Sometimes a Pig is Just a Pig

PatentLawImage067Moody v. Morris, PBS, et al. (Fed. Cir. 2010)

In 1993 and 1994 Kyle Morris and William Kirksley filed several patent applications all directed toward animated captioning “coordinated with oral-word utterances.”  The idea was to actually see the words coming from the mouth of the speaker in a movie or television program. The patents were assigned to their new company ReadSpeak.   Morris brought-in Don Moody to help develop a new children's television show. However, after a falling-out, Moody left and started the successful Word World show that was broadcast on PBS beginning in 2007.  Word World does not use captions streaming from the mouths of actors. Rather, objects and characters in the television show are made-up of word-objects.  As the district court explained “in the Word World universe, a 'bee' consists of the word 'bee' shaped like the object that it names; the character 'CAT' is made up of the letters 'C-A-T.'”  The image below shows an ear of corn, a pie, a pot, and a pig.


In the lawsuit, Morris alleged both patent and copyright infringement. The district court rejected both allegations on a 12(b)(6) motion-to-dismiss. 

On patents, the court held that the word-objects found in Word World could not satisfy “word utterance” limitation of the patent claims.

On copyright, Morris argued that he owned a copyright on the phrase “where words come alive” that Word World uses as its slogan as well as a copyright in the “teaching methodology” that he had developed. The district court rejected both of these arguments: first holding that the phrase “where words come alive” could not be protected by copyright because it is merely a short phrase or slogan; then holding that the “teaching methodology” could not be protected by copyright because copyright does not “extend to any idea, procedure, process, system, [or] method of operation . . . regardless of the form in which it is described, explained, illustrated, or embodied . . . “ 17 U.S.C. § 102(b).

On appeal, the Federal Circuit affirmed without opinion. 

The most interesting aspect of the appeal was lead-in by Judge Gajarsa where he warned the lawyers to remain civil:

The court has a few words to say on civility in the courtroom.  I think that it is very very important for attorneys who happen to be officers of the court to conduct themselves in such a manner that at least the record would reflect that they accept each other in the courtroom and outside of the courtroom. A confrontational basis should not exist and should not be part of the record. And, if we read this record, there are a number of issues that could be confrontational and very much out of order with respect to the treatment of the attorneys with each other. You can represent your clients to the best of your abilities . . . . but you don't have to have difficulties among yourselves. I think that it is very very important to maintain civility in our practices.  Especially since lawyers are officers of the court.


Survey on Willful Infringement

Prof. David C. Berry (Cooley) is researching how In re Seagate Technology, LLC, 497 F.3d 1360 (Fed. Cir. 2007)(en banc) has altered the practical landscape of willful patent infringement. One goal of the project is to collect data from persons with recent experience evaluating whether an organization's activities create a risk of patent infringement, and deciding how to respond to that risk. Current or recent in-house counsel interested in participating in the research project are invited to complete a confidential, on-line survey at:

The survey was developed in conjunction with the ABA Section of Intellectual Property Law, Special Committee on Patent Analysis and Opinions of Counsel Post-Seagate. It has approximately 30 questions, and can be completed in less than 15 minutes. The survey link will be open for responses until February 15, 2011.

Legal Malpractice in Federal Courts

Warrior Sports v. Dickinson Wright and John Artz (Fed. Cir. 2010)

LacrossWarriorWarrior Sports makes lacrosse equipment and hired John Artz's firm to handle patent prosecution.  Artz later merged his firm with Dickinson Wright and brought his clients into the crease.  One case that Artz worked-on was Reissue No. 38,216.  In that case, the Artz firm failed to pay the maintenance fee — allowing the patent to lapse.  In their petition for revival, Artz explained that the docketing clerk charged with paying the fee had suddenly died of an unexplained brain infection and that she had been suffering from the malady during the time that the fee was due. Unfortunately, the clerk had kept her illness secret and the firm learned only later that the condition had impacted her performance.

When Warrior sued STX for patent infringement, the defendant argued that the patent had lapsed because of failure to pay the maintenance fee and – in addition –  that the patent was unenforceable due to inequitable conduct during prosecution. (The inequitable conduct charge was based upon an argument that Artz had mischaracterized prior art). Rather than lose the infringement case, Warrior settled with STX (on allegedly unfavorable terms) and then sued Artz & Dickinson Wright for legal malpractice. 

Federal Court Jurisdiction over Malpractice Claims: Malpractice is a state law claim and is usually handled by state courts (absent federal diversity jurisdiction). However, when the malpractice charge would necessarily require “resolution of a substantial question of federal patent law” a federal question is raised that allows-for (requires?) federal court jurisdiction.  Christianson v. Colt Industries, 486 US 800 (1988).

District Court Dismissal: Both plaintiff and defendants agreed that the case should be heard in federal court. Nonetheless, the district court dismissed the case for lack of jurisdiction over the malpractice question.

Holding on Appeal: On appeal, the Federal Circuit vacated the dismissal — holding that the Michigan malpractice claim arises under patent law and therefore should be heard in Federal Court. 

Malpractice Elements: In Michigan, legal malpractice has four elements: (1) the existence of an attorney-client relationship; (2) negligence by the attorney in the legal representation; (3) actual injury; and (4) that the negligence be the proximate cause of of the injury.

Case within a Case: Classic patent prosecution malpractice requires a “case within a case” where, in order to prove actual injury, the malpractice plaintiff must show that someone would have infringed a properly obtained patent.  “That is, to prove the proximate cause and injury elements of its tort claim, Michigan law requires Warrior to show that it would have prevailed on its infringement claim against STX and would have been entitled to an award of damages as a result.”

Since at least one of the plaintiffs malpractice theories requires proof of infringement, the case raises a “substantial question of patent law conferring § 1338 jurisdiction.” Here, it was important that the court in the infringement case had not decided the infringement issue (it had decided claim construction).

Dismissal Vacated and Remanded.

iLOR v. Google: Rejected Claim Construction Does Not Render Case “Objectively Baseless”

By Jason Rantanen

iLOR, LLC v. Google, Inc. (Fed. Cir. 2011)
Panel: Rader, Linn, Dyk (author)

This case involved a district court exceptional case determination based a finding that the suit was objectively baseless and brought in bad faith.  iLOR, the assignee of Patent No. 7,206,839, sued Google for infringement of the '839 patent by Google's Notebook product.  In denying iLOR's request for a preliminary injunction, the district court rejected iLOR's proposed construction of the only claim term in dispute, subsequently granting summary judgment of noninfringement.  The Federal Circuit affirmed the district court's denial of the preliminary injunction, agreeing that the language of the claim, the specification and the prosecution history supported the district court's construction.  See iLOR, LLC v. Google, Inc., 550 F.3d 1067 (Fed. Cir. 2008).  Following the Federal Circuit's disposition of that appeal, the district court granted Google's request to recover its attorneys' fees and costs and expenses, finding the case exceptional on the ground that it was "not close" on the merits (i.e.: ("objectively baseless") and iLOR had acted in subjective bad faith.  iLOR appealed.

In reversing the district court, the CAFC first likened the exceptional case standard for a suit brought by a patent plaintiff (absent misconduct during patent prosecution or litigation) to that of willful infringement.  "The objective baselessness standard for enhanced damages and attorneys’ fees against a non-prevailing plaintiff under Brooks Furniture is identical to the objective recklessness standard for enhanced damages and attorneys’ fees against an accused infringer for § 284 willful infringement actions under In re Seagate Technology, LLC, 497 F.3d 1360 (Fed. Cir. 2007) (en banc)."  Slip Op. at 8-9.  Thus, just as willfulness requires an assessment of both objective and "subjective" (i.e.: known or so obvious that it should have been known) prongs, so too does the exceptional case determination. And just as for willfulness, the objective assessment "is to be determined based on the record ultimately made in the infringement proceedings."  Id. at 10.

Comment: At some points, the Federal Circuit's opinion is confusingly imprecise in its usage of "objective baselessness."  Although in some instances it refers to the "objective baselessness" standard as being identical to the overall objective recklessness standard for willfulness (which includes, according to the court, both objective and subjective elements), at other times it treats it as being identical to only the "objective" prong of the analysis.  The only reading that makes sense is that when the court indicates that "objective baselessness" is identical to the willfulness "objective recklessness" standard, what it is really referring to is the overall standard for an exceptional case determination based on a meritless case theory, while when it compares it to the "objective" prong of the willfulness analysis, it really is referring to "objective baselessness."

Applying this framework, the CAFC concluded that iLOR's claim construction was not objectively baseless, and thus it was unnecessary to consider the issue of subjective bad faith.  The CAFC pointed to iLOR's arguments supporting its proposed construction, which – although the court disagreed with them – had some merit.  The CAFC also commented on the difficulty of claim construction, "in which the issues are often complex and the resolutions not always predictable."  Id. at 13.  And the court noted that the fact that it "held oral argument and issued a precedential written opinion in the first appeal suggests that we did not regard the case as frivolous."  Id. at 13-14.  In short, "simply being wrong about claim construction should not subject a party to sanctions where the construction is not objectively baseless."  Id. at 14.

Global-Tech v. SEB: Respondent and Additional Amicus Briefs

By Jason Rantanen

In Global-Tech v. SEB, the Supreme Court is addressing the state of mind requirement for inducement of infringement.  The petitioner, along with several amicus briefs filed in support, argues that inducement should require that the accused intend to infringe the patent, and that the accused infringer must know of the patent being infringed.  Earlier Patently-O discussions of those briefs are available here and here.

Last week, the respondent (SEB) filed its briefs.  SEB argues that there is no basis for requiring evidence that the accused party possess actual knowledge of the patent; rather, inducement must require a lower state of mind standard than both 35 U.S.C. § 271(c) (contributory infringement) and willful infringement, a standard that is met by Pentalpha's conduct.  In the alternative, SEB argues that Pentalpha's conduct constituted willful blindness, which SEB contends is a form of constructive knowledge and thus is sufficient for inducement.  In addition, SEB argues that the Court should affirm because all the damages were attributable to Pentalpha's direct infringement and because, through it's finding of willful infringement, the jury necessarily found that Pentalpha had actual knowledge of the patent.

Several amicus curiae have also filed briefs in support of the respondent, all arguing that inducement should require only intent to cause the acts as opposed to some form of scienter with respect to whether those acts infringe a patent.  Among these is the brief of a group of law professors led by Professor Ted Sichelman, argues that inducement should require only specific intent to cause the infringing acts – not some form of scienter with respect to whether the acts infringed a patent.  The brief supports this argument by looking to tort and criminal law, pointing out that in those contexts it is not necessary for the accused to know that that the acts violate a legal duty – only that the accused intend to cause the acts themselves. It also argues that prior to the 1952 Patent Act, no court (with one exception as dicta), held that indirect infringement required knowledge of the patent.  Thus, the brief argues, while inducement of infringement should require specific intent to further the acts of direct infringement, it did not traditionally – and should not – require any form of knowledge of whether those acts infringe a patent. 

Oral Argument is set for Wednesday, February 23, 2011.

SEB's Brief:

Amicus Briefs in Support of Respondent:

Note: I understand additional briefs may have been filed, including one on behalf of several companies and PhRMA, that do not appear on the ABA site.  This post will be updated when those briefs are available.

Guest Post: Microsoft v. i4i – Is the Sky Really Falling?

By Paul F. Morgan

The forthcoming Supreme Court decision in Microsoft v. i4i, case number 10-290, seems likely to eliminate the Federal Circuit's judicially imposed "clear & convincing evidence" requirement for invalidating patents, and thus jury instructions thereon, at least for prior art not of record in the patent application file. 

Typical of some of the frightening projections is the January 1, 2011 "Law360" article in which Matthew M. Wolf, a Howrey LLP partner, is quoted as saying that: "it will radically alter the nature of trials in the patent world and will apply to every patent case" and that "if juries are told that the standards are the same for invalidating patents as for infringing patents, there will be a lot more defence verdicts and we are going to see fewer defendants desirous of settlement."

That is, it is argued that this result would flow from patent invalidity challenges having the same "preponderance of the evidence" standard as for proving patent infringement.  Technically, that might become the case.  But how significant would this change be in reality?  

First, more than 97% of patent suits are settled before trial with no judicial validity test.  Of the small percentage of patent cases that do go to trial, the vast majority are decided or settled there or on appeal on non-infringement, not on invalidity.  Considering the many good reasons why the vast majority of accused or actual defendants are willing to settle rather than risk the very high costs and uncertainties of patent litigation, even against numerous dubious troll suits, how much is this one forthcoming change likely to affect patent litigation and settlements overall?

The test is, would this change really dramatically affect anticipated jury decision-making reality?  [Because patent invalidity is rarely decided other than by juries, such as on summary judgment motions, in view of disputed facts.  USPTO patent reexamination standards would not be affected at all by this decision, and are usually delayed too long by the USPTO to be helpful anyway.] 

Removing this higher evidentiary burden might indeed affect some unknown relatively small number of future post-trial JMOL and Fed. Cir. decisions.  But note the relatively small percentage of those based on invalidity as opposed to non-infringement.

So, what is the basis for projecting that the very small percentage of patents now being held invalid by juries would somehow greatly increase due to this one potential change in jury instructions?   [Even if one really believes that juries really do pay close attention to, and fully understand, the typical lengthy jury instructions in a patent infringement suit and are willing split hairs over those instructions.   See, e.g., the length of the  AIPLA model jury instructions.]  Has anyone done a mock jury study to see if leaving out the present jury instruction for "clear and convincing evidence" dramatically changes outcomes?

Could contesting patent validity before a jury realistically become equated to contesting infringement, as alleged?   Attacking the validity of a patent is attacking something granted by the United States Government, while deciding infringement is just considering one private company's arguments against another.  Furthermore, the jury can be shown for emphasis the Government gold seal and blue ribbon on the patent.  Even if the statutory presumption of patent validity could technically be overcome by a mere preponderance of evidence for prior art not of record, the patent owner should be entitled to a jury instruction on the statutory presumption of patent validity.  [Which could be contrasted to no such instruction for deciding infringement].   For example, as indicated Section 5.1 of the June 23, 2009 "National Patent Jury Instructions" and its "Committee Note," presently courts may optionally combine the two existing defense burdens into a single jury instruction that the accused infringer "bears the burden of proving that it is highly probable that the claims are invalid." [Likewise, some other model patent jury instructions.]  However, the express "Committee Note" rationale for that is a presumption that "instructing the jury on the presumption in addition to informing it of the highly probable burden of proof may cause jury confusion as to its role in deciding invalidity. This single instruction therefore omits any reference to the presumption of validity. Some courts, however, follow the more traditional approach, and instruct the jury on the presumption. Both approaches appear consistent with Federal Circuit law."  Thus, if the "clear and convincing evidence" burden is removed, this "highly probable" instruction would have to be removed, and this present rationale for not instructing a jury on the statutory presumption of patent validity would seem to disappear?  

The other public scare story is that this decision will lead to a flood of additional prior art citations in patent applications.  That also lacks factual credibility.  The already-existing fear of personal "inequitable conduct" accusations is far more motivating than the mere possibility getting a slightly better jury instruction.  Furthermore, few applicants would be willing to pay for a much more costly prior art search to add much more art to an IDS just for that remote reason, and also to risk being accused of not having actually read that art in making assertions in claim prosecution.

Whether as a matter of public policy this anticipated change is good or bad for patent law and technical or economic progress is not the subject here.  Even if the extent of the potential impact were factually supported, it may not be very relevant to this Supreme Court decision.   As understood, this case is being contested primarily on to whether or not there is a proper legal basis and/or precedent for the Federal Circuit to have imposed this additional, non-statutory, evidentiary burden for patent litigation.  It is argued that that is inconsistent with modern Supreme Court evidentiary rules for civil cases in general and inconsistent with the evidentiary rules for pre-Federal-Circuit patent suits in the other federal circuits when they were deciding patent cases.  [So it is surprising that this issue has not been this contested before.  Presumably due to most defendants waiving it by failing to object to this jury instruction?]  

The recent decisions controlling the evidence for and/or reducing patent infringement damages recoveries seem to me far more likely to impact patent licensing and settlement negotiations than Microsoft v. i4i.  See Uniloc USA, Inc. v. Microsoft Corp., (Fed. Cir. Jan. 4, 2011),  Lucent v. Gateway (Fed. Cir. 2009), the two E.D. TX D.C. decisions in which Judge Randall Rader sat by designation, Cornell v. HP (March 2009) and IP Innovation v. Red Hat and Novell (March 2010), and Judge Ward's reduction of a jury award of $52 million in LaserDynamics v. Asus Computer International  down to only $6.2 million.

Uniloc v. Microsoft: The CAFC Rejects the 25 Percent Rule

By Jason Rantanen

Uniloc USA, Inc. v. Microsoft Corp. (Fed. Cir. 2011)
Panel: Rader, Linn (author), Moore

Uniloc v. Microsoft involves a host of issues, although one stands out as particularly noteworthy.  While  "passively tolerat[ing]" the 25 percent 'rule of thumb' (a method for calculating a reasonable royalty for purposes of infringement damages) in past cases, the CAFC held today that the rule "is a fundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiation," thus precluding its use for damages calculations.

Uniloc is the owner of Patent No. 5,490,216, an early patent covering a mechanism for combating "casual copying" of software, where users install copies of a software program on multiple computers in violation of applicable software licenses.  In general terms, the patented invention involves the creation of a registration number generated by the software on the user's computer.  The number is sent to the vendor's system, which uses an identical algorithm to create a remote license ID.  If the numbers match when the application boots, the program enters a "use mode;" if they do not, it enters a "demo mode."

In the suit against Microsoft, Uniloc alleged that the Product Activation feature for Microsoft's Word XP, Word 2003, and Windows XP software programs infringed the '216 patent.  A jury agreed, finding that Microsoft not only infringed the patent, but did so willfully.  The jury also rejected Microsoft's invalidity defenses and awarded Uniloc $388 million in damages.  Following the trial, the district court granted Microsoft's motion for JMOL of noninfringement and lack of willfulness (and in the alternative, ordered a new trial on these issues), but denied its request for a JMOL on invalidity.  The court also ordered a new trial on the issue of damages.  On appeal, Uniloc challenged the district court's noninfringement, willfulness, and damages rulings, while Microsoft cross-appealed the denial of its JMOL on invalidity.  The Federal Circuit affirmed the district judge's rulings on willfulness, damages and invalidity, but reversed on the question of infringement, both with respect to JMOL and the grant of a new trial.

The damages section of the opinion is by far the most significant portion.  At trial, the jury awarded Uniloc $388 million in damages, relying on the testimony of Uniloc's expert, who opined that damages should be $564,946,803 based on a hypothetical negotiation between Uniloc and Microsoft and the Georgia-Pacific factors.  Using an internal Microsoft document relating to the value of product keys, the expert applied the 25 percent "rule of thumb" to the minimum value reported ($10 each), obtaining a value of $2.50 per key.  After applying the Georgia-Pacific factors, which he concluded did not modify the base rate, he multiplied it by the number of new licenses to Office and Windows products, producing the $565 million value.  He confirmed his valuation by "checking" it against the total market value of sales of the Microsoft products (approximately $19 billion, noting that it represented only 2.9% of the gross revenue of the products.   

The 25 Percent Rule: On appeal, the CAFC first rejected the use of the 25 percent rule to calculate patent damages.  "The 25 percent rule of thumb is a tool that has been used to approximate the reasonable royalty rate that the manufacturer of a patented product would be willing to offer to pay to the patentee during a hypothetical negotiation." Slip Op. at 36, citing Robert Goldscheider, John Jarosz and Carla Mulhern, USE OF THE 25 PER CENT RULE IN VALUING IP, 37 les Nouvelles 123, 123 (Dec. 2002).  Under the rule, "licensees pay a royalty rate equivalent to 25 per cent of its expected profits for the product that incorporates the IP at issue." Id., quoting Goldscheider et al. Included in the court's discussion of the rule is an extensive survey of the relevant literature (covering no less than nine articles), as well as an acknowledgement that the "court has passively tolerated its use where its acceptability has not been the focus of the case." Slip Op. at 39.  However, the court recognized that it  never squarely addressed the use of the rule.

Treating the issue as one of first principles, and after considering the relevant Supreme Court caselaw, the CAFC concluded that, as an abstract theory untied to particular factual circumstances of a given case, the 25 percent rule simply cannot be used for damages calculations: 

This court now holds as a matter of Federal Circuit law that the 25 percent rule of thumb is a fundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiation. Evidence relying on the 25 percent rule of thumb is thus inadmissible under Daubert and the Federal Rules of Evidence, because it fails to tie a reasonable royalty base to the facts of the case at issue.

Slip Op. at 41.  The court based its reasoning on the Daubert standard for expert testimony, concluding that general theories are only permissible if the expert adequately ties the theory to the specific facts of the case.  Under Kumho Tire Co. v. Carmichael, 526 U.S. 137 (1999) and General Electric Co. v. Joiner, 522 US 136 (1997), "one major determinant of whether an expert should be excluded under Daubert is whether he has justified the application of a general theory to the facts of the case."  Slip Op. at 43.

Applying this principle, the CAFC criticized the application of the 25 percent rule because there was no link between the rule and the specific case:

The meaning of these cases is clear: there must be a basis in fact to associate the royalty rates used in prior licenses to the particular hypothetical negotiation at issue in the case. The 25 percent rule of thumb as an abstract and largely theoretical construct fails to satisfy this fundamental requirement. The rule does not say anything about a particular hypothetical negotiation or reasonable royalty involving any particular technology, industry, or party.

Slip Op. at 45. In addition, the court pointed to the lack of testimony by Uniloc's expert suggesting that the starting point of a 25 percent royalty had any relation to the facts of the case, and thus the use of the rule was "arbitrary, unreliable, and irrelevant," failing to pass muster under Daubert and tainting the jury's damages calculation.  Id. at 47.

Entire Market Value Rule: The CAFC also rejected the expert's application of the entire market value rule, which he used as a check on the total damages.  "The entire market value rule allows a patentee to 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 create[s] the value of the component parts.'"  Slip Op. at 48.  Here, however, there was no evidence that the patented component created the basis for customer demand, as required by the rule: "This case provides a good example of the danger of admitting consideration of the entire market value of the accused where the patented component does not create the basis for customer demand."  Slip Op. at 51.

In opposing Uniloc's challenge on the issue of infringement, Microsoft argued that several grounds supported affirmance of the district court's grant of JMOL of noninfringement.  The CAFC rejected each argument in turn, concluding that substantial evidence supported the jury's finding of infringement. 

Standard of Review: One issue that sophisticated parties often dispute is the relevant standard that applies when reviewing jury verdicts. This appeal was no different – Microsoft contended that the jury verdict should be reviewed de novo, while Uniloc argued that it should be reviewed for substantial evidence.  The CAFC responded by distinguishing situations where "the parties conceded that under one claim construction there was infringement and under the other there was none, and were arguing only over which claim construction was appropriate." Slip Op. at 15.  In these cases, de novo review applies.  On the other hand, where "the claim construction itself is not contested, but the application of that claim construction to the accused device is," the court applies the substantial evidence standard. Id.

Comment: This distinction reinforces a basic principle of Federal Circuit appellate practice: Parties challenging a jury verdict on the issue of infringement will likely want to frame the dispute on appeal as a question of claim construction; parties defending the verdict will likely want to frame it as a question of application of an accepted construction to the accused product or method.  Of course, whether a party will be able to frame the question in a particular way depends largely on how the issue was set up in the district court – which itself is ideally part of counsel's long term strategic thinking.

Applying this standard, the Federal Circuit concluded that the jury's verdict of infringement was supported by substantial evidence, rejecting Microsoft's arguments to the contrary.  The court also rejected Microsoft's argument that a critical "means-plus-function" limitation should be read narrowly.  To the contrary, the court held, it should be read broadly, applying language from IMS Tech., Inc. v. Haas Automation, Inc., 206 F.3d 1422, 1436 (Fed. Cir. 2000) stating that "when in a claimed 'means' limitation the disclosed physical structure is of little or no importance to the claimed invention, there may be a broader range of equivalent structures than if the physical characteristics of the structure are critical in performing the claimed function." 

Expert Testimony, redux: Also of note is the court's ruling with respect to expert testimony as it pertains to infringment.  Although the district court rejected the testimony of Uniloc's expert as "incomplete, oversimplified and frankly inappropriate," the CAFC concluded that this rejection was improper because the district court had already fulfilled its gatekeeping function under Daubert when it explicitly noted that the expert was "qualified."  Thus, it was up to the jury "to evaluate the weight to be given to the testimony of dueling qualified experts."  This application of Daubert seems to be somewhat in tension with the court's treatment of expert testimony in the damages context, which focused on the content of the testimony, not the qualifications of the person giving it.

Joint Infringement: The CAFC also rejected Microsoft's joint infringement argument.  Rather than implicating joint conduct, the court ruled, Uniloc's claim was structured so as to capture infringement by a single party by focusing on one entity.  "That other parties are necessary to complete the environment in which the claimed element functions does not necessarily divide the infringement between the necessary parties. For example, a claim that reads “An algorithm incorporating means for receiving e-mails” may require two parties to function, but could nevertheless be infringed by the single party who uses an algorithm that receives e-mails."  Slip Op. at 29.

Willful Infringement: On the issue of willfulness, the CAFC continued to apply its objective super-threshold for proving willfulness.  "If the accused infringer's position is susceptible to a reasonable conclusion of no infringement, the first prong of Seagate cannot be met." Slip Op. at 32.  Particularly obtuse is the court's triple-negative articulation of the factual holding: "Uniloc has not presented any evidence at trial or on appeal showing why Microsoft, at the time it began infringement, could not have reasonably determined that [Microsoft's algorithms] did not meet the “licensee unique ID generating means,” “licensee unique ID,” or “registration system”/“mode switching means” limitations."

Presumption of Validity: in addressing Microsoft's cross-appeal of the denial of its motion for JMOL and a new trial on invalidity, the court declined to back away from the "clear and convincing" standard for invalidity.  Rejecting Microsoft's argument that its burden was to show invalidity simply by a preponderance of the evidence – as opposed to clear and convincing evidence – because the prior art reference was not before the PTO, the court continued to apply the higher standard.  "Until changed by the Supreme Court or this court sitting en ban, this is still the law."  Slip Op. at 55.  Applying this standard, the court rejected Microsoft's argument that it was simply practicing the prior art, and thus a finding of infringement necessitated a finding of invalidity. 

WiAV Solutions v. Motorola: Clarifying the Meaning of “Exclusive Licensee”

By Jason Rantanen

WiAV Solutions LLC v. Motorola, Inc. (Fed. Cir. 2010)
Panel: Rader, Linn (author), Dyk

WiAV is the purported exclusive licensee of seven patents relating to aspects of signal transmission and data encoding/decoding owned by Mindspeed Technologies, Inc.  In 2009, WiAV sued a set of companies including Motorola, Inc.; Nokia Corporation; Palm, Inc.; and Sony Ericsson Mobile Communications (USA), Inc. for infringement of the Mindspeed patents.  The defendants contended, and the district court agreed, that WiAV lacked constitutional standing to assert the patents because WiAV is not an exclusive licensee of the patents under Textile Productions, Inc. v. Mead. Corp., 134 F.3d 1481 (Fed. Cir. 1998), which they argued holds that a party cannot be an exclusive licensee of a patent when a third party has the right to license the patent. 

In reversing the district court's dismissal, the CAFC rejected this argument, instead holding that "a licensee is an exclusive licensee of a patent if it holds any of the exclusionary rights that accompany a patent."  Slip. Op. at 17 (emphasis added). This decision is in the vein of the court's earlier decision this year in Alfred E. Mann Foundation For Scientific Research v. Cochlear Corp., 604 F.3d 1354, in which it concluded that a licensee is an exclusive licensee of a patent despite retaining the ability to license the patent to settle lawsuits. 

Scope of the Licensing
The licensing rights at issue were held by six third parties, and stemmed from a series of spin-offs and other agreements that occurred as the patents were transferred from company to company. For example, when Rockwell International Corporation, the original owner of the Mindspeed patents, assigned them to Conexant, the second owner, its subsidiary, Rockwell Science Center, received a limited, non-exclusive license to use the patents in connection with its business, along with the right to sublicense to Rockwell International and its "Affiliates," or to transfer the license in connection with the sale of the respective businesses to which the intellectual property rights relate.  The district court found that several of these licensees retained a limited right to license the patents in the field of wireless handsets, and concluded that under Textile Productions, WiAV could thus not be an exclusive licensee of the Mindspeed Patents.

Any Exclusionary Rights
On appeal, the CAFC rejected the argument that, under Textile Productions  "a licensee cannot be an exclusive licensee of a patent if others retain the right to license the patent."  Slip. Op. at 11.  Turning straight to the constitutional analysis, the court held that the standing determination  focuses only on whether a party has any exclusionary right in a patent:

Because the legally protected interests in a patent are the exclusionary rights created by the Patent Act, a party holding one or more of those exclusionary rights—such as an exclusive licensee—suffers a legally cognizable injury when an unauthorized party encroaches upon those rights and therefore has standing to sue. 

Thus, the touchstone of constitutional standing in a patent infringement suit is whether a party can establish that it has an exclusionary right in a patent that, if violated by another, would cause the party holding the exclusionary right to suffer legal injury. Contrary to the suggestion of the Defendants, neither this court’s Textile Productions nor Mars decision freed the constitutional standing inquiry from its legal injury mooring.

Slip Op. at 14-15.  Textile Productions, on the other hand, involved only the narrow question of whether a particular type of contract, a requirements contract for a patented product, automatically converts the exclusive supplier into an exclusive licensee.  "Nowhere did the Textile Productions court suggest that a party holding one or more of the exclusionary rights in a patent does not have standing to sue to protect those rights against infringement by an unauthorized third party. Nor is there any indication that the court created a bright-line rule that a party cannot be an exclusive licensee of a patent if others have the right to license the patent."  Slip. Op. at 16.

The CAFC did impose one important limitation on the broad rule for standing: "Because an exclusive licensee derives its standing from the exclusionary rights it holds, it follows that its standing will ordinarily be coterminous with those rights."  Slip Op. at 17. Thus, an exclusive licensee may have standing to sue some parties, but not others; it may also lack standing to sue a party who has the ability to obtain a license from another party with the right to grant it. 

Applying its holding, the court concluded that none of the pre-existing licenses granted the right to license the Defendants to practice the patents in WiAV's field of exclusivity, and thus WiAV possessed constitutional standing for this case. 

Note: WiAV does not disturb the requirement that "[a]n exclusive licenseee generally must join the patent owner to the suit to satisfy prudential standing constraints, i.e., the 'judicially self-imposed limits on the exercise of federal jurisdiction.'" Slip Op. at 14-15, fn. 1.  Here, WiAV had satisfied those concerns by adding Mindspeed to the suit as the "defendant patent owner." 

Akamai v. Limelight: Joint Infringement Requires an Agency Relationship or a Contractual Obligation

By Jason Rantanen and Dennis Crouch

Akamai Technologies, Inc. v. Limelight Networks, Inc. (Fed. Cir. 2010)
Panel: Rader, Linn (author), Prost

Three years ago, in BMC Resources, Inc. v. Paymentech, L.P., 498 F.3d 1373 (Fed. Cir. 2007), the Federal Circuit sharply limited the ability of patent holders to assert claims of joint infringement.  The BMC decision was further bolstered by Muniauction, Inc. v. Thomson Corp. and I-Deal (Fed. Cir. 2008). Akamai v. Limelight expands on the "control or direct" rule announced in BMC and Muniauction, explaining that joint infringement requires an agency relationship or a contractual obligation to carry out the relevant steps. 

Akamai's Claim of Joint Infringement
In order to win a patent infringement case, a patentee must prove that a single entity practiced every element (either literally or by equivalents) of at least one valid, enforceable claim. Joint infringement issues can arise when a patent holder asserts method claims over activities whose steps are not carried out by a single party.  For example, if a patent claims a method involving performing steps A, B, and C, the patent holder may need to argue joint infringement (as opposed to straightforward direct infringement) if steps A and B are performed by one party and step C is performed by a second party. 

In Akamai, while the accused party (Limelight) performed the majority of the steps of the asserted claims, at least one of the steps of each claim was performed by its customers.  The patent, No. 6,108,703, is directed to an improved method for storing web page content.  Conventionally, the entirety of a web page, including both the page itself and embedded content (such as graphics) is stored on a single server, or mirrored in its entirety across multiple servers.  The patents-in-suit claim a new approach, which involves storing only the embedded objects on mirrored servers (called a "Content Delivery Network," or "CDN"), while having the webpage itself continue to reside on the content provider's servers.  In order to make this system work, the claims further require that the object URLs be "tagged" to resolve to the CDN. 

Daniel Lewin and his adviser Thomas Leighton devised these methods (or algorithms) while at MIT where Leighton was the head of MIT's Computer Science and Artificial Intelligence Laboratory.  The pair founded Akamai, and their invention continues to serve as a basis for the company's core business.  Lewin was killed aboard American Airlines flight 11 when it crashed into the north tower of the World Trade Center on September 11, 2001.

Limelight, Akamai's direct competitor in the CDN business, performed most of the claimed steps but had its customers (companies such as Netflix) tag the URLs.  Because some of the steps were performed by Limelight and some by its customers, Akamai relied on a theory of joint liability, arguing that Limelight controls or directs the activities of its customers.  At trial, the jury sided with Akamai and awarded over $40 million in lost-profit-damages. The district court rejected the jury verdict and supplemented its own non-infringement judgment – holding that there was "no material difference between Limelight's interaction with his customers and that of Thomson in Muniauction."

On appeal, Akamai contended that substantial evidence supported the infringement finding, arguing that Limelight "(1) creates and assigns a unique hostname for the content provider; (2) provides explicit step-by-step instructions to perform the tagging and serving claim steps; (3) offers technical assistance to help content providers with their performance of the claim step; and (4) contractually requires content providers to perform the tagging and serving claim steps if they utilize the Limelight service."  Slip Op at 11. 

Important holdings
In affirming the district court's judgment of noninfringement, the CAFC expanded on its ruling in BMC that "joint liability may be found when one party 'control[s] or direct[s]' the activities of another party."  Slip Op. at 9.  After noting the foundational nature of this standard, the Akamai panel further held that "what is essential is not merely the exercise of control or the providing of instructions, but whether the relationship between the parties is such that acts of one may be attributed to the other."   Id. at 12.  The court interpreted this as requiring either an agency relationship or a contractual obligation: "as a matter of Federal Circuit law that there can only be joint infringement when there is an agency relationship between the parties who perform the method steps or when one party is contractually obligated to the other to perform the steps."  Slip Op. at 14.

Analyzing the issue as a question of agency law, the CAFC concluded that no substantial evidence supported a finding that Limelight's customers perform any of the steps of the claimed method as agents for Limelight.  (Citing the Restatement (3rd) of Agency §1.01). The court also rejected Akamai's theory that Limelight's customers are contractually required to perform the tagging step.  Rather, the court stated, the contract does not obligate the customers to perform any of the method steps; instead, it "merely explains that the customer will have to perform the steps if it decides to take advantage of Limelight's service."  Slip Op. at 16.

Note: The court repeated the warning it set forth in BMC Resources, 498 F.3d at 1381, that concerns about the difficulty of proving infringement of claims that must be infringed by multiple parties "by proper claim drafting.  A patentee can usually structure a claim to capture infringement by a single party."  Slip. Op. at 17 (quoting BMC Resources).  Failing this, the court suggested (citing Mark Lemley's Divided Infringement article) that patentees may be able to correct a claim by seeking a reissue patent.

Claim Construction
Akamai also challenged the district court's construction of two claim terms in related patents, contending that both constructions imported limitations from the specification into the claims.  In a fact-intensive analysis, the CAFC rejected Akamai's arguments, concluding that the district court correctly interpreted the disputed terms given the treatment of the invention in the specification and the lack of any contrary evidence in the prosecution history. 

Research Corp. v. Microsoft: Section 101 and Process Claims

By Jason Rantanen

There are three articulated exceptions to the scope of patentable subject matter under 35 U.S.C. § 101: laws of nature, physical phenomena, and abstract ideas.  Research Corp. v. Microsoft places a high hurdle in front of challengers who seek to invalidate process patents on the third ground. 

Research Corp. Technologies v. Microsoft Corp. (Fed. Cir. 2010)
Panel: Rader (author), Newman, and Plager

Research Corporation ("RCT") owns several patents relating to digital image halftoning, which is the process of generating electronic display and print images using only a small number of pixel colors (ex.: red, blue and green in the case of color displays) while appearing to present many more colors and shades than were actually used.  Four related patents are relevant to this summary: Nos. 5,111,310, 5,341,228, 5,477,305, and 5,726,772.  The applications for the '310 and '228 patents (a continuation-in-part of the '310 patent) were filed before December 4, 1991; the remaining patents are continuations of the '228 patent and claim priority to the earlier filing dates. 

RCT brought an infringement action against Microsoft based on these patents; in response, Microsoft asserted, and the district court initially concluded, that the patents were unenforceable due to inequitable conduct, invalid and not infringed.  The Federal Circuit reversed that determination in 2008.  Microsoft subsequently sought summary judgment against the '310 and '228 patents on Section 101 patentable subject matter grounds, and asserted that the claims of the '772 patent were not entitled to the earlier priority date, thus rendering them anticipated.  The district court granted Microsoft's motions, and subsequently held that the only remaining claim, claim 29 of the '305 patent, also lacked entitlement to the earlier priority date.  Based on these ruling, the parties stipulated to a dismissal of the suit and RCT appealed.

Section 101 and Process Claims
In reversing the district court's ruling that the '310 and '228 patents failed to satisfy Section 101, the Federal Circuit identified a set of considerations that can be applied when assessing the question of abstractness.  Drawing upon the Supreme Court's precedent in this area, including its recent decision In re Bilski, the opinion first reiterates that there are only three articulated exceptions to subject matter eligibility: "laws of nature, physical phenomena, and abstract ideas." 

Focusing on the category of abstract ideas, the court noted the Supreme Court's admonition in Bilski not to provide a rigid formula or definition for abstractness.  Rather, "the Supreme Court invited this court to develop 'other limiting criteria that further the purpose of the Patent Act and are not inconsistent with its text.'" Slip Op. at 14.  With that guidance, the panel concluded that it perceived nothing abstract in the subject matter of the processes claimed in the '310 and '228 patents.  Specifically, the court observed that:

  • "The invention presents functional and palpable applications in the field of computer technology";
  • Some claims in the patents require physical components;
  • "[I]nventions with specific applications or improvements to technologies in the marketplace are not likely to be so abstract that they override the statutory language and framework of the Patent Act"; and
  • The incorporation of algorithms and formulas does not prevent patent eligibility.

Nevertheless, while finding these factors met in the instant case, the panel further noted that its analysis was limited to the context of Section 101, which provides only a coarse filter.  Abstractness challenges can also be brought against specific claims under Section 112 even if the requirements of Section 101 are met.

Comment: The court's discussion of Section 101 suggests that the issue of patentable subject matter should be analyzed with respect to the patent as a whole; in contrast, Section 112 challenges are analyzed on a per-claim basis.

Burden of Proof for Establishing Priority
In addressing the district court's ruling that the asserted claims of the '772 and '305 patents were not entitled to claim priority to the '310 and '228 filing dates, the opinion reinforced the court's prior ruling that the patent holder bears the burden of establishing priority.  As the court held, although a patent challenger has the burden of going forward with invalidating prior art, once it has done so the burden shifts to the patent holder.  Thus, in an instance where the patent holder attempts to defeat the assertion of invalidity by claiming priority to an earlier application, the patent holder bears the burden of proving the entitlement to priority – including that the claims of the earlier patent are supported by the written description of the earlier specification.

Note: The '772 and '305 patents shared the same specification as the earlier '305 and '228 patents.  If the relevant claims had been contained in the '305 or '228 patents, Microsoft would have had the burden of proving lack of written description, as opposed to the burden resting with RCT.  Thus, the fact that the claims were part of a continuation was highly significant with respect to the allocation of the burden.

Comment: A related issue is who bears the burden of proof in the context of claims to a pre-filing conception or reduction to practice date. Although not mandated by the text of the opinion, which specifically refers to the burden to establish "an earlier filing date," the court's analysis could be read to support the conclusion that the patent holder bears the burden of proof in this situation as well.

After dispensing with RCT's challenge to the district court's allocation of burden, the panel proceeded to address the priority claims on the merits.  With respect to the '772 claims, the panel agreed with the district court, concluding that they were unsupported by the prior disclosure.  The panel did reverse on the '305 claim, however, ruling that to satisfy the written description requirement for apparatus claims, the patent need not disclose every method of making the apparatus. 

Intellectual Ventures Takes First Overt Legal Actions to Enforce its Mammoth Patent Portfolio

By Dennis Crouch

In a bold move, the patent holding company Intellectual Ventures has filed three separate patent infringement lawsuits against major industry players.

Over the past several years, Intellectual Ventures has amassed a large patent portfolio that is held by a complex web of subsidiary companies. According to its court filings:

Intellectual Ventures has purchased more than 30,000 patents and patent applications and, in the process, has paid hundreds of millions of dollars to individual inventors for their inventions. Intellectual Ventures, in turn, has earned nearly $2 billion by licensing these patents to some of the world's most innovative and successful technology companies.

In the first suit, Intellectual Ventures sued Check Point Software, McAfee, Symantec, and Trend Micro for infringement of Patent Nos. 5,987,610, 6,073,142, 6,460,050, and 7,506,155. These patents were originally owned by Ameritech which merged with SBC. According to USPTO assignment records, SBC assigned its rights to the University of Texas which then assigned rights to Verve, an IP broker. Verve then assigned its rights to AUCTNYC8. The assignment to Intellectual Ventures itself has not been recorded. To be clear, the case caption actually states that the plaintiff is "Intellectual Ventures I LLC." The other two lawsuits involve some combination of Intellectual Ventures I, II, and III, respectively. Other defendants include Hynix Semiconductor, Elpida Memory, Altera, Lattice Semiconductor, and Microsemi (Actel). At least some of the patents being asserted against Altera and Lattice Semiconductor were originally owned by AMD, and then transferred to Legerity. At least one other patent asserted in the lawsuits was invented by noted chip designer Bob Proebsting. After his death, the patent was held by the Proebsting estate. Although Intellectual Ventures (I – III) claims ownership in their complaints, PTO records do not reflect that ownership.

In a press release, Intellectual Ventures issued a warning blow to other potential defendants:

Over the years, Intellectual Ventures has successfully negotiated license agreements with some of the top technology companies in the world. However, some companies have chosen to ignore our requests for good faith negotiations and discussions. Protecting our invention rights through these actions is the right choice for our investors, inventors and current licensees.

Intellectual Venture's chief litigation counsel is Melissa Finocchio who was previously with Micron, Orrick, and Cooley. The company's outside counsel include an all-star cast of Former Delaware Judge Joseph Farnan; John Desmarais; Jared Bobrow; and Parker Folse. All the suits have been filed in Judge Farnan's hometown District of Delaware.


In re Acer: Transfer Out of the Eastern District of Texas

By Jason Rantanen

In re Acer America Corporation (Fed. Cir. 2010)
Panel: Gajarsa, Schall (Author), and Moore

In 2008, MedioStream, a company headquartered in the Northern District of California, brought a patent infringement suit in the Eastern District of Texas against twelve hardware and software companies, five of which are also headquartered in the Northern District of California.  The defendants moved to transfer venue to the Northern District of California pursuant to 28 U.S.C. 1404(a), which authorizes transfer "[f]or the convenience of parties and witnesses, in the interest of justice."  The district court denied the motion, primarily because one of the defendants, Dell, Inc., is headquarted in Round Rock, Texas, relatively close to (albeit outside) the Eastern District of Texas. The defendants petitioned the Federal Circuit for a writ of mandamus. 

On appeal, the Federal Circuit agreed with the Petitioners, concluding in a precedential opinion that the district court abused its discretion in denying the request to transfer venue.  Particularly important in the panel's analysis was the fact that a substantial number of party witnesses reside in or near the Northern District of California, and requiring them to travel to the Eastern District of Texas would result in substantial expenses for airfare, meals, lodging, and the loss of productivity from time spent away from work, as well as the personal costs imposed on the witnesses.  While it was possible that more than one Dell employee might testify, that number was likely to be insignificant in contrast with the substantial number of party witnesses that would be required to travel to Texas.  Similarly weighing in favor of transfer to California was the venue's ability to compel testmony through subspoena power, the presence of a significant portion of the evidence in the Northern District of Caliornia (and none in the Eastern District of Texas), and the local interest of the Northern District flowing from the residence of many of the parties in that district.

Note: Last month, the court granted a temporary stay of the district court proceedings.

Nuance Communications v. Abbyy Software

By Jason Rantanen

Cases involving foreign parties often raise complex procedural issues.  In this case, two of the defendants – a Russian corporation and a Cypriot corproration – argued that the district court lacked personal jurisdiction and that the plaintiff's attempts at service were insufficient.

Nuance Communications, Inc. v. Abbyy Software House (Fed. Cir. 2010)
Panel: Rader (author) Newman, Prost

In 2008, Nuance Communications sued Abbyy USA Software House, Abbyy Production, and Abbyy Software for patent infringement.  Abbyy Production, a corporation organized under the laws of the Russian Federation, and Abbyy Software, a Cypriot corporation, filed a motion to dismiss for lack of personal jurisdiction and improper service of process.  In a short order, the district court granted the motion and declined to consider Nuance's request for jurisdictional discovery by not addressing that issue.

On appeal, the Federal Circuit reversed the district court's ruling.  On the question of personal jurisdiction, the panel first noted that because this is a patent case, Federal Circuit precedent applies rather than that of the regional circuit.  The overarching analysis, however, focused on the traditional "minimum contacts" approach: "whether the defendant purposefully established 'minimum contacts' in the forum state."  Because the question in this case was one of specific jurisdiction, it thus required examining:

(1) whether the defendant purposefully directed activities at residents of the forum; (2) whether the claim arises out of or relates to those activities; and (3) whether assertion of personal jurisdiction is reasonable and fair.

Slip. Op. at 8.  Applying this test, the majority concluded that the district court had erred in dismissing Abbyy Production and Abbyy Software.  With respect to Abbyy Production, the appellate court noted that the defendant had engaged in a variety of activities directed at California, including its distribution of the allegedly infringing software to Abbyy USA, a California entity.  These activities also satisfied the second prong, as Nuance alleged in its Complaint that Abbyy Production's importation of the software into California infringed and induced infringement of the patents-in-suit.  The panel further found that the third prong was met, noting that even beyond the fact that Abbyy Production purposefully targeted activities at the forum state, it and Abbyy USA operated under a shared management team and were represented by the same counsel.

The panel declined to conduct a similar analysis for Abbyy Software, concluding that the extent of its involvement in sales of the accused product was uncertain on the facts before the court.  Consequently, the court remanded for additional jurisdictional discovery.

The Federal Circuit also reversed the dismissal based on improper service of process.  After a lengthy discussion of the applicability of Hague Convention procedures to service of process on corporations in the Russian Federation, the panel declined to opine on whether personal service on corporations was permissible in this case.  Rather, the court held that permitting substituted service under Federal Rule of Civil Procedure 4(f)(3) was called for here, and service on Abbyy USA would be sufficient to satisfy constitutional notions of due process for service on Abbyy Production. 

Note: The panel also reversed the district court's sua sponte dismissal of Abbyy Software for improper service of process, noting that the court lacked authority to do so because Abbyy Software had waived the objection.

Liability for Future Indirect Infringement

By Jason Rantanen

In an earlier post, I summarized the Federal Circuit's affirmance of a preliminary injunction prohibiting Apotex from marketing its generic version of AstraZeneca's budesonide in AstraZeneca LP v. Apotex, Inc

The majority's discussion of inducement of infringement in this case is particularly interesting because it deals with inducement of infringement in the context of future acts, as opposed to damages for past inducement – and when dealing with future infringement, it's unclear whether an intent element should apply to indirect infringement at all.

Apotex Had Specific Intent to Cause Infringement
In its opinion affirming the district court's preliminary finding of inducement, the Federal Circuit rejected Apotex's argument that it lacked specific intent to cause infringement, concluding that Apotex knew about potential infringement problems posed by its label but nevertheless decided to proceed nonetheless.  Similarly unpersuasive to the court was Apotex's argument that it lacked specific intent because the FDA required it to include the pivotal titration language.  The majority pointed out that Apotex had a variety of options besides proceeding in the face of a risk of an infringement suit, including waiting until the patents expire, challenging infringement and validity, and formally appealing the FDA's denial of Apotex's proposed labeling amendment.  Given these circumstances, the court concluded that Apotex had the necessary specific intent to cause inducement.

Is Intent to Cause Infringement Even Relevant When Dealing With the Future?
The court's ruling, however, could be supported in another way: by concluding that inducement with respect to future acts of infringement does not require the patentee to establish that the accused party posessed "specific intent" to infringe the patent.   This is because when dealing with the future, there will necessarily be a court finding that the relevant third party conduct infringes. Inherent in the court's determination is the conclusion that once-daily use of Apotex's product – the use that the court concluded would result from Apotex's label – infringes AstraZeneca's patents.   In other words, once the court made this determination, AstraZeneca conclusively knew1 that patients taking its medication in a manner that it intended (i.e.: once daily) would infringe the method claims, and therefore continuing to engage in that conduct would satisfy the requrements of specific intent.  That Apotex may not want to infringe the patents is beside the point: its knowledge that the third party's conduct infringes, coupled with an intent to cause that conduct, is all that is required for this element of inducement, and for future acts those requirements would automatically be met. 

I'm not the first to identify this issue – Professor Timothy Holbrook made it few years back as well.  See Timothy Holbrook, The Intent Element of Induced Infringement, 22 SANTA CLARA COMPUTER & HIGH TECH. L.J. 399, 406 (2006).  Nevertheless, this is an instance where the argument that inducement of future infringement does not require the patent holder to prove specific intent to infringe could have been raised, and the parties apparently did not.

1 Note that this case involved a preliminary injunction, and thus the court's findings were necessarily non-final.  Thus one could argue that Apotex did not "know" that the future conduct would infringe despite the district court's preliminary determination of infringement because it could be subject to later change.   However, as in many pharmaceutical patent cases, the lower court's determination was made following substantial briefing and argument (along with a five-day hearing), and its reasoning was affirmed on appeal.  Furthermore, even in the preliminary injunction context, the focus should not be on the question of what Apotex thought in the past about infringement, but rather whether it would be substantially certain that the third party conduct would infringe in the future – an analysis that collapses into the district court's determination on the question of infringement.

Guest Post: Copyrights, Patents, and International Exhaustion

By Professor Ryan Vacca

Last week, the Supreme Court heard oral arguments in Costco Wholesale Corporation v. Omega, S.A., to determine whether copyrighted works first sold in Switzerland and then imported into the U.S. infringed the copyright owner's right of distribution or whether the first sale doctrine (aka the exhaustion doctrine) applied to make the importation non-infringing.

The facts are fairly straightforward.  Omega is a watch company that manufactures watches in Switzerland.  Omega owns a copyright in a small visual image that is laser-engraved onto each Swiss-manufactured watch.  Costco, a U.S. warehouse retailer, acquired genuine Omega watches from a third party, who had purchased them from an authorized Omega distributor abroad.  Costco subsequently sold these watches in the United States.  Omega alleged that Costco's sale of these watches infringed its exclusive right to distribute copies of its copyrighted work under § 106(3) of the Copyright Act because § 602(a)(1) provides that:

Importation into the United States, without the authority of the owner of the copyright under this title, of copies … of a work that have been acquired outside the United States is an infringement of the exclusive right to distribute copies … under section 106.

Costco argued that its sales in the U.S. were non-infringing under the exhaustion doctrine codified in § 109, which provides:

Notwithstanding the provisions of section 106(3), the owner of a particular copy … lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy.

As I blogged earlier and others have discussed here and here, the Court is wrestling with what the phrase "lawfully made under this title" means in § 109 of the Copyright Act.

Costco argues that goods manufactured abroad can still fall within this phrase whereas Omega argues that goods manufactured abroad are not "made under this title" unless the goods are made or sold with permission from the copyright owner to import the goods into the United States. At oral argument, the Justices quickly pointed out the difficulties in these two interpretations on both a textual and policy level.

In contrast to the formidable task before the Court in the copyright context, patent law takes a relatively easier approach to the international exhaustion issue. The seminal Supreme Court case on international exhaustion under patent law is Boesch v. Graff, 133 U.S. 697 (1890). In Boesch, the plaintiffs held a U.S. patent and German patent for an improvement to lamp burners. The defendants purchased burners in Germany from Mr. Hecht, who was authorized to make these burners in Germany because of Germany's prior user defense (Hecht was not authorized by the patentees). When the defendants imported these burners into the U.S., the patentees sued for infringement. The defendants argued that their legal purchase in Germany from Mr. Hecht permitted them to import and sell them in the United States. The Court disagreed and held that although Mr. Hecht had a right to make and sell the burners in Germany under German patent law, this had no effect on the U.S. patentee's ability to enforce its U.S. patent in the United States.

Over a century later, the issue of international patent exhaustion arose again in Jazz Photo v. ITC, 264 F.3d 1094 (Fed. Cir. 2001) and Fuji Photo Film v. Jazz Photo, 394 F.3d 1368 (2005), where the Federal Circuit reaffirmed the Supreme Court's holding in Boesch and clarified that the exhaustion doctrine would not apply even if the U.S. patentee or its licensees authorized the first sale abroad. In other words, even if the U.S. patentee permitted the first sale in a foreign country, a subsequent attempt to import such an item into the U.S. would still constitute infringement. In support of its holding, the Federal Circuit noted that the U.S. patentee's "foreign sales can never occur under a United States patent because the United States patent system does not provide for extraterritorial effect."

Based on the dialogue between the Justices and the attorneys in Costco, it appears that the Court may be uncomfortable limiting the exhaustion doctrine in the copyright context solely to situations where the first sale took place within the United States. They seem to be struggling to articulate a standard that allows some foreign sales to take advantage of the exhaustion doctrine while giving the phrase "lawfully made under this title" some meaning.

If, in the end, the rule announced by the Court in Costco differs from the holdings in Boesch and Jazz Photo, then what effect may this have on the future of patent law's exhaustion doctrine? Of course, the Court could maintain a dual approach, where copyright exhaustion and patent exhaustion are treated differently. However, if presented with an international patent exhaustion case, the Court could rely on its Costco holding and try to align the copyright and patent rules. We have seen the Court take this approach recently in MGM Studios v. Grokster, 545 U.S. 913 (2005), when it created a new theory of secondary liability in copyright law (the inducement theory) by relying, in large part, on patent law's recognition of this theory via statute in § 271(a) of the Patent Act.

Another possibility for harmonization of copyright and patent law is that the Court takes its cue from patent law and hold that exhaustion in the copyright context only applies when the copyrighted works were first sold or otherwise distributed in the United States. If this disrupts the policy concerns underlying the exhaustion doctrine, then Congress can always step in to resolve this issue.

Cancer Research Technology v. Barr Laboratories: Prosecution Laches and Inequitable Conduct

By Jason Rantanen

Cancer Research Technology Ltd. v. Barr Laboratories, Inc. (Fed. Cir. 2010)
Panel: Newman, Lourie (author), Prost (dissenting)

Although overshadowed by the en banc Federal Circuit arguments in TheraSense v. Becton Dickinson this morning, Cancer Research Technology v. Barr Laboratories may provide a preview of what the opinions in TheraSense could look like – although it doesn't necessarily indicate which view of inequitable conduct will ultimately prevail.  In Cancer Research, Judges Lourie and Newman reversed a district court finding of prosecution laches and inequitable conduct, while dissenting Judge Prost would have reached the opposite result.

The patent at issue (the '291 patent) involved a set of thirteen tetrazine derivatives that the original 1982 specification identified as possessing anticancer activities based on animal studies.  During the first nine years of prosecution, the examiner repeatedly rejected the claims due to lack of utility; rather than file a response to the office actions, the applicant instead filed continuation after continuation.  In 1991, Cancer Research obtained ownership of the patent application and shortly thereafter responded to the examiner's arguments.  The patent issued in 1993 and expires in 2014. 

Following Cancer Research's clinical testing, the FDA approved one of the compounds covered by the '291 patent (marketed as TEMODAR) for the treatment of one type of cancer in 1999 and a second in 2005.  In 2007, Barr Laboratories filed an Abbreviated New Drug Application ("ANDA") for a generic form of TEMODAR.  Cancer Research sued Barr for infringement four months later.  During the district court proceedings, the parties stipulated to validity and infringement and, after a bench trial, the court found that the patent was unenforceable due to prosecution laches and inequitable conduct. 

Prosecution Laches
Given the nearly ten-year delay before any meaningful response to the examiner's rejection was filed, Barr contended that the patent was unenforceable due to prosecution laches.  The district agreed, concluding that the delay in prosecution was unreasonable and unexplained.

On appeal, the majority reversed the finding of prosecution laches, holding that the doctrine requires not just unreasonable delay, but also a showing of prejudice.  The majority further held that "to establish prejudice, an accused infringer must show evidence of intervening rights, i.e., that either the accused infringer or others invested in, worked on, or used the claimed technology during the period of delay."  (Slip Op. at 9).  Here, there was no evidence of intervening rights during the prosecution period, such as evidence showing that someone other than the patent holder attempted to develop the claimed compounds.  Even Barr itself waited until 2007 – four years later than required – before filing its ANDA.  The majority also noted that there was no public harm: in the absence of the patent, Cancer Research likely would not have been incentivized to develop TEMODAR at all. 

Writing in dissent, Judge Prost rejected the notion that prosecution laches requires prejudice, let alone intervening rights; rather, under her reading of the precedent such a requirement is not part of the laches determination.  Furthermore, in her opinion, both Barr and the public were harmed by Barr's inability to market a generic version of TEMODOR.

Comment: I'm unconvinced by Judge Prost's argument on this point.  If she is correct, then the '291 patent was never enforceable – be it in 2007, when Barr filed its ANDA, or 1993, when it issued.  Yet without an enforceable patent, Cancer Research would never have developed TEMODOR, let alone engaged in the expensive Phase III clinical studies necessary to demonstrate its safety and efficacy.  Thus, the "harm" to the public would been greater in the absence of the '291 patent, not less.

Inequitable Conduct
The majority also rejected the district court's finding of inequitable conduct, while the dissent reached the opposite conclusion.  Both opinions focused on the subject of intent to deceive. 

The inequitable conduct issue in this case revolved around an extensive series of articles by an inventor on the '291 patent that presented data from post-application clinical trials of the claimed compounds.  These articles included conclusions indicating that some of the claimed compounds demonstrated high toxicity and low anticancer activity, which the district court found to be highly material to the patent claims because it directly contradicted statements in the '291 patent regarding the compounds' utility in treating cancers, as well as the patentability of a broadly written claim.

The majority, following the "intent cannot be inferred from materiality" line of thought, concluded that the district court's only basis for finding intent was its determination that the withheld articles were highly material.  "Because the district court did not rely on any other evidence to support its finding of deceptive intent beyond that used to find the withheld data material, the court in effect relied solely on its materiality finding to infer intent to deceive."  Slip Op. at 17.  The majority also concluded that the inference of deceptive drawn by the district court about the inventor's publication of data was not the only reasonable inference; rather, the broad publication of this data in multiple articles is inconsistent with an inference of intent to deceive.  Thus, an equally reasonable inference is that the inventor did not appreciate the potential importance of the published data to the patentability of the patent claims.

Judge Prost, again writing in dissent, would have affirmed the district court's determinations.  In contrast to the majority, which required independent evidence of intent, her view of inequitable conduct is that it does not require separate evidentiary bases for materiality and intent; rather it is appropriate to cite to the same evidence for materiality and intent.  Furthermore, here there was additional evidence of intent in the form of the district court's credibility findings, "which are virtually unreviewable by this court."  Thus, under her approach to intent in inequitable conduct, "[w]e should not draw inference that the district court has already excluded based on its own credibility findings."

Comment: The majority and dissent's views on intent can be partially reconciled under the position that, although an intent to deceive may be partially based on evidence of materiality, materiality cannot be the sole basis for the finding of intent to deceive.  Here, in the majority's opinion, the finding of materiality was the sole basis for the intent to deceive determination, because the only additional factor – the credibility determination – was based on an erroneous inference.  On the other hand, in the dissent's view credibility determinations are unreviewable and are sufficient to provide the "beyond the materiality" support for an intent to deceive finding.

Inducement of Infringement: Should We Even Think of its Fault Element in Mens Rea Terms?

By Jason Rantanen

The conventional approach to the fault elements1 of indirect and willful infringement is to speak of them in mens rea (or state of mind, if you prefer) terms.  But describing fault this way is largely nonsensical when dealing with modern indirect and willful infringement.  In my current work-in-progress, I suggest that the fault element of these doctrines should instead be conceived of as an objective inquiry that focuses on the degree of risk of infringement to a person in the accused party’s shoes.  Given the Supreme Court's grant of certiorari this morning in Global-Tech v SEB, questioning whether we should even be talking about the issue in mental state terms seems particularly timely.

Inducement of infringement is the poster child for the problems associated with viewing the fault elements for certain doctrines in mens rea terms.  For years, both the Federal Circuit and scholars struggled to define the state of mind necessary for inducement.  Did it require intent to infringe a patent, or just intent to cause the underlying acts that constituted infringement?  Even after the court settled this issue in DSU Medical, it continued to conceive of the requirement in mental state terms – in i4i v Microsoft, for example, the court stated that inducement requires that the accused party “knowingly induced infringement and possessed specific intent to encourage another’s infringement.”   598 F.3d 831, 851 (Fed. Cir. 2010).  And perhaps the strongest evidence of how deeply this view is entrenched is the Court’s Question Presented in SEB, which assumes that the fault element must be described in mental state terms – asking whether the accused infringer must possess a certain “state of mind,” be it one of deliberate indifference or purposeful conduct.

In my paper, I offer several reasons why viewing the fault element of inducement in mental state terms is wrong.  Among them are the following:

  • The “people” who are accused of inducement are not people at all.  They are corporations.  To speak of a corporation as having a specific state of mind is borderline meaningless.  Is it sufficient that an engineer’s purpose is to infringe a patent?  Or does one look to the legal department?  Or must senior management “intend” to infringe a patent?   These questions are particularly problematic in the patent infringement context, which involves assessments not just of factual consequences, but also of legal questions.
  • No one ever has the “purpose” of infringing a patent.  Of course, one may purposefully engage in acts that constitute infringement.  One may even purposefully copy another’s technology.  But no one’s purpose is to infringe a patent.
  • Nor does the alternate mens rea concept of “knowledge” work.  Knowledge is typically established when one is “substantially certain” of certain consequences.  Given the uncertainties associated with patent law, one can virtually never be “substantially certain” that conduct infringes a patent short of a final judgment.
  • Indeed, the facts of past opinions involving inducement suggest that, notwithstanding the court’s framing of the legal issue, what is really required is the existence of an obvious, high risk that the relevant conduct infringes a particular patent – not actual knowledge that it infringes a patent or purpose to infringe a patent.  Thus, although the fault element of inducement is commonly articulated as requiring “intent to infringe a patent,” I suggest that the normative standard that is actually being applied is one of recklessness. 

Rather than continue to attempt to articulate the fault element of inducement as if it required a subjective mental state, I suggest that an objective inquiry akin to civil recklessness is more appropriate.  Specifically, I argue that the better approach would be to ask whether, given the information known to the accused party at the relevant time, a high risk that the relevant conduct infringed a patent would be obvious to a person in the accused party’s place.   Obviously, my articulation is by no means perfect (and I’m dealing with some of the imperfections in my paper), but I think it provides a more intelligible articulation of the fault element for inducement than currently exists.

1 By "fault element," I simply mean the component that transforms a doctrine into something other than a strict liability claim.

Stays Pending Appeal

August Technology Corp. v. Camtek (Fed. Cir. 2010) (non-precedential order)

A jury ruled that Camtek's semiconductor wafer inspection system infringed August's patent rights. The district court then issued a permanent injunction ordering the adjudged infringer to refrain from making, using, selling or offering-for-sell the infringing device. The court also ordered that Camtek not communicate with third parties located in the US for the purposes of offering to sell the device.

Along with its appeal on the merits, Camtek filed an emergency motion to stay the injunctive relief until the appeal is resolved. 

Under Federal Circuit law, the court will stay injunctive relief if either (1) the moving party shows a substantial likelihood that the injunction will be lifted as part of the merits decision; or (2) the moving party presents a strong case on the merits and the relative harms associated with the stay favor the moving party.  

Writing for the panel, Judge Lourie denied the stay — writing only that Camtek had not “met its burden.” 

Fujitsu Ltd. v. Netgear

By: Jason Rantanen

Fujitsu Ltd. v. Netgear (Fed. Cir. 2010)
Panel: Lourie, Friedman, and Moore (author)

Indirect infringement claims are particularly relevant in the context of industry-wide interoperablity standards, because frequently companies simply manufacture products capable of particular behavior while the relevant methods are actually carried out by end users.  Patent No. 4,974,952 raises an example of this issue.  The '952 patent claims a method of sending wireless messages involving fragmenting the messages in a particular manner.  Philips, the patent holder, contended that any product that complied with certain sections of the IEEE 802.11 standard infringed the asserted claims, and that by complying with the standard Netgear indirectly infringed the '952 patent (presumably by selling the accused products).

The district court granted summary judgment of noninfringement in favor of Netgear, determining that Phillips had failed to establish either contributory infringement or inducement.  On appeal, the Federal Circuit determined that the district court had erred on some points, but nevertheless affirmed summary judgment of noninfringment with respect to all but four products. 

Use of Standards to establish Direct Infringement: The court's discussion of the use of industry-wide standards to prove infringement may become the most widely-cited portion of this opinion.  After considering the parties' arguments, along with that of amicus Association of Corporate Counsel Intellectual Property Committee, the court held that:

[A] district court may rely on an industry standard in analyzing infringement. If a district court construes the claims and finds that the reach of the claims includes any device that practices a standard, then this can be sufficient for a finding of infringement. We agree that claims should be compared to the accused product to determine infringement. However, if an accused product operates in accordance with a standard, then comparing the claims to that standard is the same as comparing the claims to the accused product….An accused infringer is free to either prove that the claims do not cover all implementations of the standard or to prove that it does not practice the standard.

We acknowledge, however, that in many instances, an industry standard does not provide the level of specificity required to establish that practicing that standard would always result in infringement. Or, as with the ’952 patent, the relevant section of the standard is optional, and standards compliance alone would not establish that the accused infringer chooses to implement the optional section. In these instances, it is not sufficient for the patent owner to establish infringement by arguing that the product admittedly practices the standard, therefore it infringes. In these cases, the patent owner must compare the claims to the accused products or, if appropriate, prove that the accused products implement any relevant optional sections of the standard.

Slip Op. at 8-9. Applying this holding, the panel concluded that because the fragmentation feature in the 802.11 standard was optional, and (although present in the Netgear devices) was turned off by default, Phillips was required to prove that customers actually used the infringing feature. On this point, the Federal Circuit agreed with the district court that there was only evidence of actual infringing use with respect to four products.

Substantial Noninfringing Uses: The Federal Circuit applied the analysis of i4i v. Microsoft, focusing on the specific feature at issue.  Here, because the specific feature was infringing when it was activated, there was no substantial noninfringing use.

Material Part of the Invention: Phillips accused two classes of products: those that only fragmented messages and those that only defragmented messages.  Because the claims of the '952 patent were specifically drawn to the fragmenting steps, not the defragmenting steps, the district court concluded that the accused defragmenting products could not infringe.  Phillips argued that because fragmentation necessarily infringes the asserted claims, than the defragmenting products are useful only for infringement, and Netgear should be liable for them.  The panel rejected this argument: even though the usefulness of the claimed method would be lost without data receivers capable of defragmenting messages, the lack of defragmentation steps in the claims means that products that only defragment messages cannot constitute a "material part" of the invention. 

Mental State Components of Indirect Infringement: In analyzing the respective mental state components for contributory infringement and inducement of infringement, the panel found that Netgear's receipt of letters identifying the '952 patent and alleging infringement by any 802.11 compliant standard were sufficient to survive summary judgment.

Comment: my current research focuses on mental state issues in patent law, including in the context of indirect infringement.  In the near future, I'll discuss this subject in more depth. 

Other issues: In addition to the above indirect infringement issues, the Federal Circuit also concluded that the district court had erred in limiting damages based on the patent marking statute (35 U.S.C. § 287), because the claims covered a method and § 287 does not apply where the patent is directed to a process or method.  The Federal Circuit also analyzed the district's construction of relevant claim terms in Patent Nos. 6,018,642 and 6,469,993, and affirmed its grant of summary judgment of noninfringement of those patents.  The analysis in this section may be particularly relevant to those operating in the wireless technology area.

Follow-up comment: Michael Barclay also noted the importance of the standard-as-evidence holding on his blog, IPDuck.  See

Successor Company Holds Patents Assigned to Predecessor Company (Even if Assigned after Predecessor Dissolved)

Tri-Star Electronics Int'l. v. Preci-Dip Durtal SA (Fed. Cir. 2010)

Mr. Kerek (from Ohio) invented the claimed “socket contact” while an employee of Tri-Star and he duly executed an assignment of his rights to to Tri-Star.  The year prior to the invention, Tri-Star (OHIO) had merged and become Tri-Star (CALIFORNIA).  However, Kerek's assignment clearly stated that the assignment of rights was to Tri-Star (OHIO) — even though that Ohio company no longer existed. Later, Tri-Star (CALIFORNIA) merged and became Tri-Star (DELAWARE).

Here, the accused infringer has challenged whether Tri-Star (DELAWARE) has standing as owner of the patent rights.  The Federal Circuit accepted this interlocutory appeal and held that Tri-Star (DELAWARE) is the owner of the patent rights.  

In making its decision, the Federal Circuit found two points of law important:

First, contract law attempts to satisfy the mutual intent of the parties, and here, it was clear that the employee had intended to transfer rights to his employer as required by the employment contract.

Second, even after a merger, a predecessor company continues to exist under Ohio law for the purposes of allowing its property to vest.

Based on these two points, the Federal Circuit held that the stated transfer to the merged Tri-Star (OHIO) equated to a transfer to its successor Tri-Star (CALIFORNIA). The later transfer to Tri-Star (DELAWARE) was not disputed.

* * * * *

I have no problem with the Federal Circuit's statements regarding Ohio law — it is correct as far as I know. However, I do have some concern with the ongoing fallacy that there is no Federal law or policy controlling the transfer of patent rights. On point, there is a Federal Law requiring that patent assignments be done “in writing.” 35 U.S.C. 261. Based on that statute, the court should have considered how the supposed transfer from Kerek to Tri-Star (CALIFORNIA) fits within that statutory requirement. In addition, we have seen an increasing number of companies playing games with the patent recordation system by using shell corporations and by mis-recording assignment records. Here, for instance, the assignment record showed ownership by Tri-Star (CALIFORNIA) despite the documentation in the underlying assignment.  Those concerns are important — especially if we believe that the public properly has an interest in knowing the identity of patent owners.