Tag Archives: Damages

Plagiarism Actions

Patent

Drobetsky v. Chicago School of Prof. Psych. (Ill. App. 2016) [1152797_R23]

There is no general cause of action for ‘plagiarism’ – it comes up most often in student and employment cases.

Drobetsky was a masters degree student at the Chicago School of Professional Psychology.  In her assigned 5-page reflection paper of the Benjamin Button movie, she apparently copied from Wikipedia and a blog post by Richard Larson.   The allegations are “that a portion of one sentence in the reflection paper was copied word for word from the Wikipedia article, and portions of two other sentences were copied word for word from the Larson blog, without quotation marks, citation or attribution.”

The school dismissed Drobetsky for plagiarism in violation of school policy – she sued in Illinois state court for readmittance, recover of the $53,000 paid to the school, etc.

The trial court offered an interesting decision. On the one hand, it sided with Drobetsky that the school had breached its contract and acted in an arbitrary & capricious manner by: (1)  “failing to notify plaintiff in advance of … the names of the [campus hearing committee] members so that she could properly vet them”; (2) “failing to have Dr. Adames [the professor making the allegations] present at the hearing”; (3) “failing to consider Dr. Adames’ [own] plagiarism” (he had copied portions of his syllabus from another professor without attribution); and (4) “failing to inform plaintiff of the basis for her dismissal.”  Despite all these deficiencies, however, the court ruled in favor of the school because Drobetsky had failed to follow the internal appeal process and because the plaintiff had “failed to prove damages.”

On appeal, the Illinois court affirmed – but first rejected the finding that the school acted in an arbitrary & capricious manner in its hearing process. “[T]he trial court’s finding that plaintiff met her heavy burden of proving that defendant acted arbitrarily, capriciously, or in bad-faith by dismissing her without any discernible rational basis was against the manifest weight of the evidence.”

 

 

 

Publication of the Patent Case Management Judicial Guide (3rd edition)

Patent,

District Court judges (and their clerks) across the country now rely heavily upon Patent Case Management Judicial Guide – that has now published in its third edition.  Professor Peter Menell (Berkeley) has lead the multi-party effort in cooperation with the Federal Judicial Center. Its popularity with judges means that it is also a necessary tool for patent litigators.

Get it:

The Third Edition ads substantial coverage of managing litigation to deal with parallel proceedings at the PTAB, pleading standards, patentable subject matter, claim construction, enhanced damages following Halo, and reasonable royalty disputes. The treatise also covers recent developments in ANDA and biologics litigation, design and plant patent litigation, and litigation at the Federal Court of Claims. The appendices provide case management checklists and exemplars of patent management filings.

Enhancing Damages in Halo v. Pulse

Patent,

The 2012 jury verdict form in Halo v. Pulse asks “Has Halo proven that it is highly probable that Pulse’s infringement was willful?”  The jury answered “YES.”

HaloVerdict

Judge Pro instructed the jury that:

Halo must prove willful infringement by clear and convincing evidence. This means Halo must persuade you that it is highly probable that prior to the filing date of the complaint, Pulse acted with reckless disregard of the claims of Halo’s patents. To demonstrate such reckless disregard, Halo must persuade you that Pulse actually knew or it was so obvious that Pulse should have known, that Pulse’s actions constituted infringement of a valid patent. In deciding whether Pulse acted with reckless disregard for Halo’s patents, you should consider all of the facts surrounding the alleged infringement including, but not limited to, whether Pulse acted in a manner consistent with the standard of commerce for its industry. You should base your decision on the issue of willful infringement on all of the evidence, regardless of which party presented it.

When it originally denied enhanced damages, the district court did not mention this verdict but rather focused on its conclusion that Pulse had a legitimate (but ultimately losing) obviousness defense sufficient to defeat the ‘objectively reckless’ portion of the Seagate willfulness analysis.

On remand the district court will be hard-pressed to find that the infringement was not willful – based upon the apparently unchallenged verdict.  Still, it will be within the district court’s discretion to decide whether the willfulness warrants enhanced damages under Section 284. If enhanced damages are warranted, the district court must then determine how much to award (with an upper limit of treble damages).

The setup thus-far appears to fairly neatly wrap up the case in Halo’s favor in terms of enhanced damages.  Perhaps the only abuse-of-discretion at this point would occur if the district court refused to award any enhancement at all.  In the four-years since the 2012 jury verdict, Judge Pro has retired and a new judge assigned to the case – it will be interesting to see his take on this decade-long litigation.

Federal Circuit: District Courts Must Exercise their Discretion and in Deciding Whether to Enhance Infringement Damages

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by Dennis Crouch

Halo Electronics v. Pulse Electronics (Fed. Cir. 2016)

On remand from the Supreme Court, the Federal Circuit has shifted its holding on enhanced damages (as required by the Supreme Court) and remanded for reconsideration:

Because the district court applied the Seagate test in declining to enhance damages . . . we vacate its unenhanced damages award with respect to products that were delivered in the United States, and remand for further proceedings consistent with the Supreme Court’s opinion on enhanced damages.

The only remaining in the case is that of enhanced damages under 35 U.S.C. § 284.  In its Halo decision, the Supreme Court held that the provision “gives district courts the discretion to award enhanced damages . . . in egregious cases of misconduct beyond typical infringement.”  The court rejected the Federal Circuit’s prior test under Seagate, noting that it was both “unduly rigid” and “impermissibly encumbers the statutory grant of discretion to district courts.” (quoting Octane Fitness).

According to the evidence previously presented,

“Pulse allegedly knew of the Halo patents as early as 1998. In 2002, Halo sent Pulse two letters offering licenses to its patents, but did not accuse Pulse of infringement in those letters. The president of Pulse contacted a Pulse engineer, who spent about two hours reviewing the Halo patents and concluded that they were invalid in view of prior Pulse products. Pulse did not seek an opinion of counsel on the validity of the Halo patents at that time and continued to sell its surface mount electronic package products. A Pulse witness later testified that she was “not aware of anyone in the company . . . that made a conscious decision” that “it was permissible to continue selling” those products.”

Hearing this evidence, the jury found that “it [was] highly probable that Pulse’s infringement was willful.”  However, the district court held that it could not find willfulness under Seagate because the obviousness defense was not objectively baseless.

On remand, the district court must now “exercise its discretion and to decide whether, taking into consideration the jury’s unchallenged subjective willfulness finding as one factor in its analysis, an enhancement of the damages award is warranted.”  The statement from the Federal Circuit here is interesting and important in its focus on the question of enhancement rather than willfulness. Notably, the court does not suggest that the district court first determine whether Pulse was a willful infringer and then determine whether to enhance damages.  Rather, the Federal Circuit indicates that the discretion for enhanced damages is a full bundle of discretion and willfulness only “one factor in [the] analysis.”  This approach matches with the statutory language of Section 284 that does not mention willfulness but rather simply indicates that “the court may increase the damages up to three times the amount found or assessed.”

florence-nightingale-1[1]At the Time of the Infringement: Of course, as the Supreme Court wrote, the discretion is not limited. In considering Pulse’s culpability, the Federal Circuit also noted the Supreme Court’s statement that “culpability is generally measured against the knowledge of the actor at the time of the challenged conduct.”   Thus, an important question on will be the level of culpability at the time of infringement. There will also be a question of who-knew-what and the extent that the court will follow Florence Nightengale’s opinion that the person ‘in charge’ must “not only to carry out the proper measures yourself but to see that every one else does so too; to see that no one either willfully or ignorantly thwarts or prevents such measures.”

Federal Circuit: Still No Clarity on Definiteness Standard

Patent

reasonabledoubtAlthough non-precedential, Philips v. Zoll Medical (Fed. Cir. July 28, 2016) offers some interesting insight on the Federal Circuit’s approach to indefiniteness.

The Patent Act requires that claims be written in a way that “particularly point[s] out and distinctly claim[s] the subject matter which the inventor . . . regards as the invention.” 35 U.S.C. 112(b).  In Nautilus, the Supreme Court held that a patent claim survives this test only if it provides “reasonable certainty” as to the scope and bounds of the invention.

In the case, the jury was instructed under the old standard that permitted invalidation under 112(a) only when a claim’s meaning was “insolubly ambiguous.”  On appeal, the Federal Circuit vacated the not-invalid jury verdict and ordered a new trial.  The court writes:

While there may be some factual scenario where the reference to “insolubly ambiguous” is nonprejudicial, this is not that case. Here, the sentence, “Rather, only claims that are insolubly ambiguous are indefinite,” is the strongest, most forceful statement in the entire instructions on indefiniteness. It seems almost certain that amidst the back-and-forth, give-and-take of the remainder of the jury instructions on indefiniteness, the jury would gravitate to the single, definitive statement in the instructions. Furthermore, this sentence is juxtaposed with, “Absolute clarity is not necessary,” and connected with “rather, only,” which slants the playing field against a finding of indefiniteness in a way that is no longer appropriate after Nautilus. On this basis, we find that the district court’s reference to the insolubly ambiguous standard was prejudicial.

Although we know that Nautilus made it easier to invalidate claims as indefinite, the court still has not spelled out the meaning of “reasonable certainty.”  On this point, the court merely demurred: “While we have not clarified the relationship between ‘insolubly ambiguous’ and ‘reasonably certain,’ it must be admitted that the “insolubly ambiguous” standard is a harder threshold to meet than the post-Nautilus standard.”

Although the reasonable certainty test is new to the indefiniteness doctrine, it is not new to the law.  The area where it is most well known is likely in proving “special damages” such as lost-profits on breach of contract or in a tort action. Some have also linked “reasonable certainty” as the inverse of “reasonable doubt.”  Reasonable certainty only exists when there is no reasonable doubt. Henry L. Chambers, Jr., Reasonable Certainty and Reasonable Doubt, 81 Marq. L. Rev. 655 (Spring 1998).

The bottom line for the reasonable certainty standard is that, while some uncertainty is permissible, the scope should be free from speculation or conjecture.

[Updated to fix typo 102(b), not 102(a)]

Unwired Planet v. Apple: Fault and Patent Infringement

Patent,

By Jason Rantanen

Unwired Planet, LLC v. Apple Inc. (Fed. Cir. July 22, 2016) Download Unwired Planet
Panel: Moore (author), Bryson, Reyna

Last week, the Federal Circuit issued two opinions, both written by Judge Moore, dealing with what I refer to as “fault” in patent law: the degree of culpability the accused infringer possessed with respect to the issue of patent infringement.*  Although the cases involve different legal doctrines–WBIP v. Kohler involves willful infringement under § 284 and Unwired Planet involves inducement of infringement under § 271(b)–both present that core question of fault.  This post will focus on the issue of fault in the context of Unwired Planet, although its observations about fault are relevant to issues of culpability in the context of enhanced damages determinations.  I’ll focus on the specific issues raised by WBIP in a future post.

*While some folks prefer the terms “scienter,” “mens rea,” or “mental state,” I tend to use  “fault” because patent infringement primarily involves businesses not humans, and businesses don’t really have minds. In addition, the idea of “fault” captures standards (such as strict liability and negligence) that do not really have mental state components.  Terminology matters less than what’s actually going on in the analyses in these opinions, though, so substitute your preferred term as desired.

Unwired Planet v. Apple involved inducement of infringement under 35 U.S.C. § 271(b).  In Global-Tech v. SEB, and reaffirmed in Commil v. Cisco, the Supreme Court held that inducement requires knowledge or willful blindness to the fact that the relevant acts constitute infringement of a patent.  563 U.S. 754, 766 (2011); 135 S.Ct. 1920, 1926 (2015).

Among other subjects raised on appeal, Unwired challenged the district judge’s grant of summary judgment against its § 271(b) inducement of infringement claim.  The district court based its decision on the ground “that no reasonable juror could conclude that Apple was willfully blind because of ‘the strength of Apple’s noninfringement argument.'”  Slip Op. at 18.  On appeal, the Federal Circuit vacated the grant of summary judgment because the “objective strength” of Apple’s position was insufficient to avoid liability for inducement:

Because the district court’s grant of summary judgment was based exclusively on its view of the strength of Apple’s non-infringement argument, we vacate. The Supreme Court’s Global-Tech Appliances and Commil decisions require a showing of the accused infringer’s subjective knowledge as to the underlying direct infringement. The district court’s reliance on the objective strength of Apple’s non-infringement arguments as precluding a finding of induced or contributory infringement was erroneous.

On its face, this statement in Unwired Planet seems inconsistent with the court’s recent holding in Warsaw Orthopedic, an opinion that Dennis wrote about last month.  In Warsaw Orthopedic the Federal Circuit held that the objective unreasonableness of the accused infringer’s position, together with its knowledge of the patents, was a sufficient basis for a jury to conclude that the accused had knowledge of or was willfully blind to the fact that it infringed the patents-in-suit.  See 2016 WL 3124704, *3, *5 (“[H]ere we conclude that there was substantial evidence that MSD’s infringement position was objectively unreasonable and that the jury, based on this evidence, could reasonably have concluded that MSD had knowledge (or was willfully blind to the fact) that it was infringing”).  In other words, while the objective reasonableness of the accused infringer’s position is insufficient to avoid a finding of willful blindness, the objective unreasonableness of the accused infringer’s position is sufficient for a finding of knowledge or willful blindness.

Adding to the potential confusion is an observation that Judge Reyna made in his concurrence in Warsaw Orthopedic: that “the Supreme Court in Commil stated that a defendant lacks the intent for induced infringement where his reading of the claims is both different from the plaintiff’s and reasonable.”  2016 WL 3124704, *6 (the concurrence does not provide a pin cite for this statement, but he’s presumably referencing 135 S.Ct. 1920, 1928 (“In other words, even if the defendant reads the patent’s claims differently from the plaintiff, and that reading is reasonable, he would still be liable because he knew the acts might infringe. Global–Tech requires more.”)).  Although Judge Reyna was making the point that he would resolve the appeal on the ground that the accused infringer had not presented its claim construction to the court, his reading of Commil nevertheless reinforces the idea that a reasonable claim construction would be sufficient to avoid a finding of inducement liability–a conclusion at odds with the Federal Circuit’s statement in Unwired that “the objective strength of Apple’s non-infringement arguments” cannot preclude a finding of induced infringement.

Timing matters: These statements are not as irreconcilable as they seem, however. The critical missing aspect is that of timing.  As the Federal Circuit observed in WBIP, “timing does matter,” Slip Op. at 35 (emphasis in original), a point made in Halo v. Pulse, 136 S.Ct. 1923, 1933, and repeatedly emphasized by Timothy Holbrook in his scholarship and amicus briefing.   Patent infringement almost never consists of just a single act.  Instead, it typically consists of a multitude of acts performed over months or years: the individual acts of making, using, selling, and offering for sale of the patented invention.  Mental states can change and evolve over this time.  Perhaps during early periods, the accused infringer is entirely unaware of the patents-in-suit; later on, it becomes aware and begins to have thoughts about them; still later it is embroiled in litigation and develops sophisticated legal arguments.

Viewed in this light, the court’s holdings in Warsaw and Apple are easily reconciled.  In Warsaw, the court was simply saying that relying on an noninfringement position that is objectively unreasonable allows for a jury to find that the accused possessed the requisite fault.  This makes sense, as a noninfringement position that is objectively unreasonable cannot foreclose a finding of fault regardless of whether that unreasonable position was developed before infringement began or later on during litigation.

On the other hand, the flip is not necessarily true.  Just because an accused infringer develops a reasonable non-infringement position during litigation does not mean that it had a reasonable noninfringement position earlier on.  Logic would indicate, though, that if it had a reasonable noninfringement position earlier on, then it would not possess the requisite degree of fault at that time, given the passage in Commil v. Cisco referenced by Judge Reyna.

The Nature of the Determination of Fault: Wrapped up with the issue of timing is that of the actual determination of knowledge or willful blindness.  It is the patent owner’s burden to prove that the accused infringer possessed the necessary degree of fault, not the accused infringer’s burden to prove that it did not.  “The doctrine of willful blindness requires the patentee to show not only that the accused subjectively believed that there was a high risk of infringement, but also that the accused took deliberate actions to avoid confirming infringement.”  Unwired, Slip Op. at 19.  On this basis, the Federal Circuit observed, Apple might be able to prevail on summary judgment on remand.  When coupled with the reality of temporally evolving mental states, this requirement poses an interesting challenge: the patentee must make out a plausible case for fault at the relevant points in time.  The objective reasonableness of the infringer’s legal position would seem to be relevant to this determination, but the existence of an objectively reasonable legal position at one point in time does not necessarily mean that it applies to other periods of time.  Furthermore, as Prof. Holbrook has observed, the issue of reasonableness falls out once the court issues its ruling on the “correctness” of the position.  If the accused inducer loses on that issue, it can no longer argue that it’s position was “reasonable.”

Thanks to Dennis Crouch, Dmitry Karshtedt, Chris Seaman and Timothy Holbrook for helpful discussions relevant to this post.

Supreme Court Patent Report: End of 2015 Term

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by Dennis Crouch

The Supreme Court has completed its patent law business for the 2015 term and will re-open decision making in September 2016.  Briefing and new filings will, however, continue throughout the summer.

Two Decisions: The Supreme Court has decided its two major patent cases – Halo/Stryker and Cuozzo.  In Halo, the court re-opened the door to more treble-damage awards for willful patent infringement.  The decision rejects the objective-recklessness standard of Seagate (Fed. Cir. 2007)(en banc) and instead places substantial discretion in the hands of district court judges for determining the appropriate sactions “egregious infringement behavior.”  In Cuozzo, the court affirmed the Federal Circuit’s pro-PTO decision.  The decisions confirms the PTO’s authority construe claims according to their broadest-reasonable-construction (BRI) even during post-issuance review proceedings and also confirms the Federal Circuit ruling that the PTO’s initiation of an inter partes review (IPR) proceeding is not appealable (even after final decision).  A major caveat of this appealability issue is that the court limited its holding to run-of-the-mill IPR patent issues.  The court did not determine when other issues arising from institution, such as constitutional due process challenges, might be appealable.

Both decisions are important. Halo adds at least a gentle breeze to the would-be patent infringement armada.  I heard many discussions of pendulum’s swinging in the days following the case, although I would not go quite so far.  Cuozzo was a full affirmance of the PTO position and will operate to continue to raise the statute and importance of the agency.

Three Pending Cases Set the Stage for Next Term: With the certiorari writ grant in Life Tech v. Promega, we now have three patent cases set for review and judgment next term.  The issue in Life Tech is fairly narrow and involves export of of a component of a patented invention for combination in a would-be-infringing manner abroad.  The statute requires export of a “substantial portion of the components” and the question in the case is whether export of one component can legally constitute that “substantial portion.”  In the case, the component (Taq) is a commodity but is also an admitted critical aspect of the invention.  Life Tech may be most interesting for those generally interested in international U.S. law (i.e., extraterritorial application of U.S. law).  The other two pending cases are Samsung v. Apple (special damages in design patent cases) and SCA Hygiene (laches defense in patent cases).

None of these three pending cases are overwhelmingly important in the grand scheme of the patent system, although Samsung is fundamental to the sub-genre of design patents.  This week, the Supreme Court denied certiorari in Sequenom v. Ariosa – a case that some thought might serve to rationalize patent eligibility doctrine in a way that favors patentees.  For now, the Mayo, Alice, _____ trilogy remains open-ended. This leaves the Federal Circuit in its nadir.

Following Cuozzo, the only AIA post-issue review cases still ongoing are Cooper and MCM.  These cases raise US Constitutional issues that were expressly not decided in Cuozzo.  Briefing is ongoing in MCM and one scenario is that the court will sit on Cooper and then grant/deny the pair together.  A new petition was filed by Trading Technologies just before Cuozzo was released – the case focuses on a mandamus (rather than appeal) of a CBM institution decision for a patent covering a GUI tool. (Full disclosure – while in practice I represented TT and litigated the patent at issue).  Of minor interest, the court issued a GVR order (Grant-Vacate-Remand) in Click-to-Call Tech. v. Oracle Corp (15-1014) with instructions to the Federal Circuit to reconsider its prior decision in light of the recently decided Cuozzo Speed Technologies, LLC v. Lee, 579 U. S. ___ (2016).  It will be interesting to see whether the patentee can develop a new hook for the Federal Circuit.

The end-of-term clean sweep leaves only two-more briefed-cases with potential for certiorari: Impression Prod. v. Lexmark Int’l. (post-sale restrictions); and Sandoz v. Amgen (BPCIA patent dance).  In both cases the court called for the views of the Solicitor General (CVSG). DOJ briefs should be filed around the end of the year – although the election may shift some of the timing.  SG Donald Verrilli has stepped down with former deputy Ian Gershengorn now serving as Acting SG.

The big list:

(more…)

Halo, Civil Procedure, and Defending On-going Infringement Suits

Current Affairs, Ethics, ,

I was listening to conversation about Halo, the decision of the Supreme Court to make it easier to establish willful infringement.  If the case is “egregious” and not “typical” infringement, enhanced damages are now available.  Further, the key time period is the time of moving forward with what turned out to be infringement of a valid patent, not the time of trial.

Of course, the obvious lesson going forward is that it will be more likely for accused infringers to rely upon an opinion of counsel indicating lack of infringement or invalidity (or some other way to avoid liability, like 101 or unenforceability like inequitable conduct or prosecution laches).  No news flash there.  And, of course, the fact that the timing of the opinion — earlier the better — means that there are likely going to be more opinions generated.

So, looking forward:  there will be more opinions used more often, you would think.

What I think is interesting are pending cases where a decision has already been made not to rely upon an opinion of counsel.

There are, no doubt, many pending cases where it is too late because of a scheduling order to disclose an opinion of counsel previously obtained.  The battle there will be over whether there is good cause to modify the scheduling order.  Lawyers in the position of needing to make that modification should do so quickly. I can imagine arguments cutting both ways in a particular case.  But competent lawyers in need of buttressing a defense against willfulness would get on that analysis, and soon.

What if, in contrast, a lawyer had advised a client– based upon the pre-Halo standard — not to get a formal opinion, with the idea being that the defendant would rely upon litigation defenses that were basically expressed to the client somewhat informally at the time of infringement.  Can the defendant now get into evidence the fact that those litigation defenses were communicated originally informally?  Does this implicate the need to modify the scheduling order or comply with some other local rule about waiver of privilege for opinions?

Finally, lawyers should consider cases where clients may pre-Halo have not needed an opinion but now may want to have one.  That advice needs to be given soon!

There are probably other fact patterns, but those jumped out at me sitting and listening today.  Thoughts?

Finally, and on a related note:   The Supreme Court’s statement that it’s the time of infringement that matters and not later is really unworkable and flawed.  A defendant, for example, who finds another piece of prior art later, closer to trial, surely can rely upon that evidence (and/or opinion analyzing it) as (a) confirming the strength of an earlier opinion or  (b) providing evidence that, from that time forward, its infringement was not “egregious”?

Supreme Court Sides with Patentees–Providing Flexibility for Proving Enhanced Damages

Patent,

by Dennis Crouch

The Supreme Court today issued an important unanimous decision in Halo v. Pulse – vacating the Federal Circuit’s rigid limits to enhanced damages in patent cases.  The decision rejects the dual objective/subjective test of Seagate as “inconsistent” with the statutory language of 35 U.S.C. §284.  Rather, the court indicated that district courts have discretion to award enhanced damages where appropriate “as a sanction for egregious infringement behavior” and that those awards will be reviewed with deference on appeal.  Although the district courts are given discretion, the opinion here makes clear that enhanced damages should not be awarded in “garden-variety cases.”

Section 284 gives district courts the discretion to award enhanced damages against those guilty of patent infringement. In applying this discretion, district courts are “to be guided by [the] sound legal principles” developed over nearly two centuries of application and interpretation of the Patent Act.[1] Those principles channel the exercise of discretion, limiting the award of enhanced damages to egregious cases of misconduct beyond typical infringement.

The Roberts opinion linked this case to that of Octane Fitness in which the court had earlier rejected a rigid Federal Circuit test for attorney-fee awards in favor of  flexible discretion at the district court level.[2]  In its decision, the Supreme Court also repeatedly cited its 19th century decisions as guidance.[3] However, rather than wholehearted acceptance of those old cases, the nuanced opinion walks through their reasoning and explains which continue to hold force today.

In thinking about enhanced damages, I find it useful to keep in mind that this issue only arises after a patent has been found enforceable and the accused found liable for infringement.  Thus, any ‘excuse’ offered for the infringement at that point is insufficient to avoid liability but may still be sufficient to avoid an enhanced damage award.  An important element of the decision is that of timing for the excuse.  The opinion notes that an ex post defense generated for litigation is does not remove culpability.  Rather, culpability will be measured according to the infringer’s knowledge at the time of the accused unlawful conduct.

Although the burden for proving egregious infringement behavior rests entirely upon the patentee, the court here held that clear-and-convincing evidence is not required to support an enhanced damages award.  Rather, a preponderance of the evidence (more likely than not) is sufficient to support that award.

Missing from the opinion is an express holding as to whether willful infringement is a prerequisite to an enhanced damages award.  The statute, of course, is silent on this point – indicating only that “the court may increase the damages up to three times the amount found or assessed.”  Going forward, it may make sense to refer to the topic as ‘egregious’ infringement rather than ‘willful’ infringement.

The opinion vacates the decisions in both Halo and Stryker. Read the Decision: HaloPulseStrykerZimmerDecision

= = = = = =

Although the court’s opinion was unanimous, Justice Breyer also provided a concurring opinion joined by Justices Alito and Kennedy.  The concurrence suggests a more limited discretion for the district court – namely: (1) that mere knowledge of the patent is insufficient to prove willfulness; (2) failure to obtain advice of counsel cannot be used to prove recklessness (see Section 298); and (3) enhanced damages are not to be used to compensate the patentee for either the infringement or the hassle/cost of litigation.

Regarding the standard for review, Justice Breyer also offers an interesting statement supporting the Federal Circuit’s role as an ‘expert court’:

[I]n applying that standard [of deference], the Federal Circuit may take advantage of its own experience and expertise in patent law. Whether, for example, an infringer truly had ‘no doubts about [the] validity’ of a patent may require an assessment of the reasonableness of a defense that may be apparent from the face of that patent.  And any error on such a question would be an abuse of discretion.

Despite this ‘experience and expertise’, I won’t look for the Supreme Court to begin giving deference to the Federal Circuit anytime soon.

= = = = = =

[1] Martin v. Franklin Capital Corp., 546 U. S. 132, 136 (2005) (quoting Fogerty v. Fantasy, Inc., 510 U. S. 517, 533 (1994)).

[2] Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U. S. ___ (2014).

[3] See, for example, Seymour v. McCormick, 16 How. 480, 488 (1854); Dean v. Mason, 20 How. 198, 203 (1858); Hogg v. Emerson, 11 How. 587, 607 (1850); Livingston v. Woodworth, 15 How. 546, 560 (1854); Tilghman v. Proctor, 125 U. S. 136, 143–144 (1888); Topliff v. Topliff, 145 U. S. 156, 174 (1892); Cincinnati SiemensLungren Gas Illuminating Co. v. Western SiemensLungren Co., 152 U. S. 200, 204 (1894); Clark v. Wooster, 119 U. S. 322, 326 (1886); Day v. Woodworth, 13 How. 363, 372 (1852); and Teese v. Huntingdon, 23 How. 2, 8–9 (1860).

Supreme Court Patent Update: 271(e) Safe Harbor

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by Dennis Crouch

Look for opinions in Halo/Stryker and Cuozzo by the end June 2016.

Post Grant Admin: While we await Cuozzo, a set of follow-on cases continue to pile-up.  My speculation is that the Supreme Court will delay any decision in those cases until it finalizes the outcome of Cuozzo. With a host of new friend-of-the-court briefs and interesting constitutional questions, MCM v. HP is perhaps best positioned for certiorari.  Additional pending cases include Versata v. SAP (scope of CBM review); Cooper v. Lee (whether IPRs violate Separation of Powers); Click-to-Call Tech, LP v. Oracle Corp., (Same questions as Cuozzo and now-dismissed Achates v. Apple); GEA Process Engineering, Inc. v. Steuben Foods, Inc. (Flip-side of Cuozzo: Appeal when PTAB exceeds its authority by terminating an instituted IPR proceeding?); Interval Licensing LLC v. Lee (Same as Cuozzo); and Stephenson v. Game Show Network, LLC (Same as Cuozzo)

Design Patent Damages: Samsung has filed its opening merits briefs in the design patent damages case against Apple.  Design patent infringement leads to profit disgorgment, but the question is what profits? [More from Patently-O].

Versus Cisco: There are a couple of newly filed petitions. Interestingly, both filed by Michael Heim’s firm with Miranda Jones on both briefs representing plaintiff-petitioners.  In both cases Cisco is respondent.

  • CSIRO v. CISCO (fact-law divide in proving infringement damages under 35 U.S.C. § 284).
  • COMMIL v. CISCO (appellate disregard of factual evidence).

Of course, Commil was the subject to a 2015 Supreme Court decision that rejected the Federal Circuit’s original opinion favoring Cisco.  On remand, the Federal Circuit completely changed its decision but again sided with Cisco and rejected the jury verdict — holding “that substantial evidence does not support the jury’s finding that Cisco’s devices, when used, perform the “running” step of the asserted claims.”

Safe Harbor for Federal Submissions: In the newly filed Amphastar Pharma case, the Supreme Court has already requested a response from Momenta. The question presented focuses on the safe-harbor provision of 35 U.S.C. § 271(e)(1) and asks: Whether the safe harbor protects a generic drug manufacturer’s bioequivalence testing that is performed only as a condition of maintaining FDA approval and is documented in records that must be submitted to the FDA upon request.  The federal circuit held that Amphastar’s activity in this case was not protected by the safe harbor because it involved information “routinely reported” to the FDA post-approval. [Amphastar Petition]

The big list:

(more…)

Design Patent Damages at the Supreme Court

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by Dennis Crouch

Samsung has filed its opening merits briefs in its design patent damages appeal Samsung v. Apple.  The central issue in the case is the proper statutory interpretation of the design patent damages statute 35 U.S.C. 289 that offers an alternative calculation for damages:

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.

The question for the court is “total profit” from what? Is it the sale of the article-of-manufacture (here, the Galaxy phones) or merely the particular component.  For this case, the particular components would be the front face of the phone and the icon-grid displayed on a user interface screen.  Samsung asks: Where a design patent is applied to only a component of a product, should an award of infringer’s profits be limited to those profits attributable to the component? [Samsung Opening Brief – US Supreme Court]

In a statement to Patently-O, Samsung argued that “If the current ruling is left to stand, it would value a single design patent over the hundreds of thousands of groundbreaking technology patents, leading to vastly overvalued design patents.”  The itself brief cites Professor Rantanen’s 2015 essay for the proposition that the high damage is likely result in an “explosion of design patent assertions and lawsuits.”

The design-patent-damages statute was originally enacted in 1887 as a reaction to the last Supreme Court design patent damages cases that limited lost profit awards. Dobson v. Hartford Carpet Co., 114 U.S. 439 (1885); and Dobson v. Dornan, 118 U.S. 10 (1886).  However, Samsung argues that the 1952 amendments are important here.

Reasonable Royalty for Industry Standard Patents

Patent

by Dennis Crouch

The Australian governmental research agency CSIRO has been the plaintiff in a number of E.D. Texas patent cases over the past decade — repeatedly enforcing its wireless local-area-network (LAN) U.S. Patent No. 5,487,069 that has been held to cover WiFi (802.11a and 802.11g).

After a long battle, CISCO stipulated to liability and validity of the patent.  In a bench trial, the court found that a reasonable royalty was about $.83 per WiFi product sold by Cisco.  On appeal, however, the Federal Circuit vacated that Judgment – holding that the royalty rate was likely too high because it internalized the lock-in value of the standardized technology.  There are many ways to create a wireless local network and there really is not any indication that the ‘069 patent offers the best way (even among other available alternatives).  Instead, what makes the ‘069 patent so valuable is that it was chosen as the standard.

The underlying question now on petition for certiorari to the Supreme Court is whether and the extent that CSIRO’s royalty rate should be discounted because the invention was chosen as the standard.  However, CSIRO’s petition focuses on the standard of appellate review:

The Patent Act provides that a “[u]pon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement ….” 35 U.S.C. § 284. In contravention of this broad language, the Federal Circuit has erected a rigid set of legal rules to control the determination of damages by triers of fact. As a result, the Federal Circuit now exercises de novo review over inherently factual questions, resulting in routine reversals.
This Court has held with regard to another patent remedies provision that it is improper for the Federal Circuit to “superimposed an inflexible framework onto statutory text that is inherently flexible.” Octane Fitness. And this Court is considering related questions in relation to another portion of section 284 in Stryker Corp. and Halo Electronics.

The question presented is:

Is the Federal Circuit’s promulgation of rigid legal rules to control the weight to be given by the trier of fact to evidence of patent infringement damages proper under 35 U.S.C. § 284?

 

Because damages are now the fundamental remedy for patentees, this case will be an important one to follow.

[Read the Petition: CSIRO v. Cisco Petition for Certiorari]

Guest Post by Prof. Contreras – CSIRO v. Cisco: The Convergence of RAND and non-RAND Royalties for Standards-Essential Patents

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Wegner’s Top Ten Pending Patent Cases

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Hal Wegner has updated his top-ten list of pending cases:

  1. Impression Products v. Lexmark (cert petition pending) (post-sale and international exhaustion)
  2. Sequenom v. Ariosa Diagnostics (cert petition pending) (patent eligibility)
  3. Samsung v. Apple (cert granted) (design patent damages)
  4. Cuozzo Speed v. Lee (awaiting Supreme Court decision) (claim construction at the PTAB)
  5. Halo Electronics v. Pulse and Stryker v. Zimmer (awaiting Supreme Court decision) (requirements to prove willful infringement)
  6. SCA Hygiene v. First Quality Baby Prods (cert granted) (when does laches apply in patent cases)
  7. Life v. Promega (cert petition pending) (active inducement for export of component)
  8. Cooper v. Lee (cert petition pending) (direct challenge to PTAB administrative review)
  9. MCM Portfolio v. Hewlett-Packard (cert petition pending) (direct challenge to PTAB administrative review)
  10. Helsinn Healthcare v. Teva Pharm. (Federal Circuit case) (whether Metallizing Engineering was overruled by statute – i.e., what is the prior art impact of secret pre-filing commercialization by patentee).

Read Wegner’s Writings published by the Los Angeles Intellectual Property Law Association.  A full list of pending Supreme Court patent cases is available on Patently-O.

 

Apple v Samsung: Mooting the Injunction

Patent,

In my recent update on Supreme Court patent cases I skipped over a new Samsung v. Apple petition since one Samsung v. Apple case has already been granted a writ of certiorari.  Although both cases involve smartphone patents, they are entirely separate procedurally.

  • Already Pending: Samsung Electronics Co., Ltd. v. Apple Inc., No 15-777 (design patent damages calculation) (certiorari granted, merits briefing ongoing), appeal from Apple, Inc. v. Samsung Electronics Co., Ltd., 786 F.3d 983 (Fed. Cir. 2015)
  • Newly Filed: Samsung Electronics Co., Ltd.  v. Apple Inc., No 15-1386 (vacating injunction mooted by later opinion) (petition filed), appeal from Apple Inc. v. Samsung Electronics Co., Ltd., 809 F.3d 633 (Fed. Cir. 2015).

The new case itself involves a pair of appeals: In a 2015 decision, the Federal Circuit found that an injunction against Samsung to halt infringement was proper under the eBay standards. The first case did not, however, reach the merits issues involving patent validity and infringement. Then, in February 2016, the court reversed the jury verdict and held that all of the asserted claims were either invalid or not infringed.

The decision on appeal here is that first injunction decision that, up to now, the Federal Circuit has not expressly vacated (even though the underlying basis for the injunction has now been proven not to exist).  Thus, in its petition, Samsung asks simply that the Supreme Court vacate the Federal Circuit’s decision. Question presented:

Should the Court grant the petition, vacate the judgment below, and remand to dismiss the appeal as moot, in accordance with United States v. Munsingwear, Inc., 340 U.S. 36 (1950), where the Federal Circuit’s opinion requiring a permanent injunction is mooted by a later Federal Circuit opinion eliminating all basis for liability by holding two of the three patents at issue invalid and the other one not infringed?

The one big caveat here is that an en banc petition is still pending on the merits side and therefore is not moot. The petition merely glosses over this issue without offering any explanation as to why the Supreme Court shouldn’t just wait for the outcome of the en banc petition. Of course, Samsung understands all of this – and likely would have delayed the filing were it not for the looming deadline for its petition filing. [SamsungInjunctPetition]  To me, it seems that the Federal Circuit panel in the still pending validity/infringing case would permit a motion for stay of relief pendant lite. 

Apple’s En Banc request in the merits case (validity/infringement) is in the midst of briefing.  Apple’s basic argument is that the appellate panel unduly substituted its judgment for that of the jury:

After a thirteen-day trial and three-and-a-half days of deliberation, a jury found that Samsung’s smartphones infringed three Apple patents, confirmed the validity of Apple’s asserted patents, and awarded damages of nearly $120 million. The issues on appeal were primarily factual and subject to deferential substantial evidence review. Yet, in an unprecedented decision, the panel reversed nearly every aspect of the verdict that favored Apple. The panel reached that result by deciding the case on a different record than the jury had before it, and by shifting Samsung’s burden to prove invalidity to require instead that Apple prove validity.

[AppleEnBancPetition]

Pending Supreme Court Patent Cases 2016 (May 18 Update)

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by Dennis Crouch

It is now time to begin looking for an opinion in the Halo/Stryker regarding whether the Federal Circuit’s test for willful infringement is too rigid. Those cases were argued in February 2016.  We can also expect a decision in Cuozzo prior to the end June 2016.

Supplying Components Abroad: The Solicitor General has finally filed its brief in Life Tech v. Promega. The brief supports certiorari — but only for one of the two questions presented: namely,

whether a supplier can be held liable for providing ‘all or a substantial portion of the components of a patented invention’ from the United States when the supplier ships for combination abroad only a single commodity component of a multi-component invention

The patent in the case involves a DNA amplification kit used for personal identification.  And, although the allegedly infringing kids were made in the UK, one commodity-component (the Taq polymerase) was supplied from the U.S.  Focusing on the language of the statute, the Solicitor Generals argues that liability for export of a single component of a multi-component invention “is contrary to Section 271(f)’s text and structure, and it is inconsistent with the presumption against extraterritoriality.”  Separately, the brief argues that the Federal Circuit was correct in its holding that a party can actively induce itself – thus 271(f)(1) inducement does not require a third party to be induced. [USPromega CVSG Petition].

Post Grant Admin: I previously discussed GEA Process Engineering. That case involves the Flip-side of Cuozzo and asks whether an appeal can follow when the PTAB exceeds its authority by terminating an already instituted IPR proceeding?  The respondent (Steuben Foods) had previously waived its right to respond, but the Supreme Court has now requested a response.  That move makes certiorari more likely, but the result will depend upon the outcome in Cuozzo.

Attorney Fees: Newegg Inc. v. MacroSolve, Inc., No. 15-1369.  Professor Mark Lemley’s brief on behalf of Newegg asks that the attorney-fee framework of Octane Fitness actually be implemented. [NewEggPetition].  Although Octane Fitness gives district courts discretion in determining whether to award fees, Newegg argues that the E.D. Texas court improperly applied “a special, heightened burden of proof.”  The Supreme Court is currently considering the Kirtsaeng attorney fee case for copyright law. That decision may shed some light on the patent cases as well.

A new petition in Automotive Body Parts, No. 15-1314,  focuses on a question of civil procedure regarding a clerk’s transfer of a design patent case out of E.D.Tx in a manner that violated the local rules.  Here, the clerk transferred the case immediately after the judge ordered transfer even though the local rules call for a 21 day delay.  The case is rising through a petition for mandamus, but my view is that the petition fails to show why transfer is so harmful (except for the reality that patent plaintiffs are usually given more respect in E.D.Tx.).

The court was scheduled to discuss Cooper v. Lee at its May 12 conference. No action was taken following that conference – lightly suggesting to me that the court is holding judgment until it resolves Cuozzo.  Apart from the AIA Trial challenges, most potential life changing case on the docket for patent attorneys is Cubist v. Hospira that focuses on the role of secondary indicia of non-obviousness. As with most Supreme Court patent cases over the past decade, Cubist argues that the Federal Circuit’s rules are too restrictive and should instead follow a looser factor-based analysis when considering the issue.  In the next couple of weeks, the court will consider the Cubist petition as well as that of Dow v. NOVA  (appellate review standard); Vehicle Intelligence (abstract idea); and WesternGeco (damages calculation for 271(f) infringement by exporting components).

Secret Offers to Sell: The Federal Circuit is not slowing down its patent jurisprudence in any way – except for the rash of R.36 affirmances. An important case is Helsinn that focuses on whether the AIA abrogated the rule in Metallizing Engineering.

The big list: (more…)

A Comparison of the EU Trade Secrets Directive and the US Defend Trade Secrets Act

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Guest post by Mark Ridgway and Taly Dvorkis, Allen & Overy, LLP, London. 

It has been a busy year for law makers seeking better protection for trade secrets.  Much coverage has been given to the Defend Trade Secrets Act (DTSA), which provides a federal private right of action for trade secret protection.  President Obama signed the DTSA on May 11, and the law takes effect immediately.  Patently-O has covered the DTSA legislation and legislative process in several posts here.

On May 17 the European Council is expected to formally adopt the Trade Secrets Directive, requiring all Member States to provide certain minimum standards for trade secret protection.  Member States will have two years to implement the provisions of the Directive into their own national laws.

How do the US and EU positions on trade secrets compare?  Below are the key similarities and differences between the DTSA and the European Trade Secrets Directive.

What has led to these Legislative Changes?

The desire for harmonization of trade secret protection has spurred these movements both in the US and the EU.  According to the European Commission, the lack of a uniform European approach has resulted in a “fragmentation of the internal market” and “weakening of the overall deterrent effect of the relevant rules.”  The EU Directive seeks to harmonize the laws of the various member states by providing a consistent definition of what qualifies as a “trade secret.”  Additionally, the Directive addresses the remedies available to trade secret holders and the measures courts can use to prevent the disclosure of trade secrets in legal proceedings.

In the U.S., the DTSA arose from a desire to federalize trade secret protection, which had thus far been dominated by state law (although most states had previously adopted the Uniform Trade Secrets Act (UTSA), published by the Uniform Law Commission in 1979).  While certain federal protection previously existed in the form of the Economic Espionage Act of 1996, the DTSA provides an individual right sue in federal court, thus obviating the need to bring private actions in various state courts where procedures differ greatly.

How is “Trade Secret” Defined?

Under both the EU Trade Secrets Directive and the DTSA, to qualify as a trade secret the information at issue must be kept confidential and must derive economic value from being kept confidential.

Article 2 of the Trade Secrets Directive defines a trade secret as information which meets all of the following requirements:

  1. is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question;
  2. has commercial value because it is secret;
  3. has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.

This definition tracks the definition for “undisclosed information” provided in article 39(2) of the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement), which requires all signatories to afford some level of protection for confidential information.

The DTSA definition of “trade secret”, meanwhile, consists of “all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if-

  1. the owner thereof has taken reasonable measures to keep such information secret; and
  2. the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, the another person who can obtain economic value from the disclosure or use of the information.”

As seen, whether in Europe or in the U.S., to be considered a trade secret the information must be kept confidential and derive an economic value from the fact that it is confidential.  Both the EU Directive and the DTSA are aimed at protecting commercial confidential information.  What is not required is that the information be entirely novel, a distinction from other forms of intellectual property.  Further, the EU Directive makes explicit that combinations of otherwise publicly available information can be protected provided they are not readily accessible or generally known.

Confidentiality in Litigation

The EU Directive and DTSA have similar provisions for the preservation of confidentiality during legal proceedings for trade secret misappropriation.  In the U.S. the ability to file confidential documents under seal to maintain secrecy has long been an option open to litigants.  The DTSA specifically sets out that a court may not authorize or direct the disclosure of information unless the owner is first given the opportunity to file a submission under seal describing the interest in keeping the information confidential.  The DTSA therefore extends the option of filing briefs under seal to include disclosure at trial and in court opinions, and also allows non-parties to request that certain information be kept confidential.

The EU Directive similarly addresses preserving confidentiality during legal proceedings.  The Directive sets out that an applicant must first supply a “duly reasoned” application as to why certain information should be kept confidential.  The maintenance of secrecy is therefore not the default position, and requires court approval.  It remains to be seen how the national laws of the Member States will implement the Directive and how courts will interpret what qualifies as a “duly reasoned” application.  In some countries this will require minimum changes (for instance, in the U.K. no change will be required), while in others it will be a more significant cultural and legal shift.

Protection for Whistle-blowers

The protections for whistle-blowers and press freedom have been a significant part of the public debate concerning the EU Directive.  Opponents of the Directive expressed concern that, as a result of the Directive, journalists and whistle-blowers could be criminalized for publishing information that companies consider secret.  However, the EU Directive specifically sets out that it should not prevent whistle-blowers and those publishing trade secrets to serve the public interest from doing so.  Moreover, there are no criminal provisions in the Directive.  The Directive states:

The measures, procedures and remedies provided for in this Directive should not restrict whistleblowing activity. Therefore, the protection of trade secrets should not extend to cases in which disclosure of a trade secret serves the public interest, insofar as directly relevant misconduct, wrongdoing or illegal activity is revealed. This should not be seen as preventing the competent judicial authorities from allowing an exception to the application of measures, procedures and remedies in a case where the respondent had every reason to believe in good faith that his or her conduct satisfied the appropriate criteria set out in this Directive.

This exception for whistle-blower activity is much broader than that provided by the DTSA.  The DTSA provides immunity from liability for disclosing a trade secret only when the disclosure is confidential and made to the government or in a court filing (under seal).  There is no specified exception for journalists or other public good-doers, although arguably the First Amendment provides protection.  The DTSA does include a provision by which employers must notify their employees of the protection available under the new law, a notice requirement which is not present in the EU Directive.  Employee is defined broadly by the DTSA to include those working as contractors or consultants.

Remedies

The most controversial part of the DTSA has been the introduction of an ex parte seizure order as a federal measure.  Under the DTSA, a court can issue an order for the seizure of property “necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.”  Additional remedies include injunctions and damages, where an injunction is deemed most appropriate for any continuing harm.  For previous harm, a court may award damages for actual loss or any unjust enrichment.  A court can also choose to award damages measured by a reasonable royalty for the unauthorized use of the trade secret.  As with other protection of intellectual property, violation of the DTSA done wilfully or maliciously may result in a court awarding enhanced damages as well as attorneys’ fees.

The EU Directive similarly allows for injunctions, damages measured as lost profits, account of profits, or a reasonable royalty for the trade secret use (paid as a lump sum).  The Directive also allows for provisional and precautionary measures, and says that Member States can provide for more far reaching protection, so long as the safeguards in the Directive are met.

The EU Directive does not call for enhanced damages for malicious activity, but rather approaches damages from the opposite viewpoint, specifying that Member States may limit the liability for damages of employees for misappropriating trade secrets if the employee acted without intent.

Employee Mobility and Non-Compete Agreements

In the sensitive area of employee mobility and competition, the Directive specifically states that it shall not offer any ground for restricting the mobility of employees.  However, the Directive does not include any requirement to harmonize the laws in relation to post-termination restrictions or non-compete clauses, meaning that national laws will continue to apply.

The DTSA addresses employee mobility in requiring that an injunction against a former employee be “based on evidence of threatened misappropriation” of trade secret information and not simply on the fact that the person may know certain information.  The DTSA also states that any injunction preventing or limiting future employment cannot conflict with applicable state laws protecting employee mobility.  Shortly before the DTSA took effect, the White House released a report that criticizes non-compete agreements and state laws that offer too much protection for such agreements.  While no immediate action is expected following the report, it is offered as a discussion point in considering what is necessary in non-compete agreements and how states should treat them.

Limitation Period

In the U.S., the limitation period for a company to bring an action under the DTSA is three years after the date on which the misappropriation is discovered or could have been discovered with reasonable diligence.  The EU Directive gives the Member States the freedom to set the limitation period for their respective national laws, but sets the maximum period at six years (albeit Member States have discretion as to when the clock starts to run).

Conclusion

It is obviously desirable that trade secret protection be consistent across borders, whether state or national, as protection is only as strong as its weakest link.  In the U.S., the DTSA specifically sets out a requirement that the Attorney General provide a report on the threats of trade secret theft outside the U.S. and the protection of trade secrets afforded by U.S. trading partners.  How the EU Directive and DTSA play out as Member States implement the Directive and courts interpret the laws will help shape trade secret protection around the globe.

Guest Post: 35 USC 289—Grant of Certiorari in Samsung v Apple = The Opportunity for a Better-Crafted Standard for Awarding Total profits

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Guest post by Gary L. Griswold.  Mr. Griswold is a Consultant residing in Hudson, WI and was formerly President of and Chief Intellectual Property Counsel for 3M Innovative Properties Company. The paper reflects the views of the author. He wishes to thank Bob Armitage and Mike Kirk for their excellent contributions to the essay.

In August, 2015, I published an article on Patently-O entitled “35 USC 289-After Apple v Samsung, Time for a Better-Crafted Judicial Standard for Awarding “Total Profits.” [i] The article appeared before the Supreme Court granted certiorari in this appeal.[ii] My use of the word “after” was, thus, a bit premature. The crafting of a new judicial standard may actually be accomplished over the next several months, as the Supreme Court considers the damages issue in Apple v. Samsung case later in its current term.

The statutory basis for awarding damages in this case is no “small-change.” 35 USC 289 provides the design patent holder with the infringer’s “total profits” on the “article of manufacture” to which the patented design “has been applied”[iii]. My August article referenced a Patently-O article by Professor Rantanen that included an analysis of the Federal Circuit’s Apple v Samsung decision and its ramifications, suggesting that the section 289 damages provision could induce “an explosion of design patent assertions and lawsuits.”[iv] Indeed, section 289 holds the potential for design patent procurement and assertion to become the next big “patent assertion entity” business model.

Some commentators have suggested that design patents, being sought and accumulated differently from utility patents, are not likely to stimulate much PAE interest. Whatever merit in that view, it needs to be tempered with the realization that greed is the mother of all of this type of business-model invention. One need only reflect on the fact that more than 1,000 qui tam actions for false marking were filed by opportunistic plaintiffs following the 2009 Federal Circuit decision in Forest Group, Inc. v. Bon Tool Co. before such actions were thankfully banished by the “Leahy-Smith America Invents Act.”[v] The prospects for design infringement revenue generation based on the “total profits”-recovery provision in 35 USC 289 could make successful design patent assertion a staggeringly profitable business. The potential for such an outcome as well as an example of such assertion was referenced in the briefs relating to the Apple v. Samsung certiorari petition[vi].

The possibility of a surge in design-patent PAE activity is almost certainly one of many reasons why the Supreme Court granted certiorari—and why it should not squander the opportunity presented in the Apple v. Samsung appeal to provide a reasoned and principled demarcation between those fact patterns where a “total profits” remedy is clearly warranted and those where it is not.

In deciding this appeal, the Supreme Court may focus on what constitutes an “article of manufacture” under section 289. The statute provides a design patent infringer “shall be liable to the [design patent] owner to the extent of [the infringer’s] total profit” if the infringer “applies the patented design … to any article of manufacture.” [vii](emphasis added) But, the patented design is not necessarily synonymous with the article of manufacture itself.

Indeed, for section 289 purposes, an “article of manufacture” has been held to be the entire substrate to which the patented design is applied. For example, it has been held that a boat becomes the “article of manufacture” when the patented design is for the windshield applied to the boat[viii]. Other examples of “articles of manufactures” whose total profits might be subject to a section 289 recovery include (1) a large agricultural combine, when the patented design is for a tire tread applied to a tire used on the combine; (2) an automobile, when the patented design is for the automobile’s rear taillights; and (3) an HDTV, when the patented design is for a semiconductor used in the television.

In my earlier articles, I described such “total profits” recovery scenarios as a problem in need of a judicial solution. I suggested eliminating access to section 289 “total profits” recoveries in situations where a consensus exists that a remedy of this type would be entirely unwarranted. My approach would interpret section 289 as authorizing a total-profits recovery only “if the patented design is substantially the basis for customer demand for the entire article”.[ix] If it is the basis for consumer demand, the section 289 total-profits recovery would apply to the article; if not, a recovery of total profits would not be available for the article.

This approach bears some similarity to the determination of utility patent damages under the entire market value rule[x]. A utility patent on a boat windshield does not allow the value of the boat to be used as the basis for determining a reasonable royalty absent a demonstration that the windshield was the basis for the customer demand for the boat.

In addition, the “customer demand” limitation is consistent with the apparent rationale for enacting section 289 in the first place. Current section 289 and its predecessors replaced a Supreme Court decision[xi] that provided limited damages to design patent owners even where the infringers had applied the patented design to an article of manufacture in order to create the customer demand for the article of manufacture. In such a situation, forcing the copyist to turn over its total profits obtained on the infringing article represents good policy.

However, even under a “customer demand” limitation, section 289 is no timid remedy. It would not involve any form of “apportionment” of the profits to be awarded to the design patent holder on the ground that some proportion of the profits might be attributable to non- design patented factors. Apportionment is not consistent with the Congressional intent when section 289 and its predecessors were enacted.

Moreover, even if the section 289 remedy is unavailable, the patent owner is not left without the right to recover damages. All the remedies otherwise available for patent infringement remain, whether or not a section 289 “total profits” recovery can be secured as long as there is no double recovery of damages[xii].

The Apple v. Samsung case is of particular importance because imposing the “customer demand” standard on section 289 recoveries does not require another act of Congress. The courts are free to interpret statutes to effectuate the purpose Congress had in enacting them. Under section 289, Congress did nothing to preclude the courts from determining what qualifies—and does not qualify—as an “article of manufacture.”

The Federal Circuit sees this judicial flexibility otherwise. It (incorrectly) saw its hands as having been tied by Congress in Apple v. Samsung, stating: “We are bound by what the statute says, irrespective of policy arguments that may be against it”[xiii]. Fortunately, the Supreme Court has the opportunity to see the situation differently.

The Supreme Court may—and should—see it differently. It can define an “article of manufacture” as being limited to objects for which the patented design is substantially the basis for customer demand. Courts have acted similarly in the past to assure that application of a statute will not result in foreseeable outcomes which are clearly inappropriate and manifestly unintended. The emergence of the “entire market value” rule is a good example of where the alleged “infringing product” cannot be reflexively used as the basis for a damages calculation where the “patented invention” is a mere component or feature of the product and not the product itself.

The Court will have, however, some competing approaches to consider in the course of deciding this appeal. Another possible approach to interpreting section 289 is the so-called “separate product” exception. This exception to a section 289 recovery limits the availability of total profits to the smallest separately sold product to which the patented design is applied. While this exception has the potential to limit the possibility of some of the ludicrous outcomes noted above, it is no panacea. For example, it fails to exclude a section 289 recovery where a design patented graphical user interface (GUI) is used in an electronic device which does not involve a separately sold product. This is a serious deficiency because of the difficulty in finding any policy rationale for awarding total profits on an electronic device simply because a design on a GUI used in it is patented.

Apple has, nonetheless, suggested in its responsive brief to “Defendant-Appellants’ Petition for Rehearing en banc” what amounts to a more generalized rendition of a “separate product” exception: “As the panel correctly recognized, this distinctive design was not severable from the inner workings of Samsung’s smartphones, see Op.27-28, in a way that a cupholder is analytically distinct from the overall look-and-feel of a car.”[xiv] (emphasis added) While “severability” appears to be a more general “exception” criterion than simply being a “separate” product, the “severability” approach does not appear to address the deficiency explained above for the “separate product” exception.

If there is a concern with the “customer demand” limitation, it would be whether the limitation is so broad that it swallows most or all of the “total profits” rule. Indeed, there are many factors which cause a purchaser to acquire a particular article of manufacture—most notably its functional aspects. However, to apply the “customer demand” approach, one begins with the customer looking for something in a product space and then making the specific decision to purchase. Everyday products with new, ornamental designs such as specially shaped paper clips are a good example.[xv] While they have a known function, they are most likely purchased for their appearance. An option would be to only consider the ornamental features of a product to determine whether they were substantially the basis for customer demand, but that may well be too narrow and could lead to a total profit remedy for minor differences from an ornamental perspective.

The Supreme Court would not have granted certiorari without a sense that its guidance was needed to properly titrate a powerful damages provision. It can best do so by allowing section 289 to remain a viable incentive to create and commercialize new designs, but then limiting the articles of manufacture qualifying for a “total profits” recovery to those where the patented design is substantially the basis for customer demand for the article of manufacture. Such a holding would secure section 289 as both a distinguishing and distinguished feature of U.S. design patent law.

[i] Griswold, Gary. “35 USC 289 – After Apple v. Samsung, Time for a Better-Crafted Judicial Standard for Awarding “Total Profits”? Patently-O. August 14, 2015. https://patentlyo.com/patent/2015/08/griswold-patent-damages.html

[ii] See U.S. Supreme Court Orders List from March 21, 2016 at 2. http://www.supremecourt.gov/orders/courtorders/032116zor_h3ci.pdf

[iii] 35 U.S.C. § 289:

“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.”

[iv] Rantanen, Jason, “Apple v. Samsung: Design Patents Win.” Patently-O. May 18, 2015. https://patentlyo.com/patent/2015/05/samsung-design-patents.html

[v] Laurie Rose Lubiano, “The America Invents Act applies the brakes to the false marking bandwagon.” LEXOLOGY, January 3 2012. http://www.lexology.com/library/detail.aspx?g=401c9bea-d643-4521-bc7d-c63d5b4a25f5

[vi] Samsung Petition for a Writ of Cert. Case No. 15-777. at 36-38. http://www.scotusblog.com/wp-content/uploads/2016/01/15-777_PetitionForAWritOfCertiorari.pdf

[vii] 35 U.S.C. § 289

[viii] Order on Motion for Partial SJ, In re Pacific Coast Marine Windshields Ltd. v. Malibu Boats LLC, Case No. 6:12-cv-33 (M.D. Fl. August 22, 2014)

[ix] See Griswold, https://patentlyo.com/patent/2015/08/griswold-patent-damages.html; See also Griswold, Gary. “35 USC § 289 – An Important Feature of U.S. Design Patent Law: An Approach to its Application.” IPO Law Journal. April 6, 2015. http://www.ipo.org/wp-content/uploads/2015/04/griswold_an-approach.pdf

[x] See Cornell University v. Hewlett-Packard Co., 609 F.Supp. 2d 279, 288-89 (N.D.N.Y. 2009):

(1) The infringing components must be the basis for customer demand for the entire machine including the parts beyond the claimed invention, (2) the individual infringing and non-infringing components must be sold together so that they constitute a functional unit or are parts of a complete machine or single assembly of parts, and (3) the individual infringing and non-infringing components must be analogous to a single functioning unit. It is not enough that the infringing and non-infringing components are sold together for business advantage. Notably, these requirements are additive, not alternative, ways to demonstrate eligibility for application of the entire market value rule.

See also Virnetz, Inc. v. Cisco Systems, Inc., 113 F.3d 1308, 1326 (Fed. Cir. 2014) (Judge Prost: “we recently affirmed that ‘[a] patentee may assess damages on the entire market value of the accused product only where the patented feature creates the basis for customer demand or substantially creates the value of the component parts.”)

[xi] See Dobson v. Dornan, 118 U.S. 10, (1886); Dobson v. Hartford Carpet Co., 114 U.S. 439 (1885); Dobson v. Bigelow Carpet Co., 114 U.S. 439 (1885); Bigelow Carpet Co. v. Dobson/Hartford Carpet Co. v. Same, 10 F. 385,386; 1882 U.S. App. LEXIS 2295 (E.D. Pa. 1882).

[xii] 35 U.S.C. § 289, paragraph 2: “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.”

[xiii] Apple v. Samsung, Fed. Cir. Opinion at 27, fn. 1.

[xiv] See Brief in Opp’n to Rhg, Apple v. Samsung, Case No. 2014-1335; 2015-1029 at 27-28 (Fed. Cir. July 20, 2015)

[xv] See, e.g., Design Patent No. USD647,138: https://docs.google.com/viewer?url=patentimages.storage.googleapis.com/pdfs/USD647138.pdf

 

Immediate action for Human Resource Departments on the Defend Trade Secrets Act

Patent, ,

by Dennis Crouch

The Key: Starting May 12, 2016 all employers will be required by Federal Law to provide a notice-of-immunity to employees and contractors “in any contract or agreement with an employee [or independent contractor] that governs the use of a trade secret or other confidential information.” (If the DTSA is enacted as expected.)

Whistle Blower Immunity: The Defend Trade Secrets Act (DTSA) amends 18 U.S.C. 1832 to provide limited whistle blower immunity. The headline for the provision is “immunity from liability for confidential disclosure of a trade secret to the government or in a court filing.”  Thus, an action that would otherwise count as trade secret misappropriation will be immunized if the disclosure:

(A) is made (i) in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.

The statute is clear that the immunity extends to protect against both state and federal law; both civil and criminal allegations.  A statute also (unnecessarily in my view) includes a provision that allows someone “who files a lawsuit for retaliation by an employer for reporting a suspected violation of law” to disclose trade secrets to his attorney and “use the trade secret information in the court proceeding” so long as documents containing the trade secrets are filed under seal and are not disclosed except by court order.[1]

Under these rules, it seems that the party planning to disclose another’s trade secret in open court should first seek an order of permission from the judge. And, at that point, the court will be required to allow the third party to explain the importance of the trade secret.[2]

Required Notice to Employees and Independent Contractors: Under the provision, employers are required to provide notice of the immunity “in any contract or agreement with an employee [or independent contractor] that governs the use of a trade secret or other confidential information.”  The statute suggests that this may be done via reference to a policy document rather than restating the entire immunity provisions in each agreement.  The statute does not appear to have any small-business exception to the notice requirement.

Failure to Comply with the Notice Requirement has a fairly small penalty: If the employer later sues the employee (or independent contractor) for trade secret misappropriation under the DTSA, the employer will not be able to collect exemplary double-damages or attorney fees.  No other specific penalties are provided, but neither does the statute indicate that these are the sole potential penalties.  I could imagine the FTC pursuing employers who fail to provide the notice (but likely only as part of a larger enforcement campaign). In addition, you might imagine a class action suit against major employers who fail to provide the notice. Finally, since this is a requirement of all contracts involving trade secret or confidential information, failure to provide the notice in a particular instance could be seen as evidence that either (1) there was no agreement or (2) the agreement did not involve trade secrets.[3]

Who Needs the Notice?: The notice requirement applies to employees as well as “any individual performing work as a contractor or consultant for an employer.”  Although the statute does not define ‘individual,’ I believe that the best interpretation is that individuals include only humans and not business entities. This conclusion is based upon the statute’s implicit distinction between “entities” and “individuals.”  A common situation might be a start-up company contracting with a cleaning company to do the janitorial work.  Do the people doing the actual vacuuming and cleaning need to have received the notice?  The statutory answer to that will depend upon how a court construes the language “performing work as a contractor or consultant for an employer.”  At this point, a cautious trade secret holder who wants the benefits of notice would ensure that those individuals are also provided notice.

Timing:  The DTSA will be effective once enacted and apply to “any act” that “occurs on or after the date of enactment.”  I expect that President Obama will sign the DTSA on May 11, 2016 and that will be its enactment date.  The notice requirement will “apply to contracts and agreements that are entered into or updated after the date of enactment of this subsection.”  Thus, as of May 12, 2016 employers must begin providing notice under the law.

Earlier this week, the White House issued a new white paper on the problems created by the existence of so-many covenants not-to-compete binding low-skilled workers.  Of course, this new notice requirement will mean that more employer HR departments will now be considering if it is time to add those contracts (along with the notice requirement).

= = = = =

[1] A potential hole in the provisions involves arbitration proceedings (that are common in employee disputes) since, immunity applies to court disclosures and disclosures to government officials, but not expressly to private arbitrators.

[2] This process is outlined in the newly added 18 U.S.C. § 1835(b).

[3] I think it is an important topic for another time stems from how the statute subtly distinguishes between a “contract” and an “agreement” and also between “trade secrets” and “other confidential information.”

Pending Supreme Court Patent Cases 2016 (May 3 Update)

Patent, , , , , , , , , , , , ,

by Dennis Crouch

Laches: The Supreme Court granted SCA’s writ of certiorari on the question of whether laches defense applies to block back-damages in patent cases. The Federal Circuit says “yes” while the Supreme Court recently said “no” in a parallel copyright case (Patrella).  The Supreme Court decided Patrella 6-3 with Justice Scalia in the majority offering the potential of a tight-split in this case.  The court looks to be sitting-on the parallel case of Medinol v. Cordis until SCA is decided.

CheerCopyrightCopyright on Useful Articles: Although not a patent case, the court also decided to hear a “useful article” copyright case.  Star Athletica v. Varsity Brands.  The case asks whether the stripes and chevrons found in a cheerleader uniform are sufficiently “separable” from the uniform in order to be copyrightable.  The useful article doctrine is generally considered to be setting up a boundary line between the domains of copyright and patent.

More Challenges to USPTO Authority: MCM filed its petition for writ of certiorari directly challenging USPTO authority to conduct inter partes review proceedings with two easy questions:

  1. Does IPR violate Article III of the Constitution?
  2. Does IPR violate the Seventh Amendment to the Constitution?

[MCM Petition and Appendix] MCM’s brief was filed Tom Goldstein along with Ned Heller.  The question for the Supreme Court is whether to extend or contract from its position in Stern v. Marshall, 131 S. Ct. 2594 (2011) where the court held that Article III of the U.S. Constitution prohibits Congress from withdrawing “from judicial
cognizance any matter which, from its nature, is the subject of a suit at the common law, or in equity, or admiralty.” Quoting Murray’s Lessee v. Hoboken Land & Improvement Co., 59 U.S. 272  (1856)).

The brief raises a set of interesting old cases focusing both on the separation of powers and the tradition that patent-revocation for invalidity requires a jury to decide disputed facts.

  • Ex Parte Wood & Brundage, 22 U.S. 603 (1824)
  • McCormick Harvesting Mach. Co. v. C. Aultman & Co., 169 U.S. 606 (1898)
  • Mowry v. Whitney, 81 U.S. 434 (1871)
  • Murray’s Lessee v. Hoboken Land & Improvement Co., 59 U.S. 272 (1856)
  • Neilson v. Harford, Webster’s Patent Cases 295 (1841)
  • Pennock v. Dialogue, 27 U.S. 1 (1829)
  • United States v. Am. Bell Tel. Co., 128 U.S. 315 (1888)

Cooper v. Lee raises some parallel issues. Its petition will be considered by the Court in its May 12. [Update: The court has “rescheduled” consideration of Cooper’s brief – perhaps awaiting its own determination in Cuozzo.]

Hereby Assign Future Inventions: In Shukh v. Seagate, the petitioner raises the long-brewing question involving the Federal Circuit’s interpretation of patent assignments.  In particular, the Federal Circuit has ruled – as a matter of federal patent law – that patent rights are assignable before their invention is even contemplated. The petition asks:

[W]hether FilmTec’s “automatic assignment” rule should be overruled because it extinguishes inventors’ constitutional and statutory rights to inventorship and ownership.

In Stanford v. Roche, Justices Breyer, Ginsburg and Sotomayor criticized the Federal Circuit’s rule and suggested that the issue should be presented in a future case. The majority expressly noted that its opinion did not decide the issue. [Shukh v. Seagate – Redacted Public Petition]

Disparaging Trademarks: A pair of disparaging trademark cases have also been petitioned: Lee v. Tam (“Slants”) and  Pro-Football v. Blackhorse (“Redskins”).   The Federal Circuit previously held the limit on registering disparaging marks to be an unconstitutional abrogation of the freedom of speech.

The big list: (more…)