In this claim construction case, the Federal Circuit has reversed in favor of the patentee – finding that the district court improperly limited the claims to a specific embodiment. Here, the patents at issue are directed toward tamper-resistant food packaging. The idea behind the invention is easy to see from the drawings. A plastic lid connected to the plastic base by a perforated strip. The claims identify this perforated portion as a “frangible section” and the district court interpreted that language to mean “a removable tear strip, delimited by at least two severable score lines.” The result of that construction was that the accused EasyPak containers didn’t infringe.
On appeal, the Federal Circuit held that the lower court improperly narrowed the construction. The district court had offered the prosecution history as a reason for limiting the definition to the particular embodiment. However, the appellate court (reviewing this intrinsic evidence de novo) found the district court’s conclusions of the file wrapper “inaccurate” and noted that the specification included an embodiment with a single score line.
Judge Newman offered the Federal Circuit’s opinion that leads me to the conclusion that nothing-much has changed in the area of claim construction following Teva v. Sandoz, 135 S.Ct. 831 (2015).
In its pending petition for writ of certiorari in MobileMedia Ideas v. Apple, MobleMedia asks a number of follow-on questions:
1. Did the … Federal Circuit violate due process by summarily reversing a patent infringement judgment based upon a new and unprompted claim construction without remand to the district court in denial of Petitioner’s right to present evidence at trial and fully and fairly litigate the matter of infringement for the first time based on the new construction?
2. What standard should apply to denying remand for trial on a new claim construction used by the Federal Circuit to summarily reverse a patent infringement judgment?
3. Has the Federal Circuit effectively rendered Markman hearings and rulings meaningless by creating an unworkable, burdensome and judicially inefficient precedent that will require plaintiffs to present evidence at trial of every imaginable claim construction?
Progressive Insurance v. Liberty Mutual Insurance (Fed. Cir. 2015)
This case stems from a set of seven overlapping post-grant-review proceedings (CBM PGR) before the Patent Trial and Appeal Board (PTAB) that Liberty Mutual filed against Progressive’s “business method” patents. The patents relate to auto-insurance pricing based upon customer vehicle use patterns – such as the number of sudden stops over a given period of time – as well as online insurance policy adjustments. See U.S. Patent No. 8,140,358 as an example.
In the Covered-Business-Method Review, the PTAB found a number of Progressive’s claims invalid as either anticipated or obvious. On appeal, the Federal Circuit affirms in all respects.
Two different proceedings for the same patent: Liberty Mutual filed two different CBM proceedings against the ‘358 patent. In one, the Board invalidated all claims except for 1, 19, and 20 while in the other the second the Board invalidated all claims of the patent. These two decisions were released about 1-hour apart.
The first challenge on appeal was that the second judgment was improper because – according to Progressive’s theory – the Board lost jurisdiction once it issued the first decision. That theory stems from Section 325(e)(1) that prohibits a petitioner from “maintain[ing] a proceeding before the Office” on issues that “reasonably could have” been raised during a post-grant review that has already reached a final written decision. The argument here is that, once the PTO reached the first final judgment that the second case should immediately disappear. On appeal, the Federal Circuit rejected that approach finding (1) that the statute does not prevent the PTO from maintaining the proceeding and in any event (2) the PTAB indicated that the two decisions were “concurrent” even though actually made public about 1-hour apart. Finally, the Court noted that the PTO has statutory authority to decide how to deal with multiple related proceedings.
Written Description and Claiming Priority: On the merits, a substantial amount of the problem here dealt with patent families and the difficulty in understanding whether a later claim can properly claim priority to an earlier filed application. The PTO typically (except in Hyatt’s case) does not require a patentee to expressly connect each patent claim with its effective priority date. As a result, those arguments are typically saved until later in litigation (thus, the benefit of filing a CIP . . . )
Here, the claims in question included an interface module that produce a “driver safety score” – construed by the PTAB to mean a “calculated insurance risk value associated with driver safety.” The priority application disclosed “rating factors” that might include safety factors, but did not expressly disclose a risk value associated only with driver safety. (Note the seeming subtle shift in construction by the Federal Circuit). In any event, the ruling is that the priority application disclosed the genus but not the later claimed species – as such it does not meet the written description requirement. In this situation, the result is that the priority filing date for the particular patent at issue here is pushed back to the later filing and that date was predated by the intervening prior art disclosures.
= = = =
It does not appear that Section 101 was raised as a challenge:
1. A system that monitors and facilitates a review of data collected from a vehicle that is used to determine a level of safety or cost of insurance comprising:
a processor that collects vehicle data from a vehicle bus that represents aspects of operating the vehicle;
a memory that stores selected vehicle data related to a level of safety or an insurable risk in operating a vehicle;
a wireless transmitter configured to transfer the selected vehicle data retained within the memory to a distributed network and a server;
a database operatively linked to the server to store the selected vehicle data transmitted by the wireless transmitter, the database comprising a storage system remote from the wireless transmitter and the memory comprising records with operations for searching the records and other functions;
where the server is configured to process selected vehicle data that represents one or more aspects of operating the vehicle with data that reflects how the selected vehicle data affects a premium of an insurance policy, safety or level of risk; and
where the server is further configured to generate a rating factor based on the selected vehicle data stored in the database.
Personalized User Model, LLP v. Google Inc. (Fed. Cir. 2015) (Part II).
In Part I, I discussed the aspect of this decision dealing with the statute-of-limitations for dealing with an inventor who had (allegedly) breached his employment agreement by failing to assign patent rights. In Part II here I focus on the second important portion of the decision – a holding that the appellate court has no jurisdiction to address a claim construction appeal unless the result would impact the outcome of the case at hand.
At the district court, Google won the case based upon a finding of invalidity and non-infringement. The patentee (PUP) did not appeal those holdings, but did ask the court to review the lower court’s claim construction – arguing that the district court misconstrued the term “document” and that mis-construction may well impact future litigation of other claims in the patent family in the form of collateral estoppel (issue preclusion)
On appeal, the Federal Circuit refused to consider the claim construction appeal – finding that the appellate panel would be in violation of the US Constitution if it heard the case. In particular, the Federal Circuit panel held that the dispute over claim construction offered no case or controversy as required by Article III of the US Constitution.
Despite PUM’s concerns that the construction might be given preclusive effect in future litigation involving its related patents, we may not provide an advisory opinion on the meaning of a claim term that does not affect the merits of this appeal and thus is not properly before us.
Although it lost the appeal, asking the question may be good strategy on the part of the patentee here since the appellate court’s refusal to hear the appeal is potentially sufficient to negate the presumption that the patentee had a full and fair opportunity to litigate the issue. Thus, the result may be no issue preclusion.
I can’t find it on line, but it’s Milwaukee Electric Tool Corp. v. Hilti, 2015 WL 1898393 (E.D. Wis. Apr. 27, 2015). DLA Piper was representing Snap-on Tools. Another client asked it to sue several potential infringers, one of which was Snap-on. The firm appeared in all of the cases — all of which involved the same patent — against every defendant except Snap-on.
Snap-on moved to disqualify DLA Piper. It contended that, by representing the patentee against the non-clients, it was adverse to Snap-on. Basically, the argument that has been made (in this circumstance in several patent cases, and in other contexts) is that a lawyer should not be a part of building a case against his own client.
The court discussed the three other patent cases on this issue, and some of the other cases, but denied the motion to disqualify. It found that DLA Piper was not adverse to Snap-on, but it noted that it was a very close question.
Here’s my question: obviously, DLA Piper cannot coordinate with those lawyers who are adverse to Snap-on. (I can’t do out of court what I couldn’t do in it.) How can a law firm competently represent a patentee in an infringement suit without coordinating arguments (claim construction, etc.) with other counsel? For a discussion of those issues, see Arrowpac Inc. v. Sea Star Line, LLC, 2013 Wl 5460027 (M.D. Fl. Apr. 30, 2013).
This case is somewhat like the Akin Gump case, discussed below, which resulted in a $500,000 judgment against that firm.
Earlier this year, the USPTO released a set of ‘quick fixes‘ to AIA trial procedures before the Patent Trial and Appeal Board (PTAB) and also promised second package of rule changes. That second package has now been detailed in the USPTO’s Proposed Rule Changes now found in the Federal Register. The proposed rules focus on a number of practical changes to PTAB Trial Procedures:
Testimonial Evidence (Such as Expert Declarations) in Patent Owner’s Preliminary Response (to be considered but viewed in the light most favorable to the petitioner when determining whether to institute an inter partes review proceeding)
Claim construction standards for patents about to expire (use actual construction for patents that “will expire” before final judgment rather than broadest-reasonable-interpretation)
Rule-11 Requirement associated with all papers filed with the PTAB – giving the USPTO “a more robust means with which to police misconduct.”
In her blog-post on the topic, USPTO Director Michelle Lee indicated that the USPTO will also “amend its Office Patent Trial Practice Guide to reflect developments in practice before the Office concerning how the Office handles additional discovery, live testimony, and confidential information.”
As part of the process, Director Lee also offers a “where we stand” set of statistics for the past three years of AIA filings:
3,655 petitions, of which 3,277 are IPRs, 368 are CBMs, and 10 are PGRs.
63% focus on patents from electrical/computer technology centers (TCs) and only 9% in the the bio/pharma TC.
Review Institution: Trials have been instituted on 1,389 of 3,277 IPR petitions, 185 of 368 CBM petitions, and 2 of 10 PGR petitions.
Trial results: 12% of total claims available to be challenged (4,496 of 38,462), were determined by the PTAB to be unpatentable in a final written decision. Other claims were either not challenged, resolved by settlement, cancelled, or upheld as patentable. Of the first IPRs to reach a conclusion, 25% of claims actually challenged (4,496 of 17,675) were found to be unpatentable.
According to Director Lee, the number of petitions is “around three times more” than what were originally expected by Director Kappos.
Comments on the proposed rules go to trialrules2015@uspto.gov and discussions will be held at the upcoming roadshows: August 24, 2015 in Santa Clara, August 26, 2015 in Dallas, and August 28, 2015 at USPTO HQ.
Professor Peter Menell is very much a practical consensus builder and his collaborative Patent Case Management Judicial Guide has gone a long way in seting a gold standard in how a Judge should manage patent cases (and thus how parties should litigate patent cases).
The 1,300 page third edition has just been released and is available for free on SSRN with the following abstract:
This treatise updates and expands upon the second edition of the Patent Case Management Judicial Guide (2012). Since that time, patent litigation has continued to increase in complexity. This edition encompasses implementation of the America Invents Act (“AIA”), the emergence of review proceedings at the Patent Trial and Appeal Board (“PTAB”), the Supreme Court’s many recent patent decisions (patent eligibility, claim construction, claim indefiniteness, infringement analysis (rejecting “joint infringement”), the intent requirement for induced infringement liability (rejecting a defense of good faith belief of a patent’s invalidity), and attorney fees), and the Federal Circuit’s damages jurisprudence (including damage awards for standard essential patents (SEP) licensed pursuant to fair, reasonable, and nondiscriminatory (FRAND) terms. It also includes case management checklists, model case management orders, and other materials developed by district judges and advisory bodies for streamlining patent case management. Finally, this volume adds a chapter on patent litigation at the Court of Federal Claims.
http://ssrn.com/abstract=2637605. Menell’s team of co-authors includes Lynn Pasahow (Fenwick); Jim Pooley (Pooley); Matthew Powers (Tensegrity); Steven Carlson (Kasowitz Benson); Jeffrey Homrig (Latham); George Pappas (Covington); Carolyn Chang (Fenwick); Colette Mayer (Morrison Foerster); and Marc Peters (Morrison Foerster).
Tomorrow I’ll write about the design patent functionality questions in Ethicon Endo-Surgery v. Covidien, Appeal No. 14-1370 (Fed. Cir. 2015) (medical shears). Today, the focus is on the Federal Circuit’s reversal on indefiniteness. Here, the appellate court held that the district court had improperly invalidated the asserted surgical shear claims of Ethicon’s Patent No. 8,182,501.
Before getting into the legal details, I wanted to write about the legal posture. This case involves Ethicon’s infringement allegations against its market competitor Covidien. In a parallel case, Covidien (Tyco Healthcare) sued Ethicon for infringing its shear patents. In that case, Covidien originally won a $177 million judgment that was then vacated by the Federal Circuit who found that the district court erred in its nonobviousness decision. In a recent filing, Covidien has filed a petition for writ of certiorari on the question of whether evidence of prior invention (“102(g)(2) evidence”) is available for the obviousness analysis as the Federal Circuit held? More subtly, the question is actually phrased: “whether a mere conception that was neither known to the public nor reduced to practice at the time a patented invention was made is “prior art” to that invention under the pre-2013 version of 35 U.S.C. § 103.” [102(g) SCOTUS Petition.] This is an interesting if purely historic question since prior-invention are no longer be a legitimate claim against AIA-patents.
Back to the new indefiniteness decision: The ‘501 patented shears at issue claim an ultrasonic blade and a clamping arm that squeezes blood-vessels against the blade. The pad at the end of the clamping arm is designed with a blade-contact-area (“clamping surface area”) “so that the applied clamp force does not exceed a clamping pressure of 210 psi at the clamping surface area.” Finally, the claims also include a “means for limiting a user applied clamping force on the clamping arm creating an average predetermined clamping pressure between and including 60 psi and 210 psi on tissue disposed between the tissue pad and the blade.” In the specification, the patentee does identify a structure for limiting the pressure as a “torque wrench.” So, the indefiniteness problem here is not the ordinary Donaldson no-structure-for-MPF-element problem.
The district court found the claim invalid as indefinite because the specification did not spell-out how the pressure should be calculated. In particular, the district court identified four different ways to calculate the pressure (averaging / non-averaging / location on pad / angle considerations / etc.) that would each render a different pressure reading. And, without knowing how to calculate the “psi limits”, the claim scope lacked definiteness.
In Nautilus (2014) , the Supreme Court lowered-the-bar on indefiniteness — ending the difficult to prove insolubly ambiguous test and replacing it with a broader question of whether the claims provide a skilled artisan with “reasonable certainty” as to the scope of legal right claimed. Although the district court decided its case under the old standard, it still found the claims invalid as indefinite.
On appeal though, the Federal Circuit has reversed that finding — holding that the district court improperly ignored the intrinsic evidence and misinterpreted the expert testimony. Somewhat oddly, on the intrinsic evidence, the appellate panel found that the the pressure calculation limitation in the patent claims all require consideration of the average pressure across the pad — even though only some of the claims include the “average” limitation. Once that bit of claim construction is done (and once you decide to measure the pressure when the blade closed (~0 degree angle), then the various mechanisms of measuring/calculating average pressure all converge because of linearity involved (assuming a straight blade).
Of interest to litigators, it appears here that the Federal Circuit did give deference to the district court’s factual conclusions regarding expert testimony on indefiniteness – still finding that the district court “arrived at several clearly erroneous factual conclusions.”
On remand, the trial court will next need to interpret the scope of the ‘501 means claim terms and determine whether there is any infringement (or some other reason to invalidate) the claims.
As alluded to above, the lawsuit also involves a set of design patents covering the shears. The district court held them invalid as too functional. On appeal, the Federal Circuit also reversed that holding – finding instead that the district court evaluated the design patent claims “using too high a level of abstraction, focusing on the unclaimed utilitarian aspects . . . instead of the claimed ornamental designs.
Although it received a somewhat favorable claim construction ruling and won a summary judgment challenge, the patentee (SFA) dropped its case against Newegg and issued a covenant not to sue the erstwhile defendant based upon what SFA termed “business reasons.” Rather than simply walking away, Newegg demanded attorney fees to compensate for its costs defending against what it termed a “frivolous and abusive lawsuit.”
On appeal here, the Federal Circuit has affirmed the lower court’s denial of fees under Section 285 of the Patent Act. That provision states that a district court “may award reasonable attorney fees to the prevailing party” in “exceptional cases.” In its 2014 Octane Fitness decision, the Supreme Court interpreted an “exceptional case” to be one that:
stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.
Exceptionality appears to be implicitly linked to reasonableness — at least insofar that a showing that your actions were “reasonable” will avoid an exceptional case award. In practice, the determination of an exceptional case is done on a case-by-case basis, “considering the totality of the circumstances.” Id. In its parallel 2014 Highmark decision, the Supreme Court also held that the district court’s determination regarding exceptional case awards should be given deference on appeal.
Not Reviewing a Double Mistake: As I mentioned, the district court’s claim construction and summary judgment denials both favored the patentee. In arguing that SFA’s case lacked substantive merit, Newegg provided the following logical chain of reasoning: (a) if the district court had not erred in its claim construction, (b) it would have held the claims invalid as indefinite (c) therefore showing that SFA’s case lacked substantive merit. On appeal, the Federal Circuit refused to follow the bait and instead found that a fee-award petition does not open the door to re-litigating all underlying substantive issues decided by the district court. Rather, according to the court, the review of a fee-award petition should focus only on “whether the district court abused its discretion when it found that the party’s litigating position was not so meritless as to ‘stand out’ from the norm and, thus, be exceptional.” Likewise, the Court wrote that district court need not revisit its prior decisions when judging a fee award motion.
Nuisance Fee Litigation Not Necessarily Unreasonable: Following the holding of Eon-Net v. Flagstar, 653 F.3d 1314 (Fed. Cir. 2011), Newegg argued that SFA’s practice was abusive “by exploiting the high cost to defend complex litigation to extract a nuisance value settlement.” (quoting Eon-Net). On appeal, however, the appellate panel found that the district court had not abused its discretion in failing to find unreasonable conduct.
We agree with Newegg … that a pattern of litigation abuses characterized by the repeated filing of patent infringement actions for the sole purpose of forcing settlements, with no intention of testing the merits of one’s claims, is relevant to a district court’s exceptional case determination under § 285. And, we agree with Newegg, moreover, that to the extent the district court’s opinion in this case can be read to discount the motivations behind a patentee’s litigation history, the district court was wrong. The problem with Newegg’s request that we reverse the district court’s exceptional case determination on these grounds, however, is its failure to make a record supporting its characterization of SFA’s improper motivations.
In particular, SFA was able to point to some larger settlements and other cases that it had not (yet) settled.
Here, the Federal Circuit repeated its prior holdings that a repeated pattern of filing lawsuits and then settling for only a “nuisance” amount (<10% of expected litigation costs) provides evidence of exceptionality. The problem was simply that the defendant did not prove-up that pattern in this case. Apparently it is acceptable and reasonable to have some nuisance-settlement cases as long as the patentee is willing to push its case to the merits in other cases.
Totality of Circumstances: Although the appellate court walked-through the two factors of (1) low-merit case and (2) litigation misconduct, it also recognized that the test is a totality-of-the-circumstances test. However, the unstated conclusion from the case is that the case cannot be exceptional unless at least one of the factors shows unreasonable behavior.
= = = = =
One problem with the current patent system is that valid but low-value patents are fairly worthless, and this decision only exacerbates that problem. Take the example of a valid patent covering an improvement that incrementally adds only $500,000 in value to a product’s entire market. And, assume that market is split among five competitors. The sequential settlements of $100,000 are all “nuisance level,” but they are also all at the correct market level. Now, Despite what you might conclude from the decision’s language, I don’t believe that the court here is trying to say that a patentee would act unreasonble wrong in this situation by filing and settling these cases. However, the language is loose enough to support a defendant who mounts such a case. (And, I recognize that my hypothetical is not exactly parallel to the facts at issue in the SFA case.)
One solution to this problem is to have more focus on potential damage awards early-on in a case in order to form realistic limits that, in turn, should tend to limit reasonable litigation expenditures.
= = = = =
Mark Lemley argued the case before the Federal Circuit for Newegg, although he was apparently not on the original appellant brief. John Edmonds appeared on behalf of SFA.
Judge O’Malley penned the opinion that was joined by Judges Clevenger and Hughes.
The Federal Circuit simultaneously released two decisions in this appeal of the first inter partes review proceeding before the Patent Trial and Appeal Board (PTAB). The first decision is a revised panel opinion holding:
that the court lacks “jurisdiction to review the PTO’s decision to institute IPR;”
that the PTO acted within its statutory rulemaking authority in determining that patent claims subject to an IPR should be given their “broadest reasonable interpretation” and thus that the PTAB’s broad claim construction and subsequent obviousness determination were proper; and
that the Board properly denied Cuozzo’s motion to narrow its claims in order to avoid the prior art.
Judge Dyk wrote the majority opinion joined by Judge Clevenger; and Judge Newman dissented on almost all points. [I have not fully reviewed the revised opinion, but the holding does not appear to differ significantly from the original that I discussed here. DC]
In the second decision, the en banc court rejected Cuozzo’s petition for en banc rehearing on the Broadest-Reasonable-Interpretation (BRI) standard for administrative review claim construction. The vote was at the slimmest of margins: Six-to-Five with Chief Judge Prost, and Judges Newman, Moore, O’Malley, and Reyna voting for en banc review and Judges Lourie, Dyk, Wallach, Taranto, Chen, and Hughes voting no. Oddly, four of the six judges voting “no” to the en banc review request still felt the need to write an opinion explaining the law.
The BRI supporters write:
Congress conveyed rulemaking authority to the PTO to prescribe regulations, inter alia, “establishing and governing inter partes review,” 35 U.S.C. § 316(a)(4), and the PTO has adopted the broadest reasonable interpretation standard for IPR proceedings, 37 C.F.R. § 42.100(b). In the absence of evidence of congressional intent to abrogate the [historically grounded] broadest reasonable interpretation standard, we should not act to adopt a different standard based on our own notions of appropriate public policy. If the standard is to be changed, that is a matter for Congress. There are pending bills which would do just that.
Dissenting from the en banc denial, Chief Judge Prost (joined by four colleagues) writes:
In adjudicatory proceedings, claims [must be] given their actual meaning, not their broadest reasonable interpretation.
Challenging the grant-of-authority argument, the minority suggests that the rulemaking authority was procedural authority, not substantive authority — and that the standard for claim construction is extremely substantive. “In our view, these subsections are consistent with Congress’s previous grants of authority to prescribe procedural regulations.”
This decision is obviously important since many of the obviousness arguments in the pending IPRs depend upon the PTO broadly construing the claim scope. The immediate take-home is the message that Patentees had better win their case at the PTAB rather than looking to the Federal Circuit for reversal. In the background, the judicial split and administrative-law aspects of the decision suggest that it is ripe for Supreme Court review.
Guest post by David Bohrer, Patent Trial Practice, Valorem Law Group.
OIP Technologies v. Amazon.com and IPC v. Active Network are the most recent of a growing number of decisions dismissing software and business method patent lawsuits on the pleadings. In these decisions, the courts are finding that the invention alleged in the complaint is an abstract idea that is not eligible for patent protection.
While early resolution of patent litigation is laudable, motions directed to the pleadings generally may not consider matters outside what is pled in the complaint. Yet this is what courts are doing — they have been coloring outside the lines when deciding whether a patented software or business method is an ineligible abstraction. They are looking beyond the allegations in the complaint to discern “fundamental economic concepts.” Independent of anything pled in the complaint, they are making historical observations about alleged longstanding commercial practices and deciding whether the claimed invention is analogous to such practices.
Coloring outside the lines may not be acceptable. The benefit of providing an early exit from otherwise expensive and burdensome patent litigation may be outweighed by the prejudice to all parties of eroding the rules regarding the matters that may be considered before throwing out a lawsuit. Perhaps there is a better solution. Perhaps pleading motions challenging patent subject matter eligibility should be converted to expedited and limited scope summary judgment motions, thereby allowing the parties to present declarations, testimony and other extrinsic evidence that better address whether a claimed economic practice is an unpatentable idea or a patentable invention.
Alice is being used to obtain early dismissal of lawsuits based on software and business method patents
Courts granting patent ineligible subject matter motions are using the Supreme Court’s 2014 Alice decision as an effective weapon to combat vexatious patent litigation brought by non-practicing entities (NPEs). SeeCuriouser and Curiouser Is Alice the Long Sought Troll Killer _ The Legal Intelligencer. Alice provides relatively easy to satisfy requirements for demonstrating that an asserted software patent is claiming an “abstract idea” and therefore is not eligible for patent protection under section 101 of the patent statute.
Not only have courts found in Alice the tools necessary to dispose of vexatious patent lawsuits asserting software and business method patents, they also are willing to entertain an Alice challenge at the pleadings stage. The procedural posture of a pleading motion is key to using Alice to “kill trolls.” Defendants can challenge the merits of the patent lawsuit at the pleadings stage and before having to incur significant expenses associated with discovery, claim construction, experts and summary judgment. The nuisance value of the lawsuit goes way down. Defendants are less likely to feel they have to pay a distasteful settlement or else bear the much greater expense of defending on the merits.
Recent Federal Circuit decisions continue the trend
On June 11, 2015 and again on June 23, 2015, the Federal Circuit affirmed decisions by the Northern District of California dismissing software patent lawsuits at the pleading stage. In each of these cases, OIP Technologies v. Amazon.com (underlying patent claimed offer-based price optimization) and IPC v. Active Network(retaining information lost in the navigation of online forms) the district courts granted Rule 12(b)(6) motions to dismiss on the grounds that the patents claimed abstract ideas ineligible for patent protection.
In each case, the Federal Circuit approved the resolution of 101 eligibility at the pleading stage with little to no analysis. In IPC, the Federal Circuit’s opinion includes one sentence in which the court states that claim construction (which had not yet occurred) is “not an inviolable concept.” In OIP, the lead opinion does not address how early in litigation alleged ineligibility may be resolved, but in a concurring opinion Judge Mayer supports addressing eligibility at the motion-to-dismiss stage.
Failure to recite statutory subject matter is the sort of “basic deficiency,” that can, and should, “be exposed at the point of minimum expenditure of time and money by the parties and the court,” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 558 (2007) (citations and internal quotation marks omitted). Addressing 35 U.S.C. § 101 at the outset not only conserves scarce judicial resources and spares litigants the staggering costs associated with discovery and protracted claim construction litigation, it also works to stem the tide of vexatious suits brought by the owners of vague and overbroad business method patents. Accordingly, where, as here, asserted claims are plainly directed to a patent ineligible abstract idea, we have repeatedly sanctioned a district court’s decision to dispose of them on the pleadings. See, e.g., Content Extraction & Transmission LLC v. Wells Fargo Bank, 776 F.3d 1343, 1349 (Fed. Cir. 2014); Ultramercial, Inc. v. Hulu, LLC, 772 F.3d 709, 717 (Fed. Cir. 2014); buySAFE, Inc. v. Google, Inc., 765 F.3d 1350, 1352 (Fed. Cir. 2014). I commend the district court’s adherence to the Supreme Court’s instruction that patent eligibility is a “threshold” issue, Bilski v. Kappos, 561 U.S. 593, 602 (2010), by resolving it at the first opportunity.
Contrary to the suggestion made by Judge Mayer, the Supreme Court has not addressed whether it is appropriate to address a 101 challenge at the pleading stage. Bilski’s characterization of patent eligibility as a “threshold” issue was made with reference to the 102 and 103 invalidity defenses and did not address the procedural issue. Bilski also cites to extrinsic economic treatises and other evidence of economic practice in support of the decision reviewing the denial of a patent application. Alice did NOT address patent eligibility in the context of a pleadings motion, but instead reviewed a patent eligibility ruling that was made at summary judgment. Alicecites to the same extrinsic economic evidence relied upon in Bilski.
There is not supposed to be any coloring outside the lines on pleadings motions
The well-established general rule is that Rule 12(b)(6) motions to dismiss as well as Rule 12(c) motions for judgment on the pleadings are limited to the well-pled factual allegations made in the complaint. “A court generally cannot consider material outside of the complaint (e.g., facts presented in briefs, affidavits or discovery materials).” Chavez v. United States, 683 F.3d 1102, 1108 (9th Cir. 2012); In re American Cont’l Corp./Lincoln Sav. & Loan Sec. Litig., 102 F.3d 1524, 1537 (9th Cir. 1996) (As recognized in OIP and IPC, the Federal Circuit applies regional circuit law in deciding motions to dismiss.).
Yet this is what is happening
Notwithstanding these rules, OIP and IPC each looked beyond the complaint in determining whether the asserted claims are directed to ineligible abstract ideas. In OIP, the asserted price optimization claims were deemed “similar to other ‘fundamental economic concepts’ found to be abstract ideas.” In IPC, the asserted online information retention claims were deemed “well-understood, routine, conventional activities previously known.” In each instance, the court is looking at practices and activities outside of anything alleged in the complaint.
These Federal Circuit cases teach that it is acceptable to consider matters outside of the complaint, as confirmed by Affinity Labs of Texas v. Amazon.com (June 12, 2015 WD Tex.), in which the magistrate judge, applying 101 precedent from OIP and other Federal Circuit decisions, says that it is making “general historical observations that come to mind.” Based on such extrinsic “historical observations,” the court finds that the claimed invention of delivering selectable media content and subsequently playing the selected content on a portable devices is a “long-standing commercial practice and is therefore abstract.”
The Court notes that the first transistor radio, which delivers selectable audio media to a portable device, was developed in the late 1940s and was immensely popular in the succeeding decades. Similarly, the first portable televisions, another form of delivering “selectable” media content to a portable device, were introduced in the 1980s and 1990s. The above examples represent just a few of the many general historical observations that come to mind as evidence of the long-standing commercial practice of delivering selectable media content and subsequently playing the selected content on a portable device.
Reliance on extrinsic evidence of economic practices and concepts found in precedent
OIP and IPC support their abstract idea findings by equating the economic purpose of the asserted patent with the economic concepts successfully challenged in other cases. For example, in OIP, the Federal Circuit says offer-based price optimization (at issue in OIP) is analogous to using advertising as an exchange or currency (deemed an abstract idea in the earlier Federal Circuit decision Ultramercial v. Hulu). Likewise, in IPC, the Federal Circuit said that recent precedent illustrates the boundary between abstraction and patent eligible subject matter. But how is the court in a position to make the connection between the asserted claims and prior precedent on its own observation and independent of expert testimony or other relevant extrinsic evidence? Judge Mayer and many other respected judges might reply that it is acceptable to make this connection because it is “plain” or “obvious.” Yet this seems to invite the application of 20-20 hindsight and of the “I know it when I see it” standard.
Can’t take judicial notice of truth of findings made in other decisions
Furthermore, while a court may take judicial notice of another court’s opinion in ruling on a motion to dismiss, it may do so only as to the existence of the opinion and not for the truth of the facts recited therein. Lee v. City of Los Angeles, 250 F.3d 668, 690 (9th Cir. 2001). It appears that cases such as OIP and IPC are relying on the truth of factual findings made in other decisions regarding whether certain economic concepts are “conventional” or “well-known” – such matters appear outside the scope of what may be judicially noticed in a motion to dismiss.
Possible solution is expedited and limited scope summary judgment motions
A court’s consideration of information outside the four corners of the complaint, assuming it does not fall within exceptions such as judicial notice, converts a motion to dismiss into a summary judgment motion. Lee, 250 F.3d at 688. True enough, this raises the specter of time-consuming discovery and case development (see the criticism of ED Texas Judge Gilstrap’s requirement that the parties demonstrate that there is a good faith basis for such a motion). This said, district courts have the discretion to expedite such motions as well as limit their scope. They could, for example, specifically require the responding party to submit to expedited discovery on the issue whether the asserted patent claims eligible subject matter followed by expedited briefing and submission of evidence on both the question whether the purpose of the asserted claims is a conventional economic concept and therefore an ineligible abstract idea, and if so, whether there is an inventive concept that saves the claim from dismissal. They could stay other case development or discovery during the expedited resolution of the motion. It does not necessarily follow that the court would have to conduct claim construction as part of the process. The parties, as they do now, could brief whether claim construction is necessary, but would also have greater flexibility in terms of their ability to submit proofs in support of their claim construction arguments. Woe unto the party who purports without any reasonable basis to have compelling extrinsic evidence that they are not asserting a conventional economic concept or that their patent is directed to a protected inventive concept– the district courts have ample support in High Octane and its progeny for awarding fees under such circumstances.
If courts are going to color outside the lines, then let the parties do the same thing
Courts are willing to color outside the lines and consider extrinsic evidence upon addressing motions to dismiss challenging alleged ineligible patent subject matter. This contravenes well-established rules and policies regarding pleading challenges and may cause undue prejudice by denying a party the ability to submit extrinsic evidence in support of a well-pled claim. A possible solution is for the court to allow the parties to color outside the lines as well. The court has the discretion to impose time and scope limits on discovery and briefing without opening the door to prolonged, vexatious litigation.
Lighting Ballast v. Philips Electronics (Fed. Cir. 2015)
In its 2014 en banc decision in Lighting Ballast, the Federal Circuit confirmed that all aspects of claim construction are reviewed de novo on appeal without giving any deference to findings made by the District Court in its original judgment. While Lighting Ballast was pending certiorari, the Supreme Court decided Teva v. Sandoz that altered claim construction appeals by ruling that a district court’s factual conclusions regarding extrinsic evidence should be given deference on appeal. (All other aspects of claim construction decisions will continue to be reviewed de novo). Following Teva, the Supreme Court issued a G-V-R for the pending Lighting Ballast petition for certiorari with an order that the Federal Circuit reconsider its position based upon the outcome of Teva.
On remand to the original panel*, the Federal Circuit has flipped its original decision — now affirming the district court’s claim construction that was supported by its now undisturbed factual findings.
As with many recent cases, this one also focuses on the difficulty of defining the scope of a functionally claimed element. Here, the Lighting Ballast patent at issue claims a “voltage source means” and the question is whether that limitation should be deemed a means-plus-function element to be interpreted under 35 U.S.C. 112(6). The problem for the patentee is that the specification does not spell-out any embodiments of a voltage-source-mean – and that resulted in the Federal Circuit originally holding that the claim term was indefinite and the claim invalid.
The district court had a different opinion. In particular, the district court heard expert testimony that one of skill in the art would easily understand a “voltage source means” to be an AC/DC rectifier or similar structure. As such, the district court found that the term had sufficient structure to avoid the limits of Section 112(6).
In this new appeal of the same issue, the Federal Circuit has affirmed the lower court findings. In particular, the Federal Circuit found no clear error with the district court’s conclusion that the “voltage source means” is “understood by persons of skill in the lighting ballast design art to connote a class of structures, namely a rectifier, or structure to rectify the AC power line into a DC voltage for the DC input terminals” because it was supported by the evidence of record. Further the extrinsic evidence and resulting factual conclusions were allowed based upon the Federal Circuit’s de novo conclusion that and the conclusions were not contradicted by the intrinsic record. The court writes:
Under the circumstances, it was not legal error for the district court to rely on extrinsic evidence, because the extrinsic evidence was “not used to contradict claim meaning that is unambiguous in light of the intrinsic evidence.” Phillips v. AWH Corp., 415 F.3d 1303 (Fed. Cir. 2005). For example, the district court determined that “while the ‘voltage source means’ term does not denote a specific structure, it is nevertheless understood by persons of skill in the lighting ballast design art to connote a class of structures, namely a rectifier, or structure to rectify the AC power line into a DC voltage for the DC input terminals.” The district court went on to note that the language following “voltage source means” in the claim—“providing a constant or variable magnitude DC voltage between the DC input terminals”—“when read by one familiar with the use and function of a lighting ballast, such as the one disclosed by the 529 Patent, [sic] would understand a rectifier is, at least in common uses, the only structure that would provide ‘a constant or variable magnitude DC voltage’”. The district court further noted that “[i]t is clear to one skilled in the art that to provide a DC voltage when the source is a power line, which provides an AC voltage, a structure to rectify the line is required and is clear from the language of the ‘voltage source means’ term.” We defer to these factual findings, absent a showing that they are clearly erroneous.
The district court’s factual findings are supported by the record. Specifically, these factual findings are supported by the testimony of Dr. Roberts and Mr. Bobel. Mr. Bobel testified in his deposition that the “voltage source means” limitation connotes a rectifier to one skilled in the art. Mr. Bobel further explained that a battery could likewise provide the necessary DC supply voltage described in the patent. Similarly, Dr. Roberts explained that the “voltage source means” limitation suggests to him a sufficient structure, or class of structures, namely a rectifier if converting AC from a “power line source” to DC for a “DC supply voltage” or a battery if providing the DC supply voltage directly to the DC input terminals. This expert testimony supports a conclusion that the limitations convey a defined structure to one of ordinary skill in the art. See Rembrandt Data Techs., LP v. AOL, LLC, 641 F.3d 1331 (Fed. Cir. 2011). Because the district court’s factual findings demonstrate that the claims convey sufficient structure, the district court was correct to conclude that the term “voltage source means” is not governed by § 112 ¶ 6. As such, we affirm the district court’s decision concerning “voltage source means.”
The analysis here is confusing on a number of levels. How does the presumption of 112(6) applicability to ‘means’ elements fit in the analysis? What impact of Williamson? A factual finding is never the claim construction – thus how does the factual finding fit into the ultimate claim construction decision? . . .
This case does again raise the likelihood of testimony-intensive claim construction hearings as predicted post Teva.
= = = = =
This affirmance reinstates the $3 million in damage verdict going to Lighting Ballast. (Plus pre- and post- verdict interest).
Guest post by Professor Kevin Emerson Collins, Professor of Law at Washington University Law School.
In its en banc decision in Williamson v. Citrix Online, the Federal Circuit held that there is no “strong” presumption that functional claim limitations that do not use the term “means” are not subject to the rules of means-plus-function claim construction laid out in section 112(f). There is still a presumption that claims that do not employ the term “means” are not means-plus-function claims, as Jason Rantanen explains in his earlier PatentlyO post on Williamson, but, in theory, this only requires the patent challenger to satisfy a more-likely-than-not burden of persuasion.
I understand Williamson to shift Federal Circuit case law on two distinct axes at the same time. First, as a matter of substance, it makes broad, functionally defined claims more difficult to obtain. The scope-narrowing rules of 112(f) now apply to a larger number of functionally defined limitations: a limitation that not employ the term “means” should now be governed by 112(f) whenever it “fails to ‘recite sufficiently definite structure’ or else recites ‘function without reciting sufficient structure for performing that function.’” Second, as a matter of form, Williamson makes patent law less rule-like and more standard-like. Courts may no longer use the rule-like, strong presumption that 112(f) does not apply when functional limitations do not employ the term “means.” Rather, whenever prompted to do so by a patent challenger, they must scrutinize the claim language on a case-by-case basis to see if it recites a sufficient quantum of structure in order to determine whether section 112(f) applies.
In my opinion, all things being equal, the substantive shift discussed above is a positive development. Unbridled functional claims over-reward an inventor and impose undue costs on society.[i] The strong presumption that functional claim limitations not using “means” avoided the scope-narrowing rules of 112(f) made such functional claims too easy to obtain. However, there is more work to be done to fully effectuate this substantive shift. For example, it is far from clear that the Federal Circuit will ever apply 112(f) to a method claim, despite the express mention of “step for” claims in the text of the statute. So, patentees can perform an end-run around Williamson and obtain broad, functionally defined claims simply by seeking a method claim rather than a product claim—a tactic that is particularly useful in the software arts where claims can be easily transformed from systems to methods and back again.
Nevertheless, being in a charitable mood, let’s assume all of the loopholes get closed and that all claims reciting “function without reciting sufficient structure for performing that function” are really subject to 112(f) after Williamson. It is at this point that we have to roll up our sleeves and begin the truly hard part of the work that is needed to reform functional software patents.
Bringing 112(f) to bear on software patents is tricky because the statute depends on a dichotomy between structure and function that simply does not exist in the software arts as a matter of fact. Although there is unquestionably a gray area, the structural and functional properties of a technology in the mechanical arts are, at their core, ontologically distinct to a philosopher and intuitively distinct to the rest of us. The description “coiled spring” denotes structure; the description “capable of generating kinetic energy when jostled” denotes function. However, this distinction vanishes in the software arts: most software inventions are function all the way down.[ii] Software is a powerful technology precisely because a programmer can remain ignorant of the physical, structural properties of a computer while specifying the functions that the software performs. Software functionality is therefore like a never-ending set of nested Russian dolls: you open up one more general functional description to look for structure, and all you find is another, more specific functional description. Patent law can, and does, identify an “algorithm” for performing a function as structure for legal purposes in a software claim, but it is importantly only metaphorical structure. An algorithm is a series of more specific steps for performing a more general function, but each of the steps in an algorithm is, in turn, specified only in functional terms. What is an algorithm as the term is used in patent law? It is a functional description of a software program that is specific enough that we are willing as a matter of patent policy to treat it like we treat a structural description in other arts. That is, the function-structure distinction in software is not a difference of kind but a difference of degree. Structure in the law of software patents is a legal fiction that has been manufactured to achieve patent policy goals.
The true challenge post-Williamson will therefore be identifying the level of specificity at which a functional description should count as metaphorical structure. Michael Risch alludes to this problem in his blog post on Williamson when he asked “[H]ow much structure is enough?” However, I think that a question precedent to Risch’s question is both more difficult and fundamental, namely “When is there any structure at all?” What level of specificity in a functional description counts as metaphorical structure?
To date, the Federal Circuit has answered this question with another layer of formalism that Williamson does not touch: any functional description in the specification that is more specific than the functional description in claims is likely to be metaphorical structure and thus an algorithm. This rule makes no sense from a policy perspective because the level of generality specified in a claim is often arbitrary. If a claim recites function A and the specification recites algorithmic steps 1, 2, and 3 for function A, a valid claim encompasses steps 1, 2, and 3 and their equivalents. However, if the claim were to directly recite functions 1, 2, and 3 (which are identical to steps 1, 2, and 3) without a more specific set of algorithms for those functions in the specification, then the claim is invalid for indefiniteness.[iii] The Federal Circuit’s approach to identifying algorithms is more like ducking the important question than providing an answer to it.
To be honest, I still waffle in my opinion on how hard the challenge of assessing the validity and permissible scope of functional software claims will be after Williamson. Some days, the problem seems difficult but tractable (although maybe not by an Article III court). Perhaps what we need to do is get patent lawyers, software engineers, and economists around a table. Perhaps they can articulate clear guidelines identifying a level of specificity at which functional software claims should be upheld, i.e., a level that identifies an algorithm and thus metaphorical structure. But, on other days, I’m less convinced that there is a tractable solution. Maybe the difference between a functional description of software and a software algorithm is like the difference between ideas from expression in copyright law, given that both differences are based on a levels-of-generality problem. Maybe therefore “[n]obody has ever been able to fix that boundary, and nobody ever can.”[iv] While the amount of uncertainty that follows from the idea/expression dichotomy may be acceptable in copyright law, the same amount of uncertainty in a function/algorithmic-step dichotomy in the law of software patents may not be.
In sum, although I believe that Williamson shifts the substantive reach of patent protection in the right direction, the costs of the inextricably linked shift toward a standard and away from a rule may, or may not, turn out to be too much to bear. If they are too much, then the need for a more rule-like patent regime will force us to choose doctrine that is either quite over-protective (e.g., that returns to the pre-Williamson strong presumption) or quite under-protective (e.g., that eliminates pure software patents altogether) as a substantive matter. Yet, despite the existence of these many possible futures, at least one thing is clear in the immediate aftermath of Williamson: the hard work of reforming functional software patents can now begin.
[i] The normative argument here is more complicated than is often presumed. For my take on why functional claiming should not be allowed, see Kevin Emerson Collins, Patent Law’s Functionality Malfunction and the Problem of Overbroad, Functional Software Patents, 90 Wash U. L. Rev. 1399, 1411–24 (2013).
[ii] To be clear, software only works because a programmed computer has certain physical, structural properties. But, the physical, structural properties of the programmed hardware are irrelevant to the definition of what constitutes a software invention. For more on what it means to say software is “function all the way down,” or to call software a purely functional technology, see id. at 1440–43.
Taking up the remand from the Supreme Court, a divided Federal Circuit panel has held true to its prior decision in Teva v. Sandoz – holding once again that the lower court’s claim construction was incorrect and that the asserted claims (Group I) are invalid as indefinite. The majority (led by Judge Moore and joined by Judge Wallach) did give deference to the lower court’s particular fact-finding, but found that the lower court had drawn incorrect conclusions-of-law from the factual bases. Further, the new ‘reasonable certainty’ definiteness requirement under Nautilus made the invalidity holding even easier to justify.
In Teva, the Supreme Court held that findings-of-fact subsidiary to a claim construction decision should be given deference on appeal. However, the court also noted that most claim construction issues remain questions of law reviewed without deference to the trial court’s findings. These de novo issues include ultimate claim construction outcome, findings regarding intrinsic evidence, and (according to this opinion) the decision on how to apply any subsidiary factual findings in the analysis.
Here, the patent claims include a copolymer “having a molecular weight of about 5 to 9 kilodaltons.” The problem is that polymer chemists have three different ways that molecular weight could be calculated in this context (peak average; number average; and weight average).
Although ostensibly a claim-construction case, the ultimate issue here is actually whether the “molecular weight” term is unduly indefinite under the standards of 35 U.S.C. 112(b). Indefiniteness is considered part of the claim construction analysis and thus is also a question of law. While the case was pending, the Supreme Court decided the important indefiniteness case of Nautilus v. Biosig. In Nautilus, the court lowered-the-bar by making it much easier to find a patent indefinite whenever a claim’s scope lacks “reasonable certainty.”
In addressing the details of this case on remand, the Federal Circuit first noted that there is no express definition of the molecular weight term and that the patentee’s expert had admitted that the term has no “default” meaning even to a person of skill in the art.
The patentee’s expert testified that one of skill in the art would understand that the the calculation should be peak-average molecular weight because it would be more straightforward to calculate peak-average based upon the data presented in Example 1 and Figure 1 of the patent document. The district court relied upon that conclusion in its analysis. On appeal, the Federal Circuit gave deference to the district court’s factual conclusion but noted that the analysis only goes so far and cannot overcome the claim language itself:
A party cannot transform into a factual matter the internal coherence and context assessment of the patent simply by having an expert offer an opinion on it. The internal coherence and context assessment of the patent, and whether it conveys claim meaning with reasonable certainty, are questions of law. The meaning one of skill in the art would attribute to the term molecular weight in light of its use in the claims, the disclosure in the specification, and the discussion of this term in the prosecution history is a question of law. The district court should not defer to Dr. Grant [Teva’s Expert’s] ultimate conclusion about claim meaning in the context of this patent nor do we defer to the district court on this legal question. To the extent that Teva argues that this ultimate determination deserves deference, it is in error. . . .
Even accepting as correct the district court’s factual determinations about .. the transfer of chromatogram data to create Figure 1, these facts do not resolve the ambiguity in the Group I claim about the intended molecular weight measure.
The intrinsic evidence seen by the Federal Circuit here actually came from the prosecution history of a continuation application related to the patent-in-suit. In that later-case, the examiner rejected a claimed “molecular weight” term as indefinite under 112(b) and the applicant at that time responded that the best definition of molecular weight used weight average rather than peak average. The confusion arises now because the patentee is arguing that the proper definition is peak average. In my view, it is really this late-stage change-in-definition that led to the Federal Circuit’s indefiniteness holding.
Writing in dissent, Judge Mayer argued that the expert testimony should be seen as dispositive here and that the Federal Circuit improperly rejected factual expert testimony. Judge Mayer also suggested that the proper course of action when vacating a lower court claim construction is not to find the claim indefinite but instead to remand to consider whether further factual development is needed.
= = = = =
Of interest, the majority strongly implies that “clear and convincing evidence” is required to hold a claim invalid for indefiniteness:
We hold that claim 1 is invalid for indefiniteness by clear and convincing evidence because read in light of the specification and the prosecution history, the patentee has failed to inform with reasonable certainty those skilled in the art about the scope of the invention. On this record, there is not reasonable certainty that molecular weight should be measured using Mp. This is the legal question—and on this question—we reverse the district court.
Of course, the clear-and-convincing standard is associated with factual conclusions not questions of law and the Federal Circuit here does not appear to have relied upon any factual conclusions for its decision.
Richard A. Williamson v. Citrix Online, LLC (Fed. Cir. 2015) Download Opinion Panel: Moore, Linn (author), and Reyna. Part II.C.1. decided by the court en banc.
Judge Reyna concurred as to the conclusion of indefiniteness, but maintained his dissent as to a claim construction issue decided by the panel. Judge Newman dissented as to Part II.C.1.
In the original panel opinion in Williamson v. Citrix (discussed here), the majority held that the use of the word “module” does not invoke the means-plus-function language of 35 U.S.C. § 112, para. 6, and thus the claim was not indefinite under the Federal Circuit’s § 112, para. 6 precedent. In reaching that conclusion, the majority held that because the claim did not use the word “means,” there was a “strong” presumption that § 112, para. 6 does not apply. Citrix sought en banc review. (Disclosure: I joined an amicus brief encouraging the court to grant en banc review due to the intra-circuit split on this issue).
This morning the Federal Circuit withdrew the earlier opinion and substituted a new one, with an en banc section addressing the means-plus-function issue. The en banc court reversed the precedent creating a “strong” presumption, holding that the standard is “whether the words of the claim are understood by person of ordinary skill in the art to have a sufficiently definite meaning as the name for structure.” Slip Op. p. 16. If the words of the claim do not meet that standard, § 112, para. 6 (now § 112(f)) applies.
35 U.S.C. § 112, para. 6 states:
An element in a claim for a combination may be expressed as a means or step for performing a specified function without the recital of structure, material, or acts in support thereof, and such claim shall be construed to cover the corresponding
structure, material, or acts described in the specification and equivalents thereof.
Although there is a presumption based on the presence or absence of the word “means,” that presumption is rebuttable:
In making the assessment of whether the limitation in question is a means-plus-function term subject to the strictures of § 112, para. 6, our cases have emphasized that the essential inquiry is not merely the presence or absence of the word “means” but whether the words of the claim are understood by persons of ordinary skill in the art to have a sufficiently definite meaning as the name for structure.
Id. at 14. Under Federal Circuit precedent from the 1990’s, “the presumption can be overcome and § 112, para. 6 will apply if the challenger demonstrates that the claim term fails to “recite[] sufficiently definite structure” or else recites “function without reciting sufficient structure for performing that function.” Id. (citingWatts v. XL Sys., Inc., 232 F.3d 877, 880 (Fed. Cir. 2000).
Subsequent cases raised that presumption first to a “strong” one (Lighting World), then to a “strong one that is not readily overcome” (Inventio), and then to an even higher bar: “[w]hen the claim drafter has not signaled his intent to invoke § 112, ¶ 6 by using the term ‘means,’ we are unwilling to apply that provision without a showing that the limitation essentially is devoid of anything that can be construed as structure” (Flo Healthcare Solutions) (emphasis added by court).
The court considered this heightened standard and eliminated it:
Our consideration of this case has led us to conclude that such a heightened burden is unjustified and that we should abandon characterizing as “strong” the presumption that a limitation lacking the word “means” is not subject to § 112, para. 6. That characterization is unwarranted, is uncertain in meaning and application, and has the inappropriate practical effect of placing a thumb on what should otherwise be a balanced analytical scale. It has shifted the balance struck by Congress in passing § 112, para. 6 and has resulted in a proliferation of functional claiming untethered to § 112, para. 6 and free of the strictures set forth in the statute. Henceforth, we will apply the presumption as we have done prior to Lighting World, without requiring any heightened evidentiary showing and expressly overrule the characterization of that presumption as “strong.” We also overrule the strict requirement of “a showing that the limitation essentially is devoid of anything that can be construed as structure.”
The standard is whether the words of the claim are understood by persons of ordinary skill in the art to have a sufficiently definite meaning as the name for structure. Greenberg, 91 F.3d at 1583. When a claim term lacks the word “means,” the presumption can be overcome and § 112, para. 6 will apply if the challenger demonstrates that the claim term fails to “recite sufficiently definite structure” or else recites “function without reciting sufficient structure for performing that function.” Watts, 232 F.3d at 880. The converse presumption remains unaffected: “use of the word ‘means’ creates a presumption that § 112, ¶ 6 applies.” Personalized Media, 161 F.3d at 703.
Applying the pre-Lighting World standard, the court concluded that the term “distributed learning control module” was governed by § 112, para. 6. That term is part of a larger passage that is “in a format consistent with traditional means-plus-function limitations. It replaces the term ‘means’ with the term ‘module’ and recites three functions performed by the ‘distributed learning control module.'” Slip Op. at 17. That term – module – is “a well-known nonce word that can operate as a substitute for ‘means’ in the context of § 112, para 6.” Id. “Generic terms such as ‘mechanism,’ ‘element,’ ‘device,’ and other nonce words that reflect nothing more than verbal constructs may be used in a claim in a manner that is tantamount to using the word ‘means’ because they ‘typically do not connote sufficiently definite structure’ and therefore may invoke § 112, para. 6.” Id. And here, “the word ‘module’ does not provide any indication of structure because it sets forth the same black box recitation of structure for providing the same specified function as if the term ‘means’ had been used.” Id. at 19. Nor was there any other evidence that indicated that the term recited sufficiently definite structure.
The consequence of concluding that § 112, para. 6 applies was that the court moved to the second step of the means-plus-function construction: looking to the specification for corresponding structure. Because the specification did not disclose adequate corresponding structure, the claim was indefinite.
Judge Reyna concurred in the conclusion reached by the court en banc, but expressed concern that the court’s approach sidesteps “underlying fundamental issues involving the development of functional claiming law since 1952 when 35 U.S.C. § 112, paragraph 6 was passed.” Concurrence at 3-4. Judge Reyna also dissented as to a claim construction issue decided by the panel.
Judge Newman dissented from the en banc ruling in Section II.C.1. In Judge Newman’ view, the result of the court’s decision is clear: “additional uncertainty of the patent grant, confusion in its interpretation, invitation to litigation, and disincentive to patent based innovation.”
In a short-but-important opinion, the Federal Circuit has affirmed a district court’s finding (on motion-to-dismiss) that OIP’s patent claims are invalid as lacking patent eligible subject matter.
The claims are directed to a multi-step process of using an offer-based inquiry method for setting product price. (U.S. Patent No. 7,970,713). The basic problem is that it is difficult to figure-out the profit-maximizing price for any given product. The inventor’s insight here is that, unlike a land-based grocery store where prices are publicly labeled, an internet-based store can offer a different price to each consumer. The invention spells out a method of testing various price-points by actually offering the product for sale to consumers different consumers being given different prices. The results of those offers (whether or not consumers purchased at the given price) can then be used to automatically calculate the price-point.
In reviewing the claimed invention, the Federal Circuit found it to be “no more than an abstract idea coupled with routine data-gathering steps and conventional computer activity.” As such, the claims are ineligible for patent protection.
Following the two-step approach of Alice Corp v. CLS Bank, the Federal Circuit first found that the claims did encompass an abstract idea — namely the abstract idea of “offer-based price optimization.” We know that the price optimization is an abstract idea because it is similar to the “fundamental economic practices” that the Supreme Court has previously found to be abstract ideas. (Note – here the appellate panel misquotes the Supreme Court as saying “fundamental economic concepts” rather than practices.) The court also states: the fact that “the claims do not preempt all price optimization or may be limited to price optimization in the e-commerce setting do not make them any less abstract.”
The second step of Alice Corp considers whether the claims include an additional inventive concept sufficient to transform the abstract idea into a patent eligible invention. Here, the court finds that additional limitations and concepts are all well understood, routine, and conventional activities that merely require conventional computer technology. “[R]elying on a computer to perform routine tasks more quickly or more accurately is insufficient to render a claim patent eligible.”
The opinion of the court was penned by Judge Hughes and joined by Judge Taranto. Judge Mayer published an additional concurring opinion indicating that eligibility is properly addressed at the motion-to-dismiss stage.
Failure to recite statutory subject matter is the sort of “basic deficiency,” that can, and should, “be exposed at the point of minimum expenditure of time and money by the parties and the court,” Twombly, 550 U.S. 544 (2007). Addressing 35 U.S.C. § 101 at the outset not only conserves scarce judicial resources and spares litigants the staggering costs associated with discovery and protracted claim construction litigation, it also works to stem the tide of vexatious suits brought by the owners of vague and overbroad business method patents. Accordingly, where, as here, asserted claims are plainly directed to a patent ineligible abstract idea, we have repeatedly sanctioned a district court’s decision to dispose of them on the pleadings. . . . I commend the district court’s adherence to the Supreme Court’s instruction that patent eligibility is a “threshold” issue, Bilski v. Kappos, 561 U.S. 593 (2010), by resolving it at the first opportunity.
Still fighting against this tide, Judge Gilstrap (E.D. Tex.) requires an accused infringer to must obtain leave of the court after showing good cause before filing a motion to dismiss on patent eligiblity. (Joe Mullin Article).
Despite the suggested cost of patent litigation, I expect that winning on motion-to-dismiss is considerably less expensive than the IPR/PGR/CBM process.
Guest Post by Christian E. Mammen. Dr. Mammen is a litigation partner in the San Francisco office of Hogan Lovells.
The recently-introduced PATENT Act (S. 1137) tracks, in substantial part, many of the reforms proposed in the House’s Innovation Act (H.R. 9). However, the PATENT Act differs in several ways from the Innovation Act. Many of the differences between the two bills have been discussed elsewhere at length. This article focuses on just one feature of the PATENT Act, which has some potentially far-reaching implications for patent litigation in the Eastern District of Texas, the nation’s most popular patent litigation forum.[1]
Discovery is one of the most costly and time-consuming phases of patent litigation. In patent litigation brought by NPEs, the burdens of discovery are asymmetrical, with the burden falling more heavily on the accused infringer. Particularly where the NPE-plaintiff acquired the patent on the secondary market, it will have few or no documents to produce relating to the invention process, patent-related products, or the like. The cost of discovery, which falls disproportionately on accused infringers, can motivate those accused infringers to settle patent litigation for valuations based on the cost of avoiding further litigation, rather than on the value of the patented technology.
To address this issue, the Innovation Act initially proposed that discovery be stayed until the court issues a claim construction ruling. However, this proposal was in tension with widely accepted practices concerning discovery prior to claim construction. For example, a 2008 Federal Judicial Center report indicated that most courts surveyed held claim construction after at least some fact discovery, and Berkeley Law Professor Peter Menell’s Patent Case Management Judicial Guide (2d ed. 2012), explains, “it is only by knowing the details of the accused product and the relevant prior art that the parties are able to determine which claim terms need construction.” Further, many courts have now adopted Patent Local Rules that require early production of infringement contentions and related documents, and invalidity contentions and related documents, and it is not clear whether those disclosures would also be stayed under the Innovation Act.[2]
Presumably in order to balance these competing concerns, the PATENT Act also includes the idea of a discovery stay in early phases of patent cases, but changes the triggering event. Rather than staying discovery until claim construction, the PATENT Act would stay discovery only while any one of three pre-answer motions is pending: (1) motions to dismiss, (2) motions to transfer venue, or (3) motions to sever accused infringers.
At first glance, this proposed scheme is a bit puzzling, since all three types of motions are typically filed – and resolved – early in the case, generally before discovery even starts.[3] Under the Federal Rules of Civil Procedure, discovery is stayed until the parties have held an initial conference concerning case management under Fed. R. Civ. P. 26(f). The Rule 26(f) conference generally happens about 3-4 months after the case is filed.
However, on closer examination, the PATENT Act’s proposed discovery stay has the potential to disrupt the status quo in one important circumstance. While there is a general preference that motions to transfer venue be brought as quickly as possible (generally before the answer is filed—indeed, the PATENT Act would only stay discovery when such motions are “filed prior to the first responsive pleading”), some courts delay resolution of these motions, and the PATENT Act’s stay of discovery would remain in place until the court rules on the motion. Furthermore, if the motion to transfer venue were filed sequentially after a motion to dismiss—a not implausible scenario under plausible readings of the PATENT Act—the filing date of the venue transfer motion could approach the date of the Rule 26(f) conference, thus extending the discovery stay well into the case’s discovery period. And if the court delays ruling on the motion, the commencement of discovery could be significantly delayed as well.
Famously, the Eastern District of Texas has gained a reputation for deferring rulings on venue transfer motions until the case is substantially advanced. As the Federal Circuit observed in one recent case challenging the Eastern District of Texas’ ruling on a transfer motion, “This case is a prime example of the importance of addressing motions to transfer at the outset of litigation … Congress’ intent to prevent the waste of time, energy and money and to protect litigants, witnesses and the public against unnecessary inconvenience and expense may be thwarted where, as here, defendants must partake in years of litigation prior to a determination on a transfer motion.” In re EMC Corp., 501 Fed. Appx. 973, 975-976 (Fed. Cir. 2013) (citations omitted).
Data recently obtained from Lex Machina indicates that, on average, when motions to transfer cases out of the Eastern District of Texas are granted, the ruling comes in 143 days, or about 4½ months. But when such motions are denied (meaning the case remains in the Eastern District of Texas), the ruling languishes for an average of 225 days, or 7½ months. According to Lex Machina, there were 33 cases in the Eastern District of Texas between January 1, 2010 and May 1, 2015 in which a venue transfer motion was pending for over a year before being ruled on – and only five of those longest-pending motions were ultimately granted in whole or in part. [4]
Particularly for Eastern District of Texas cases in which transfer is denied, the PATENT Act’s proposed discovery stay would prevent the start of discovery for up to 7-10 months from filing. This could have several effects. Without any other changes to the status quo, it could significantly clog the docket with discovery-stayed cases. Additionally, it will provide defendants with a strong incentive to file venue transfer motions, probably as late as possible before the start of discovery, in order to maximize the discovery-stay effect. Alternatively, the court could respond by substantially speeding up its rulings on venue transfer motions.
It is difficult at this time to say whether the drafters of the PATENT Act intended this particular scenario. But if they did, it is very clever indeed, and it will be interesting to watch it play out.
UPDATE: On June 10, Rep. Goodlatte introduced a Manager’s Amendment to the Innovation Act that scales back its proposed discovery stay. Like the PATENT Act, it would stay discovery during the pendency of pre-answer motions[5] to transfer venue or to sever claims or dismiss parties (but it does not provide for a stay pending motions to dismiss).[6] Additionally, the Manager’s Amendment would require the court to rule on any such motion before the court issues a case management order under Federal Rule of Civil Procedure 16. In view of the deadlines specified in the Federal Rules of Civil Procedure, the discovery stay in the Manager’s Amendment would normally only last for a maximum of three to four weeks (from the Rule 26(f) conference until the case management order issues). But it would also (albeit in a roundabout way) require courts to provide timely rulings on venue motions.
[1] In 2014, an estimated 32% of all patent infringement cases, and 48% of all NPE patent cases, were filed in the Eastern District of Texas.
[2] The Innovation Act is silent on whether early Patent Local Rule disclosures would be blocked by such a stay. However, the PATENT Act explicitly exempts from its proposed discovery stay early exchanges of infringement and invalidity contentions (whether by local rule or interrogatory).
[3] “Motions to dismiss” presumably refers primarily to pre-answer motions brought pursuant to Rule 12(b) of the Federal Rules of Civil Procedure, including motions based on lack of jurisdiction, failure to state a claim, improper venue or improper service. Such motions must be brought within 21 days of service of the summons and complaint, and are frequently resolved substantially before the Rule 26(f) conference. Actually, though, “motion to dismiss” is ambiguous, and could also refer to other procedures, such as a motion to dismiss brought by a plaintiff pursuant to Rule 41(a)(2). It is not immediately clear, however, what purpose would be served by staying discovery pending a plaintiff’s Rule 41 motion to dismiss.
“Motions to sever accused infringers” evidently refers to motions to sever a claim or drop a party for misjoinder under Rule 21. While such motions should ordinarily be brought as soon as practicable, on its face, Rule 21 motion permits the court to provide such remedies “at any time, on just terms.” Although not fully analyzed here, motions to sever could potentially provide leeway for the same kind of procedural gamesmanship described in this article in relation to venue transfer motions.
[5] During the committee markup on June 11, the committee approved a further amendment, permitting stays to be triggered by such motions if they are filed “within 90 days of service of the complaint” rather than “before a responsive pleading is due.”
[6] The Manager’s Amendment remains silent on the status of early disclosures under Patent Local Rules.
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.
In its first go-round, the Federal Circuit reversed the lower court’s infringement finding based upon an unduly broad claim construction of the terms inner and outer lipophilic matrix. Following Teva, the Supreme Court ordered reconsideration of the appeal. The Federal Circuit has now released its follow-on decision that holds firm — finding that Teva changed nothing since the case does not “involve factual findings to which we owe deference under Teva.”
In Teva v. Sandoz, the Supreme Court held that a district’s underlying factual conclusions supporting a claim construction decision should be given deference on appeal and only overturned when “clearly erroneous.” In general, however, claim construction remains a question of law reviewed de novo on appeal. Likewise, conclusions intrinsic evidence (e.g., file history) are also reviewed de novo as well as any holdings regarding the weight given to factual conclusions in the ultimate claim construction analysis.
Shire’s post Teva argument looks weak (at least as characterized by the court):
On remand from the Supreme Court, Shire argues that because the district court “heard” testimony from various expert witnesses during a Markman hearing and at trial, we must defer to the district court’s constructions of the appealed terms. See, e.g., Appellees’ Suppl. Br. 1.
The Supreme Court held that we “should review for clear error those factual findings that underlie a district court’s claim construction.” Teva, 135 S. Ct. at 842. The Court did not hold that a deferential standard of review is triggered any time a district court hears or receives extrinsic evidence. See id. Here, there is no indication that the district court made any factual findings that underlie its constructions of “inner lipophilic matrix” and “outer hydrophilic matrix.” See J.A. 4566–67.
An important issue that the court is working through is the difference between the “ordinary meaning” of a term and the meaning understood by a person of ordinary skill in the art at the time of the invention. Apparently the first is a question of law (reviewed de novo) and the second a question of fact (reviewed for clear error).
This decision falls in line with Jason Rantanen’s analysis that Teva doesn’t change much of anything.
Guest Post by Professor Shubha Ghosh, University of Wisconsin Law School
Congratualtions to Hannah Jiam for her great work on attorney’s fee shifting after the Supreme Court’s 2014 Octane Fitness and Highmark decisions! The forthcoming article provides a deep portrait of how attorneys have responded to the new regime under Section 285 and how courts have ruled. She also makes an insightful observation about the role of judicial discretion and the need for legislative reform of Section 285 to provide more detailed guidance for judges in order to direct and focus their discretion. Many scholars speak about attorney’s fees as a policy lever to limit frivolous litigation and the questionable practices of NPE’s. What I learned from Hannah’s article is that we also need to consider the torque of any particular policy lever (to take the nerdy techno-metaphor to the next level).
I have been pursuing research on Section 285 during my leave year from the University of Wisconsin as an AAAS Law, Science, and Policy Fellow at the Federal Judicial Center in Washington, DC. A completed paper summarizing my research will be available in a few months. Here, I would like to present some preliminary findings in order to complement Ms. Jiam’s work.
Where my methodology differs is to focus on the regimes pre-Octane Fitness as well as decisions after 2014. I am examining published judicial opinions ruling on 285 motions over three periods: (1) from the founding of the Federal Circuit in 1982 to the Brooks Furniture decision in the first week of 2005; (2) from 2005 to the Octane Fitness decision in 2014; and (3) from 2014 to the present. While there are methodological problems in looking at published opinions (which I address at the end of this post), looking at what courts have done and said with regards to 285 motions offers useful information on when courts have found a case to be exceptional and when not.
My principal finding is that judicial discretion matters regardless of the stated standard for the award of attorney’s fees. In other words, raising the standard, as occurred with Brooks Furniture, or lowering the standard, as occurred with Octane Fitness, may not matter over all as to how courts exercise their discretion. The tentative implication is that the torque of attorney’s fees as policy levers depends on an articulation of what factors courts are required to use in awarding fees and perhaps ultimately on whether or not the fees are automatic.
Some preliminary findings from various data sources illustrate these points. Table 1 reports findings from Lex Machina, which reports on various patent litigation events starting in 2000. The database captures awards of attorney’s fees across jurisdictions. Unfortunately, the database, when examined in March, 2015, did not report denials. Nonetheless, consideration of the three periods for my study, we can see an above average of attorney’s fees awards per year during the Brooks Furniture period (from 2005 to 2014). The relative size of this number, as compared to the pre-Brooks Furniture period, may be surprising since Brooks Furniture presumably made it more difficult to obtain attorney’s fees. The magnitude is most likely the result of increased patent litigation during this period, as reported by other scholars. More careful study of the types of cases arsing during the Brooks Furniture period would explain the larger annual award rate by the district courts.
Terminated cases with award
Yrs
Cases/yr
Period 1 (2000-2005)
113
5
22.6
Period 2 (2005-2014)
292
9.33
31.29
Period 3 (2014-2015)
24
.9
26.67
TOTAL
429
15.23
28.17
TABLE 1: Lex Machina data on awarded attorney’s fees from 2000 to the present
Looking more closely at the 24 identified awards of attorney’s fees post-Octane, 17 of these cases involved awards to patent owners while 7 were awards to the alleged infringer (who of course prevailed at trial). Of the 17 cases in which the patent owner obtained attorney’s fees, 4 were default judgment cases and a different 4 also involved the award of enhanced damages. The last finding suggests that fees are awarded in cases that would not meet the standard for willful infringement.
One way to obtain a sense of types of cases is to look at the time towards final judgment from initial filing, what is reported in Lex Machina as “time to terminate.” Of the 7 cases in which the alleged infringer obtained attorneys’s fees, 5 were cases with above average time to terminate, meaning cases that were initiated sometime before the Octane Fitness decision. Of the 17 cases in which the patent owner received fees, 8 involved above average time to terminate. If cases with longer times to terminate are viewed as more contentious cases, it seems that cases in which alleged infringers prevail on fee shifting are more contentious than the cases in which the patent owner prevails on fees.
The main limitations with respect to the Lex Machina data are the selection effects that arise with respect to examining reported cases and the exclusion of fee denials. Nonetheless, even looking solely at instances of attorney fee awards, there does not seem to be a pro-defendant orientation in judicial decisions. But to fully understand whether Octane Fitness serves as an effective policy lever to control frivolous patent litigation, we need to compare the post-Octane world with the regimes that existed before.
Below, I provide some preliminary summary statistics about the denial and grant of attorney’s fees over three periods from 1982 to the present. These three periods are divided into the pre-Brooks Furniture regime (1982-2004); the Brooks Furniture regime (2005-2014); and the Octane Fitness regime (2014 to the present). The following results are based on reported decisions in Westlaw on 285 motions. The decisions include both grants and denials. I conducted the search of these cases in early January. I am currently working on updating the searches and expanding the coding of the cases for various factors pertinent to understanding what constitutes an exceptional case. I should emphasize that what I am presenting is still preliminary. But I believe there is enough here for discussion especially in light of Ms. Jiam’s study.
My Westlaw search identified 24 reported decisions on attorney’s fees post-Octane, 205 reported cases from the Brooks Furniture regime, and 147 from the period between the formation of the Federal Circuit and the Brooks Furniture ruling. I examined a random sample of 20% of the cases from the Brooks Furniture regime and 16% from the pre-Brooks regime. These two random samples provide the basis for the statistics presented below.
Table 2 reports on the 24 reported cases post-Octane. Of these 24 cases, 12 resulted in grants and 12 in denials. Of the 12 grants, 9 went to the non-patentee as prevailing party. This may suggest that non-patentees are more successful post-Octane in obtaining attorney’s fees awards. But what must also be taken into consideration is that the 12 denials of awards all were in cases where the non-patentee’s motion was denied by the court. Just to be clear, these denials involved cases in which the non-patentee was the prevailing party but the court determined that the case was not exceptional. Unlike the Lex Machina data, the Westlaw reported cases capture both grants and denials. The denials are important to take into consideration in examining the effectiveness of section 285 as a policy lever. To highlight this point, consider the following. Of all the 24 reported cases involving fee shifting, 21 involved motions from the non-patentee. The disproportionate number of non-patentee motions would suggest that the Octane Fitness regime might be more favorable to the non-patentee. But of these 21 motions, only 9 resulted in a grant, suggesting that the motions were successful in less than half the cases, as reported in Westlaw. On the other hand, patent owners had a 100 % success rates based on the 3 reported cases involving a motion brought by the owner.
How the litigation environment has changed under the Octane Fitness decision requires comparison with the world before hand. Tables 3 and 4 report similar statistics for the pre-Brooks and Brooks regimes, although based on random samples from the respective population of cases.
n
Patentee
Nonpatentee
Infringement
DJ
Grant
9
2
7
7
2
Deny
15
6
9
13
2
TOTAL
24
8
16
20
4
Table 3: pre-Brooks reported cases. Total=147. N=24 (16% random sample)
These two tables are based on random samples from the population of cases and hence are very preliminary. Nonetheless they raise some hypotheses to examine in considering the entire population of cases.
The first point to emphasize once again is that denials need to be taken into consideration in gauging the effectiveness of a particular attorney’s fees regime. Under the pre-Brooks regime, there were about 62 % denials among the reported cases ruling on attorney’s fees. By comparison, there were 70 % denials among the reported cases ruling on attorney’s fees during the Brooks Furniture regime. Since the Brooks decision raised the standard for the award of attorney’s fees, it is not surprising that the denial rate is higher. But perhaps surprisingly, the rate may not be significantly higher (I have not done this test yet).
Furthermore, even though reported cases deal with motions from nonpatentees more frequently than motions from patent owners, nonpatentees are more likely to be denied fees under both the the pre-Brooks and Brooks regimes. Nonpatentees had a 44% grant rate under the pre-Brooks regime and a 31 % grant rate under Brooks. By comparison, patentees had a 25% grant rate pre-Brooks and a 28% grant rate under Brooks.
Once again, the various statistical tests of significance have not been applied yet to provide a full interpretation of these data. But two points are important at this stage of the research. In order to understand the effectiveness of Octane Fitness (its torque), we need to understand what the world of attorney’s fees looked like before the 2014 decision. Furthermore, we need to examine how grants and denials are awarded between patentees and nonpatentees. What the data suggest so far is that the various standards, however characterized as easy or hard, do not seem to favor one side over the other in patent litigation. To me, this suggest that judicial discretion may be working around the articulated standards to make decisions on a case by case basis. Part of the research is to determine what courts articulate as the relevant standard.
Table 5 partially addresses the big question of what courts deem to be exceptional cases. The table reports frequently used phrases across the various regimes in the published opinions.
RATIONALES
Grant
Denial
Pre-Brooks Furniture
“dilatory tactics”; “inequitable conduct”; “willfulness”; “failure to investigate”; “fraud on USPTO”
“no intent to deceive”; “no willfulness”; “no vexatious litigation”; failure to meet burden
Brooks Furniture
“vexatious litigation”; “misconduct in USPTO”; “bad faith”; “obj and subj baseless in light of claim construction”
failure to meet burden; “no willfulness”; “no misconduct”
Post-Octane
litigation misconduct; discovery abuse; relitigating arguments; “lit theory inconsisitent with claim construction”; uncivil tacticsnuisance suit; Fogerty factors
No misconduct; Reasonable tactics; No bad faith
Table 5: What courts say and do
An advantage of examining reproted cases, despite the limitations, is the ability to discern what courts are thinking in granting or denying fees. Let me focus on a few highlights here given my space restrictions. First, notice the prevalence of identified misconduct by the patentee or nonpatentee and attorneys as a basis for granting awards. Second, notice the prevalence of failure to meet the burden of proof in denying awards under the Brooks Furniture standard. Finally, notice the discussion of willfulness across the various regimes indicating that the determination of awarding fees occurs in the broader context of inequitable conduct and enhanced damages. My main conclusion from reading and assessing these cases is that courts seemingly exercise their discretion in determining what constitutes an exceptional case in similar ways despite the stated standard for granting fees. The policy prescription would be that the torque from using fee shifting as a policy lever may be dampened by judicial discretion. Whether legislative reform should cabin such discretion is at the core of how effective and politically feasible such reform would be.
One last word about my methodology. There are obvious selection effects from examining reported cases as I have done here. These selection effects are also relevant for Hannah’s article. Reported cases are not the typical case. Although we need to consult reported cases to determine what courts consider “exceptional,” we need to keep in mind that the reported cases are not representative of the population of cases that fee shifting rules are supposed to regulate. One goal of fee shifting rules is to prevent frivolous litigation and specifically extracted settlements based on frivolous claims. The effect of fee shifting on settlement is a complex one. Assuming that frivolous cases can be precisely identified by a judge, patent owners may be less willing to bring frivolous cases. At the same time, nonpatentees may be less willing to settle all cases, particularly frivolous ones. Looking solely at reported cases does not allow a researcher to determine how effective a fee shifting regime is in controlling frivolous litigation and settlement. Therefore, we should be wary of making global conclusions from looking at reported cases. Nonetheless, the summary statistics I provide here, in conjunction with Ms. Jiam’s excellent work on post-Octane developments, shed some light on a critical aspect of the patent reform debate.
Apple Inc. v. Samsung Electronics Co., Ltd. (Fed. Cir. 2015)Download Opinion Panel: Prost (author), O’Malley, Chen
Apple prevailed at the district court on trade dress, design patent and utility patent claims, with a total award of almost a billion dollars. On appeal, the Federal Circuit reversed on trade dress but affirmed on the design and utility patents. The big winner in this case, though, are design patents: the Federal Circuit rejected Samsung’s attempt to exclude functional features from the infringement analysis and affirmed the district court’s award of Samsung’s total profits from the sale of the phones with the infringing design.
Trade Dress: Samsung challenged Apple’s unregistered and registered trade dresses on the ground that they were functional. Applying the Ninth Circuit’s law on Lanham Act claims, the Federal Circuit agreed that Apple’s asserted trade dresses possessed utilitarian functionality. In reaching this conclusion, it placed particular weight on the “product configuration” nature of the trade dress. “[C]ourts have noted that it is, and should be, more difficult to claim product configuration trade dress than other forms of trade dress.” Slip Op. at 8, quoting Leatherman Tool Grp., Inc. v. Cooper Indus., Inc., 199 F.3d 1009, 1011-12 (9th Cir. 1999). Here, all factors weighed in favor of the trade dresses being functional and thus unprotectable under trademark law.
Design Patents: A substantial portion of Apple’s billion dollar verdict were based on the infringement of its design patents and Samsung attacked that issue with an array of arguments. The Federal Circuit rejected all of them.
Functionality and infringement: Samsung argued that “the district court erred in failing to exclude the functional aspects of the design patents either in the claim construction or elsewhere in the infringement jury instructions.” Slip Op. at 20. “For example, Samsung contends that rectangular form and rounded corners are among such elements that should be ignored in the infringement analysis.” Id. But, the court held, the precedent cited by Samsung did not support a rule “to eliminate elements from the claim scope of a valid patent in analyzing infringement.” Id. at 21 Nor did the district court err in its construction of the patent: the principle that “it is the non-functional, design aspects that are pertinent to determinations of infringement” was properly reflected in “the district court’s construction
of the design patents as claiming only ‘the ornamental design’ as shown in the patent figures.” Id.
Actual deception not required and the role of prior art: In its instruction on infringement, the district court stated: “You do not need, however, to find that any purchasers actually were deceived or confused by the appearance of the accused Samsung products.” Samsung argued that this instruction misled the jury; the Federal Circuit disagreed. “[T]he jury instruction simply clarified that actual deception was not required, which is an accurate reflection of the analysis in Gorham.” Id. at 23. Nor did the jury instructions reduce the consideration of the prior art to a mere option.
Samsung also argued that infringement was not supported by substantial evidence, but its substantive arguments were essentially the same as its challenges to the jury instructions. The court rejected these and Samsung’s argument that the district court abused its discretion in precluding certain testimony.
Damages: This is the section of the opinion that will probably get the most attention. The damages statute for design patent infringement, 35 U.S.C. § 289 states:
Whoever during the term of a patent for a design, without license of the owner, (1) applies the patented design, or any colorable imitation thereof, to any article of manufacture for the purpose of sale, or (2) sells or exposes for sale any article of manufacture to which such design or colorable imitation has been applied shall be liable to the owner to the extent of his total profit, but not less than $250, recoverable in any United States district court having jurisdiction of the parties.
Nothing in this section shall prevent, lessen, or impeach any other remedy which an owner of an infringed patent has under the provisions of this title, but he shall not twice recover the profit made from the infringement
In other words, “Section 289 explicitly authorizes the award of total profit from the article of manufacture bearing the patented design.” Slip Op. at 25 (emphasis added). That is, Samsung’s total profit from its sales of phones with the infringing designs.
Samsung raised two primary arguments. First, it argued in favor of apportionment based on a causality theory; that is, that the only profits attributable to the infringement be allowable as damages. But the statute says “total profit,” and the statutory history contained an express removal of a prior apportionment requirement in the Act of 1887. Second, Samsung argued that the “article of manufacture” should be limited to the infringing “article of manufacture” and not the entire infringing product. Again, the Federal Circuit disagreed, distinguishing Samsung’s citation to a 1957 Second Circuit case involving pianos and piano cases. The Federal Circuit did not substantively engage with the statutory language on this issue.
The bottom line is that high damages claims for design patent infringement are going to be much more credible in the wake of Apple v. Samsung. Under the court’s ruling, it would seem entirely possible, as a hypothetical example, for an automobile manufacturer to be liable for its entire profits from a particular car model if that model contained, say, an infringing tail light. Given the publicity surrounding Apple v. Samsung, my expectation is that there will be explosion of design patent assertions and lawsuits.
Utility Patents: Samsung raised an indefiniteness argument based on the claim term “substantially centered;” unsurprisingly, the Federal Circuit rejected it. There is one interesting little nugget, though: Samsung lost because it “points to no evidence showing that skilled artisans would find the element ‘substantially centered’ as lacking reasonable certainty in its scope.” Slip Op. at 29. This language is notable because it reflects the court’s waffling between indefiniteness as an evidentiary question and indefiniteness as question of law. The former expressly involves testimony about what one of skill in the art would understand; the latter is a question for the court.
Utility Patent Damages: Lost profits for utility patent infringement does require a showing of causality and Samsung argued that there was an acceptable noninfringing substitute. But “the ‘[m]ere existence of a competing device does not make that device an acceptable substitute.’” Id. at 31, quoting precedent. All Samsung pointed to was the “mere existence” of a noninfringing phone. This was not enough, and “there was substantial evidence to support the jury’s refusal to consider the two phones asserted by Samsung as non-infringing substitutes.” Id. at 32. The Federal Circuit also rejected Samsung’s challenges to the reasonable royalty award on the set of phones for which Apple was not entitled to lost profits.
Inline Platics v. EasyPak (Fed. Cir. 2015)
