Get a Job doing Patent Law
By Jason Rantanen
Wi-Lan, Inc v. Apple Inc. (Fed. Cir. 2016) Download Opinion
Panel: Reyna (author), Wallach, Hughes
Although precedential, this case doesn’t really break new patent-law ground. Instead, it offers a data point in the tricky issue of whether a post-verdict modification to the construction of a claim constitutes a permissible “clarification” or an impermissible “reconstruction.” The opinion also provides an example of how claim construction can operate at multiple levels, in this case by applying to both the meaning of a given term and the meaning of that term in the broader context of the claim.
Wi-Lan, the owner of RE37,802, a patent relating to wireless data communication, sued Apple and others for infringement based on their manufacture and sale of standards-compliant products. Claim 1 of the ‘802 patent reads:
1. A transceiver for transmitting a first stream of data symbols, the transceiver comprising:
a converter for converting the first stream of data symbols into plural sets of N data symbols each;
first computing means for operating on the plural sets of N data symbols to produce modulated data symbols corresponding to an invertible randomized spreading of the first stream of data symbols; and
means to combine the modulated data symbols for transmission.
(emphasis added). The critical claim constructions related to “modulated data symbols,” which the district court construed to mean “data symbols that have been spread apart by spreading code” and “first computing means,” which the district court construed to be a means-plus-function element linked to particular structure disclosed in the specification. Applying these constructions, a jury found that Apple did not infringe and that the ‘802 patent was invalid as anticipated. Following trial, the district judge denied Wi-Lan’s request for judgment as a matter of law (JMOL) on infringement but granted its request for JMOL of no invalidity based on a modified construction of the structure to which “first computing means” corresponded.
The Interdependent Text and Claim Construction
On appeal, Wi-Lan challenged the district court’s denial of JMOL on infringement (effectively challenging the jury verdict of no infringement). This issue largely turned on an issue of claim construction: whether the district court’s constructions precluded Apple’s noninfringement defense, a defense premised on the argument that the claims required that data symbols be randomized before combining them, while Apple’s products combined the symbols before randomizing them.
On appeal, the Federal Circuit agreed with Apple. The text of the claim indicated that the modulated data symbols had to be randomized before combining them. The “first computing means” produces “modulated data symbols corresponding to an invertible randomized spreading of the first stream of data symbols.'” The second means then combines “the modulated data symbols for transmission.” Since “[s]ubsequent uses of the definite articles ‘the’ or ‘said’ in a claim refers back to the same term recited earlier in the claim,” slip op. at 10, quoting Baldwin Graphic Sys., Inc. v. Siebert, Inc., 512 F.3d 1338, 1342 (Fed. Cir. 2008), the term “the modulated symbols” in the second means element referred back to the randomized modulated symbols produced by the first means element, thus requiring randomization-before-combination. This construction was consistent with the specification.
Wi-Lan’s principal contention was that during its pre-trial construction of “modulated data symbols,” the district court rejected Apple’s argument that the term requires randomization. But, the Federal Circuit held, the district court’s construction only involved the unmodified, generic term “modulated data symbols.” Apple’s argument involved the intersection of the full language in the first means element with the use of “modulated data symbols” in the second means element: “Even though generic ‘modulated data symbols’ do not have to be randomized, the recited ‘modulated data symbols corresponding to an invertible randomized spreading‘ do have to be randomized.” Slip Op. at 11. Through its use of “the,” the second means element referred back to those randomized data symbols. Since Apple’s products combined then randomized, there was no direct infringement. (The Federal Circuit also disposed of Wi-Lan’s argument of infringement under the doctrine of equivalents.)
Post-verdict claim construction
Prior to trial, the district court construed the means-plus-function element “first computing means” as “element 12 of Figures 1 and 4, columns 2:6–10, 2:36–40, 2:58–62, 4:2–12, and 4:35–44, and equivalents thereof.” Using this construction, the jury found the claims to be anticipated by a prior art reference that used real multipliers to randomize the “modulated data symbols” rather than complex multipliers. In granting Wi-Lan’s motion for JMOL of no invalidity, however, the district court “determined that, although its construction of computing means ‘does
not specifically provide for a complex multiplier,’ a complex multiplier was nevertheless necessary because ‘expert witnesses from both sides agreed that complex multipliers are part of the structure of the ‘first computing means’ as taught by the ’802 patent.'” Slip Op. at 8.
On appeal, the Federal Circuit concluded that this was an instance of impermissible post-verdict reconstruction. “‘[I]t is too late at the JMOL stage to argue for or
adopt a new and more detailed interpretation of the claim language and test the jury verdict by that new and more detailed interpretation.’ Hewlett-Packard Co. v. Mustek Sys., Inc., 340 F.3d 1314, 1321 (Fed. Cir. 2003).” Slip Op. at 16. None of the corresponding structure in the court’s pre-trial construction mentioned complex multipliers or referred to the patent figure involving complex multipliers.
While a district judge may “adjust constructions post-trial if the court merely elaborates on a meaning inherent in the previous construction,” Mformation
Techs., Inc. v. Research in Motion Ltd., 764 F.3d 1392, 1397 (Fed. Cir. 2014), this was not such a case. Such “clarification” is allowed because it only makes “plain . . . what should have been obvious to the jury.” Slip Op. at 17, quoting Cordis Corp. v. Boston Scientific, 658 F.3d 1347, 1355–57 (Fed. Cir. 2011). Here, the implicit requirement of a complex randomizers was not obvious to the jury, particularly given conflicting testimony over whether the claims actually did require the use of a complex randomizer. The result was that the district court did not simply elaborate on the meaning of its prior claim construction in the post-verdict opinion, but altered that construction, something that it could not do.
Get a Job doing Patent Law
Get a Job doing Patent Law
By Jason Rantanen
Virginia Innovation Sciences, Inc. v. Samsung Electronics Co., Ltd. (Fed. Cir. 2015) (nonprecedential) Download opinion
Panel: Wallach, Taranto, Chen (author)
In the wake of the Supreme Court’s opinion in Teva v. Sandoz, the Federal Circuit repeatedly obversved that the Phillips hierarchy of intrinsic over extrinsic evidence remains the law for claim construction. Applying that framework, the Federal Circuit has systematically resolved claim construction appeals based on intrinsic evidence alone, allowing it to effectively maintain de novo review. Although a nonprecedential opinion, and thus not binding on future panels, VIS v. Samsung offers the first glance of how extrinsic evidence can play a meaningful role of extrinsic evidence in the post-Teva/still-Phillips world. Here, the court not only concludes that the extrinsic must be consulted because the term meaning remains ambiguous after examining the intrinsic evidence, but finds that the intrinsic evidence affirmatively indicates that the term has a particular technical meaning, thus directing consideration of the extrinsic evidence.
The technology at issue involved “a device that converts compressed video content received by a mobile phone from a wireless network into a video signal format ready for display on a larger external display such as a television.” Slip Op. at 2. At issue were two claim terms: “display format” and “converted video signal.” Based on its construction of these terms, the district court granted Samsung’s motion for summary judgment of invalidity on some asserted claims and summary judgment of noninfringement on the others.
The Federal Circuit first reviewed the construction of “display format.” In a classic application of intrinsic context, the court first rejected VIS’s proposed construction of “display format” as “simply an uncompressed video signal” because that construction “would essentially read the word ‘display’ out of the term and is inconsistent with the surrounding limitations of the asserted claims.” Slip op. at 9-10. However, the court could not resolve claim meaning further based on the intrinsic evidence alone:
In short, although the intrinsic evidence strongly suggests that the claimed “display format” must be a video signal that is “ready for use” by a conventional external monitor, the intrinsic evidence before us does not provide a complete understanding of the term. Thus, while review of the intrinsic evidence is commonly dispositive in understanding the ordinary meaning of a claim, such is not the case in this particular instance.
Slip Op. at 13. Instead, the specification indicates that the term “display format” has a particular meaning to persons of skill in the art:
As a result, our review of the record suggests that one of skill in the art understood a “display format” to have particular technical characteristics describing its compatibility and operational interaction with an external monitor. What those characteristics are, however, has not been established in the record on appeal.
In other words, the extrinisic evidence of record, too, was insufficient to determine that technical meaning. This necessitated a remand:
We therefore remand to the district court with instructions to further develop the record and to determine the meaning of the “display format” to one of skill in the art at the effective filing date of the patents-in-suit, whether by whether by further examination of the prosecution history, evaluation of direct and cross-examination testimony from experts showing and explaining usage in the field, or consultation of other relevant sources as set forth in Phillips.
The Federal Circuit also remanded on “converted video signal.” Here, the district court failed to “explain how the claims or specification provided a clear understanding of ‘converted’.” Id. at 17. Nor could the Federal Circuit discern a meaning based on the intrinsic evidence alone—indeed, it specifically commended the Patent Office’s reliance on extrinsic evidence in its construction of the same term in rejecting a petition for inter partes review:
While we emphasize that the district court is not bound by determinations of the Patent Office, our review of the record suggests that the Patent Office’s approach to rely on relevant treatises and other extrinsic evidence may be more illuminating than the specification in this particular instance.
by Dennis Crouch
A patent holder has exclusive rights in the patented invention and a cause of action against “whoever without authority makes, uses, offers to sell, or sells” the invention. 35 U.S.C. 271(a). One limit on those rights is the non-statutory doctrine of patent exhaustion. Under exhaustion, after a patentee authorizes the making/sale of a particular individual article, the patentee no longer has any further exclusive patent rights in association with that authorized article. Thus, the when the authorized product is later used or re-sold, the patentee could not claim further damages for infringement. In other words, the power of the patent is ‘exhausted’ by the first authorized sale. As noted, the exhaustion doctrine is non-statutory, but the Supreme Court has repeatedly supported its existence as a parallel the statutory version found in copyright law. 17 U.S.C. 109.
In Helferich Patent Licensing v. NYTimes and JCPenney (Fed. Cir. 2015), the Federal Circuit (Judge Taranto) has narrowly construed the exhaustion doctrine – finding that the district court erred in holding that the patentee’s claims were barred due to exhaustion.
Helferich’s 30+ patents all relate to wireless handsets and related communication methods. All the patents stem from a common original application and are thus closely related, although the PTO did not find obviousness-type double patenting.
Helferich has licensed its portfolio to essentially all handset makers selling in the U.S. However, those licenses expressly carves-out activity by “content providers” — stating particularly that the licenses do not grant any rights for content providers to practice the claimed methods.
When Helferich then brought suit against content providers (NYTimes & JCPenny), those accused infringers argued exhaustion — namely that the manufacture and sale of the phones had been licensed under the now-asserted patents and that, as a consequence, the exhaustion doctrine blocks any there is no use of the phones that could now be seen as infringing.
[T]he premise of defendants’ exhaustion defense is that all handsets in the United States are licensed and that the asserted claims contemplate a use of handsets by handset owners/possessors.
However, in the appeal, the Federal Circuit found that the exhaustion doctrine does not bar Helferich’s claims here.
The Federal Circuit identifies exhaustion as a personal defense held by the acquirer of an authorized article (here, a handset). However, according to the court, exhaustion does not apply to protect other parties. This distinction here is important because the accused infringers are content providers and – apparently – the content claims do not require any proof that the handset acquirers are practicing any aspects of the claims. Secondly, the court also identifies the content claims being asserted here as separate and distinct inventions from the licensed handset claims.
In short, the decisions finding exhaustion (or relying on exhaustion to reject an antitrust defense) have done so only when the patentee’s assertion of infringement was, or depended on, an assertion that an authorized acquirer was using the same invention by infringing the asserted claims.
The closest case-on-point found by the Federal Circuit is Morgan Envelope Co. v. Albany Perforated Wrapping Paper Co., 152 U.S. 425 (1894) where the court wrote (in dicta?) that that exhaustion would not apply to excuse infringement of related – but distinct – patents.
The Morgan Court thus indicated that, even though an authorized buyer of product X was free of the patent owner’s patent on that product, the buyer could not, by virtue of his purchase, prevent the patent owner from enforcing his patent as to product Y, even though Y was specifically designed to be used with X and, at a minimum, made X more useful than it otherwise would be and, indeed, was essential to X’s utility.
Of course, a major difference with the old cases is that the added-element being supplied here is in the form of information rather than a tangible product.
In considering the impact of the 1952 and 2011 patent reforms on the judge-made law of exhaustion, the court writes “[w]e presume, from Congress’s refusal to disturb the existing decisional law of this doctrine (which predated the 1952 Act by nearly a century), an implicit authorization to continue applying the doctrine within its familiar boundaries. . . . But we do not think that Congress has granted the courts a license to erase those boundaries and expand the doctrine into difficult new territory unmapped by lines drawn, or even sketched, by Congress.” Thus, the court refused to consider policy considerations that would suggest doctrinal expansion.
The decision winding here by Judge Taranto is well supported, but I would also expect a strong challenge to be mounted for Supreme Court review.
by Dennis Crouch
On February 5, 2015, Rep. Goodlatte reintroduced his patent reform bill: the Innovation Act. Co-sponsors already include the bipartisan group of Reps. Defazio, Issa, Nadler, Smith, Lofgren, Chabot, Eschoo, Forbees, Pierlusi, Chaffetz, Jeffries, Marino, Farenthold, Holding, Johnson, Huffman, Honda, and Larsen.
Read the Bill: Innovation Act 2015
The bill as introduced includes the following provisions:
I have an article about to come out (I bet it’s in your mailbox) about whether or not Section 285 permits courts to award fees directly against lawyers.
Turns out it’s an open question with good arguments on both sides.
Sony just argued that an award against Dorsey & Whitney and its client, a losing patentee, should be affirmed. The oral argument in Sony v. Biax is here. A story (I hope not behind a paywall) is here.
Stay tuned. I’ll let y’all know when my article is available, and I’ll post it here once it is in fact in print (I’m obligated to let the ABA go first).
The general rule is that a lawyer can’t be adverse to a current client; but, mere economic adversity is not enough. What if I’m seeking to enjoin party A, who sells products to one of my clients, and so any injunction may cause economic harm to my client?
This is a potentially very dangerous opinion for patent firms. Jones, Day was representing Apple when it entered an appearance in a case where the defendant had been preliminarily enjoined from making certain batteries. Apple used those batteries.
Apple moved to intervene in the Federal Circuit to disqualify Jones, Day from representing the battery maker on appeal. The motions panel (Dyk-auth; Newman Hughes) granted the motion to disqualify, though in a non-prec opinion.
Jones, Day stated it would not be adverse to Apple in any direct negotiations for licensing, etc. Nonetheless the panel disqualified the firm. The key passage:
[T]he burden placed on the attorney- client relationship here extends well beyond the sort of unrelated representation of competing enterprises allowed under Rule 1.7(a). Apple faces not only the possibility of finding a new battery supplier, but also additional targeting by Celgard in an attempt to use the injunction issue as leverage in negotiating a business relationship. Thus, in every relevant sense, Jones Day’s representation of Celgard is adverse to Apple’s interests. This conclusion is not altered by the fact that Apple is not named as a defendant in this action. The rules and cases such as Freedom Wireless interpreting them make clear it is the total context, and not whether a party is named in a lawsuit, that controls whether the adversity is sufficient to warrant disqualification. 2006 WL at *2; see also Arrowpac Inc. v. Sea Star Line, LLC, Nos. 3:12-cv- 1180-J-32JBT et al., 2013 WL 5460027 at *10 (M.D. Fla. Apr. 30, 2013) (interpreting same rule as encompassing “any representation directly adverse to the interests of a current client.”). Celgard contends that despite the conflict we should not grant disqualification because of the prejudice involved in impinging on Celgard’s right to choose their counsel and secure new counsel. Celgard further suggests that if Rule 1.7(a) were to cover conflicting representations merely because the client is up or down the supply chain then “lawyers and clients would have no reliable way of determining whether conflicts of interest exist in deciding whether to commence engagements.” Opposition at 13, Celgard, LLC v. LG Chem, Ltd., Appeal Nos. 2014- 1675 et al. (Oct. 14, 2014).
That, however, is not our holding. Nor is it the facts of this case. As evidenced by Jones Day’s attempts to limit the nature of the representation, Jones Day and Celgard clearly knew the potential for conflict here yet elected to continue with the representation. See id. at 4 (“Jones Day explained that it could represent Celgard against LG Chem, but not against customers of LG Chem who were also Jones Day clients—such as Apple.”). Thus, the legal costs and delay in proceedings that may result from a disqualification are attributable in no small way to Celgard and Jones Day themselves.
The case is not on-line but I’ve posted it, I hope, here.
So… watch out for injunctive relief that might affect current clients! Good luck running conflicts checks on this one (though seemingly Jones Day knew of the ‘conflict’ before it appeared, in this case). By the way, there is another case, in the ITC, involving Google where the ITC came to a somewhat different conclusion, though under more attenuated facts.
Guest Post by Jacob Jacoby, Merchants Council Professor of Consumer Behavior, New York University and President, JacobyIP Research (jj@jjri.com)
When claiming patent infringement due to an individual component of a multi-component product, patent attorneys confront a fundamental problem, namely, determining with a reasonable degree of precision the extent to which the patented feature creates the basis for customer demand. The purpose of this post is to apprise patent attorneys of a research-based approach capable of doing so with precision, while being able to pass Daubert requirements.
Jason Rantanen’s September 16, 2014 post described the kind of evidence considered (and rejected) by the Federal Circuit in arriving at its VirnetX, Inc. v. Cisco Systems, Inc. (Fed. Cir. 2014) Virnetx v Cisco opinion. As Jason pointed out:
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., quoting Versata 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.
The Federal Circuit rejected use of the Nash Bargaining Solution as a model for determining reasonable royalty damages. This was not surprising, given that a key premise (namely, “where two person bargain over a matter, there is a ‘solution’…in which ‘each bargainer get[s] the same money profit”) could not possibly apply. Customers purchasing smart phones, computers, TVs, etc. in the real-world marketplace typically are not “bargainers,” nor do they realize “the same money profit” from their purchases as do the sellers.
Subsequent discussion of Jason’s post yielded interesting perspective, especially the exchange between iwasthere and Curmudgeon. When the former asked “So how would you propose breaking out the ‘value’ of FaceTime?…. What do you think [of] consumer survey data?”, the latter replied “Yes, I think customer surveys, akin to those used in trademark litigation, could make sense.” As a proponent of surveys and author of the ABA’s 1000-plus page treatise, Trademark Surveys (2013), it might be surprising to see me assert: In my professional opinion, traditional survey research is not capable of providing a scientifically reliable and valid basis to be used when assessing damages. Consider some of the problems.
Suppose one asked past purchasers questions regarding the factors led them to make their purchase. Considerable research shows that asking questions a point in time after the item has been purchased — especially for surveys conducted weeks, months or years after the purchase — is likely to generate answers subject to faulty memory. Another problem is that the answers are likely to be colored by post-purchase experiences. Although a product feature may not have played a role in their pre-purchase deliberations and decision, positive post-purchase experiences can cause them to overestimate the value of the feature, to the point where they believe they must have considered it prior to purchase. The reverse effect due to experiencing a disappointing feature is also possible.
Asking prospective purchasers to indicate the factors they think will influence their purchase decision can generate other problems. Most importantly, prospective customers may not be aware of some product features until they begin seriously considering whether to purchase the product; hence, they could not possibly report on the materiality of these features to their purchase decision.
Consider iwasthere’s critical question “So how would you propose breaking out the ‘value’ of FaceTime?” The answer is by using behavioral simulations such as those I developed and used for defendants in two matters, Polaroid Corporation v. Hewlett-Packard Company, U.S.D.C. D. Delaware, C.A. No 06-738 (SLR) (2007) and John Taylor, et al. v. JVC Americas Corporation. U.S.D.C. D. New Jersey, Civ. No. 2:07 Civ. 4059 (FSH/PS). Such simulations measure actual information acquisition behavior not before or after the fact, but as it occurs, identifying the specific features potential purchasers of the goods at issue actually do consider and consider important (and those they ignore and obviously not consider important) while reaching a purchase decision. In part based upon the research findings, both matters quickly settled out of court. To illustrate, consider the following findings from one of the above mentioned cases which breaks out consumer demand for the contested feature, Feature P, as well as all the other features associated with this product. (Note: The names of the features have been redacted, which is why the features only have letters.)
Many contemporary products have numerous features and components. The Federal Circuit has called for evidence quantifying the extent to which allegedly infringing components or features drive customer demand. The output from such simulations are capable of doing so better than are any other extant procedures, thereby making it easier for damages to be attributable to the infringing feature(s) within a reasonable degree of precision. Moreover, given their realistic nature and clear-cut findings, such simulations are likely to be more readily understood and accepted by triers of fact, especially juries, than are intricate damages theories, especially those involving questionable premises or arcane mathematical formulas.
Unfortunately, we cannot go back in time to determine to determine how the parties would react to each other under a hypothetical negotiation at the time of the infringement, a Georgia Pacific factor. We can only test consumers who are in the process of reaching a purchase decision now. That said, plaintiffs, defendants and triers of fact may find being able to identify the extent to which a feature or component drives current customer demand is preferable to relying on hypothetical negotiations that would have taken place at the time of the infringement.
Below is my account of the Patent Troll debate at PatCon 4. As those who were in attendance know, it was a dynamic, insightful, and interesting discussion about a very complex issue.
Resolved: That hostility to patent trolls is not well justified theoretically or empirically and will likely result in bad law.
Pro: David Schwartz, John Duffy
Con: Michael Meurer, Mark Lemley
***
John: Hostility to patent trolls unfounded as a theoretical matter. Patent trolls rely on two fundamental features of the patent system, and that defines their business model.
1) Alienability of patent rights: this should not be changed. This is something that should be kept, not just because of property rights theory generally, but also because of patent rights in particular. This is because inventors are generally not people who are good at business. So you need to allow these people to transfer their patent rights to others.
Consider AT&T research labs: better to have everything integrated into a massive corporation or to have rights spread out among lots of people.
2) Litigation costs are high. We should generally not be happy about this generally. We can all agree that this is a problem. But patent trolls are more efficient at dealing with this type of litigation. They’re more capable of asserting of asserting these rights. Also, keep in mind that if you have relatively narrow patent rights, you’re going to need an efficient market for those narrow rights. This is the role that patent trolls offer. This allows for the valuation of patents.
Mike – Three observations:
1) Relatively little troll activity at the start of the 20th century
2) Small businesses have motivated Congress and the White House to pursue a variety of reforms
3) Peter Detkin thinks that there is a lot of evidence that some folks are gaming the system.
Empirical research shows that patent trolls impose a tax on innovation. This hazard increases with R&D investment. Other research supports this conclusion. Patent defense imposes a cost on companies’ Research and Development. Patent defense has a negative effect on small firm R&D persisting for up to three years. This harm was present even if the defendant won the lawsuit. This is particularly concerning since there’s evidence indicating that patent trolls frequently lose their lawsuits.
This produces a chilling effect, that is strongest among small, high-tech firms. New research by Catherine Tucker showing patent troll litigation “was associated with a loss of roughly $21.8 billion of VC investment over the course of five years.”
Dave: Theory that NPEs can be good for the system because they’re specialist. Prof. Meuer system seems to be arguing that the whole patent system doesn’t work. Dave can’t address all that; the debate here is just over whether the specific entity that holds the patent matters. And he’s not convinced.
Dave might be persuaded if the suits were mainly frivolous, then there might be a big problem. But there’s not clear evidence of this. Going to lay out some guideposts about what he thinks are the right way to think about this issue:
1) Critical issue of what a PAE is. This definitional problem needs to be overcome first. Anyone that doesn’t practice the patent? Too broad; encompasses universities, individual inventors, aggregators.
2) Need to have a baseline to compare to. If the type of entity is the problem, then it can’t just be problems endemic to the patent system that matters.
3) Need to fundamentally we as academics approach research into patent litigation. Can’t keep all this research private. Data needs to be publicly available, for many reasons. For example, the definitional issue: does this change the outcome? Very hard to have a meaningful discussion about all this when the data is proprietary and held by corporations with skin in the game.
Mark: His position is that trolls aren’t necessarily the problem with the patent system. But while trolls themselves are not the problem, trolls are a symptom of real problems with the patent system. They’re a symptom of long tendency times, unclear claims, incentives to write broad functional claims. As a result of these things, anyone can easily and cheaply stand up and make a plausible claim that I’m entitle to a portion of your company’s profits. The result is a development of the ‘bottom feeder’ model, where at least some entities are pursuing a strategy of extorting nuisance value settlements. Trolls can make use of high discovery costs and asymmetries.
Is hostility to trolls making bad law? Let’s look at developments:
1) eBay: you get an injunction when you’re entitled to one.
2) We got more sophisticated with our damages arguments
3) Eliminated the willfulness infringement letter game
4) Reduced the cost of addressing patent validity by inter partes review
5) Started to eliminate forum shopping
What is Congress/Courts doing?
1) Give district courts discretion to punish frivolous suit
2) Forcing patent holders to be more clear in their claims in Biosig v. Nautilus
3) Considering reducing the cost of discovery by addressing e-Discovery
4) Considering making patent holders sue the manufacturer, rather than the downstream users or mom and pop merely as a way of increasing the royalty base.
Mike: Rebuttal to Dave and John – There are many instances of small entities – such as biotech or pharma startups – that were able to enforce their patents without the need of intermediaries. Doesn’t see a major role for tech transfer via intermediaries in the pharma and biotech areas because there is a lot of tacit information. So very skeptical were going to facilitate much transfer of technology by facilitating PAE practices.
John:
Rebuttal to Mike’s invocation of the precautionary principle: we should welcome innovation. The rise of patent trolls is a rise of innovation in law. We should not be afraid of this; we should embrace it. Also, in every other field where there are property rights, there is a robust secondary market. Consider used car markets. It’s an oddity that we don’t have one in patent law.
Rebuttal to Mark’s point on taking advantage of asymmetries. But this is something that defendants do as well – defendants are perfectly willing to take advantage of independent inventors.
Rebuttal to Mike’s event studies data. [Had to talk real fast because he was running out of time so I didn’t get it, but the button line was that Mike’s studies have flaws[
Mark: John says we have to welcome innovation. But the kind of innovation that John wants to encourage are different from the innovation that Mark wants to encourage. The type of innovation that John wants to encourage is innovation in extracting value from the patent system; innovation in the legal models. And this imposes a tax on the innovation in the technical areas. John says that this is a property system, and any property system has a robust secondary market. But this is actually an instance that shows why patent rights are not property. Patent trolls are taking rights that are lying fallow and bringing them into the marketplace. But is this possibility really providing the primary incentive for folks to engage in technological innovation.
Also, let’s think about the change. We’ve moved from a world where 2% of all patents are being enforce to perhaps a world where we’re in 50-60-70% of all patents are being enforced. That doesn’t seem like technological transfer but something else.
Dave: Going to focus just on the bottom feeder point. He’s against suits that are frivolous. But this is where the data is weakest. And this is the linchpin of the argument. Mark suggests that there are a lot of these “bottom feeder” cases. But the main study here (Lemley, Allison & Walker, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1677785) isn’t really enough.
That study looks at the most litigated patents of all time. And it finds that 90% of the patents that go to final judgment by NPEs do not win. But the problem with this study is that is relatively limited, so it may just be outliers. Also, this study appears to involve independent inventor patents, which should be kept in mind. Third, we’re equating unsuccessful with frivolous suits. But that may not be the case. Finally, there’s the problem of selection effects. Only about 10% of cases reach final judgment. There are many reasons to think that the 90% are not like the 10%. Consider two possibilities:
1) The possibility of an injunction affects settlement negotiations. Since post-eBay, it’s extremely likely that a non-practicing entity will be able to get an injunction (unlike practicing entities)
2) Practicing entities have other things that they can offer in settlement other than just money – such as business relations, etc.
David McGowan – moderator:
For Mark & Mike: Isn’t John right to say that whatever else you do, you don’t want patent law to have effects on efficient firm size?
For John & Dave: Hypothetically, let’s suppose that the choice that a sophisticated NPE is a patent portfolio, where the transaction isn’t really about whether a patent is infringed, but the aggregate possibility that there’s something in the portfolio that is infringed.
Mark: The right way to think about nondiscrimination is to think about whether we treat like situated people differently. In other words, should we single you out for no other reason than you’re a NPE? No. But that leaves a lot of room to apply rules in other ways that depend on particular characteristics or attributes of the entity.
John: Since they sort of largely agreed with me, I’m going to declare victory on a theoretical level. No one is defending that we should treat inventors in these transactions differently depending on whether they are integrated into a large firm or not.
Dave: On the portfolio point. Serially asserting patents against companies. This is not unique to PAEs. This is a general problem having to do with aggregation. In Mark’s Forest for the Trolls argument, he can see some benefits from aggregation in solving the royalty stacking problem. There’s still potential for mischief with these portfolio structures, although there may be solutions.
John: Tremendous incentive for parties to come to an agreement on these portfolios unless all the patents are junk. And if all the patents are junk, then we have a bigger problem with the patent system. Both plaintiffs and defendants lose value when suits are filed; so both parties have a strong incentive to settle. I’m going to continue to file suit against you and lose. That’s not a very strong negotiating strategy.
Mike: One thing you should have told them, John, is that when a pharma company loses value when it files a lawsuit is because the shareholders realize that the patents are not as incontestable as they thought.
Basic economics of assertion by PAEs is, if we listen to John and Dave, is that they’re more efficient in enforcing patents. The effect of this is to shift the borderline patents that are being assert to lower quality patents. The result is that we’re going to have a marginal shift to lower quality patents.
In addition, the problem with the PAEs is that they aggravate the harms from notice failure. Greater bargaining power of PAEs makes innovation tax bigger. The size of problems with the patent system is exacerbated by PAEs.
David McGowan – moderator:
For John/Dave: Why did we see a spike in NPE suits from 2001-2009?
John: Innovation in patent monetization taking place. This is good. When people game the system, they show us new things to do. Some we might want to adjust in response to. But throw the entire innovation out? No.
David: Also, a growing view that patents can be a valuable asset, combined with a larger number of firms that were willing to take patent cases on contingency fees. But the real question is whether these are frivolous cases or cases that really are meritorious
For Mike/Mark: How are we going to get information that we can be confident in?
Mark: Going back to the study that Dave talked about. Fair to say that for various structural reasons it’s hard to know much about the confidential settlements. So what can we know?
We can look at cases that go to summary judgment and trial. Invokes weak version of Priest-Klein here to respond to the selection effect point. Also, these are a substantial chunk of the cases in the system as a whole. So when we tell you that 90% of those cases are losers for PAEs, that tells us something. Also, consider Colleen Chien survey on payouts, which indicates that most of these case are settling for the cost of litigation. Ultimately, though, we really need to have more transparent settlement data, not just for studying it, but also for creating a thick secondary patent market.
Finally, if the way that things work is that the more innovative a firm is, the more it gets sued: there’s a real problem with our patent system and a fundamental disconnect be the way that incentives are aligned.
Oskar: Consider this problem: let’s imagine two inventors who come up with a process patent that they’re never going to patent. So what we hope they’re going to do is ex ante licensing. You go around to the industry and try to get everyone to adopt it. Another road that could be adopted is to get the patent and put it in a drawer and wait until someone else comes up with the process and then go out an sue them (i.e.: engage in ex post licensing.)
In between this distinction, we can say that the inventor who actually pushes the invention out is socially better than the inventor who engages in ex post licensing.
John: Patents don’t get put in drawers these days. They get put on the internet. So not really as big a concern about ex post licensing. Also, see my recent article on the Paper Patent Doctrine in Cornell Law Review.
Mark: Oskar makes a really important point. We want technology transfer. Used to be a time when we got tech transfer through the patent system because diffusion was slow and patents made it faster. But diffusion of tech as sped up and the patent system has slowed down. The key here is a distinction between patent rights transfer and technology transfer. But in a world in which most patent lawsuits are filed against independent inventors not against copiers.
For another take, see Prof. Tom Cotter’s summary of the debate: http://comparativepatentremedies.blogspot.com/2014/04/patcon-4-patent-troll-debate.html
In Intellect Wireless, Inc. v. HTC Corp., the court affirmed the district court's conclusion of inequitable conduct. Boiled down, the applicant filed a Rule 131 affidavit stating that it had actually reduced the invention to practice when, in fact, it had not. In a later affidavit, references to "actual reduction to practice" were removed, but the affidavit still contained references to a prototype–that had never been made, among other things. The court held that the affidavits were material, relying upon Therasense's statement that false affidavits were so by their nature. It held there was intent to deceive based upon the first affidavit alone, confirmed by the filing of the second without clearing matters up coupled with similar misconduct in other related cases.
The case does not appear to break new ground, but it does reinforce the fact that inequitable conduct is not a dead letter.
by Dennis Crouch
On Friday, Greg Gorder led a great discussion here at the University of Missouri School of Law as part of our symposium on Resolving IP Disputes. Gorder is a co-founder of the patent-law giant Intellectual Ventures. The focus of Gorder’s talk was on incremental invention and the “invention gap” associated with most products on the market. Intellectual Ventures basically defines this invention gap as the number of patents that a company is infringing when it makes or sells its products. The key figure that I walked away with was 80,000. Intellectual Ventures now owns over 80,000 patents and pending patent applications.
Later this week we should have video of the conference available for viewing.
While Mr. Gorder was speaking here at Mizzou, his company attorneys were busy filing a host of patent infringement lawsuits against the mobile carrier industry, including AT&T, Leap Wireless, Nextel, T-Mobile, and US Cellular. The patents in suit include U.S. Patent Nos. 6,640,248; 5,602,831; 6,023,783; 6,952,408; 6,370,153; 5,963,557; 8,310,993; 7,269,127; 7,848,353; 8,396,079; and 7,787,431. In typical aggregator form, the patents come from a diverse array of sources including Malibu Networks (a failed company with “promising technology” that “entered the market about two years too early”); Seiko (an ongoing company that wanted to monetize its invention surplus); California Institute of Technology (a large non-practicing entity); AirNet Communications; John Eng; IPWireless; Georgia Tech; and Neocific.
By Dennis Crouch
Ex parte Mewherter (PTAB 2013)
The USPTO has recently designated Ex parte Mewherter as a precedential decision with regards to its treatment of rejections under 35 U.S.C. § 101. The opinion basically holds that standard Beauregard claims (computer readable storage media) are not patent eligible because they could encompass transitory signals that are unpatentable under the Federal Circuit’s Nuijten decision.
IBM’s Patent Application Serial No. 10/685,192 is directed to a “system for converting slide show presentations” that converts each slide into “raster imagery” and then extracts contextual data (such as titles) and places those “in proximity to the raster imagery.” The claim at issue here is claim 16, that is written as follows:
16. A machine readable storage medium having stored thereon a computer program for converting a slide show presentation for use with a non-presentation application, the computer program comprising a routine of set instructions for causing the machine to perform the steps of:
Extracting a slide title for a first slide in a slide show presentation produced by a slide show presentation application executing in memory of a computer;
Converting said first slide with said slide title into a raster image;
Disposing both said slide title and said raster image of said slide in a markup language document; and
Repeating said extracting, converting and disposing steps for a selected group of other slides in the slide show presentation.
The examiner rejected the claim under 35 U.S.C. § 101 as claiming non-statutory subject matter. In particular, the examiner indicated that the instructions could be imbedded in a signal or wave and are therefore unpatentable under In re Nuijten (Fed. Cir. 2007). In its appeal to the PTAB, IBM argued that its claimed “machine readable storage medium” is sufficiently fixed to avoid the transitory concerns expressed by the Federal Circuit in Nuijten. In the appeal, however, the PTAB affirmed the examiner’s rejection – finding that under the “broadest reasonable interpretation” a “machine readable storage medium” continues to encompass unpatentable transitory signals. Here, the specification does not particularly define the claim term and IBM did not offer any promise that the claim is limited to non-transitory signals.
In its 2012 examination training, the USPTO offered parallel guidance:
When the specification is silent (no special definition of a CRM provided in original disclosure):
– It is acceptable to amend the claims to exclude the signal embodiment by adding “non-transitory” to modify the computer readable media.
– See “Subject Matter Eligibility of Computer Readable Media” (Jan. ’10)
“Non-transitory” is not a requirement, but simply one option.
– Applicant can choose other ways to amend the claim in accordance with the original disclosure.
– Not acceptable to just add “physical” or “tangible”
– Nuijten’s ineligible signals were physical and tangible.
– Not acceptable to add “storage” absent support in original disclosure because the broadest reasonable interpretation of computer readable storage media based on common usage covers signals/carrier waves.
The bottom line here is that patent applicants must now specifically disclaim transitory waves or signals as their compositional carrier of any software claims.
By Dennis Crouch
Patenting Software: Ex Parte Betts [Computer Associates], 2013 WL 3327142, Appeal 2010-004256, Application 11/132,649 (PTAB 2013) (“[W]e conclude claims 14-26 encompass software without physical embodiment, i.e., software per se, which is an abstract idea and not a “process, machine, manufacture, or composition of matter,” as required by § 101.”)
Patenting Software: Ex Parte Krause [HEWLETT-PACKARD], 2013 WL 3246398, Appeal 2010-012129, Application 10/442,401 (PTAB 2013) (Claims directed to an “end station” within a network having an “aggressive timer.” “Appellant contends that the Examiner erred in rejecting [the] claims … under 35 U.S.C §101 because the claims recite an “end station,” which is defined as hardware. Appellant’s argument does not cite evidence to rebut the Examiner’s interpretation that the claim encompasses either hardware or software. Accordingly, we decline to reverse the rejection.”)
Patenting Software: Ex Parte Barsness [IBM], 2013 WL 3362954, Appeal 2010-011009, Application 11/316,285 (PTAB 2013) (Claim directed to “computer-executable instructions tangibly recorded on a computer-readable media” construed to include “non-statutory, transitory embodiments.” “[W]e find the Specification states the invention is capable of being distributed in the form of a wireless signal when exchanged from one signal-bearing medium to another. This falls within a propagating electromagnetic signal per se and thus, is not directed to one of the statutory categories.”)
Patenting Software: Ex Parte Svendsen [Concert Tech], 2013 WL 3363110, Appeal 2011-001873, Application 11/837,876 (PTAB 2013) (Claimed media “control system” could be implemented as software. “As such, we are not persuaded by Appellants’ argument that the mere recitation of a “control system” (even if the Specification describes it as being associated with a memory) is sufficient to make the claims patent-eligible under 35 U.S.C. § 101 . . . as it does not play a significant part in the performance of the claimed steps.” In short, the broadest reasonable interpretation of the claim language leads us to construe the “control system” as being directed to a computer program per se, which, as drafted, renders the claimed subject matter not patentable under 35 U.S.C. § 101. See Gottschalk v. Benson, 409 U.S. 63, 72 (1972).”
Patenting Method that Could be Performed by a Human: Ex Parte Xu [HEWLETT-PACKARD], 213 WL 3363011, Appeal 2010-009107, Application 10/767,075 (PTAB 2013) (“[C]laim 1 as a whole is directed to a sequence of steps that can be performed by a person. Accordingly, claim 1 is drawn to patent-ineligible subject matter and invalid under § 101.”)
Patenting Device Attached to a Human is OK: Ex Parte Robert S. Bray, 2013 WL 3293616, Appeal 2011-013427, Application 11/686,054 (PTAB 2013) (“The claims recite a device positioned between two vertebrae not, for example, a human comprising a positioned device. The claims relate only to the correct placement of the device in the human patient, and as a whole, do not encompass a human organism. There is nothing in the statute, and we are unaware of any case, that categorically excludes such devices.”)
By Jason Rantanen (note that you can now follow me on Twitter @PatentlyO_Jason). For the sake of disclosure: while I was in practice I represented Cisco in an unrelated patent infringement litigation involving wireless technology.
Commil USA, LLC v. Cisco Systems, Inc. (Fed. Cir. 2013) Download 12-1042.Opinion.6-21-2013.1
Panel: Newman (concurring-in-part, dissenting-in-part), Prost (author), O'Malley (concurring-in-part, dissenting-in-part)
Cisco appealed from a jury finding that it induced infringement of Commil's patent. The primary issues addressed by the court were a pre-Global-Tech jury instruction and the appropriateness of considering validity when determining whether the accused party posessed the requisite state of mind for inducement of infringement. All three judges on the panel agreed that the jury instruction was both erroneous and prejudicial while Judges Prost and O'Malley agreed that issues of validity may be considered in the intent inquiry.
Jury Instruction for Inducement: During the April 2011 trial, the jury was given the following instructions relating to inducement:
If you find that a third party has directly infringed Claim 1, 4, or 6 of the '395 patent,
then Commil must prove by a preponderance of the evidence that Cisco actively and knowingly aided and abetted that direct infringement.
Furthermore, Commil must show that Cisco actually intended to cause the acts that constitute direct infringement and that Cisco knew or should have known that its actions would induce actual infringement. Inducing third-party infringement cannot occur unintentionally. This is different from direct infringement, which can occur unintentionally. Cisco also cannot be liable for inducing infringement if it was not aware of the existence of the patent.
If you find that a third party has directly infringed Claim 1, 4, or 6 of the '395 patent
and that Cisco knew or should have known that its actions would induce direct infringement, you may find that Cisco induced another to infringe Commil's patent if it provided instructions and directions to perform the infringing act through labels, advertising, or other sales methods.
(Emphasis added). Note that the court's opinion contains only bits and pieces of these instructions. In order to obtain them in their entirety, I pulled the April 8, 2011 trial transcript via Lex Machina.
The jury found in Commil's favor and award it $63,791,153 in damages. Approximately two months later, the Supreme Court issued its opinion in Global-Tech v. SEB, in which it held that induced infringement "requires knowledge that the induced acts constitute patent infringement," a requirement that can be satisfied either through actual knowledge or willful blindness. 131 S.Ct. 2060, 2068, 2072 (2011). Based on Global-Tech, Cisco argued that the "should have known" language in the above jury instruction erroneously permitted the jury to find that it liable based on a negligence standard.
On appeal, the Federal Circuit agreed with Cisco that the instruction was legally erroneous under Global-Tech and that the error was prejudicial to Cisco. "With respect to whether the induced acts constitute patent infringement, it is clear that the jury was permitted to find induced infringement based on mere negligence where knowledge is required. This erroneous instruction certainly could have changed the result. Facts sufficient to support a negligence finding are not necessarily sufficient to support a finding of knowledge." Slip Op. at 8.
Issues of Validity May Negate Intent: Cisco also argued, and the majority agreed, that it should have been allowed to present evidence relating to its good-faith belief that the asserted claims were invalid. Just as a good-faith belief of non-infringement is relevant to the intent inquiry for inducement, so too is a good-faith belief about the invalidity of the claims relevant:
It is axiomatic that one cannot infringe an invalid patent. [] Accordingly, one could be aware of a patent and induce another to perform the steps of the patent claim, but have a good-faith belief that the patent is not valid. Under those circumstances, it can hardly be said that the alleged inducer intended to induce infringement. Thus, a good-faith belief of invalidity is evidence that may negate the specific intent to encourage another’s infringement, which is required for induced infringement. Several district courts have considered this question and come to the same conclusion.[]
We now hold that evidence of an accused inducer’s good-faith belief of invalidity may negate the requisite intent for induced infringement.1 This is, of course, not to say that such evidence precludes a finding of induced infringement. Rather, it is evidence that should be considered by the fact-finder in determining whether an accused party knew “that the induced acts constitute patent infringement.” Global-Tech, 131 S. Ct. at 2068.
Slip Op. at 10-11 (internal citations omitted).
Judge Newman's Dissent: Judge Newman dissented as to the validity component of the court's ruling. In her view, the only intent issue involved in inducement the question of infringement; an infringer's belief as to the validity of the patent plays no rule in the determination of inducement:
A defendant’s ultimate liability for induced infringement, as for direct infringement, is subject to various defenses including patent invalidity and unenforceability. However, whether there is infringement in fact does not depend on the belief of the accused infringer that it might succeed in invalidating the patent. Such a belief, even if held in good faith, does not negate infringement of a valid and enforceable patent. This rule applies, whether the infringement is direct or indirect. My colleagues err in holding that “evidence of an accused inducer’s good-faith belief of invalidity may negate the requisite intent for induced infringement.” Maj. op. at 11.
Slip Op. at 22. One difficulty with Judge Newman's position is that she bases it on the principle that "A mistake of law, even if made in good faith, does not absolve a tortfeasor." Slip Op. at 21. This principle, however, would seem to apply as much to mistakes about infringement – which Judge Newman agrees are relevant to the question of inducement – as it would to mistakes about validity. Both can involve mistakes about fundamentally legal questions or the application of law to fact. (I've also argued in the past that this tort principle does not translate well to patent law [p. 1617-1620]).
The New Trial Issue and Judge O'Malley's Dissent: During the initial trial, according to the district court, "Cisco's trial counsel attempted to play upon religious prejudices and other ethnic stereotypes." Slip Op. at 12. After Commil lost on indirect infringement, the district court granted it a partial new trial on the issues of infringement and damages (that's the trial discussed above). All three judges agreed that the district court did not abuse its discretion in granting Commil a new trial. However, the district court also declined to include issues of validity in the new trial, a decision affirmed by Judge Prost joined by Judge Newman.
Writing in dissent, Judge O'Malley disagreed that the district court's decision to grant Commil a new trial on the issue of infringement while not allowing Cisco a new trial on the issue of validity survived Seventh Amendment scrutiny. Judge O'Malley also would have addressed "Cisco's potentially dispositive arguments regarding whether Commil did or ever could prove the third party direct infringement which is a necessary predicate to Commil’s induced infringement claim." Slip Op. at 26.
Editorial by David A. Balto. Mr. Balto is an antitrust attorney in Washington D.C. whose representations include high technology firms. In addition to his practice, Mr. Balto was formerly a policy director of the Federal Trade Commission, attorney-adviser to Chairman Robert Pitofsky, and an antitrust lawyer at the U.S. Department of Justice. He has also published research and authored scholarship for Google on technology policy topics.
Using the Antitrust Laws to Police Patent Privateering
By David Balto
In the ongoing debate over patent assertion entities, increased attention is being paid to “patent privateering”: the practice of operating firms transferring patents to non-practicing entities in order to bring patent litigation against their rivals. As I explained in a recent article:
“Privateering is the practice by which established operating companies arm trolls with patents and deploy them to engage in expensive, incessant litigation against competitors. This Trojan horse approach allows companies to accrue the benefits of the egregious troll conduct without incurring any of the risks. And more often than not it is used as a competitive weapon to try to raise costs and dampen competition from rival operating companies.”
Firms like Google, BlackBerry and Red Hat recently filed comments with the Federal Trade Commission and Department of Justice, explaining the substantial concerns that patent privateering raises from a competition perspective.
This begs the question: is there an antitrust solution to the privateering problem?
A recent article by Mark Popofsky and Michael Laufert provides a thoughtful roadmap on how the antitrust laws can be used to police privateering. It’s a must-read for businesses and policymakers concerned that patents are becoming strategic tools for anticompetitive conduct.
In the current patent ecosystem, large operating companies accumulate patents in part for defensive purposes. Those companies are unwilling to use their patents in certain strategic fashions because they fear that the same will be done to them. These patent portfolios help assure patent peace because they assure that any strategic conduct will be met with a similar response – so-called mutually assured destruction.
Popofsky and Laufert outline three concerns around privateering transfers to PAEs that upset that balance. Privateering lets operating companies evade “[mutual assured destruction] or reputational constraints to raising rivals’ costs” and “FRAND or other licensing commitments,” and provides a method for “strategic outsourcing to PAEs to hinder rivals.” Essentially, privateering companies are use PAEs because they have the incentive and ability to engage in strategic conduct that is prevented by current market forces.
The article gives a prime example of these concerns: the well-reported patent transfer from Nokia and Microsoft to patent troll MOSAID. After the failure of Nokia’s open source Symbian mobile operating software, Nokia joined forces with Microsoft and adopted its Windows Phone 7 platform. Nokia had originally supported open source software and made numerous FRAND commitments, but these commitments became a hindrance when Android (open source) became Nokia’s chief competitor. Microsoft and Nokia orchestrated a transfer of 2,000 of Nokia’s patents, 1,200 of which were standards essential patents (SEPs) with FRAND commitments, to MOSAID for a nominal fee. As part of the deal MOSAID has to pay Microsoft and Nokia 2/3 of the patent royalties and meet strict “royalty protection provisions and milestone payments calculated to maximize . . . revenue.”
The MOSAID transfer exhibits all three of the anticompetitive concerns. MOSAID has the incentive and ability to engage in strategic patent litigation. Nokia could not assert these 2,000 patents without breaking patent peace and risking counter-suits for patent infringement. MOSAID can use these patents without fear because MOSAID does not practice in the industry and immune to countersuits. The transfer also allows Nokia to evade a FRAND commitment not to charge more than 2% total royalty for all the wireless SEPs in Nokia's portfolio. MOSAID did not make this promise, and even if it honored Nokia's promise and only charged 2% for the 1,200 SEPs MOSAID received the total fees could still double for competitors.
Nokia later transferred portions of its SEP portfolio to patent trolls Sisvel and Vringo. These transfers could potentially quadruple the licensing cost of these SEPs. MOSAID also can’t collect royalties from “third parties implementing certain Microsoft software in their mobile devices.” However, MOSAID must meet revenue expectations or it risks activating a default provision in the transfer contract that would allow Nokia to take those patents back for only $10,000. This creates serious strategic interests for MOSAID to aggressively target Microsoft and Nokia’s rivals.
Fortunately, Popofsky and Laufert offer several ways to challenge these troubling transfers to patent trolls under the existing antitrust laws. This outsourcing of patent litigation might “form part of a scheme to maintain or obtain monopoly power” in violation of Section 2 of the Sherman Act which prohibits monopolization. A plaintiff would have to prove that transfers to patent trolls are a part of an exclusionary strategy to obtain or maintain monopoly power by raising rivals costs. The first part of the strategy is to create patent-holdup by making FRAND commitments to get patents into a standard and then evading those FRAND commitments through transfers to patent trolls. The second part of the strategy is to raise licensing fees by arming patent trolls that have no incentive to negotiate license rates because they have no risk of patent counter-suits or injury to their reputation. If proven, a private plaintiff could receive an award of treble damages and the government can secure injunctive relief.
The transfer can also be challenged under Section 7 of the Clayton Act which prevents mergers and acquisitions if they are likely to substantially lessen competition or tend to create a monopoly. Patent acquisitions can be challenged under Section 7. The article notes that the Department of Justice has already used this power in 2011 to prevent Microsoft from acquiring Novell’s patents to which Microsoft already had a license. This agency action was made to prevent a transfer whose only logical purpose was to attack open source software. The government can continue to use its Section 7 power to block transfers to patent trolls and it can challenge these transfers before they inflict harm.
The Section 7 power should be fully explored. The National Restaurant Association and Food Marketing Institute have suggested that the agencies need to increase their scrutiny of patent transfers to PAEs and they offer an important tool. They suggest that the FTC and DOJ adopt regulations to make more of these transfers reportable under the Hart Scott Rodino Act. This would give the agencies far stronger tools to fully investigate and challenge these transfers.
The transfers could also be challenged as a restraint of trade under Section 1 of the Sherman Act. Michael Carrier has commented that the MOSAID transfer “could present a Section 1 concern similar to a pooling arrangement the Supreme Court declared per se illegal in Singer Manufacturing Co.” Transfers running afoul of Section 7 can also "be recast as violations of Sherman Act Section 1."
Finally, the FTC can also challenge transfers that seek to dodge FRAND and other commitments through Section 5 of the FTC Act. The FTC has already done this in a consent order with N-Data Solutions. The FTC Act gives the Federal Trade Commission the power to prevent "unfair methods of competition in or affecting commerce and unfair or deceptive acts or practices in or affecting commerce."
The Popofsky/Laufert paper should be required reading for the regulators at the FTC and DOJ. Well conceived enforcement actions against transfers to trolls would be one of the most effective ways to deal with the growing privateering problem.
By Dennis Crouch
Belkin v. Kappos (Fed. Cir. 2012) (Appeal of Inter Partes Reexam No. 95/001,089)
OptimumPath’s U.S. Patent No. 7,035,281 broadly covers a wireless router with onboard authentication and is based upon an application filed in the year 2000. When Belkin filed its inter partes reexamination request, it argued that a set of four prior art references render all 32 claims unpatentable. The USPTO partially granted Belkin’s request. However, the USPTO found that only one of the four references (“Pierce”) raised a substantial new question of patentability, and the Pierce-SNQ only related to claims 1-3 and 8-10 of the ‘281 patent. The USPTO thus rejected the request as to the remaining claims 4-7 and 11-32. Further, the USPTO also rejected the notion that the four-reference combination raised a SNQ with regard to claims 1-3 and 8-10.
Belkin filed a petition to challenge the partial denial. Since the reexamination had been granted as to claims 1-3 and 8-10, Belkin only challenged the USPTO’s adverse decision regarding the other claims. That petition was duly denied. As prosecution developed, the Examiner (supported by the BPAI) determined that the lone reference (Pierce) did not actually anticipate claims 1-3 or 8-10. Further, the USPTO refused to consider the four-part combination obviousness argument that had been rejected at the request stage. The BPAI then confirmed the Examiner’s decision – holding that the Board did not have the power to now decide that the combination of references raise a SNQ of patentability because that determination is not appealable under 35 U.S.C. § 312(c).
The USPTO differentiates between petitions and appeals and according to the Board, Belkin erred by failing to timely petition to challenge SNQ determination rather doing what it did (waiting to appeal that determination after receiving an adverse examiner decision0.
Now, the Court of Appeals for the Federal Circuit (CAFC) has affirmed the Board decision – holding that
The proper course of action was for Belkin to have petitioned the Director to review the determination that the arguments relying on the [other three references] did not raise a substantial new question of patentability pursuant to 37 C.F.C. § 1.927. Belkin did not do so, and thus that decision became final and non-appealable, rendering those issues beyond the scope of the reexamination.
One problem raised by this decision by Judge Lourie and joined by Chief Judges Rader and Judge Wallach is that it conflicts with the MPEP.
MPEP § 2648 identifies a hypothetical situation parallel to Belkin’s – where an inter partes reexamination request on a particular claim is granted based upon one set of prior art but denied based upon another set of prior art. According to the MPEP, no petition challenging the partial-grant may be filed with regard to that claim and that once granted, the reexamination will consider “all prior art.”
[N]o petition may be filed requesting review of a decision granting a request for reexamination even if the decision grants the request as to a specific claim for reasons other than those advanced by the third party requester. No right to review exists as to that claim, because it will be reexamined in view of all prior art during the reexamination under 37 CFR 1.937.
MPEP § 2648. The Federal Circuit decision here considered the conflict created by the MPEP and ultimately determined that the MPEP does not carry the weight of law and thus is easily discarded. The court writes:
[T]he MPEP does not have the force of law, and is only entitled to judicial notice as the PTO’s official interpretation of statutes and regulations with which it is not in conflict. Molins PLC v. Textron, Inc., 48 F.3d 1172, 1180 n.10 (Fed. Cir. 1995).
This holding here (following Molins) becomes even more important under the AIA as the PTO has received a substantial additional amount of rulemaking authority for determining the proper methodology of conducting the array of post-grant challenge options. Here we have a re-affirmance that the USPTO’s statements in the MPEP will not be given the same deference that will be due to rules promulgated and printed in the code of federal regulations (CFR). The court noted that this decision should not be seen as offering any guidance as to how the AIA will be interpreted (since this case applies the old law regarding inter partes reexaminations).
Limit Scope of Reexamination: The court here goes on to hold that the Patent Act strictly limits the prior art that the USPTO can apply in considering challenged claims during reexamination. In particular, in the reexamination the PTO can only consider the prior art that the director found raised the substantial questions of patentability. The court writes:
In any event, in order to reconcile what may otherwise appear to be conflicting provisions, we hold that, under the statute, available prior art may only be considered to answer the specific questions of patentability found by the Director.
In a footnote, the expressly refuses to rule on a situation where the patentee amends claims or adds new claims during the reexamination. Thus, in those situations, the PTO might have the power to consider other references.
We do not reach the issue of what prior art references the PTO may or may not consider during reexamination in response to an amended or substituted claim.
The problem with this holding on the “statute” is that the court does not actually identify the statutory provision that lead to its conclusion. I suppose that the best statute on point is Section 312(c) that limits the appeal of SNQ determinations. If we allow a requester to force the consideration of additional references by appealing to the BPAI – then that begins to look like an appeal of the SNQ determination. That seems to be a fairly weak argument and perhaps that is why the court did not spell it out.
For its part, the Board was likely thinking of this case as an important stake-in-the-ground to limit the scope of the new post grant review regimes (that the Board is handling directly rather than the CRU). The importance is evidenced by the fact that the case was decided by an expanded 5-judge panel which included Board Vice-Chief Judge James T. Moore and Judge Allen MacDonald as added members.
Guest Post by Jorge L. Contreras
Standards are powerful market tools that enable products and services offered by different vendors to interoperate: think WiFi, USB, and the pervasive 3G and 4G telecommunications standards. Yet once standards are widely adopted, markets can become "locked-in" and switching to a different technology can be prohibitively costly. Because patent holders have the potential to block others from deploying technology covered by their patents, the industry associations that develop standards ("standards development organizations" or "SDOs") often demand a trade-off from the companies that participate in standards-development: you can have a say in the technical direction of the standard, but in return you must license your patents that are essential to the standard on "fair, reasonable and non-discriminatory" (FRAND) terms.
Last month, I discussed a series of statements released by Apple, Microsoft and Google seeking to clarify how they interpret FRAND licensing commitments. Both the U.S. Department of Justice and the European Commission looked carefully at these interpretations in evaluating Google's $12 billion acquisition of Motorola Mobility, Apple's purchase of a number of Linux-related patents, and the $4.5 billion acquisition of Nortel's patent portfolio by a group including Microsoft, Apple, and RIM. The agencies concluded that these transactions did not present significant antitrust concerns, basing their reasoning in part on the interpretations of FRAND offered by Apple, Microsoft and Google.
Independently of these agency determinations, there continues to be significant disagreement among market participants over the meaning of FRAND. This disagreement arises both in reference to the level of royalties that should be considered "reasonable", and whether other tactics, such as seeking injunctive relief, are fair game when FRAND commitments have been made. Such disagreements have serious consequences because a commitment to grant a license on FRAND terms is not itself a license. A license to operate under a patent is not granted until the parties can agree on those "fair, reasonable and non-discriminatory" terms. So, if the parties can't agree on the terms of the FRAND license for a particular "standards-essential" patent, the frustrated licensee must either refrain from implementing the standard (and lose a significant market opportunity) or risk infringing the patent. The typical result: litigation.
To help get a handle on the current state of play in the courts, Table 1 offers a summary of some of the principal cases in which FRAND issues are currently being litigated in the U.S. and Europe. These disputes form only a part of the larger patent wars currently being waged across the smart phone industry. That wide-ranging litigation involves even more players and extends to patents that are not necessarily essential to the implementation of industry standards. But the more focused skirmishes over FRAND issues are important too, as some of the most basic technology needed to make mobile devices interoperate is covered by standards, and the terms on which "standards-essential" patents will be licensed will affect all players in the market, both large and small. Thus, while the scale, complexity and rapid pace of this litigation virtually guarantees that any summary will be incomplete and quickly outdated, I hope that it will be useful (at least temporarily) for those who want an overview of the current state of play regarding FRAND.
Table 1 – Current FRAND Litigation
|
Parties |
Court |
FRAND Issue(s) |
Status |
|
|
W.D. Wash |
Royalty rate, injunctions |
Summary judgment hearing scheduled May 2012, trial scheduled Nov. 2012.
Moto currently enjoined from enforcing German injunctions |
|
|
European Comm'n |
Injunctions, licensing conditions |
EC investigation announced in Apr. 2012 |
|
|
N.D. Ill. & W.D. Wis. |
Royalty rate |
Ill. trial scheduled June 2012; Wis. trial scheduled Nov. 2012 |
|
|
S.D. Cal. |
Defensive suspension, injunctions |
Apple complaint filed Feb. 2012 |
|
|
N.D. Cal. |
Injunctions, failure to disclose |
Summary judgment motion scheduled for hearing May 2012; mediation pending |
|
|
Netherlands – Hague |
Injunctions |
|
|
|
European Comm'n |
Injunctions |
EC investigation announced in Jan. 2012 |
|
|
Del. Ch. |
ITC exclusion orders |
Huawei complaint filed Oct. 2011 |
Microsoft v. Motorola (W.D.Wash, Case No. C10-1823-JLR): This case relates to Motorola patents covering the IEEE's 802.11 (WiFi) standards and the ISO/IEC's and ITU's H.264 video codec standards. In 2010, Motorola offered to license these patents to Microsoft at a proposed royalty of 2.25% of the end product (i.e., each Xbox 360, PC/laptop or smart phone implementing the standard). Microsoft did not take a license, sought declaratory relief that Motorola breached its FRAND obligations to the SDOs, and Motorola sued Microsoft for patent infringement. The crux of Microsoft's argument is that Motorola's license offer is inherently unreasonable because it is not tied to the value of Motorola's technical contribution and because it seeks to assess royalties on the price of a PC/laptop rather than Microsoft's contribution to that product (i.e., the Windows operating system). Microsoft has also contended that the absolute value of Motorola's royalty demand (about $4 billion, presumably across all product lines) is unreasonable and far exceeds the amounts that Microsoft pays to other holders of larger numbers of standards-essential patents. Motorola counters that its 2.25% royalty rate has been offered for many years and is well within industry norms (citing examples of royalty rates much higher than this). It also contends that Microsoft refused to negotiate in good faith, thereby repudiating its right to receive a FRAND license. In February, the District Court denied Microsoft's first motion for summary judgment, but each party has made additional motions for summary judgment relating to FRAND and breach of contract issues, which will be heard in May.
Last week, the court granted Microsoft a preliminary injunction and temporary restraining order preventing Motorola from enforcing injunctions enjoining the sale of Microsoft products in Germany, a matter on which the Mannheim Regional Court is scheduled to rule shortly. Microsoft has requested that the International Trade Commission (ITC) similarly postpone ruling on Motorola's infringement claims until the Washington court has had the opportunity to rule on the FRAND matter.
European Commission Investigations. On April 3, the European Commission (after receiving complaints from Microsoft and Apple) announced that it initiated an investigation to determine whether Motorola violated European competition law by failing to comply with its FRAND commitments to standard-setting organizations. In particular, the EC has stated that it will investigate whether Motorola's attempts to obtain injunctions on the basis of standards-essential patents, and the licensing terms that it has offered, amount to an abuse of dominant position in violation of Article 102 of the EU Treaty. In January, the EC opened a similar investigation of Samsung to determine whether its attempts to obtain injunctive relief in various European patent actions pending against Apple violated Samsung's FRAND commitments to ETSI and otherwise ran afoul of EC competition law. The EC has actively investigated FRAND compliance in the past, most notably the allegedly excessive royalty rates charged by Qualcomm on the CDMA and WCDMA wireless 3G communications standards. The Qualcomm investigation, which was initiated in October 2007, was closed in November 2009 after Qualcomm reached settlements with the original complainants in the case.
Apple v. Motorola (N.D. Ill, Case No. 1:11-cv-08540, transferred in part from W.D. Wis., Case No. 10-CV-00662-BBC). Apple and Motorola have been embroiled in patent litigation over smart phones and other products since late 2010. Not all of the patents at issue relate to standardized technology, but in a few critical cases standardization and FRAND issues are front and center. Most significant is the dispute playing out in the Northern District of Illinois before Judge Richard Posner, sitting by designation. In that case, Apple argues that Motorola should be equitably estopped from enforcing certain patents relating to the ETSI GSM/WCDMA and UMTS/3GPP standards. The gist of Apple's complaint appears to be that Motorola did not offer to license Apple on terms that were FRAND. Yet Motorola maintains that it did, beginning in 2007, offer to license its patents to Apple at its customary rate of 2.25%. The dispute, then, revolves around the issue whether this licensing offer complies with Motorola's FRAND obligations to ETSI and possibly other SDOs and, if not, what remedies are available to Apple. Trial is scheduled for June. Trial in Illinois is scheduled in June. It appears that some, but not all, of the FRAND-related claims in this case remain in the Wisconsin court, which is scheduled for trial in November.
Apple v. Motorola (S.D. Cal., Case No. 12CV0355 JLS BLM). Last year the Apple-Motorola patent litigation spread to Germany and Motorola obtained an injunction against the sale of certain Apple products (e.g., iPhones) from the Regional Court (Landesgericht) of Mannheim (the injunction was recently suspended by the Higher Regional Court (Oberlandesgericht) in Karlsruhe pending further proceedings). Among the many patents being asserted by Motorola are two that are essential to the GPRS standard developed at the European Telecommunications Standards Institute (ETSI). This February, Apple brought a declaratory judgment action against Motorola in the Southern District of California, alleging that Motorola violated its FRAND obligations to ETSI when it sought an injunction from the Mannheim court. Apple bases its FRAND claim on a license that Motorola previously granted to Qualcomm, the supplier of GPRS-based communication chips used in the iPhone. Based on the pleadings, it appears that under the Motorola-Qualcomm license Motorola covenants not to sue Qualcomm's customers (such as Apple) for using Qualcomm's GPRS-based chips. However, Motorola seems to have revoked Apple's immunity under the Qualcomm license, asserting that Apple's enforcement of different patents against Motorola triggered the "defensive suspension" provisions of that license. In the California suit Apple seems to claim that either Motorola's revocation of Apple's rights under the Qualcomm license, or its enforcement of patents against Apple in Germany, violates Motorola's FRAND obligations to ETSI. The case is still at an early stage, and Apple's FRAND-based arguments, as well as Motorola's defenses, will presumably be clarified in the future.
Apple v. Samsung (N.D. Cal. Civil Action No. 11-CV-01846-LHK). Apple is also involved in wide-ranging patent litigation with Samsung, maker of the Galaxy smart phone than runs Google's Android operating system. In the Northern District of California, Apple and Samsung are each asserting patents against each other. Apple has moved for partial summary judgment arguing that Samsung failed to disclose patents essential to the ETSI UMTS telecommunications standard used in the iPhone and iPad, that Apple is licensed under these patents pursuant to a cross-license between Samsung and Intel (the supplier of chipsets used in these Apple products), and that Samsung's FRAND commitments to ETSI prevent it from now seeking injunctive relief against Apple. Apple's FRAND argument is interesting, in that it relies on French law (which purportedly governs the ETSI IPR policy and declarations). Samsung counters that Apple only sought a FRAND license from Samsung after Apple initiated litigation, then rejected Samsung's FRAND license offer and "steadfastly refused to engage in meaningful FRAND negotiations" (Samsung's Opposition to Apple's Motion for Partial Summary Judgment, Apr. 2, 2012, at 11). The sum of these actions, according to Samsung, is that Samsung's FRAND obligations should no longer prevent it from seeking an injunction against Apple under these circumstances. A hearing on Apple's motion is scheduled for May, 2012. The case is particularly noteworthy, as it involves not only FRAND issues, but also allegations that Samsung violated ETSI's patent disclosure rules (thus rendering Samsung's patents unenforceable), allegations reminiscent of those made in Rambus v. Infineon, 318 F.3d 1081 (Fed. Cir. 2003), cert. denied, 124 S.Ct. 227 (2003), and Qualcomm v. Broadcom, 584 F.3d 1004 (Fed. Cir. 2008). This month, the parties agreed to submit at least part of the dispute to mediation.
Apple v. Samsung (District Court – Hague, Netherlands, Case numbers 400367 / HA ZA 11-2212, 400376 / HA ZA 11-2213 and 400385 / HA ZA 11-2215). In March, a district court in the Hague, Netherlands, denied Samsung's request for an injunction against Apple, basing its reasoning (according to news reports – I do not have access to an English translation of the decision) on Samsung's commitment to grant FRAND licenses. The court apparently found that because Apple was willing to negotiate in good faith, Samsung's request for an injunction against the sale of Apple products in the Netherlands would not be sustained.
Huawei v. InterDigital (Del. Ch., No. 6974). InterDigital Communications has asserted eight patents relating to 3G telecommunications standards against Huawei in the ITC, seeking an exclusion order against the importation of infringing Huawei products into the U.S. Huawei alleges in an action brought in the Delaware Chancery Court that InterDigital has breached its commitments to ETSI and 3GPP by seeking to enforce its patents against Huawei products without first offering to enter into a FRAND license. Because an exclusion order is the only remedy that the ITC is authorized to grant, Huawei seeks to have the ITC action dismissed on this basis, as well as the establishment of a FRAND royalty rate for InterDigital's 3G patents.
Although much more than just a patent deal, Google’s purchase of Motorola Mobility is also clearly driven by Google’s perceived need to establish a strong portfolio of patent rights in an attempt to ward-off patent attacks by competitors in the fiercely competitive and growing smart-phone market.
Motorola Mobility was formerly the famous Mobile Devices division of Motorola, Inc. In January 2011, the company was spun-off from its parent. The company’s devices have been lagging in the market, but its patent rights have always been strong and plentiful. Recently, Motorola Mobility has become deeply involved in patent infringement litigation with suits pending versus competitors such as Microsoft, Apple, and TiVo in addition to more than two-dozen pending suits as defendants against non-practising patent holders.
Motorola Mobility holds over 24,000 patents and pending patent applications worldwide. In the US market alone, the company holds around 5,000 patents and 1,500 pending patent applications. The bulk of these patents were assigned to Mobility during the split from Motorola. However, the unit has continued to apply-for and obtain patents since the split. Motorola Mobility also owns a number of subsidiary companies that also hold their own patents, such as General Instrument, Inc.
Some pending US litigation:
