While there are some variations between states regarding the particular details of trade secret protection, these differences are relatively minor, as the Federal Circuit has recognized.[2]
In fact, adopting federal legislation likely would result in less uniformity by creating two parallel regimes—federal and state—with overlapping authority over trade secret claims. As noted in the recent letter signed by 31 law professors, none of the current bills pending Congress would preempt state law, thus permitting a federal cause of action to exist in parallel with existing state remedies. Notably, there are important differences between the Economic Espionage Act (“EEA”), which would be amended to create a private cause of action, and current state law, such as the EEA’s mens rea (intent) requirements and its lack of express protection for reverse engineering. Moreover because trade secret claims frequently turn on the resolution of related state law issues—such as the scope and enforceability of nondisclosure agreements, or the fiduciary duties of an employee to a current or former employer—courts would either have to borrow from existing state law or create a new body of federal law in these areas to supplement the statutory text.
Second, proponents claim that federal legislation is needed to secure access to a federal forum, which they argue is imperative to adequately protect vital trade secret information. However, a substantial number of trade secret claims are already litigated in federal courts under diversity and/or supplemental jurisdiction, with the number of reported trade secret decisions increasing at least fourfold since the late 1980s.[3] In particular, acts of misappropriation by foreign actors and entities—which feature prominently in proponents’ arguments for federalization—generally would fall within the scope of district courts’ so-called alienage jurisdiction.[4] Others claim that additional federal remedies, like the ex parte seizure provisions in the House and Senate bills, are necessary to prevent irreparable harm after a trade secret has been stolen. However, they fail to explain why existing procedures, such as temporary restraining orders,[5] preliminary injunctions,[6] and civil seizures pursuant to state law under Federal Rule of Civil Procedure 64, are inadequate to protect trade secret holders.
Third, and perhaps most significantly, the proposed federalization of trade secrecy may negatively impact innovation by undermining a key objective of patent law: the disclosure of patentable inventions. Innovators who develop a potentially patentable invention often face the dilemma of whether to incur the cost, delay, and uncertainty of seeking patent protection, or instead maintaining the invention as a trade secret. Stronger trade secret protection via federalization will likely cause more inventors to opt out of the patent system in favor of trade secrecy. This, in turn, will reduce the amount of public disclosure regarding patentable inventions that can be used by others to improve upon the invention and to practice it after the patent’s expiration. In contrast to patenting, trade secret protection is “theoretically unlimited in duration, lasting so long as the information remains a trade secret.”[7]
As an alternative to federalization, my article instead proposes a modest expansion of federal courts’ jurisdiction over state law trade secret claims that could be achieved by tweaking some existing jurisdictional rules. For instance, Congress could adopt a so-called “minimal diversity” standard in trade secret cases that would make a federal forum available whenever at least one party is a citizen of another state from the other parties. Congress also could adopt a “national contacts” standard that would allow a U.S. company to rely on a foreign misappropriator’s contacts with the United States a whole, rather than just the forum state, to establish personal jurisdiction over foreign defendants. This proposal would offer the benefits of a federal forum for more trade secret claims, while at the same time avoiding the potential drawbacks of creating a new federal private cause of action for trade secret misappropriation.
[1] David L. Almeling, Four Reasons to Enact a Federal Trade Secrets Act, 19 Fordham Intell. Prop. Media & Ent. L.J. 769, 770 (2009); Marina Lao, Federalizing Trade Secrets Law in an Information Economy, 59 Ohio St. L.J. 1633, 1653 (1998); Christopher Rebel J. Pace, The Case for a Federal Trade Secrets Act, 8 Harv. J.L. & Tech. 427, 433-34 (1995).
[2] See TianRui Grp. Co. v. U.S. Int’l Trade Comm’n, 661 F.3d 1322, 1327-28 (Fed. Cir. 2011) (noting that “trade secret law varies little from state to state”).
[3] David S. Almeling et al., A Statistical Analysis of Trade Secret Litigation in Federal Court, 45 Gonzaga L. Rev. 291, 293, 302 tbl.1 (2010).
[4] See 28 U.S.C. § 1332(a)(2) (granting the district courts original jurisdiction over civil actions between “citizen of a State and citizens or subjects of a foreign state”).
[5] See, e.g., V’Guara Inc. v. Dec, 925 F. Supp. 2d 1120 (D. Nev. 2013) (granting a TRO to prevent trade secret misappropriation).
[6] See, e.g., Core Labs v. Spectrum Tracer Servs., 532 Fed. Appx. 904 (Fed. Cir. 2013) (granting preliminary injunctive relief for a trade secret misappropriation claim).
[7] Nova Chems., Inc. v. Sekisui Plastics Co., 579 F.3d 319, 327 (3d Cir. 2009).
Icon Health & Fitness, Inc. v. Octane Fitness, LLC (Fed. Cir. 2014) (nonprecedential) Octane Fitness Remand Panel: Newman, Mayer, and Lourie
In Octane Fitness v. Icon the Supreme Court rejected the “objectively baseless” legal standard that the Federal Circuit had been applying in exceptional case determinations. Procedurally, the appeal was of the district court’s ruling that this case was not exceptional under 35 U.S.C. § 285, which the Federal Circuit had affirmed under its then-authoritative standard. Following remand by the Supreme Court, the Federal Circuit has itself now remanded the case back to the district court for further proceedings consistent with the new legal standard.
Most of the nonprecedential opinion involves a straightforward recitation of portions of the Court’s holding:
The Supreme Court abrogated both the clear and convincing evidence standard and the two-part test for objective baselessness and subjective bad faith of Brooks Furniture. Octane, 134 S. Ct. at 1757–58. The Court held that within the context of § 285 “an ‘exceptional’ case is simply one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.” Id. at 1756. The Court further concluded that “[d]istrict courts may determine whether a case is ‘exceptional’ in the case-by-case exercise of their discretion, considering the totality of the circumstances.” Id. The Court explained that there is no precise rule or formula for making those determinations and noted that district courts should exercise “equitable discretion” in considering a nonexclusive list of factors that could include “‘frivolousness, motivation, objective unreasonableness (both in the factual and legal components of the case) and the need in particular circumstances to advance considerations of compensation and deterrence.’” Id. at 1756 n.6 (quoting Fogerty v. Fantasy, Inc., 510 U.S. 517, 534 n.19 (1994)). The Supreme Court also observed that “a case presenting either subjective bad faith or exceptionally meritless claims may sufficiently set itself apart from mine-run cases to warrant a fee award.” Id. at 1757.
Slip Op. at 5-6. However, the Federal Circuit also took the opportunity to remind district court judges that the inquiry does not end with the exceptional case determination. Specifically, under earlier Federal Circuit precedent, the court held that district courts can continue to apply their discretion even after a case is determined to be exceptional:
The Supreme Court’s decision in Octane did not, however, revoke the discretion of a district court to deny fee awards even in exceptional cases. Long before Brooks Furniture, we held that “an exceptional case does not require in all circumstances the award of attorney fees.” S.C. Johnson & Son, Inc. v. Carter-Wallace, Inc., 781 F.2d 198, 201 (Fed. Cir. 1986); see also Gardco Mfg., Inc. v. Herst Lighting Co., 820 F.2d 1209, 1215 (Fed. Cir. 1987) (“After the district court determines that a case is exceptional, there remains in every case its freedom to exercise its discretion informed by the court’s familiarity with the matter in the litigation and the interest of justice.” (internal quotations omitted)). Indeed, in the companion case Highmark, the Court held that “[b]ecause § 285 commits
the determination whether a case is ‘exceptional’ to the discretion of the district court, that decision is to be reviewed on appeal for abuse of discretion” and that
district courts should have discretion in “all aspects of [the] § 285 determination.” Highmark, 134 S. Ct. at 1748–49.
Slip Op. at 6. The court goes on to remand the whole mess back to the district court to apply its discretion under the new standard (and presumably, to also apply its discretion to the award of fees).
What I find particularly fascinating about this whole area of law is that there is a substantial line of intertwined Section 284 and 285 cases that deal with the district court’s discretion on fee awards after a finding of willful infringement or that a case is exceptional. These cases (which often involve an analysis under the factors set out in Read Corp. v. Portec, Inc., 970 F.2d 816, 826–27 (Fed.Cir.1992) are essentially a totality of the circumstances analysis. This produces two interesting results. First, although I haven’t fully thought through whether two issues are sufficiently parallel, it seems that there’s a relevant body of law on totality of the circumstances analyses in this context that already exists that courts will be able to draw upon when applying the Court’s new standard for exceptional case determinations. Second, how should the analysis play out if both the exceptional case determination and the decision to award fees (and how much those fees should be) involve essentially the same totality of the circumstances inquiry? Does it make sense to retain a formal distinction between the exceptional case determination and the amount of the fee award? My sense is that the answer is yes, particularly since there will inevitably be factors in the amount-of-fee determination that are not relevant in the is-the-case-exceptional determination (for example, I have seen a district judge apportion fees based on what happened with which patents, with fees being granted for attorney activity in connection with one patent but not when the activity was solely related to other patents involved in the litigation).
