Fascinating Split Decision on Impact of a Rule 36 Affirmance that May have Significant Consequences

Ethics, , ,

Wow, this one — Tecsec, Inc. v. IBM (Fed. Cir. 2013) — may have huge repercussions for appellate strategy, and also for the legal impact of hundreds of existing judgments. It deserves a read in full.  Judge Reyna's dissent captures what happened:

The majority concludes that the district court misconstrued various claim terms from three TecSec, Inc. patents. It reaches this conclusion notwithstanding that the same claim terms, same constructions, same arguments, and same summary judgment order were previously before this court and reviewed on January 9, 2012. See TecSec, Inc. v. Int’l Bus. Mach. Corp. (“TecSec I”), 466 Fed. App’x 882 (Fed. Cir. 2012). In TecSec I, this court summarily affirmed the district court’s grant of summary judgment of noninfringement pursuant to Rule 36. Id. After TecSec lost its case against IBM, and without offering any additional evidence against the other defendants now before us, TecSec stipulated to noninfringement and has once again appealed the same district court’s claim constructions to this court. I respectfully dissent because I believe that entertaining this appeal gives TecSec a second bite at the apple and undermines the utility of Rule 36. 

The key paragraph to the majority's basis for reaching a different result is this:

The Rule 36 judgment in the IBM appeal summarily affirmed the district court’s judgment that IBM did not directly or indirectly infringe TecSec’s patents. The district court’s judgment was based on two independent grounds. The district court first ruled as a matter of law that TecSec’s direct and indirect infringement claims failed for failure of proof that IBM itself or any of its customers performed every claimed step or made, used, sold, offered for sale, or imported any system containing all of the limitations of the asserted claims. As the dis- trict court stated in its opinion, without questioning TecSec’s construction of the terms now at issue, “TecSec has utterly failed to come forward with any evidence that IBM itself performed any of the steps of the method claims,” and “even if some user-implemented system were to meet all of the asserted claim limitations—which, as explained below it cannot . . . —TecSec has provided no evidence that IBM ever made, used, sold, offered to sell, or imported that entire claimed system . . . .” Summary Judgment Order, 769 F. Supp. 2d at 1010, 1012 (first emphasis added). The district court drew a similar conclusion regarding indirect infringement, as to which it found, as well, insufficient proof of the required intent. Given the absence of evidence that any steps were per- formed by IBM or that an entire claimed hard- ware/software system was ever made, used, sold, offered to sell, or imported by IBM or its customers, the district court was compelled to find no direct or indirect infringe- ment. Pennwalt Corp. v. Durand-Wayland, Inc., 833 F.2d 931, 949–50 (Fed. Cir. 1987) (en banc) (“Every Supreme Court decision which has addressed the issue of infringe- ment of a patent claim, beginning with Prouty v. Draper, 41 U.S. (16 Pet.) 335, 10 L.Ed. 985 (1842)—and the prece- dent is voluminous—has held that where a part of the claimed invention, that is, a limitation of the claim, is lacking in the accused device exactly or equivalently, there is no infringement.”) The district court, in finding a complete failure of proof regarding any act of infringe- ment by IBM or its customers, did not rely on any rejec- tion of TecSec’s constructions of the terms at issue here. Indeed, IBM represented to the court that we could affirm the district court’s judgment solely based on TecSec’s “complete failure of proof” and did not “need to get to claim construction.” TecSec, Inc. v. Int’l Bus. Machs. Corp., No. 2011-1303, Oral Arg. at 19:30–24:55, available at http://oralarguments.cafc.uscourts.gov/default.aspx?fl=20 11-1303.mp3. While the district court also ruled in the alternative that TecSec failed to show that IBM’s software met various claim limitations, as construed, our Rule 36 decision does not articulate a basis for affirmance, let alone an explication on claim construction. On this record, it cannot be concluded simply on the basis of this court’s summary affirmance that we expressly or by necessary implication decided the claim construction issues in the IBM appeal .

The majority later reasoned:  "Had claim construction been the only issue in the IBM appeal, and had that claim construction been essential to sustaining the judgment of noninfringement, the preclu- sive effect of our Rule 36 judgment would have been undeniable. But that was not the case."

I have a lot of questions.  If infringement can be found, or not, only after claim construction (I think that's right, absent marginal odd-ball cases), then claim construction was necessary to the judgment.  I also wonder how this fits in with the general rules about the impact of an affirmance of a judgment on alternate grounds, which the court does not discuss (perhaps the defendants did not appreciate these obscure doctrines; I don't know).  

If the panel decision is correct, doesn't it mean that a lot of appealable judgments that were "affirmed" on appeal have no impact, even on the parties to that appeal?  Suppose the district court clearly construes the claims, and based on that finds the patent both invalid and non-infringed. The case is Rule 36'd.  Is nothing decided except claim construction?  Isn't the patent, once again, "valid" because there is no binding judgment of invalidity?  I may be missing something… 

I bet there are an enormous number of fact patterns that might be implicated by this.  I am trying to get my head around how a district court's order, which is binding on the parties, becomes non-binding when affirmed on appeal?

I know that this may have huge impact on Rule 36; if a panel's decision does not resolve claim construction, unless it is somehow more "necessary" than it was here, then perhaps a panel should not use Rule 36 very often?  Interesting case with lots of systemic ripples, perhaps.

 

 

Mandamus granted ordering E.D. Texas to Transfer Case to Ohio

Ethics

Picking the best available venue for a suit is a part of competent lawyering, and for a variety of reasons the Eastern District of Texas has been an oft-chosen site to sue.  The Federal Circuit (and Congress) have sought to narrow the ability of patentees to sue in that court, as is well known.

Thus it is of note to me that the Federal Circuit granted a petition for mandamus review and held the district court had abused its discretion in not transfering the case to Ohio.  The decision, In re Toa Techns., Inc., is here.

I have no view on the actual merits, but mandamus relief is an extraordinary remedy, and venue under 1404(a) a discretionary matter, meaning the grant of a petition should be extraordinarily rare.  The Federal Circuit may be broadening the mandamus doctrine to acomplish some good, but that also may have unintended consequences in other areas.  If something "as discretionary" as this can be reviewed and changed on mandamus, no doubt a lot of other things can to.  It may be an opportunity for lawyers to "appeal" other issues, and also affects analysis of a venue decision — it may not stick.

Some things to ponder.

 

 

Here is a Good Lesson for Everyone

Ethics

I'm sitting in the Sky Club in the Philadelphia airport, listening to a large public discussion by a group of lawyers planning to sue "hundreds" of companies for tens of millions of dollars each, it seems.

 

I can tell you who they are going to sue; their infringement theory and its weakness; some of the names of the principals; their pre-suit investigation (who they are going to contact); the identities of the major targets (I will do them a service by not naming them); and a lot of other what we call "highly confidential attorney work product and mental impressions."  I now know how they are going to try to avoid DJ jurisdiction...

Please tell me none of you are this stupid.

 

NEVER talk about this kind of thing in public.  "Public" includes elevators, bars, and especially large public areas like this….

Undoing Gunn v. Minton: Proposed Legislation Would “Clarify” Federal Subject Matter Jurisdiction Over Patent-Related Malpractice Claims.

Ethics

The bill in circulation by Rep. Goodlatte provides in part:

CLARIFICATION OF JURISDICTION.—Congress finds that the Federal interest in preventing inconsistent final judicial determinations as to the legal force or effect of the claims in a patent presents a substantial Federal issue that is important to the Federal system as a whole.

This provision has the potential of bringing patent malpractice claims back under Federal Court jurisprudence. And, to the extent that patent licenses depend upon the scope of a patent claim, licensee disputes would also be heard in Federal Courts.

 

CAFC Splits on Reversing Summary Judgment of Inequitable Conduct

Ethics

This one is interesting, but because it was pending while I was clerking, I don't want to see a lot about it.  Basically, the patentee was faced with deciding whether to pay the 7.5 year maintenance fee, and decided not to because there was no commercial interest in the patent.  Two weeks after the lapse, someone expressed interest in it, and the patentee filed a form that said the lapse was unintentional.  The district court found inequitable conduct on summary judgment; the panel reversed, with Judge Clevenger dissenting.  The case, authored by Judge Newman with Judge Wallach, Network Signatures v. State Farm, is here.

Random bit: Textualism, the Patent Act, and Section 101

Ethics

I still need to post my view about how to predict the Supreme Court's view on 101 (it turns on two variables), but in preparing for class, I'm reading Pfaff.  Over and over again, the court talks about the text of the act, and how "nontextual arguments" should be rejected.

I can't wait to see this issue of whether 101 is a defense resolved…

Story on the Main Page About Preemption of State “anti-troll” Laws

Ethics

The link is here.  I wrote an article about the ethical obligations of lawyers representing NPEs, and their opposing counsel, here.  And, I've co-authored a NYT Op-ed about the issue, here.  I've also represented manufacturers, "trolls," and individual inventors in litigation.

This was pretty predictable:  there's federal law governing patents, and it is going to preempt most, if not all, state laws attempting to impinge upon the patent owner's rights.  The last thing we're going to have is state courts deciding what patent claims, in live enforceable patents, mean.  That is my prediction, at least.

Billing Ethics… Again

Ethics

I posted below my views about Jenner  & Block dumping its ostensible-contingent-fee-client then demanding $10m in hourly fees it incurred pre-Markman after having lost the patent infringement suit on summary judgment once another firm reversed Jenner's loss on the client's dime.  Today, I read in Law Practice Management a story about DLA Piper lawyers emailing with seeming pride about having "churned" a file for a huge amount of money, and the firm's response to the problem. The article is here.

I'm sure there's a good lawyer joke these headlines, somewhere….

The Rambus Spoliation Case

Ethics

Years ago — years and years ago — I served as an expert for a party involved in one part of the patent suits where Rambus' counsel was accused of deliberately masterminding destroying lots of documents on the eve of filing suit.  (My view was that spoliation had clearly occurred.)

I write for two reasons: One, I remember the opposing expert's view that what had happened was perfectly fine, and thinking: really?  This may sound arrogant, or polly-anna-ish, or something, but to me, when I'm an expert in ethics, I try to be just that, and I would never give an opinion in private that I would never give among my fellow ethicists.  That may have been one of the first cases I was involved in, and I just remember being stunned by the opposing expert's views.

Two, Judge Robinson has, again, held the patents unenforceable as the sanction, back in January, 2013, which I am just seeing now, Micron Tech. Inc. v. Rambus, Inc., 917 F. Supp.2d 300 (D. Del. 2013).

Jenner & Block allegedly walks away from contingent fee client without just cause, but still wants to be paid $3m

Ethics,

I testified as an expert in this case a long time ago, and it's now on appeal — Parallel Networks, LLC v. Jenner & Block LLP, NO. 05-13-00748-CV in the Court of Appeals for the Fifth District of Texas, in Dallas.  The opening brief was just filed.

Boiled down, J&B represented Parallel Networks (PN) in a patent suit, doing so on a contingent fee.  J&B lost summary judgment of noninfringement after the Markman hearing.  J&B advised PN that its case was relatively worthless and advised PN to settle for what it could get. Concluding that it was not in the firm's economic interest to continue to represent PN, J&B dropped PN as its client.

PN hired other counsel, appealed the case to the CAFC, and got the claim construction reversed.  Then the accused infringers ponied up settlement money… a lot of money.

And J&B then demanded $10m in fees, seemingly based on its full hourly rate.  PN refused to pay and the fee dispute went to arbitration.  An arbitrator apparently awarded quantum meruit, somewhere north of $3m. PN is appealing the district court's affirmance of the arbitral award.

I shall try to post the brief and a link to it.  Let's just say that it's quite an interesting read, especially if you read the contingent fee agreement's termination provisions.  

All of this post, to be clear, is based upon statements in PN's brief, and there's obviously a lot more in the brief about who did what and so on, and no doubt J&B will tell a different story.

Why Section 101 is Neither a “Condition of Patentability” nor an Invalidity Defense

Ethics, ,

I raised this up a year or two ago, but what the heck…  Here's a fuller statement.

The Supreme Court was wrong to read 101 to limit eligible subject matter.  Although it has done so for 50 years, it has never analyzed the statutes closely.  Further, only in the last few years (Prometheus onward) has it held that lack of eligible subject matter is a defense to an issued patent.  This holding is clearly wrong.  Competent lawyers need to raise this issue (how's that for my ethics hook?).

What is now in 101, 102, and (implicitly) 103 was prior to 1952 in one section, 4886. It provided:

 Any person who has invented or discovered any new and useful art, machine, manufacture, or composition of matter, or any new and useful improvements thereof, or who has invented or discovered and asexually reproduced any distinct and new variety of plant, other than a tubor-propagated plant, not known or used by others in this country, before his invention or discovery thereof, and not patented or described in any printed publication in this or any foreign country, before his invention or discovery thereof, or more than one year prior to his application, and not in public use or on sale in this country for more than one year prior to his application, unless the same is proved to have been abandoned, may… obtain a patent….”

Congress created a commission in 1948 to study the definition of “invention” applied by the Supreme Court, and also, more importantly, the holding of In re Thau, which in dicta stated that a process using an old composition of matter was not eligible for patenting.  See also 100(b), quoted below.  (Thau involved poorly drafted claims. Long story.)  Congress wanted to reject Thau and make it clear that, while a product claim to an old material was not patentable, a process claim using an old material was eligible for patenting. In other words, Congress set out to broaden section 101 to overrule Thau and to eliminate subjective tests of "invention" that the Supreme Court had made up in the years leading up to 1952.  See the materials cited in Chief Judge Rader's opinion in CLS Bank.

This culminated in 1952 legislation. The text of what became 100(b), 102, and 103 were developed, and Congress expressly split 101 away from the conditions of patentability it put into 102 and 103:

Pre-1952 Section 4886

1952 Patent Act

“Any person who has invented or discovered any new and useful art, machine, manufacture, or composition of matter, or any new and useful improvements thereof, or who has invented or discovered and asexually reproduced any distinct and new variety of plant, other than a tubor-propagated plant, not known or used by others in this country, before his invention or discovery thereof, and not patented or described in any printed publication in this or any foreign country, before his invention or discovery thereof, or more than one year prior to his application, and not in public use or on sale in this country for more than one year prior to his application, unless the same is proved to have been abandoned, may… obtain a patent….”

100(b) The term “process” means process, art or method, and includes a new use of a known process, machine, manufacture, composition of matter, or material.

 

101 Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.

 

 

102 “conditions of patentability”

 

103 “conditions of patentability

 

282 – defenses include “conditions of patentability" in Part II of Title 35, section 112, and some other defenses, including equitable defenses.  Section 101 is not listed and is not a “condition of patentability.”

Congress indisputably did not want any distinction between “invention” and “discovery” to be relevant.  It wanted a process claim that happened to use something old to be a "process."  It wanted clarity and an objective test (this drove adoption of 103) as to "inventiveness."

Now to run through it. Here is why I believe Congress did not want "violations" of Section 101 to be either conditions of patentability or a defense to infringement of an issued patent.  Starting with the plain text, Section 282 is states that “conditions of patentability” in part 2 of Title 35 are defenses.  While in Part 2, section 101 is not labeled as a “condition of patentability:” only 102 and 103 are.  (112 is set forth in mandatory terms, unlike 101 which says “may,” and section 112 is referred to in Section 282, as are some equitable defenses).  Further, there are glaring textual differences between 101 and 102/103/112:

  •  102/103:  There is no burden of proof in Section 101 on the patent office to grant unless the claim is to unpatentable subject matter, unlike 102/03, which require PTO to grant unless it establishes that the claimed invention is not new/nonobvious.
  • Finally, and I think tellingly, all section 101 does is say that someone who invents a new/useful thing can go get a patent if they want to.  That's it. It doesn't even say the PTO can only issue patents on processes/products/etc.  That's not what it says.  Read it.

The legislative history and drafter/leader comments show 101 is not an invalidity defense because it is not a “condition of patentability:"

  •  Earliest bill explained that the original statute, 4886, was being “split into two sections, section 21 relating to the subject matter for which patents may be obtained, and section 22 relating to the conditions under which a patent may be obtained.”
  • S Rep.:  “Section 101 sets forth the subject matter that can be patented, ‘subject to the conditions and requirements of this title.’  The conditions under which a patent may be obtained follow, and section 102 covers the conditions relating to novelty.” 
  • S. Rep:  “The… definition [of process in 100] clarifies the status of processes or methods which involve merely the new use of a known process, machine, manufacture, composition of mater, or materials; they are processes or methods under the statute and may be patented provided the conditions for patentability are met.” 
  • S. Rep. testimony of Federico:  “Now, under section 101 a person may have invented a machine or a manufacture, which may include anything under the sun that is made by man, but it may not necessarily be patentable unless the conditions of patentability are fulfilled.” (I.e., something is an invention but may not be new or nonobvious; but whether it is an "invention" is not an issue.)
  • Giles Rich 1960: “Section 101 lays down, too, with respect to all categories of patentable inventions, the basic requirements of novelty and utility…. Sections 102 and 103 both have headings which commence with the words ‘Conditions for Patentability.”
  • Federico:  Section 4886 had “specified the subject matter for which a patent could be obtained and recited conditions for patentability.  In the new code, this section has been divided into two sections, section 101 relating to the subject matter for which a patent may be obtained, and section 102 which defines statutory novelty and states other conditions for patentability.”

 Further, the language of 101 concerning processes was amended in substantial part to overcome court decisions that had construed “invention” in 4886 to mean that methods applying old and well known materials, processes, or devices to new uses were not patentable methods (E.g., In re Thau).  There was no concern whatsoever about 101 being too broad and patentable subject matter needing to be restricted.  In fact, a proposed narrowing of the concepts now in 101/100(b) was not adopted.

 

 

Gunn v. Minton, Legal Malpractice, Community Property, and me.

Ethics

I was at one of the firms that Minton sued and, in fact, if I recall right I met Mr. Minton during the initial interview process.  Then I left the firm. The rest, as they say, is history.  Eventually, allegedly the firm did not properly plead the experimental use exception to the on-sale bar, and that, allegedly, caused Minton to lose his case. 

The case bounced around from state to federal court, but eventually the Supreme Court, on appeal from the Texas Supreme Court, did not present a federal question and so should be decided by the state courts.  Along the way, it said that there will seldom be a "backwards looking" malpractice claim that will be in federal court.  So, if a plaintiff claims that it should have gotten a broader patent, but did not because of negligence, chances are no federal jurisdiction.

I watched the oral argument in Gunn, and the Court (a) does not like or undertand patents; and (b) realized how far astray the CAFC's jurisprudence on subject matter jurisdiction had gone.  That's a bad combination.

But I'm writing because of an odd thing I encountered in a real state case involving state marital and estate law:  the spouse of a named inventor in some community property states has an undivided equal interest in the patent under state law.  In the case I was an expert in, the firm had obtained an assignment from a husband, but not the spouse.  The result was a claim by the spouse in the patent.

In a California case, which I was not involved in, this almost worked — the Federal Circuit seemed to acknowledge the spouse's interest in the patent, but held that a form that the spouse had filled out estopped her from claiming the interest.

So, the whole point of this "it is early Monday morning so don't complain if this is stream of concious" post is:  a state judge is going to be a lot more likely to follow state law on ownership rights than a federal judge will be, so watch out for the Gunn effect on this issue!

 

Social Media Ethics

Ethics

Yelp recently sued a bankruptcy firm for posting fake positive reviews, allegedly authored by the firm's employees, for breach of Yelp's terms of service.  The case is here.  I was reading a case recently about "google bowlling," where A puts up fake web pages and links to competitor B's webpage.  Google notices that these are not real web pages, and so demotes B's webpage ranking.  B then sues A.  I love technology.

Solicitor General: Don’t Grant Cert to Analyze Inequitable Conduct

Ethics,

A petition for cert was filed in a decision by Judge Linn, 1st Media, LLC v. Electronic Arts, Inc., 694 F.3d 1367 (Fed. Cir. 2012), asserting error essentially in Therasense's cabined view of inequitable conduct.  See Sony Computer Entertainment America LLC v. 1st Media, LLC, Supreme Court No. 12-1086.  The Solicitor General has filed a brief recommending against cert.  The petitioner's question presented was:

"Did the Court of Appeals for the Federal Circuit err in restricting district courts' equitable discretion in evaluating patent unenforceability, contrary to this Court's precedent in Keystone Driller, Hazel- Atlas, and Precision Instrument, by applying a rigid test that (a) forecloses district courts from considering the entire circumstantial record; and (b) precludes district courts from granting equitable remedies where a patent applicant has violated the PTO's duty of candor."

I filed an amicus brief in Therasense, and no one listened, but I still hold a lot of the same views expressed there.