Tag Archives: Damages

Pending Supreme Court Patent Cases 2016 (March 4 Update)

Patent, , , , , , , , , ,

by Dennis Crouch

Earlier this week, the University of Missouri Law Review held its annual symposium – this year focusing on the Future of the Administrative State.  That future is a primary front of challenge in the patent system.  Arguments in Cuozzo v. Lee are now scheduled for April 25.  Jeffrey Wall of Sullivan & Cromwell (who also argued Stryker/Halo two weeks ago) is representing Cuozzo along with his colleague Garrard Beeney. On that same day, the Supreme Court will also hear the copyright attorney fee case Kirtsaeng.

Following Justice Scalia’s death, the Supreme Court simplified its docket by denying certiorari to a set of patent cases, including: Arthrex v. Smith & Nephew; STC v. Global Traffic Technologies; ePlus v. Lawson Software, Inc.; Media Rights Technologies v. Capitol One; Alexsam v. The Gap; and ULT v. Lighting Ballast Control.  Achates v. Apple was dismissed after being settled by the parties.

New petitions include Sandoz v. Amgen (BCPIA’s inherent six-month delay following commercial marketing notice); Hemopet v. Hill’s Pet (eligibility of claim directed to tailoring of a pet’s diet based upon genomic characteristics and expression); GEA Process v. Steuben Foods (after instituting, is the PTAB’s termination reviewable?); ParkerVision v. Qualcomm (when should a court reject a jury’s determination that an expert is credible); and WesternGeco v. ION Geophysical (foreign lost profit damages).

  • Petitions Granted:
  1. Petitions Granted with immediate Vacatur and Remand (GVR)
  1. Petitions for Writ of Certiorari Pending:
  • Infringement by Joint Enterprise: Limelight Networks, Inc. v. Akamai Technologies, Inc., et al., No. 15-993 (can a defendant be held liable for the collective performance of method steps by multiple independent parties?)
  • Post Grant Admin: Cooper v. Lee, No. 15-955 (whether IPRs violate Separation of Powers; two amici now filed in support).
  • Post Grant Admin: Click-to-Call Tech, LP v. Oracale Corp., No. 15-1014 (Same questions as Cuozzo and now-dismissed Achates v. Apple)
  • Post Grant Admin: GEA Process Engineering, Inc. v. Steuben Foods, Inc., No. 15-1075 (Flip-side of Cuozzo: Can there be no appeal when the PTAB exceeds its authority by terminating an instituted IPR proceeding?)
  • Post Grant Admin: Interval Licensing LLC v. Michelle K. Lee, No. 15-716 (Can the Patent and Trademark Office appropriately apply the “broadest reasonable interpretation” standard in construing patent claims in post-grant validity challenges?)
  • Laches: Medinol Ltd. v. Cordis Corporation, et al., No. 15-998
  • Laches: SCA Hygiene Products Aktiebolag, et al. v. First Quality Baby Products, LLC, et al., No. 15-927 (three amici filed in support)
  • Biologics Notice of Commercial Marketing: Sandoz Inc. v. Amgen Inc., et al., No. 15-1039 (Does the notice requirement of the BPCIA create an effective six-month exclusivity post-FDA approval?)
  • Design Patents: Samsung Electronics Co. v. Apple Inc., No 15-777 (design patent scope and damages calculation)
  • Design Patents: Systems, Inc. v. Nordock, Inc., No. 15-978 (design patent damage calculations – similar issues as Samsung v. Apple). []
  • Inducement: Life Technologies Corporation, et al. v. Promega Corporation, No. 14-1538 (whether an entity can “induce itself” under 271(f)(1))(CVSG, awaiting government brief)
  • Preclusion or Jurisdiction: BriarTek IP, Inc. v. DeLorme Publishing Company, Inc., et al., No. 15-1025 (Preclusive impact of ITC consent judgment).
  • Preclusion or Jurisdiction: Vermont v. MPHJ Technology Investments, LLC, No. 15-838 (Federal court jurisdiction in anti-troll consumer protection case)
  • Preclusion or Jurisdiction: Biogen MA, Inc. v. Japanese Foundation for Cancer Research, et al., No. 15-607 (Whether AIA eliminated federal district courts’ jurisdiction over patent interference actions under 35 U.S.C. § 146.)
  • Eligibility Challenges: Retirement Capital Access Management Company, LLC v. U.S. Bancorp, et al., No. 15-591 (Whether subject matter eligibility under 35 U.S.C. § 101 is a ground specified as a condition for patentability under 35 U.S.C. § 282(b)(2))
  • Eligibility Challenges: Hemopet v. Hill’s Pet Nutrition, Inc., No. 15-1062 (natural phenom case of tailoring a diet to a pet’s genomic characteristics).
  • Eligibility Challenges: Joao Bock Transaction Systems, LLC v. Jack Henry & Associates, Inc., No. 15-974 (defining an abstract idea)
  • Patent Term Adjustment Dispute: Daiichi Sankyo Company, Ltd. v. Michelle K. Lee, No. 15-652 (Patent Term Adjustment – whether the 180 day deadline applies; could bleed into admin law issues)
  • Damages: Innovention Toys, LLC v. MGA Entertainment, Inc., et al., No. 15-635 (Stryker/Halo follow-on – potential wait-and-see)
  • Damages: WesternGeco LLC v. ION Geophysical Corporation, No. 15-1085 (consequential lost-profit damages for infringement under Section 271(f))
  • Jury Role: Parkervision, Inc. v. Qualcomm Incorporated, No. 15-1092 (“Whether and under what circumstances an inconsistency in expert testimony permits a court to set aside a jury verdict and grant the losing party judgment as a matter of law.”)
  • Low Quality Brief: Morales v. Square, No. 15-896 (eligibility under Alice)
  1. Petitions for Writ of Certiorari Denied or Dismissed:
  • ePlus, Inc. v. Lawson Software, Inc., No. 15-639 (what happens with a finally-determined permanent injunction after PTO cancels the patent claim?)
  • Media Rights Technologies, Inc. v. Capital One Financial Corporation, et al., No. 15-725 (Claim Construction: whether there a strong presumption against construing terms as subject to 35 U.S.C. § 112p6 that do not recite the term “means.”)
  • Alexsam, Inc. v. The Gap, Inc., No. 15-736 (appellate jurisdiction over patents that were dropped from case pre-trial)
  • Universal Lighting Technologies, Inc., v. Lighting Ballast Control LLC, No. 15-893 (intrinsic vs extrinsic evidence for claim construction).
  • STC, Inc. v. Global Traffic Technologies, No. 15-592 (Whether marking the packaging of a patented article with patent notification satisfies the marking provision of 35 U.S.C. § 287(a) where the patented article itself is undisputedly capable of being marked.)
  • Achates Reference Publishing, Inc. v. Apple Inc., et al., No. 15-842 (IPR institution decisions unreviewable, even when addressed in a final written decision by PTAB) [Note – This case was dismissed after being settled by the parties]
  • Alps South, LLC v. The Ohio Willow Wood Company, No. 15-567
  • Allvoice Developments US, LLC v. Microsoft Corp., No. 15-538
  • OIP Technologies, Inc. v. Amazon.com, Inc., No. 15-642
  • Fivetech Technology Inc. v. Southco, Inc., No. 15-381
  • Tyco Healthcare Group LP, et al. v. Ethicon Endo-Surgery, Inc., No. 15-115
  • Nautilus, Inc. v. Biosig Instruments, Inc., No. 15-561
  • Chunghwa Picture Tubes, Ltd., et al. v. Eidos Display, LLC, et al., No. 15-288
  • Kenneth Butler, Sr. v. Balkamp Inc., et al., No. 15-273
  • Arthrex, Inc. v. KFx Medical Corporation, No. 15-291
  • Arthrex, Inc. v. Smith & Nephew, Inc., et al., No. 15-559 (Commil re-hash – if actions were “not objectively unreasonable” can they constitute inducement?)
  • Daiichi Sankyo, Inc., et al. v. Apotex Inc., No. 15-281
  • Mylan Pharmaceuticals Inc. v. Apotex Inc., No. 15-307
  • Luv N’ Care, Ltd. v. Munchkin, Inc., No. 15-242
  • Automated Merchandising Systems, Inc. v. Michelle K. Lee, Director, United States Patent and Trademark Office, No. 15-326
  • I/P Engine, Inc. v. AOL Inc., et al., No. 14-1358
  • Interval Licensing LLC v. AOL Inc., et al., No. 14-1362
  • Content Extraction and Transmission LLC v. Wells Fargo Bank, National Association, et al., No. 14-1473
  • L. Gore & Associates, Inc. v. Bard Peripheral Vascular, Inc., et al., No. 15-41
  • NetAirus Technologies, LLC v. Apple Inc., No. 14-1353
  • Muffin Faye Anderson v. Kimberly-Clark Corporation, No. 14-10337
  • MobileMedia Ideas LLC v. Apple Inc., No. 15-206
  • SpeedTrack, Inc. v. Office Depot, Inc. et al., No. 15-461 (Kessler doctrine)
  • Rodney K. Morgan, et al. v. Global Traffic Technologies LLC, No. 15-602
  • Lakshmi Arunachalam v. JPMorgan Chase & Co., No. 15-691
  1. Prior versions of this report:

 

 

Federal Circuit: Apple’s Slide-to-Unlock Patent is Invalid

Patent, ,

by Dennis Crouch

In the Federal Circuit’s most recent Apple v. Samsung decision, the court has, inter alia, invalidated two of Apple’s asserted patents and held the third was not infringed – despite a jury verdict to the opposite.

At the district court, the jury found that three of Apple’s touch-screen patents (covering slide-to-unlock, spell correction, and automated data-structure detection) infringed by Samsung devices (resulting in $119.6 million in damages)[1] and that one Samsung patent (covering particular photo/video operations) was infringed (resulting in only $158,400 in damages).[2] This case is parallel to (but entirely separate from) the iPhone design patent case now pending before the Supreme Court that resulted in a $600,000,000 judgement for Apple.

Invalidity: Samsung had argued that the slide-to-unlock and automatic spell correction claims were invalid as obvious.  In support of the patents, Apple presented evidence of copying, commercial success, industry praise, and long-felt but unresolved need  — all as secondary considerations of nonobvoiusness.

[S]econdary considerations must be considered in evaluating the obviousness of a claimed invention. But weak secondary considerations generally do not overcome a strong prima facie case of obviousness. This is particularly true when an invention involves nothing more than the predictable use of prior art elements according to their established functions.

(internal quotation marks and citations removed).

The Federal Circuit walked through Apple’s evidence – pointing out its weakness:

  • Copying: What was copied was not the iPhone unlock mechanism in its entirety, but only using a fixed starting and ending point for the slide — features shown in the prior art.
  • Industry Praise: Evidence of approval by Apple fans—who may or may not have been skilled in the art—during the presentation of the iPhone is not legally sufficient.
  • Long-Felt Need: Apple’s contention here is nothing more than an unsupported assertion that Apple’s method is better and more “intuitive” than previous methods. This is not sufficient to demonstrate the existence of a long-felt but unmet need.
  • Commercial Success: “[E]vidence that customers prefer to purchase a device with a slide-to-unlock capacity does not show a nexus [to the claimed invention] when the evidence does not show what alternative device consumers were comparing that device to. For example, it is not clear whether the alternative device had any unlocking feature. A reasonable jury could therefore not find a nexus between the patented feature and the commercial success of the iPhone.

Collectively, the Federal Circuit found this evidence of secondary conditions too weak to overcome the evidence of obviousness based upon the prior art documents.  As such, the appellate panel reversed the jury verdict and lower court denial of Judgment as a Matter of Law — now holding the patent claims invalid as obvious.

Infringement: Apple’s automated data-structure detection claims cover the process of automatically identifying items in within text such as telephone numbers or dates.  The claims require an “analyzer server” that detects the structures. That patent claim term had been previously construed by the Federal Circuit and this narrow construction was adopted by the district court – although not until the last day of trial.  However, Apple’s expert testified that the Samsung device infringed under this narrow definition (Samsung’s expert disagreed) and the jury sided with Apple. On appeal, however, the Federal Circuit reversed – finding that no reasonable jury could have found infringement based upon the testimony:

[Apple’s expert] testimony is not sufficient evidence to allow a jury to conclude that the Samsung software met the “analyzer server” limitation. Our previous construction required more than just showing that accused software was stored in a different part of the memory and was developed separately. We found that the “analyzer server” limitation is a separate structural limitation and must be a “server routine,” consistent with the “plain meaning of ‘server’.” That is, it must run separately from the program it serves. . . . Apple could point to no testimony where its expert stated that the library programs run separately.

Thus, the holding of infringement was reversed and Apple’s $120 million award has vanished.

The court did uphold Samsung’s win, but that award is only $158,400 in damages.  In addition, the court awarded appellate costs to Samsung.

= = = = =

 

 

[1] Apple alleged infringement of five U.S. patents: U.S. Patent  Nos. 5,946,647 (the ’647 patent), 6,847,959 (the ’959 patent), 7,761,414 (the ’414 patent), 8,046,721 (the ’721 patent), and 8,074,172 (the ’172 patent). The jury found infringement of the ’647 patent, the ’721 patent, and the ’172 patent but no infringement of the other two.

[2] The Jury found that Apple infringed Samsung’s U.S. Patent No. 6,226,449 (the ’449 patent) but not U.S. Patent No. 5,579,239 (the ’239 patent).

 

Trolls vs Pirates: Halo/Stryker Oral Arguments

Patent, ,

Today the Supreme Court heard combined oral arguments in the willful infringement cases of:

  • Halo Electronics, Inc. v. Pulse Electronics, Inc., et al. (14-1513); and
  • Stryker Corporation, et al. v. Zimmer, Inc., et al. (14-1520)
  • Read the transcript.

Jeffrey Wall argued on behalf of the patentee-petitioners who argued that the Federal Circuit’s limits on awarding enhanced damages is unduly rigid – especially following the Supreme Court’s Octane Fitness determination.  The U.S. Government has supported the petitioners in this case and presented Assistant to the Solicitor Roman Martinez to argue as amicus curiae.  Carter Phillips argued on behalf of the defendant-respondents.

Wall’s approach was to highlight the general nature of the the statute, which merely states that “the court may increase the damages up to three times the amount found or assessed.” That general statute should be contrasted with the Federal Circuit’s rule that requires separate proof of both objective and subjective willful behavior.  Rather, Wall argued that we should “go back to doing a totality [of the circumstances] inquiry . . . [applying] the principles that historically guided your exercise of discretion.”  Wall also pointed to the what he sees as an important factor in the analysis: that “a patent lawyer can virtually always come up with some non-frivolous defense in litigation” and, that fact makes is virtually impossible to prove that the infringement was objectively reckless.  The U.S. Government agreed that the objectively reasonable defense “creates an arbitrary loophole that allows some of the most egregious infringers to escape enhanced damages.”

MR. MARTINEZ: So recklessness, everyone agrees, is an objective inquiry. And in every other area of law where courts are conducting an objective inquiry, what you ­­ what you’re supposed to do is you’re supposed to take a reasonable man, and you put him in the ­­ the actual person who is accused of wrongdoing, in his shoes. And you take what that actual person knew, and you figure out whether a reasonable man in that person’s shoes would have thought that there was a very high risk that the conduct at issue was unlawful.

And what the Federal Circuit does is not that. What they are essentially doing is taking the reasonable man and giving him the benefit of omniscience, giving him the benefit of hindsight and saying, what facts do we know at the time of trial? And now that we know these facts at the time of trial, . . .

JUSTICE BREYER: I didn’t think they were doing that. I thought what they were doing was saying, we are not going to allow punitive damages in a case where the patent is so weak.

. . . .

MR. MARTINEZ: I think it’s possible to imagine ­­let me ­­ let me make it concrete.

Imagine a case in which there’s intentional violation or a reckless violation based on the facts known at the time. And later the ­… infringer is sued, and he hires a law firm that scours the world, and they find the library in Germany that has a Ph.D. dissertation that has some [publication] that arguably anticipated the invention at issue. So that’s a new fact. It wasn’t in anyone’s head. No one was aware of it at the time the infringement occurred. And maybe that law firm then puts together a reasonable but wrong theory under which the patent is invalid in light of that prior art. We think that’s a case in which the ­­ the conduct was culpable at the time of ­­ of infringement, and we think that’s a case that would warrant enhanced damages.

. . .

MR. PHILLIPS: We’re not talking about a situation here where it’s obvious when something is infringed. There are thousands of patents, hundreds of thousands of patents. There are lots of entities creating new products every day, new services,

. . . .

MR. WALL: [W]e and the PTO and many of Respondents’ amici recognize, the system as it currently stands is out of balance. And we have tried, and I believe we have succeeded, in crafting an approach that balances the Court’s concerns with the need to respect the rights of patentees, including small companies like Halo.

Justice Breyer offered some concern for software companies being accused of infringing weak patents:

MR. WALL: Justice Breyer, the sky didn’t fall for a century and a half, and it’s not going to fall if you reverse the Federal Circuit’s framework, just as it didn’t fall after Octane and Highmark in the fees context.

JUSTICE BREYER: It hasn’t fallen? Go look at the market shares of the different companies that are seriously involved in software. . . . I think it’s unfortunate that Congress hasn’t passed a special regime for those kinds of patents, but they haven’t.

. . .

MR. PHILLIPS: This is not a classic copying case. I mean, in a lot of ways this case comes down to sort of trolls versus pirates in terms of how you want to analyze it.

. . . .

JUSTICE SOTOMAYOR: Mr. Phillips, there’s a whole lot of worry articulated by Justice Breyer and reflected in your briefs about protecting innovation.But there’s not a whole lot of worry about protecting the patent owner. I can’t  forget that historically enhanced damages were automatic, and they were automatic because of a policy judgment that owning a patent entitled you to not have  people infringe willfully or not willfully. And I accept that at some point there was a different judgment made that ­­ that good­faith infringers should be treated differently than other infringers, willful infringers.

But I don’t know that that swung things so far the other way that it can only be that, if you come up with something, any defense whatsoever in the litigation that’s not frivolous, that that gets you out of enhanced damages.

Some of the conversation focused on the replacement test:

JUSTICE SOTOMAYOR: It can’t be that they can give enhanced penalties on whim.

MR. WALL: That’s right.

JUSTICE SOTOMAYOR: All right? So if it’s not whim, what is it? How do we articulate a test that protects what Justice Breyer is concerned about, which I think is a legitimate concern, but doesn’t entrench a position that just favors you?

MR. WALL: We think the statute was invoked for various purposes, not just to punish infringement. . . . [W]hat the parties are really debating is the nature of the infringement. That needs to be intentional or reckless based on the facts as they were known to the infringer. . . . the strength of the notice . . . Reed factors . . .

JUSTICE SOTOMAYOR: I Don’t want to adopt that test. How do I articulate this in a more generalized way?

MR. WALL: I think what you would say is that in judging whether a reasonable person would have thought that there was a really high risk, you’ve got to take account of both the strength of the notice, what kind of notice were they on of the patent, and what would have been commercially reasonable in the industry as it exists. And I think that ­­ those factors and those limitations are going to take account of the vast bulk of what Justice Breyer and what Respondents are are concerned about.

. . . .

MR. PHILLIPS: [Good luck finding] tort cases in which the eggshell plaintiff gets punitive damages because the defendant overreacted.

In addition to the elements of the test, the court is also addressing the standards of proof and review.

JUSTICE GINSBURG: Can we at least peel off the clear and convincing evidence that seems to come out of nowhere and the standard of de novo review rather than abuse of discretion?

MR. PHILLIPS: I would desperately ask you not to take out de novo review because we’re talking about an objective standard; it’s really almost ­­ it’s essentially a question of law. The issue is, is there an objectively reasonable basis for what’s been done here? [and clear and convincing evidence standard is dicta to this case]

. . . .

JUSTICE GINSBURG: You ­­ care about de novo review in the Federal Circuit rather than testing the district court’s determination for abuse of discretion.

A substantial amount of example-time focused on “copying”, which Mr. Wall identified as the “typical” case and the extent that enhanced damages should be limited to “willful” behavior.

For this case, it appears likely that the majority will overrule Seagate but the question remains open as to what will be the replacement rule.

 

 

 

Pending Supreme Court Patent Cases 2016 (February 17 Update)

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

by Dennis Crouch

Justice Scalia died this week. May he rest in peace. Although he (as well as Justice Kagan) had left the University of Chicago before I arrived, their influence continues to be felt in that institution.  (Posner, Obama, Sunstein, Meltzer & Epstein, etc. were all still around). On her blog, Professor Ouellette (Stanford) has a nice post about the mixed bag of Justice Scalia’s IP scholarship legacy.  Most recently, Justice Scalia may be best remembered for calling-out Federal Circuit jurisprudence on obviousness as “gobbledygook.”  In many cases, I would expect that his ‘vote’ was less important than the ideas he brought to the table and the way he changed the debates.

I don’t see Scalia’s death having any impact on Halo/Stryker — where I predict the Federal Circuit will be reversed.  Cuozzo is perhaps a different story where I expect a divided court to affirm in a situation where Justice Scalia may have voted to reverse.  Oral arguments are still set for February 23, 2016 in Halo and Stryker. Tony Mauro has an interesting article on the case titled “Coin toss decides which advocate will argue key patent case.”  Professor Mann provides an argument preview on SCOTUSblog.

New petitions this week include the reappearance of Limelight v. Akamai.  The Supreme Court previously shot-down the Federal Circuit’s expanded definition of inducing infringement, but on remand the Federal Circuit expanded its definition of direct infringement (to include joint enterprise liability).  The case is interesting and I hope that the court grants certiorari, but I would side with the patentee here.

In Medinol v. Cordis, the patentee questions whether the laches doctrine still applies in patent cases. This case parallels SCA Hygiene and comes on the heels of the Supreme Court’s Petrella decision which eliminated the laches defense for back-damages in copyright cases.

Briartek IP v. DeLorme, delves into interesting separation of powers and jurisdiction issues, asking: Whether a binding consent order, entered between the federal government, the ITC, and an ITC respondent, deprives federal district courts of jurisdiction over a declaratory judgment action, seeking to invalidate the patent at issue, filed by the ITC respondent … against the patent holder: a non-party to the consent order.  The Federal Circuit had affirmed without substantive opinion.

Finally, last but not least, is Click-to-Call Tech v. Oracle Corp. who has copied the questions from Cuozzo and the recently denied Achates v. Apple.  These questions challenge the seeming the absolute bar on judicial review of Patent Trial & Appeal Board’s power to institute IPR proceedings.  Although this particular petition is unlikely to be granted. It lends additional credence to the other two.  The petition is also a mechanism for the patentee here to keep the issue alive.

1. Petitions Granted:

2. Petitions Granted with immediate Vacatur and Remand (GVR)

3. Petitions for Writ of Certiorari Pending:

  • Infringement by Joint Enterprise: Limelight Networks, Inc. v. Akamai Technologies, Inc., et al., No. 15-993 (can a defendant be held liable for the collective performance of method steps by multiple independent parties?)
  • Post Grant Admin: Cooper v. Lee, No. 15-955 (whether IPRs violate Separation of Powers).
  • Post Grant Admin: Click-to-Call Tech, LP v. Oracale Corp., No. 15-1014 (Same questions as Achates v. Apple and Cuozo)
  • Laches: Medinol Ltd. v. Cordis Corporation, et al., No. 15-998
  • Laches: SCA Hygiene Products Aktiebolag, et al. v. First Quality Baby Products, LLC, et al., No. 15-927
  • Post Grant Admin: Interval Licensing LLC v. Michelle K. Lee, No. 15-716 (Can the Patent and Trademark Office appropriately apply the “broadest reasonable interpretation” standard in construing patent claims in post-grant validity challenges?)
  • Design Patents: Samsung Electronics Co. v. Apple Inc., No 15-777 (design patent scope and damages calculation)
  • Design Patents: Systems, Inc. v. Nordock, Inc., No. 15-978 (design patent damage calculations – similar issues as Samsung v. Apple). []
  • Inducement: Life Technologies Corporation, et al. v. Promega Corporation, No. 14-1538 (whether an entity can “induce itself” under 271(f)(1))(CVSG, awaiting government brief)
  • Inducement: Arthrex, Inc. v. Smith & Nephew, Inc., et al., No. 15-559 (Commil re-hash – if actions were “not objectively unreasonable” can they constitute inducement?)
  • Claim Construction: Universal Lighting Technologies, Inc., v. Lighting Ballast Control LLC, No. 15-893 (intrinsic vs extrinsic evidence for claim construction).
  • Preclusion or Jurisdiction:  BriarTek IP, Inc. v. DeLorme Publishing Company, Inc., et al., No. 15-1025 (Preclusive impact of ITC consent judgment).
  • Preclusion or Jurisdiction: Vermont v. MPHJ Technology Investments, LLC, No. 15-838 (Federal court jurisdiction in anti-troll consumer protection case)
  • Preclusion or Jurisdiction: Alexsam, Inc. v. The Gap, Inc., No. 15-736 (appellate jurisdiction over patents that were dropped from case pre-trial)
  • Preclusion or Jurisdiction: ePlus, Inc. v. Lawson Software, Inc., No. 15-639 (what happens with a finally-determined permanent injunction after PTO cancels the patent claim?)
  • Preclusion or Jurisdiction: Biogen MA, Inc. v. Japanese Foundation for Cancer Research, et al., No. 15-607 (Whether AIA eliminated federal district courts’ jurisdiction over patent interference actions under 35 U.S.C. § 146.)
  • Eligibility Challenges: Retirement Capital Access Management Company, LLC v. U.S. Bancorp, et al., No. 15-591 (Whether subject matter eligibility under 35 U.S.C. § 101 is a ground specified as a condition for patentability under 35 U.S.C. § 282(b)(2))
  • Eligibility Challenges: Joao Bock Transaction Systems, LLC v. Jack Henry & Associates, Inc., No. 15-974 (defining an abstract idea)
  • Claim Construction: Media Rights Technologies, Inc. v. Capital One Financial Corporation, et al., No. 15-725 (Claim Construction: whether there a strong presumption against construing terms as subject to 35 U.S.C. § 112p6 that do not recite the term “means.”)
  • Patent Term Adjustment Dispute: Daiichi Sankyo Company, Ltd. v. Michelle K. Lee, No. 15-652 (Patent Term Adjustment – whether the 180 day deadline applies; could bleed into admin law issues)
  • Damages: STC, Inc. v. Global Traffic Technologies, No. 15-592 (Whether marking the packaging of a patented article with patent notification satisfies the marking provision of 35 U.S.C. § 287(a) where the patented article itself is undisputedly capable of being marked.)
  • Damages: Innovention Toys, LLC v. MGA Entertainment, Inc., et al., No. 15-635 (Stryker/Halo follow-on – potential wait-and-see)
  • Low Quality Brief: Morales v. Square, No. 15-896 (eligibility under Alice)

3. Petitions for Writ of Certiorari Denied:

  • Achates Reference Publishing, Inc. v. Apple Inc., et al., No. 15-842 (IPR institution decisions unreviewable, even when addressed in a final written decision by PTAB)
  • Alps South, LLC v. The Ohio Willow Wood Company, No. 15-567
  • Allvoice Developments US, LLC v. Microsoft Corp., No. 15-538
  • OIP Technologies, Inc. v. Amazon.com, Inc., No. 15-642
  • Fivetech Technology Inc. v. Southco, Inc., No. 15-381
  • Tyco Healthcare Group LP, et al. v. Ethicon Endo-Surgery, Inc., No. 15-115
  • Nautilus, Inc. v. Biosig Instruments, Inc., No. 15-561
  • Chunghwa Picture Tubes, Ltd., et al. v. Eidos Display, LLC, et al., No. 15-288
  • Kenneth Butler, Sr. v. Balkamp Inc., et al., No. 15-273
  • Arthrex, Inc. v. KFx Medical Corporation, No. 15-291
  • Daiichi Sankyo, Inc., et al. v. Apotex Inc., No. 15-281
  • Mylan Pharmaceuticals Inc. v. Apotex Inc., No. 15-307
  • Luv N’ Care, Ltd. v. Munchkin, Inc., No. 15-242
  • Automated Merchandising Systems, Inc. v. Michelle K. Lee, Director, United States Patent and Trademark Office, No. 15-326
  • I/P Engine, Inc. v. AOL Inc., et al., No. 14-1358
  • Interval Licensing LLC v. AOL Inc., et al., No. 14-1362
  • Content Extraction and Transmission LLC v. Wells Fargo Bank, National Association, et al., No. 14-1473
  • W.L. Gore & Associates, Inc. v. Bard Peripheral Vascular, Inc., et al., No. 15-41
  • NetAirus Technologies, LLC v. Apple Inc., No. 14-1353
  • Muffin Faye Anderson v. Kimberly-Clark Corporation, No. 14-10337
  • MobileMedia Ideas LLC v. Apple Inc., No. 15-206
  • SpeedTrack, Inc. v. Office Depot, Inc. et al., No. 15-461 (Kessler doctrine)
  • Rodney K. Morgan, et al. v. Global Traffic Technologies LLC, No. 15-602
  • Lakshmi Arunachalam v. JPMorgan Chase & Co., No. 15-691

4. Prior versions of this report:

 

 

3M Liable for $26 Million for Fraudulent Patent Enforcement

Patent, ,

By Dennis Crouch

Transweb v. 3M (Fed. Cir. 2016)

Although 3M was the initial litigation aggressor, TransWeb’s response is the more successful.  Here, the lower court sided with TransWeb – finding 3M’s asserted patent claims invalid based upon pre-filing public uses by TransWeb and unenforceable due to inequitable conduct during prosecution. In addition, the jury awarded TransWeb $26 million for antitrust violations based upon 3M’s attempts to maintain its monopoly by asserting a fraudulently obtained patent. On appeal, the Federal Circuit has affirmed.  The technology at issue here involves Plasma-fluorinated filters as covered by 3M’s U.S. Patents 6,397,458 and 6,808,551.

Public Use based upon Oral Testimony: The evidence of pre-filing public use came from TransWeb’s founder Kumar Ogale who orally testified that he attended an expo in May 1997 and handed out “T-Melt” samples (more than one year before 3M’s 1998 priority filing date).  Although it was clear that Ogale did attend the expo and that samples were distributed, 3M challenged the oral testimony based upon the lack of corroborating evidence that Ogale handed-out samples that included the plasma-fluorinated material at the expo.  Oral testimony of an interested party is ordinarily insufficient to invalidate an issued patent.  Rather, the ‘clear and convincing’ evidence standard requires further documentation or testimony to that corroborates the account.  However, “there are no hard and fast rules as to what constitutes sufficient corroboration, and each case must be decided on its own facts.”  In this case, the Federal Circuit rejected 3M’s argument that each and every factual conclusions leading to an invalidity determination must be corroborated by additional evidence.  Rather, the rule of corroboration is a “flexible, rule of reason demand” designed to ensure that “as a whole” the oral testimony is credible.  Here, there was corroborating evidence that Ogale attended the expo and distributed materials; that his company had been producing the plasma-fluorinated material for several months and had filed for patent protection on some aspects of the material; etc.  Reviewing this evidence, the Federal Circuit found “abundant support” for Mr. Ogale’s testimony and for the jury’s verdict of prior public use.

Inequitable Conduct:  As an equitable judgment, the determination of whether a patent is unenforceable due to inequitable conduct is ordinarily within the purview of the judge rather than the jury.  Here, however, the judge permitted the jury to offer an ‘advisory opinion’ of unenforceability that the judge then enforced based upon reaching the same conclusion.  On appeal, the Federal Circuit only reviewed the judge’s conclusions.

The basic facts are that 3M had a sample of TransWeb’s filter and notified the examiner of that fact.  Based upon this notice, the examiner rejected the pending claims as obvious.  At that point, 3M offered the ‘dubious’ assertion that the TransWeb samples were only received after signing of a confidentiality agreement and thus could not constitute prior art.  That assertion was, of course, sufficient for the examiner who withdrew the rejection.  In reviewing what happened, the district court also found that 3M’s in-house counsel “undertook an intentional scheme to paper over the potentially prior art nature” of its TransWeb samples that a 3M collaborator (and later subsidiary) had received from TransWeb one-moth after the aforementioned expo.   Based upon these (and additional facts explained in the decision), the appellate panel affirmed that the fraud upon the patent office was both intentional and material – thus affirming the inequitable conduct finding.

Antitrust Violation:  In the 1965 Walker Process decision, the Supreme Court held that an antitrust-plaintiff can prevail by showing (1) that a patentee enforced its patent, knowing the same to have been obtained by willful fraud upon the patent office leading to (2) monopolization (or attempted monopolization). Although the “willful fraud” element of a Walker Process claim was previously described as a higher burden than that used in inequitable conduct. Following Therasense, the court now sees these as “nearly identical.”

The jury found that the actual harm suffered by TransWeb for the monopolization was a measly $34,000 in lost profits.  However, TransWeb also spent over $10 million in legal fees fighting the patent infringement claims ($7.7 million) and asserting the antitrust claims ($3.2 million).  Under the Sherman Act, “any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws . . . shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney’s fee.”  Following that rule, the district court awarded $3.2 million for the cost-of-suit but then trebled the $7.7 million as the damages for fraudulent patent enforcement.  On appeal, the Federal Circuit affirmed that result – holding that “3M’s unlawful act [of enforcing its fraudulently obtained patent] was in fact aimed at reducing competition and would have done so had the suit been successful.”

 

Michael Williams (Quinn Emanuel) represented TransWeb in the appeal while Seth Waxman (Wilmer) represented 3M.

 

Pre-Issuance Damages under Section 154(d)

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Rosebud LMS v. Adobe Systems (Fed. Cir. 2015)

In one of its first interpretation of the pre-issuances damages statute, 35 U.S.C. § 154(d), the Federal Circuit has affirmed that “actual notice of the published patent application” is a necessary element of infringement, even when the infringer buries its head in the sand to avoid knowledge of the application.

Section 154(d) defines the poorly-named concept of “provisional rights”[1], which I refer to as “pre-issuance damages.”   Under the statute,

a patent shall include the right to obtain a reasonable royalty from any person who, during the period beginning on the date of publication of the application . . .  and ending on the date the patent is issued–(A)(i) makes, uses, offers for sale, or sells in the United States the invention as claimed in the published patent application or imports such an invention into the United States . . . and (B) had actual notice of the published patent application.

The statute further requires that the patented invention be “substantially identical to the invention as claimed in the published patent application.”  Although actual notice is required, the statute does not appear to require any affirmative act by the patentee to provide that notice.

The action here involves Rosebud’s allegations against Adobe for infringing its U.S. Patent No. 8,578,280.  Prior to the present lawsuit, Rosebud had previously sued Adobe for infringing the two additional applications – the ‘parent’ and ‘grandparent’ of the ‘280 patent.  At the time of the prior lawsuit, the application leading to the ‘280 patent had already published. However, Rosebud did not introduce any evidence showing that Adobe had particular knowledge of the published application.  Instead, Rosebud presented circumstantial evidence that: (1) Adobe had actual notice of the predecessor patent that shared an identical specification (Adobe was sued for infringing the parent/grandparent and it was cited by an examiner as prior art against Adobe) (2) Adobe followed Rosebud products, based upon confidential internal Adobe emails; and (3) standard practice in the industry” suggest that Adobe’s counsel knew of the published application that resulted in the ‘280 patent.

Although the Federal Circuit agreed that circumstantial evidence could prove actual notice, the evidence presented here was insufficient to lead to that conclusion.  Further, the court reiterated that proof of “constructive notice” is insufficient to prove actual notice.

Rosebud attempted to the SynQor decision regarding pre-suit damages for inducement that require “actual knowledge” of the asserted patent.  In that case, the court approved of jury instructions that asked whether “Defendants knew or should have known” that its actions would induce actual infringement and had “reason to be aware of the existence of the patent.”  In the case, the holding of actual knowledge (affirmed on appeal) was based upon (1) marking of products with the parent’s patent number; (2) defendant’s effort’s to imitate SynQor’s products; and some evidence of patent monitoring by the defendant.   In Rosebud, the Federal Circuit did not cite or refer to this SynQor analysis.

I’ll pause here to suggest that Adobe got away with something here – It is unbelievable to me that Adobe’s counsel did not know of the published application – the sole child application of the patent that was the subject of an infringement lawsuit.

One reason why Adobe won on this issue seems to be that Rosebud delayed its push for discovery and the district court decided the summary-judgment motion before the close of discovery.  Rosebud hade provided a R. 30(b)(6) deposition notice to Adobe on the topic of knowledge of the application, but the deposition had not yet taken place.  On those points, the Federal Circuit found no abuse of discretion:

The district court did not abuse its discretion in granting summary judgment before the close of discovery. Rosebud had notice of Adobe’s intent to file an early motion for summary judgment, and did not oppose this request or indicate at the time that it needed further discovery on issues relevant to the motion. Moreover, Rosebud did not serve its Rule 30(b)(6) deposition notice or its subpoenas on Adobe’s outside counsel until several weeks after it received Adobe’s motion for summary judgment. It appears that Rosebud delayed filing much of its discovery until after it received Adobe’s motion for summary judgment, without informing Adobe or the court that such discovery might be necessary. Given this timing, we see no abuse of discretion in the district court’s action.

No pre-issuance damages for Rosebud.

= = = = =

[1] There is already a substantial amount of confusion regarding the filing of provisional patent applications, and Section 154(d) has nothing to do with provisional applications other than borrowing the name.

Pending Supreme Court Patent Cases 2016 (February 3 Update)

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by Dennis Crouch

With Washington DC snowed-in, action within the Supreme Court has also been somewhat slow.  Briefing is now complete in ePlus v. Lawson. In that case, a district court originally held an adjudged infringer in contempt-of-court for refusing to comply with its injunction order. Following the contempt order, the USPTO independently cancelled the patent claims and, at that point, the Federal Circuit vacated both the injunction and the contempt order. ePlus presents the following questions:

1. Whether civil contempt of a permanent injunction order that has been affirmed on appeal and is binding on the litigants under the law of judgments, may be set aside based on a legal development that came after both the permanent injunction and the contumacious conduct, and that did not call into question the correctness of the injunction when it was entered.
2. Whether, under Plaut v. Spendthrift Farm, 514 U.S. 211 (1995), the PTO, an administrative agency, may issue an order that retroactively overrides a federal court’s judgment on a question of law that is not subject to further judicial review, so long as some other part of the litigation is pending.

BIO/PhRMA filed a brief in support of the petition.  The ePlus case is one of several challenging the structure of administrative review proceedings running in parallel with court litigation.  William Jay (Goodwin Proctor) is representing ePlus with Mark Perry (Gibson Dunn)  on the other side.

Oral arguments for the parallel willfulness cases of Halo and Stryker are set for February 23, 2016.  The cases are consolidated to a single one-hour hearing. The attorneys for Halo/Stryker will chose a representative who gets 20-minutes; the US Department of Justice (who generally supports the Halo/Stryker position) will have 10-minutes of oral arguments; and Pulse/Zimmer will choose an attorney for a 30-minute opposition.  For those attending, the other case being heard that day is the criminal case of Taylor v. US involving the Hobbs Act that creates federal criminal liability for “interference with commerce by threats of violence.” 18 U.S.C. 1951.  The question is whether the required element of interstate commerce must be proven beyond a reasonable doubt in order to obtain a criminal conviction.

A new petition for certiorari has been filed in Cooper v. Lee, No. 15-955 (whether IPRs violate Separation of Powers).  The petition by Robert Greenspoon links itself with the Cuozzo challenge — noting that Cuozzo raises the “smaller issue” while Cooper raises “larger issues.”

Other new petitions include a filing from Joao Bock Transaction Systems, LLC v. Jack Henry & Associates, Inc., No. 15-974 (defining an abstract idea) and Systems, Inc. v. Nordock, Inc., No. 15-978 (design patent damage calculations).  The Federal Circuit decided Joao Bock with a R.36 affirmance (without opinion affirming that claim 30, et. al, of U.S. Patent No. 7,096,003 are invalid as effectively claiming abstract ideas).  Regarding Nordock, although it is not as high profile, its simplicity may make it a better vehicle than Samsung v. Apple for challenging design patent damage calculations. In any event Nordock’s timing is good and I would expect that the court will at least withhold judgment until it decides whether to grant certiorari in Samsung v. Apple.

1. Petitions Granted:

2. Petitions Granted with immediate Vacatur and Remand (GVR)

3. Petitions for Writ of Certiorari Pending:

  • Post Grant Admin: Cooper v. Lee, No. 15-955 (whether IPRs violate Separation of Powers).
  • Post Grant Admin: Achates Reference Publishing, Inc. v. Apple, Inc., et al., No. 15-842 (IPR institution decisions unreviewable, even when addressed in a final written decision by PTAB)
  • Post Grant Admin: Interval Licensing LLC v. Michelle K. Lee, No. 15-716 (Can the Patent and Trademark Office appropriately apply the “broadest reasonable interpretation” standard in construing patent claims in post-grant validity challenges?)
  • Design Patents: Samsung Electronics Co. v. Apple Inc., No 15-777 (design patent scope and damages calculation)
  • Design Patents: Systems, Inc. v. Nordock, Inc., No. 15-978 (design patent damage calculations – similar issues as Samsung v. Apple).
  • Inducement: Life Technologies Corporation, et al. v. Promega Corporation, No. 14-1538 (whether an entity can “induce itself” under 271(f)(1))(CVSG, awaiting government brief)
  • Inducement: Arthrex, Inc. v. Smith & Nephew, Inc., et al., No. 15-559 (Commil re-hash – if actions were “not objectively unreasonable” can they constitute inducement?)
  • Claim Construction: Universal Lighting Technologies, Inc., v. Lighting Ballast Control LLC, No. 15-893 (intrinsic vs extrinsic evidence for claim construction).
  • Preclusion or Jurisdiction: Vermont v. MPHJ Technology Investments, LLC, No. 15-838 (Federal court jurisdiction in anti-troll consumer protection case)
  • Preclusion or Jurisdiction: Alexsam, Inc. v. The Gap, Inc., No. 15-736 (appellate jurisdiction over patents that were dropped from case pre-trial)
  • Preclusion or Jurisdiction:
    ePlus, Inc. v. Lawson Software, Inc., No. 15-639 (what happens with a finally-determined permanent injunction after PTO cancels the patent claim?)
  • Preclusion or Jurisdiction: Biogen MA, Inc. v. Japanese Foundation for Cancer Research, et al., No. 15-607 (Whether AIA eliminated federal district courts’ jurisdiction over patent interference actions under 35 U.S.C. § 146.)
  • Eligibility Challenges: Retirement Capital Access Management Company, LLC v. U.S. Bancorp, et al., No. 15-591 (Whether subject matter eligibility under 35 U.S.C. § 101 is a ground specified as a condition for patentability under 35 U.S.C. § 282(b)(2))
  • Eligibility Challenges: Joao Bock Transaction Systems, LLC v. Jack Henry & Associates, Inc., No. 15-974 (defining an abstract idea)
  • Claim Construction: Media Rights Technologies, Inc. v. Capital One Financial Corporation, et al., No. 15-725 (Claim Construction: whether there a strong presumption against construing terms as subject to 35 U.S.C. § 112p6 that do not recite the term “means.”)
  • Patent Term Adjustment Dispute: Daiichi Sankyo Company, Ltd. v. Michelle K. Lee, No. 15-652 (Patent Term Adjustment – whether the 180 day deadline applies; could bleed into admin law issues)
  • Damages: STC, Inc. v. Global Traffic Technologies, No. 15-592 (Whether marking the packaging of a patented article with patent notification satisfies the marking provision of 35 U.S.C. § 287(a) where the patented article itself is undisputedly capable of being marked.)
  • Damages: Innovention Toys, LLC v. MGA Entertainment, Inc., et al., No. 15-635 (Stryker/Halo follow-on – potential wait-and-see)
  • Low Quality Brief: Morales v. Square, No. 15-896 (eligibility under Alice)

3. Petitions for Writ of Certiorari Denied:

  • Alps South, LLC v. The Ohio Willow Wood Company, No. 15-567
  • Allvoice Developments US, LLC v. Microsoft Corp., No. 15-538
  • OIP Technologies, Inc. v. Amazon.com, Inc., No. 15-642
  • Fivetech Technology Inc. v. Southco, Inc., No. 15-381
  • Tyco Healthcare Group LP, et al. v. Ethicon Endo-Surgery, Inc., No. 15-115
  • Nautilus, Inc. v. Biosig Instruments, Inc., No. 15-561
  • Chunghwa Picture Tubes, Ltd., et al. v. Eidos Display, LLC, et al., No. 15-288
  • Kenneth Butler, Sr. v. Balkamp Inc., et al., No. 15-273
  • Arthrex, Inc. v. KFx Medical Corporation, No. 15-291
  • Daiichi Sankyo, Inc., et al. v. Apotex Inc., No. 15-281
  • Mylan Pharmaceuticals Inc. v. Apotex Inc., No. 15-307
  • Luv N’ Care, Ltd. v. Munchkin, Inc., No. 15-242
  • Automated Merchandising Systems, Inc. v. Michelle K. Lee, Director, United States Patent and Trademark Office, No. 15-326
  • I/P Engine, Inc. v. AOL Inc., et al., No. 14-1358
  • Interval Licensing LLC v. AOL Inc., et al., No. 14-1362
  • Content Extraction and Transmission LLC v. Wells Fargo Bank, National Association, et al., No. 14-1473
  • W.L. Gore & Associates, Inc. v. Bard Peripheral Vascular, Inc., et al., No. 15-41
  • NetAirus Technologies, LLC v. Apple Inc., No. 14-1353
  • Muffin Faye Anderson v. Kimberly-Clark Corporation, No. 14-10337
  • MobileMedia Ideas LLC v. Apple Inc., No. 15-206
  • SpeedTrack, Inc. v. Office Depot, Inc. et al., No. 15-461 (Kessler doctrine)
  • Rodney K. Morgan, et al. v. Global Traffic Technologies LLC, No. 15-602
  • Lakshmi Arunachalam v. JPMorgan Chase & Co., No. 15-691

4. Prior versions of this report:

WHAT YOU NEED TO KNOW ABOUT THE AMENDED DEFEND TRADE SECRETS ACT

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Guest post by James Pooley.  Pooley is the former Deputy Director General of WIPO. He recently testified at the Senate Judiciary Committee in favor of the Defend Trade Secrets Act. See his earlier Patently-O guest posts . He wishes to thank Prof. Peter Menell for contributing to this post.

Last Thursday the Senate Judiciary Committee favorably voted out the Defend Trade Secrets Act (“DTSA”), which would amend the Economic Espionage Act (“EEA”) to give trade secret plaintiffs the option of filing civil claims for misappropriation directly in federal court. The vote reflected broad bipartisan support (there are now 27 cosponsors in the Senate) and followed a substantive hearing on December 2 at which I had the privilege to testify. Since that time a number of senators engaged in discussions about how to improve the legislation. The result was a series of amendments, all of which have been adopted. Because the bill is likely to proceed quickly at this point, it would be useful to describe what has changed and what those changes could mean for practitioners and companies.

The notable amendments generally fall into four categories: (1) harmonizing with existing standards under the Uniform Trade Secrets Act (“UTSA”); (2) tightening up the process for preventive seizure of secrets; (3) ensuring that injunctions do not unreasonably restrain employee mobility; and (4) providing an exception for whistleblowers who disclose confidential information in order to report a crime to the authorities. The first three of these are laid out in a “Substitute” for S.1890, and the fourth is described in a separate amendment proposed by Senators Patrick Leahy and Chuck Grassley.

HARMONIZING WITH THE UTSA

Bringing the DTSA in closer alignment with familiar provisions of the UTSA, the amendments have slightly changed the definition of a trade secret. The EEA had previously required that qualifying information not be known or readily ascertainable to “the public,” while the UTSA had used the phrase “persons who can obtain economic value from its disclosure or use.” While it was never clear whether this difference would actually matter when applied in litigation, the UTSA formulation has now been adopted, so that the two laws are congruent. (Some still point to the different list of examples of protectable information in the UTSA and EEA definitions, but this has never been shown to make any difference in the broad meaning of the common basic term “information.”)

The amendments have also changed the term of the statute of limitations from five years to three. Although a number of states have designated longer periods (from four to six years), this brings the DTSA into line with the UTSA as it was originally proposed. In the same vein, the enhanced damages provision, which had allowed a punitive assessment up to three times the compensatory award, has been adjusted to match the provisions of the UTSA at twice the amount of compensatory damages.

SEIZURE PROVISIONS

The ex parte seizure provisions have been substantially tightened, providing more assurance that this remedy will not be abused. First, the bill now expressly refers to seizure as available only in “extraordinary circumstances.” Second, an ambiguity identified by Senator Whitehouse at the December hearing has been resolved by clarifying that the target of the seizure must be in “actual” possession of the trade secret and property to be seized. Third, access to the seized material is more limited: only federal law enforcement can perform the seizure, with assistance as necessary from state authorities and an independent technical expert, but the applicant is barred. And following the seizure, the court may have the material sorted by a special master who, like the technical expert, must be under confidentiality restrictions. Fourth, in issuing its order the court must direct when the seizure may be carried out, and whether force may be used to access locked areas. Finally, in a new section the bill requires the Federal Judicial Center to develop “best practices” for seizure and handling of electronically stored information.

MOVING ON FROM “INEVITABLE DISCLOSURE”

One of the most interesting and potentially impactful provisions of the amendments concerns the preservation of employee mobility. Recognizing the critical importance of preventive relief to a right that can be so easily destroyed, the UTSA has always permitted injunctions against “threatened misappropriation,” and the same language is used in the DTSA. But because the DTSA would establish a national standard, some expressed fears that the “inevitable disclosure doctrine,” which has been expressly rejected in some states, might be used by federal judges to block an employee from taking a new job. The draft bill had tried to address this concern with a proviso that no injunction could “prevent a person from accepting an offer of employment under conditions that avoid actual or threatened misappropriation,” but this did not quiet the controversy.

To understand the nature of the dispute we need to wind back the clock to 1995, when the Seventh Circuit issued its decision in Pepsico v. Redmond, 54 F.3d 1262 (7th Cir. 1995), affirming a five-month injunction against a former marketing executive who had lied about his plans to take an identical position with another company that was about to launch a directly competitive product. Although the court had emphasized the executive’s bad behavior, it also summarized that “defendant’s new employment will inevitably lead him to rely on the plaintiff’s trade secrets.” Commentators promptly wrenched this phrase from its context and warned that Pepsico could be used to justify enjoining someone from taking a job just because of what he or she knew. This is how the so-called “inevitable disclosure doctrine” was born.

Having (mis)construed Pepsico this way, it was easy for some to make it a target, raising the alarm that “inevitable disclosure” was the equivalent of a post-hoc judicially-imposed non-compete agreement. Perhaps unsurprisingly, the backlash was particularly strong in California, where employees are protected by a robust public policy against restrictive covenants. In Whyte v. Schlage Lock, 101 Cal. App. 4th (2002), an intermediate appellate court issued a blistering condemnation of the doctrine and flatly declared it unacceptable under California law. It did this in response to the plaintiff’s argument that the doctrine should be available as an “alternative” to proving “threatened misappropriation.” Just what kind of evidence might be enough to establish a threat under the UTSA was not addressed. However, that question was answered several years later in another appellate decision, Central Valley General Hospital v. Smith, 162 Cal. App. 4th 501 (2008). The court said that evidence of bad behavior, like a prior misappropriation, an intention to misappropriate, or a refusal to return confidential material, would be enough to supply the inference.

In the meantime, however, the ideological battle lines had been drawn, and the forces mustering against inevitable disclosure, reinforced by many academic and popular articles, were determined to stamp it out if possible, or at least to protect their own jurisdiction from infection. The fervor of the debate apparently distracted everyone from critically examining what “inevitable disclosure” meant, or how it was actually being applied in places that didn’t have a reflexive opposition to it. It turns out that the doctrine was almost never used as the opponents assumed, that is where the only threat indicator was how much the employee knew. In fact, in those cases judges typically explained their denials by reminding the plaintiff that if all this information had been so critically important they could have demanded that the employee sign a non-compete agreement.

Following last December’s hearing, and in the wake of continuing concerns over the relevant DTSA language, I reached out to my friend Mark Lemley, professor at Stanford Law School. Mark and I had worked together before on issues relating to California’s “high velocity” labor market, and after some discussion about what appeared to be this false conflict over the inevitable disclosure doctrine, we suggested to Senate staff that the issue could better be reframed around the kind and quality of evidence that should be required – under the UTSA or the DTSA – to prove “threatened misappropriation,” and that the inquiry should focus on the employee’s behavior, not merely on how much they knew.

Ultimately, Senator Dianne Feinstein proposed the relevant portion of the DTSA amendments, which now allows an order against threatened misappropriation, provided that it not “prevent a person from entering into an employment relationship, and that conditions placed on such employment shall be based on evidence of threatened misappropriation and not merely on the information the person knows.” (In a belt-and-suspenders approach, the DTSA also includes a directly related amendment proposed by Senator John Cornyn that the order may not “otherwise conflict with an applicable State law prohibiting restraints on the practice of a lawful profession, trade, or business.”)

The new language on threatened misappropriation has at least two very positive effects. First, it makes express the apparent consensus from the courts that “threatened” misappropriation may not be established merely by the importance of the information that someone knows. This makes sense not only as a matter of public policy but also of evidence law. Second, it relieves us from the energy-draining debate over “inevitable disclosure,” which was pretty much a straw man that people loved to punch. Courts will not have to consider whether a jurisdiction accepts or rejects this abstract “doctrine,” but instead will ask: what is the actual evidence from which we should conclude that this person (or their new employer) can’t be trusted to honor the integrity of the plaintiff’s trade secrets? Outcomes in particular cases should not be substantially different.

WHISTLEBLOWER PROTECTION

A second major amendment was offered separately by Senators Leahy and Grassley, addressing a new, and in my opinion long neglected, question: how do we assure that employees and contractors who come upon evidence of illegal activity, but who are constrained by nondisclosure agreements from communicating those facts, can safely speak to their lawyers and to law enforcement officials? One might think that this question would already have been reliably answered by now, but it hasn’t been. In a wide-ranging and thoughtful on the subject, Tailoring a Public Policy Exception to Trade Secret Protection, Professor Peter Menell of the UC Berkeley School of Law explores not only the sparse, murky, and sometimes contradictory legal authority, but also the psychology of whistleblowing and the importance of a clear “safe harbor” for those who are thinking of reporting wrongdoing. As he notes, “[t]he same routine non-disclosure agreements that are essential to safeguarding trade secrets can be and are used to chill those in the best position to reveal illegal activity.”  As a practical matter, employees and contractors face a stark dilemma, where the upside is a clear conscience (and possibly a reward for uncovering fraud) but the downside can involve painful and relentless retaliation as well as personal, financial, legal, and professional risk. Insulating the whistleblower from costly trade secret exposure serves larger societal interests in law enforcement, tax compliance, and surfacing and deterring securities fraud and fraud against the government..

Yet because of the difficulty of enforcing trade secrets once they leak, companies risk potentially significant losses if employees or contractors mistakenly disclose legitimate trade secrets—i.e., those that do not reveal illegal conduct. Peter’s article provided a balanced and effective solution to this dilemma that protects whistleblowers without jeopardizing disclosure of legitimate trade secrets. The proposed safe harbor insulates whistleblowers and their counsel from trade secret liability for disclosing trade secret information in confidence to government officials or as part of a lawsuit alleging retaliation by an employer provided that the information is filed under seal. (The federal Trade Secrets Act, 18 U.S.C. § 1905, generally prohibits governmental employees from disclosing trade secrets.) The proposed statutory exception to trade secret liability provides clear assurance to potential whistleblowers that they do not violate their NDAs merely by consulting legal counsel regarding reporting allegedly illegal conduct to a responsible government official through a confidential channel. In addition, this safe harbor insulates lawyers advising potential whistleblowers about their options and serving as conduits for presenting evidence of allegedly illegal conduct to the government. The efficacy of the safe harbor is enhanced by requiring that NDAs prominently include notice of the law reporting safe harbor to ensure that those with knowledge of illegal conduct are aware of this important public policy limitation on NDAs and exercise due care with trade secrets in reporting such activity.

After Peter’s article appeared just as the DTSA was gaining momentum in the fall, the Senate staff reached out to him to help craft appropriate language. The Leahy/Grassley amendment provides immunity under federal or state law against any claim for violation of an individual’s nondisclosure obligations for disclosure, made in confidence, to (a) an attorney or government official, for the purpose of reporting or investigating a violation of law, or (b) a filing made under seal in a lawsuit “or other proceeding.” In order to ensure that employees (a term that also includes contractors) know about their rights, employers are required to give an appropriate notice in the nondisclosure agreement (as is often done now with state inventor statutes), although this can be a reference to the company’s separate policy document. A failure to comply with the notice provision would block any award of attorneys’ fees or enhanced damages against an employee under the DTSA. Significantly – and this point was emphasized by Senator Feinstein at the hearing on January 28 – the whistleblower protection would not extend to any otherwise improper acts by the employee, such as hacking information in violation of the Computer Fraud and Abuse Act.

CONCLUSION

The DTSA in its current form is a strong bill, meeting its original objective of giving plaintiffs access to federal courts, which are better equipped to handle cases of interstate or international misappropriation of trade secrets. In my opinion, all reasonable objections have been adequately addressed, and there are sufficient protections built in against abuse. Moreover, passage of this bill would substantially improve the environment for both plaintiffs and defendants, by making trade secret litigation more predictable, establishing a national standard for issues like “threatened misappropriation,” and striking the right balance of interests to promote responsible efforts by whistleblowers to report possible violations of law.

REPORT AND ANALYSIS OF RECENT AMENDMENTS TO S. 1890 (The Defend Trade Secrets Act 2016)

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By Professor Sharon K. Sandeen, Mitchell Hamline School of Law  

The Defend Trade Secrets Act (S. 1890) passed out of the U.S. Senate Committee on the Judiciary today, but not before it was amended to address a number of concerns that were voiced by opponents over the past two years. The following is my quick analysis of the changes.  Note that there were actually two sets of amendments to the legislation. The so-called manager’s amendment (labeled “S. 1890 Substitute Amendment”) and amendments offered by Senators Leahy and Grassley (labeled “Leahy-Grassley1”). The following page and line references are to the Substitute Amendment. The Leahy-Grassley amendments are discussed thereafter.  [S.1890 Substitute Amendment][Leahy-Grassley1].

1. S. 1890 Substitute Amendment

Page 1:

The legislation is now to be known as the “Defend Trade Secrets Act of 2016” instead of “2015.”

Page 2, line 2:

“Misappropriated” added and language “aggrieved by misappropriation” deleted

Sandeen Comment: This change was apparently made in response to expressed concerns that “aggrieved” might be introducing a new concept of wrongdoing into trade secret law. Since “misappropriation” is a defined term in the DTSA (copied from the UTSA), it is better to stick with that language.

Page 2, lines 11-12:

With respect to the ex parte civil seizure remedy, the language “but only in extraordinary circumstances” was added.

Sandeen Comment: I am not sure what this language adds other than to emphasize the fact that this remedy should rarely be granted. But that begs the question: Why is the remedy needed at all if it will rarely or ever be granted? No one has ever explained to me why egregious cases that might justify such a remedy would not be championed by the U.S. Department of Justice in a criminal case. But there is a clue in later amendments to the EEA criminal provisions that give trade secret owners standing to assert secrecy concerns in such cases. (See report on new Section 3 below).

Page 2, lines 24-25:

The language “another form of equitable relief” was added to limit the circumstances under which an ex parte seizure order could be granted.

Sandeen Comment: As I understand the limitations built into the civil seizure provision, such an order is not to be granted unless other available equitable relief is inadequate. What seems to be lost in the discussion of all forms of equitable relief is that there are legal remedies available, including potential exemplary damages. Typically, equitable relief is not available when such is the case. In this regard, I wonder if “another form of equitable relief” would include a royalty injunction.

Page 4, line 5 et seq:

A new section (V) has been created (and subsequent subsections re-lettered accordingly) to highlight that “the person against whom seizure would be ordered” must have actual possession of both the trade secret and the property to be seized.

Sandeen Comment: While seemingly limiting the scope of the civil seizure remedy, this addition confirms what the opponents of DTSA were afraid of: that the civil seizure remedy can be used to seize property in addition to the actual trade secrets. While the person against whom seizure would be ordered must be shown to have either misappropriated a trade secret or conspired to misappropriate a trade secret, this language is actually much broader than it may seem on the surface. This is because the definition of misappropriation under the DTSA (and the UTSA) can apply to third-parties who were not directly involved in the initial misappropriation, provided they have the requisite (but obviously later acquired) knowledge. For instance, new employers.

Page 5, line 13:

Deletes the language “that are unrelated to the trade secret that has allegedly been misappropriated” in describing the elements of any civil seizure order.

Sandeen Comment: This was apparently intended to limit the scope of a civil seizure order, which is a good thing if it works.

Page 5, line 16 – page 6, line 11: 

Uses “prohibiting” instead of “restricting” and makes other changes to the provision concerning the required content of a civil seizure order, the most significant change being the addition of a new sub section (iv) which requires the court to “provide guidance to law enforcement officials” concerning how they are to execute the order.

Sandeen Comment: This language was undoubtedly added to address concerns that Senator Sheldon Whitehouse raised during the hearing on DTSA that was held before the U.S. Senate Committee on the Judiciary in December of 2015. His principal concern related to the use of force in the event that the person against whom seizure would be ordered was uncooperative.  

Page 7, line 13 – page 8, line 22:

The “Materials in Custody” provision was re-labeled and expanded, particularly with respect to the newly labeled sub-section “Storage Medium” and new provisions labeled “Protection of Confidentiality” and “Appointment of a Special Master.”

Sandeen Comment: The added language was undoubtedly added in an attempt to address concerns about the scope of any civil seizure order (including the very real possibility that property not relevant to the trade secret case might be seized), the handling of seized information, and the practical reality that federal court staff is ill equipped to manage such materials. Nothing in the legislation indicates who will pay for the services of a Special Master.

Page 9, line 2-15:

Deleted the language that used to allow state and local officials to execute a civil seizure order and instead specifies that a civil seizure order must be executed by federal law enforcement personnel.  State and local law enforcement personnel can be involved, but they cannot be involved in the actual seizure of property. Further, the court may allow for the use of a technical expert to assist federal law enforcement officials in executing the civil seizure order, again without specifying who will pay for the technical expert.

Sandeen Comment: These amendments address some of the concerns that have been expressed about how a civil seizure order will be executed and how it can be done without including the legitimate business information of the “person against whom civil seizure is ordered.” However, the more that efforts are made to address the concerns of critics, the more the risks of such a remedy are revealed. If this remedy will be used very infrequently as its proponents argue, Congress should ask if the marginal benefits of this remedy are worth its tremendous costs, particularly given the fact that: (1) criminal prosecution and seizure are possible in egregious cases; and (2) plaintiffs in trade secret cases have very robust legal remedies in the event of the loss of trade secrecy.

Page 11, line 6 et seq:   

The standing to file a motion for encryption has been broadened to include both parties to the litigation and “a person who claims an interest in the subject matter seized.”

Sandeen Comment: This is a positive development, but obviously it acknowledges that non-parties may be affected by a civil seizure order and be forced to hire an attorney to protect their interests.

Page 11, line 23 – page 12, line 8: 

The provisions concerning the effect of injunctions on employment were re-worked, re-lettered and expanded. First, the original language was amended so that any injunction must “be based upon evidence of threatened misappropriation and not merely on the information a person knows.” Second,   the legislation now includes language which states that an injunction cannot “otherwise conflict with an applicable State law prohibiting restraints on the practice of a lawful profession, trade, or business.”

Sandeen Comment: This is a very positive development that makes it clear that State law governing restrictive covenants, including non-compete agreements, will continue to apply as limits on the scope of injunctive relief. More specifically, it rejects the worst aspects of the inevitable disclosure doctrine which many states (most notably California) have found to be inconsistent with their laws against restrictive covenants, particularly those that restrict employee mobility. Issues of choice of law remain, of course. 

Page 13, line 9: 

The measure of potential exemplary damages has been lowered to 2 times instead of 3 times.

Sandeen Comment: This is a positive development, particularly for the proponents of the DTSA who claim that its primary purpose is greater uniformity in trade secret law. The new language is consistent with the UTSA. However, it appears that this change may have been part of a compromise since (as discussed below), the criminal penalties for a violation of the EEA have been increased.

Page 13, line 23: 

The statute of limitations has been lowered to 3 years from 5 years.

Sandeen Comment: This change also makes the statute of limitations consistent with the language of the UTSA (although some UTSA states have not adopted the statute of limitations specified in the UTSA). This is a positive development because businesses can now be more certain when threats of trade secret litigation will end. Since the statute of limitation follows the discovery rule, plaintiffs will have plenty of time to bring a lawsuit once the facts giving rise to such claims are discovered.

Page 14, line 8:

The definitions provisions of the DTSA must be read alongside the existing definition provisions of the EEA, which is where you will find the definition of a trade secret. A change from earlier versions of the legislation is that the word “public” in 18 U.S.C. §1839 (3)(B)  (the definition of a trade secret) will be substituted with “another person who can obtain economic value from the disclosure or use of the information.”

Sandeen Comment: This is another positive development that makes the definition of a trade secret under the EEA (as amended) more consistent with the language of the UTSA. Without this amendment, the EEA might be interpreted to include information that is in the public domain under state law. Not changed in the EEA to be consistent with the UTSA is the first part of the definition of a trade secret which, under the EEA, includes a litany of types of information that might qualify for trade secret misappropriation. However, this greater specificity always struck me as necessary since the EEA was initially, and will remain in part, a criminal statute.

Page 17, line 21 – Page 19, line 2:   

A new Section 3 was added titled “Trade Secret Theft Enforcement” and old Section 3 was re-labeled as Section 4. This section increases the penalties for a violation of 18 U.S.C. §1832 from $5,000,000 to the greater of $5,000,000 or 3 times the value of the stolen trade secrets to the organization, including the costs of reproducing the trade secrets. Second, it adds a new provision titled “Rights of Trade Secret Owners” that essentially allows trade secret owners to be heard in criminal court concerning the need to protect their trade secrets. Lastly, it amends 18 U.S.C. §1961 (the RICO statute) to add a violation of the EEA as a predicate act.

Sandeen Comment: At first blush, these changes seem to more directly address the concerns that motivated the proposed legislation and should have been tried first before risking the disruption of U.S. trade secret law by creating a federal civil cause of action for trade secret misappropriation. What they reveal is the concern that trade secret owners have about the effectiveness of federal criminal prosecution to stop (or punish) the most egregious cases of trade secret misappropriation. They also reflect the risks to trade secrets posed by the public nature of criminal prosecutions. Robust criminal laws are already on the books to punish those who would engage in the most egregious forms of trade secret misappropriation, but trade secret owners might be hesitant to report such crimes out of fear that their trade secrets might be lost in the process. Allowing trade secret owners to express their confidentiality concerns in a criminal court seems like a good idea. More study of the implications of the RICO provision is needed, particularly with respect to the potential for the over assertion of criminal prosecutions which was a major concern of business interests when the EEA was first adopted.

Page 22, line 23 et seq.:

The re-numbered “Sense of Congress” provision (now Section 5) added point (4) concerning the civil seizure order and Congress’ sense that the need for such a remedy should be balanced  against the risk of interrupting the business of third parties and the legitimate interests of the party accused of wrongdoing.

Sandeen Comment: While this is helpful language, it is interesting that this language is included in the “Sense of Congress” provision and not in the text of the civil seizure provision itself. While Congress is at it, I would urge it to add point (5) to the “Sense of Congress” and state that the DTSA should be interpreted and applied in a manner that is consistent with the commentary to the UTSA.

Page 23, Line 4 et seq:  

New Section 6 was added titled “Best Practices” to require the Federal Judicial Center “using existing resources” to, within two years, recommend best practices related to civil seizure orders.

Sandeen Comment: Again, this indicates that concerns about the abuse of civil seizure orders remain.

2. Leahy-Grassley Amendments

These amendments would add a section to the DTSA, in a place to be determined, titled “Immunity from Liability for Confidential Disclosure of a Trade Secret or in a Court Filing.” This new section is designed to protect whistleblowers from liability for the disclosure of trade secrets to the government and in the context of retaliation lawsuits, provided that steps are taken by the whistleblower to keep such information confidential. It also would require employers to give notice of such immunity to employees, thereby requiring an exception to confidentiality provisions.

Sandeen Comment: This is a very positive development for those who are concerned that the assertion of trade secret rights can be used to prevent the timely disclosure of information that is needed by law enforcement authorities. However, it only applies where there is an alleged violation of law and not, more broadly, in situations where threats to public health exist, for instance.  

= = = = =

[Prior Patently-O Posts on the DTSA]

Pending Supreme Court Patent Cases 2016 (January 20 Update)

Patent, , , , , , , , ,

by Dennis Crouch

This week, the Supreme Court granted certiorari in the administrative patent review case of Cuozzo v. Lee. Cuozzo raises the following two questions: (1) Whether the court of appeals erred in holding that, in inter partes review (IPR) proceedings, the Patent Trial and Appeal Board may construe claims in an issued patent according to their broadest reasonable interpretation rather than their plain and ordinary meaning; and (2) whether the court of appeals erred in holding that, even if the Board exceeds its statutory authority in instituting an IPR proceeding, the Board’s decision whether to institute an IPR proceeding is judicially unreviewable. The petitioner (Cuozzo) now has forty-five days to file its opening merits brief with amici briefs due one week later.

The other major patent issue before the court this term involves the enhanced damages questions raised in the parallel cases of Halo and Stryker. Oral arguments are set for those cases for February 23, 2016. Although not a party, the Solicitor General has requested permission to participate in oral argument as amicus curiae and for divided argument filed. The US Government generally supported the petitioners’ position that the Federal Circuit has unduly limited the availability of enhanced damages for willful infringement and other egregious acts by an adjudged infringer.

This week, the Supreme Court also issued a GVR in Medtronic v. NuVasive – ordering the Federal Circuit to reconsider whether the mens rea evidence presented was sufficient to prove active inducement under Commil.

1. Petitions Granted:

2. Petitions Granted with immediate Vacatur and Remand (GVR)

3. Petitions for Writ of Certiorari Pending:

  • Design Patents: Samsung Electronics Co. v. Apple Inc., No 15-777 (design patent scope and damages calculation)
  • Inducement: Life Technologies Corporation, et al. v. Promega Corporation, No. 14-1538 (whether an entity can “induce itself” under 271(f)(1))(CVSG, awaiting government brief)
  • Inducement: Arthrex, Inc. v. Smith & Nephew, Inc., et al., No. 15-559 (Commil re-hash – if actions were “not objectively unreasonable” can they constitute inducement?)
  • Post Grant Admin: Achates Reference Publishing, Inc. v. Apple, Inc., et al., No. 15-842 (IPR institution decisions unreviewable, even when addressed in a final written decision by PTAB)
  • Post Grant Admin: Interval Licensing LLC v. Michelle K. Lee, No. 15-716 (Can the Patent and Trademark Office appropriately apply the “broadest reasonable interpretation” standard in construing patent claims in post-grant validity challenges?)
  • Claim Construction: Universal Lighting Technologies, Inc., v. Lighting Ballast Control LLC, No. 15-893 (intrinsic vs extrinsic evidence for claim construction).
  • Preclusion or Jurisdiction: Vermont v. MPHJ Technology Investments, LLC, No. 15-838 (Federal court jurisdiction in anti-troll consumer protection case)
  • Preclusion or Jurisdiction: Alexsam, Inc. v. The Gap, Inc., No. 15-736 (appellate jurisdiction over patents that were dropped from case pre-trial) (New Petition)
  • Preclusion or Jurisdiction:
    ePlus, Inc. v. Lawson Software, Inc., No. 15-639 (what happens with a finally-determined permanent injunction after PTO cancels the patent claim?)
  • Preclusion or Jurisdiction: Biogen MA, Inc. v. Japanese Foundation for Cancer Research, et al., No. 15-607 (Whether AIA eliminated federal district courts’ jurisdiction over patent interference actions under 35 U.S.C. § 146.)
  • Eligibility Challenges: Retirement Capital Access Management Company, LLC v. U.S. Bancorp, et al., No. 15-591 (Whether subject matter eligibility under 35 U.S.C. § 101 is a ground specified as a condition for patentability under 35 U.S.C. § 282(b)(2))
  • Claim Construction: Media Rights Technologies, Inc. v. Capital One Financial Corporation, et al., No. 15-725 (Claim Construction: whether there a strong presumption against construing terms as subject to 35 U.S.C. § 112p6 that do not recite the term “means.”)
  • Patent Term Adjustment Dispute: Daiichi Sankyo Company, Ltd. v. Michelle K. Lee, No. 15-652 (Patent Term Adjustment – whether the 180 day deadline applies; could bleed into admin law issues)
  • Damages: STC, Inc. v. Global Traffic Technologies, No. 15-592 (Whether marking the packaging of a patented article with patent notification satisfies the marking provision of 35 U.S.C. § 287(a) where the patented article itself is undisputedly capable of being marked.)
  • Damages: Innovention Toys, LLC v. MGA Entertainment, Inc., et al., No. 15-635 (Stryker/Halo follow-on – potential wait-and-see)

3. Petitions for Writ of Certiorari Denied:

  • Alps South, LLC v. The Ohio Willow Wood Company, No. 15-567
  • Allvoice Developments US, LLC v. Microsoft Corp., No. 15-538
  • OIP Technologies, Inc. v. Amazon.com, Inc., No. 15-642
  • Fivetech Technology Inc. v. Southco, Inc., No. 15-381
  • Tyco Healthcare Group LP, et al. v. Ethicon Endo-Surgery, Inc., No. 15-115
  • Nautilus, Inc. v. Biosig Instruments, Inc., No. 15-561
  • Chunghwa Picture Tubes, Ltd., et al. v. Eidos Display, LLC, et al., No. 15-288
  • Kenneth Butler, Sr. v. Balkamp Inc., et al., No. 15-273    
  • Arthrex, Inc. v. KFx Medical Corporation, No. 15-291
  • Daiichi Sankyo, Inc., et al. v. Apotex Inc., No. 15-281
  • Mylan Pharmaceuticals Inc. v. Apotex Inc., No. 15-307
  • Luv N’ Care, Ltd. v. Munchkin, Inc., No. 15-242
  • Automated Merchandising Systems, Inc. v. Michelle K. Lee, Director, United States Patent and Trademark Office, No. 15-326
  • I/P Engine, Inc. v. AOL Inc., et al., No. 14-1358
  • Interval Licensing LLC v. AOL Inc., et al., No. 14-1362
  • Content Extraction and Transmission LLC v. Wells Fargo Bank, National Association, et al., No. 14-1473
  • W.L. Gore & Associates, Inc. v. Bard Peripheral Vascular, Inc., et al., No. 15-41
  • NetAirus Technologies, LLC v. Apple Inc., No. 14-1353
  • Muffin Faye Anderson v. Kimberly-Clark Corporation, No. 14-10337
  • MobileMedia Ideas LLC v. Apple Inc., No. 15-206
  • SpeedTrack, Inc. v. Office Depot, Inc. et al., No. 15-461 (Kessler doctrine)
  • Rodney K. Morgan, et al. v. Global Traffic Technologies LLC, No. 15-602
  • Lakshmi Arunachalam v. JPMorgan Chase & Co., No. 15-691

4. Prior versions of this report:

 
 

Samsung v. Apple: Functional Design Patents and Profit Disgorgement

Patent,

by Dennis Crouch

Six amici briefs have now been filed in support of Samsung’s petition for writ of certiorari in its design patent defense against Apple.  

Law Professor Brief: [SamsungLemley] In a petition primarily drafted by Professors Mark Lemley and Mark McKenna, and filed by Lemley, a group of 37 law professors strongly support Samsung’s position that design patent rights should be severely limited. The brief first looks at design patent scope and argues that design patent rights should only be permitted to cover non-functional and ornamental aspects of a product.  “Crucially, design patents protect only ornamentation. They may not cover the functional aspects of a product.”  As I and others have written, the functionality limitation in design patents is much weaker than that of trademark and copyright law.  The brief argues, however, that those regimes should be squared so that utility patent remain the sole domain of for the protection of functional design elements.  “Giving a design patent owner control over utilitarian features undermines the policy goals of the [trademark] functionality doctrine.”

Regarding damages, the brief argues that entire-profit-disgorgement for design patent infringement “makes no sense in the modern world”,  leads to “absurd results”, is “draconian”, and is not required by the statute.   Remember, the idea here is that Apple is collecting all of Samsung’s profits on its infringing Galaxy phones even though only some of the components of the devices infringe.

Public Knowledge and the Electronic Frontier Foundation: [SamsungPKEFF] PK and the EFF argue that we are likely to move into a world of design-patent-trolls filled with “abusive [design] patent litigation.”  PK also suggest a constitutional crisis – that these high damage awards for design patent infringement may violate the Fifth and Fourteenth Amendments (due process).   For part of their argument, the groups quote my 2010 design patent article where I wrote that  “design patent prosecution is a relatively quick, inexpensive, and assured process without substantive examination as compared with either utility patent prosecution or trade
dress registration.”  From my analysis, they reached the conclusion that “the low-quality patent concerns common with abusive utility patent litigation are even more so present with design patents.”

CCIA: [SamsungCCIA]  Although less-so than PK and EFF, the CCIA is fairly consistent in arguing for narrower patent rights.  Here, the organization makes the argument that entire-profit-disgorgement raises constitutional questions by going beyond the “exclusive Right to their respective … Discoveries.”

Systems, Inc: [SamsungSystems] Longtime patent litigator Philip Mann filed a brief on behalf of Systems who is litigating design patent damages issues.  The brief outlines several examples of how the profit disgorgement rule is having a “very real and accelerating” negative impact on  the business community. The brief cites its own case of Nordock v. Systems as well as Pacific Coast Marine Windshields v. Malibu Boats and Microsoft v. Corel.

Tech Companies: [SamsungTech] A group of oft-patent-defendants, including eBay, Dell, Facebook, Google, HP, and NewEgg joined together in a brief arguing for a narrowed interpretation of ‘article of manufacture’ from Section 289 rather than focusing on the entire retail product.

Marginalized Americans: [SamsungHLF] A set of groups that self-identify as “communities that are marginalized in American society” have filed a brief arguing that these strong design patent rights threaten to raise retail prices and limit access to affordable new technology, including smartphones and internet access.

Guest Post: Why we Need a Seizure Remedy in the Defend Trade Secrets Act

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Guest post by James Pooley.  Pooley is the former Director General of WIPO. He recently testified at the Senate Judiciary Committee in favor of the Defend Trade Secrets Act. See his earlier Patently-O guest post here.

INTRODUCTION

In a recent essay published in the Washington and Lee Law Review Online,[1] Professor Eric Goldman of the Santa Clara University School of Law criticized the ex parte seizure provisions of the Defend Trade Secrets Act (“DTSA”), which is pending before Congress in identical Senate (S.1890) and House (H.R.3326)  bills. In his view, the legislation is unnecessary, unprecedented, and carries an unacceptably high risk of abuse and collateral damage.

I strongly disagree. Trade secrets face far different threats in the digital age, and having federal courts able to intervene immediately in cross-border cases is critical. In exceptional circumstances, impoundment of a secret by the court will do what this sort of remedy has always done: get the property out of the hands of someone who threatens to destroy it or flee the jurisdiction, so that the matter can be heard on notice before the harm occurs. The seizure provisions of the DTSA have been carefully constrained to prevent abuse, to minimize harm, and to discourage any but the most compelling applications.

SEIZURE PREVENTS TRADE SECRET LOSS BEFORE IT HAPPENS

Most trade secret theft can be adequately addressed with preventive orders entered after a noticed hearing. This is because most actors in these cases can be expected to follow the orders of a court, and because our legal tradition values notice and the higher quality of information that is produced by the adversarial process.

Notwithstanding that preference, as we all learned in civil procedure class, courts in extraordinary cases may act without giving notice because of an acute danger to someone or something. This has been true across the range of legal disciplines, including trade secrets, and the majority of state laws, as well as the Federal Rules, have acknowledged this by articulating the high bar that a plaintiff has to meet before any matter can be heard ex parte. While that bar is necessary to ensure the case is exceptional, the flip side of the coin is that the harm to be avoided is irreparable.

Professor Goldman argues that the DTSA will be useless against the thief who plans to hijack information over the Internet, or who is on his way to the airport with the secrets in his pocket. But these scenarios only prove the need for a federal remedy: when a trade secret owner discovers that such a thing is about to occur, he can’t waste time figuring out what some county court might do. If there is a chance that a surprise intervention by law enforcement can prevent the loss, it is a federal court that is in the best position to respond and to deliver process that works across state lines. Like a terrorist attack, we can only hope to be vigilant and discover it before the button is pushed. But when we do have that kind of information, we also should be able to deploy the most effective tools to prevent the harm. In the right circumstances, one of those tools should be law enforcement, acting under the guidance and supervision of a federal court, to take temporary possession of the trade secret. That is the focus of the DTSA seizure provisions.

EX PARTE SEIZURE FOR TRADE SECRETS IS NOT “UNPRECEDENTED”

In his essay, Professor Goldman asserts that the seizure provisions “would represent an unprecedented innovation. No state trade secret law has a trade secret-specific ex parte seizure process [that is] similar . . . .” This stretches the meaning of “unprecedented” pretty far. He gets away with it only because the second sentence is so narrowly drawn, claiming only that no state has a “trade secret-specific ” process. But that doesn’t mean that states have not used broadly applicable seizure procedures in trade secret cases. In fact they have, although they may call them by another name, such as sequestration, or attachment. Texas, for example, allows for ex parte sequestration in a variety of circumstances, and it has been applied in at least one case to software. See Glenn, Ex-Parte Seizure of Intellectual Property Goods, 9 Tex. Intell. Prop. L.J. 307 (2001) (discussing Tex. Civ. Prac. & Rem. Code §62.001, and Learn2.com, Inc. v. Bell, 2000 U.S. Dist. Lexis 14283 (N.D. Tex. July 20, 2000)).

Moreover, the UTSA itself includes § 2(a), which “authorizes mandatory injunctions requiring that a misappropriator return the fruits of misappropriation to an aggrieved person, e.g., the return of stolen blueprints or the surrender of surreptitious photographs or recordings.” Commissioners’ Comment, 14 U.L.A. at 451. While the Act doesn’t expressly authorize granting such injunctions ex parte, neither does it prohibit them. Again, the circumstances justifying issuance of an order without notice have traditionally been defined by local rules in state courts and by FRCP Rule 65 in federal courts.

Indeed, Professor Goldman acknowledges that trade secret owners “already may seek ex parte TROs, including impoundment,” under FRCP Rule 65, reinforcing this with the statement that “existing federal TRO procedures already provide for ex parte seizures for trade secret owners.” He finds this authority in the Committee Notes to the 2001 amendments, which explains that “impoundment may be ordered on an ex parte basis under subdivision (b) [of Rule 65] if the applicant makes a strong showing of the reasons why notice is likely to defeat effective relief.” While he uses this reference to argue that the DTSA seizure provisions are unnecessary, it directly contradicts his claim that they are “unprecedented.”

DTSA SEIZURE PROVISIONS ARE BUILT ON THE LANHAM ACT

Another reason why the “unprecedented” argument fails is that the DTSA seizure language was directly patterned on the Lanham Act, 15 U.S.C. §1116(d), expressly authorizing ex parte seizure and impoundment of counterfeit goods. As a condition of such an order, the statute requires that it clearly appear from specific facts sworn by the applicant that some other order would not be adequate, that the applicant is likely to succeed on the merits, that immediate and irreparable injury will occur without the order, and that the “matter to be seized” is located at a specific place. Execution of an order has to be by law enforcement, and seized materials must be held by the court in accordance with a protective order to prevent disclosure of confidential information. The plaintiff must be prohibited from publicizing the order or getting access to the defendant’s trade secrets in the course of the seizure. Finally, a hearing has to be held between ten and fifteen days later, at which the plaintiff will have the burden to demonstrate continuing justification for the order.

The DTSA imposes all of these same restrictions, but adds more. Only property “necessary to prevent propagation or dissemination of the trade secret” can be seized. This means, for example, that records and other evidence of the acts of misappropriation or misuse cannot be taken away, thereby reducing the risk of disruption to the defendant’s other business operations. In fact, the court is specifically required to order only “the narrowest seizure of property necessary” and to provide that the seizure “be conducted in a manner that . . . does not interrupt the legitimate business operations of the [defendant] that are unrelated to the trade secret that has allegedly been misappropriated.”

As with other predicate requirements, the plaintiff’s showing must “clearly” demonstrate “from specific facts” that the information is a trade secret, that the target of the seizure has the secret in their possession, and that if notice were given the target “would destroy, move, hide, or otherwise make such matter inaccessible to the court . . . .” (This latter requirement provides assurance to cloud vendors and others who might be holding information for someone accused of misappropriation.) And the merits hearing must be held no more than seven days later (not ten to fifteen as in the Lanham Act), during which time anyone affected by the order may move to modify or dissolve it.

THE RISK OF ABUSIVE SEIZURE IS LOW AND WELL MITIGATED BY DTSA

So it should be obvious – particularly to any practitioner that has tried to convince a federal judge to issue any sort of ex parte order – that getting relief under this section will be very, very difficult. And while making it hard to get is the first line of defense against abuse of any legal process, the legislation provides serious consequences in case it turns out that the plaintiff was wrong. In the first instance, the court has to require a bond adequate “for the payment of the damages that any person may be entitled to recover as a result of a wrongful or excessive seizure” or attempted seizure. But the amount of the bond is only a guarantee and “shall not limit the recovery” of damages for wrongful seizure. Those damages are expressly tied to the Lanham Act, 15 U.S.C. § 1116(d)(11), which includes lost profits, cost of materials, loss of good will, punitive damages where bad faith is shown, and attorneys fees.

In other words, the risk analysis that any litigant must do before requesting a seizure remedy is not just that it might try and fail – although in my experience that is a very likely outcome – but that if it succeeds in getting the order it may be found to have oversold its case. Federal judges are not known for suffering fools gladly, and in addition to the opportunity to impose liability for damages they have Rule 11 sanctions in their tool kit. Therefore we can reasonably assume that the vast majority of counsel will exercise good judgment in discouraging marginal applications, and that to the extent any abusive behavior occurs, appropriate consequences will be imposed, just as they have been in other areas of the law.

CONCLUSION

Professor Goldman envisions the future without giving sufficient weight to the past or present. Of course there is risk involved in this as in all other processes run by humans. The relevant questions are: how important is the goal, how serious are the risks, and what can be done — informed by our analogous experience — to mitigate those risks to an acceptable level? By any objective measure, the authors of the DTSA have done their job well, and we have reliable answers.

The goal — having a federal resource that matches the modern threat of irreparable harm to an essential industrial asset — is critically important, not just for the limited number of cases where the tool will be used, but also for those that will not mature into problems because it is there. The abstract risk of meritless, abusive applications to federal courts must of course be acknowledged, but our experience with similar procedures shows what it takes to discourage such behavior. And the measures written into the seizure provisions of the DTSA — demanding the greatest care and judicial scrutiny possible and imposing very serious consequences for getting it wrong — provide a generous margin of comfort to conclude that seizures will happen only where necessary and where properly controlled to minimize harm.

= = = =

[1] http://ssrn.com/abstract=2697361.

= = = =

Links: 

 

 

Pending Supreme Court Patent Cases 2016 (January 12 Update)

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by Dennis Crouch

As of January 12, the Supreme Court has granted two petitions for certiorari for this term. Both Halo and Stryker cover the same topic of enhanced damages, a.k.a. willfulness. Another 17 petitions remain pending. Following its latest conference, the Court denied two low-quality petitions (Arunachalam and Morgan) and also the SpeedTrack case which had focused on interesting but esoteric preclusion issues involving the “Kessler doctrine.”

The important inter partes review case Cuozzo survived its first conference and is up on the blocks for a second round this week. This type of immediate “relisting” occurs in almost all cases where certiorari is granted and raises the odds of grant to >50%. Because the US Patent Office is a party in the case, there would be no call for the views of the Solicitor General before granting / denying certiorari. Nine amici briefs were also filed at the petition stage – a factor that also raises the likelihood that certiorari will be granted.

1. Petitions Granted:

2. Petitions for Writ of Certiorari Pending:

  • Design Patents: Samsung Electronics Co. v. Apple Inc., No 15-777 (design patent scope and damages calculation)
  • Inducement: Life Technologies Corporation, et al. v. Promega Corporation, No. 14-1538 (whether an entity can “induce itself” under 271(f)(1))(CVSG, awaiting government brief)
  • Inducement: Medtronic Sofamor Danek USA, Inc., et al. v. NuVasive, Inc., No. 15-85 (Commil re-hash – mens rea requirement for inducement)
  • Inducement: Arthrex, Inc. v. Smith & Nephew, Inc., et al., No. 15-559 (Commil re-hash – if actions were “not objectively unreasonable” can they constitute inducement?)
  • Post Grant Admin: Cuozzo Speed Technologies, LLC v. Michelle K. Lee, No. 15-446 (BRI construction in IPRs; institution decisions unreviewable)
  • Post Grant Admin: Achates Reference Publishing, Inc. v. Apple, Inc., et al., No. 15-842 (IPR institution decisions unreviewable, even when addressed in a final written decision by PTAB)
  • Post Grant Admin: Interval Licensing LLC v. Michelle K. Lee, No. 15-716 (Can the Patent and Trademark Office appropriately apply the “broadest reasonable interpretation” standard in construing patent claims in post-grant validity challenges?)
  • Preclusion or Jurisdiction: Vermont v. MPHJ Technology Investments, LLC, No. 15-838 (Federal court jurisdiction in anti-troll consumer protection case)
  • Preclusion or Jurisdiction: Alexsam, Inc. v. The Gap, Inc., No. 15-736 (appellate jurisdiction over patents that were dropped from case pre-trial) (New Petition)
  • Preclusion or Jurisdiction:
    ePlus, Inc. v. Lawson Software, Inc., No. 15-639 (what happens with a finally-determined permanent injunction after PTO cancels the patent claim?)
  • Preclusion or Jurisdiction: Alps South, LLC v. The Ohio Willow Wood Company, No. 15-567 (If patent ownership is fixed after the filing of a complaint, can jurisdiction be cured by a supplemental complaint)
  • Preclusion or Jurisdiction: Biogen MA, Inc. v. Japanese Foundation for Cancer Research, et al., No. 15-607 (Whether AIA eliminated federal district courts’ jurisdiction over patent interference actions under 35 U.S.C. § 146.)
  • Eligibility Challenges: Retirement Capital Access Management Company, LLC v. U.S. Bancorp, et al., No. 15-591 (Whether subject matter eligibility under 35 U.S.C. § 101 is a ground specified as a condition for patentability under 35 U.S.C. § 282(b)(2))
  • Claim Construction: Media Rights Technologies, Inc. v. Capitol One Financial Corporation, et al., No. 15-725 (Claim Construction: whether there a strong presumption against construing terms as subject to 35 U.S.C. § 112p6 that do not recite the term “means.”)
  • Patent Term Adjustment Dispute: Daiichi Sankyo Company, Ltd. v. Michelle K. Lee, No. 15-652 (Patent Term Adjustment – whether the 180 day deadline applies; could bleed into admin law issues)
  • Damages: STC, Inc. v. Global Traffic Technologies, No. 15-592 (Whether marking the packaging of a patented article with patent notification satisfies the marking provision of 35 U.S.C. § 287(a) where the patented article itself is undisputedly capable of being marked.)
  • Damages: Innovention Toys, LLC v. MGA Entertainment, Inc., et al., No. 15-635 (Stryker/Halo follow-on)

3. Petitions for Writ of Certiorari Denied:

  • Allvoice Developments US, LLC v. Microsoft Corp., No. 15-538
  • OIP Technologies, Inc. v. Amazon.com, Inc., No. 15-642
  • Fivetech Technology Inc. v. Southco, Inc., No. 15-381
  • Tyco Healthcare Group LP, et al. v. Ethicon Endo-Surgery, Inc., No. 15-115
  • Nautilus, Inc. v. Biosig Instruments, Inc., No. 15-561
  • Chunghwa Picture Tubes, Ltd., et al. v. Eidos Display, LLC, et al., No. 15-288
  • Kenneth Butler, Sr. v. Balkamp Inc., et al., No. 15-273    
  • Arthrex, Inc. v. KFx Medical Corporation, No. 15-291
  • Daiichi Sankyo, Inc., et al. v. Apotex Inc., No. 15-281
  • Mylan Pharmaceuticals Inc. v. Apotex Inc., No. 15-307
  • Luv N’ Care, Ltd. v. Munchkin, Inc., No. 15-242
  • Automated Merchandising Systems, Inc. v. Michelle K. Lee, Director, United States Patent and Trademark Office, No. 15-326
  • I/P Engine, Inc. v. AOL Inc., et al., No. 14-1358
  • Interval Licensing LLC v. AOL Inc., et al., No. 14-1362
  • Content Extraction and Transmission LLC v. Wells Fargo Bank, National Association, et al., No. 14-1473
  • W.L. Gore & Associates, Inc. v. Bard Peripheral Vascular, Inc., et al., No. 15-41
  • NetAirus Technologies, LLC v. Apple Inc., No. 14-1353
  • Muffin Faye Anderson v. Kimberly-Clark Corporation, No. 14-10337
  • MobileMedia Ideas LLC v. Apple Inc., No. 15-206
  • SpeedTrack, Inc. v. Office Depot, Inc. et al., No. 15-461 (Kessler doctrine)
  • Rodney K. Morgan, et al. v. Global Traffic Technologies LLC, No. 15-602
  • Lakshmi Arunachalam v. JPMorgan Chase & Co., No. 15-691

4. Prior versions of this report:

 

Pending Supreme Court Patent Cases for 2016

Patent, , , , , , , ,

by Dennis Crouch

Welcome to 2016! As of January 1, only two petitions for certiorari have been granted this term — both covering the same topic of enhanced damages, a.k.a. willfulness. Another 20 petitions remain pending, a few of which may have legs.

New petitions from the past fortnight include Achates v. Apple (reviewability of IPR institution decision) and Vermont v. MPHJ (federal court jurisdiction in anti-troll consumer protection case).

1. Petitions Granted:

2. Petitions for Writ of Certiorari Pending:

  • Design Patents: Samsung Electronics Co. v. Apple Inc., No 15-777 (design patent scope and damages calculation)
  • Inducement: Life Technologies Corporation, et al. v. Promega Corporation, No. 14-1538 (whether an entity can “induce itself” under 271(f)(1))(CVSG, awaiting government brief)
  • Inducement: Medtronic Sofamor Danek USA, Inc., et al. v. NuVasive, Inc., No. 15-85 (Commil re-hash – mens rea requirement for inducement)
  • Inducement: Arthrex, Inc. v. Smith & Nephew, Inc., et al., No. 15-559 (Commil re-hash – if actions were “not objectively unreasonable” can they constitute inducement?)
  • Post Grant Admin: Cuozzo Speed Technologies, LLC v. Michelle K. Lee, No. 15-446 (BRI construction in IPRs; institution decisions unreviewable)
  • Post Grant Admin: Achates Reference Publishing, Inc. v. Apple, Inc., et al., No. 15-842 (IPR institution decisions unreviewable, even when addressed in a final written decision by PTAB)
  • Post Grant Admin: Interval Licensing LLC v. Michelle K. Lee, No. 15-716 (Can the Patent and Trademark Office appropriately apply the “broadest reasonable interpretation” standard in construing patent claims in post-grant validity challenges?)
  • Preclusion or Jurisdiction: Vermont v. MPHJ Technology Investments, LLC, No. 15-838 (Federal court jurisdiction in anti-troll consumer protection case)
  • Preclusion or Jurisdiction: Alexsam, Inc. v. The Gap, Inc., No. 15-736 (appellate jurisdiction over patents that were dropped from case pre-trial) (New Petition)
  • Preclusion or Jurisdiction: SpeedTrack, Inc. v. Office Depot, Inc. et al., No. 15-461 (Kesslerdoctrine – enhanced preclusion)
  • Preclusion or Jurisdiction:
    ePlus, Inc. v. Lawson Software, Inc., No. 15-639 (what happens with a finally-determined permanent injunction after PTO cancels the patent claim?)
  • Preclusion or Jurisdiction: Alps South, LLC v. The Ohio Willow Wood Company, No. 15-567 (If patent ownership is fixed after the filing of a complaint, can jurisdiction be cured by a supplemental complaint)
  • Preclusion or Jurisdiction: Biogen MA, Inc. v. Japanese Foundation for Cancer Research, et al., No. 15-607 (Whether AIA eliminated federal district courts’ jurisdiction over patent interference actions under 35 U.S.C. § 146.)
  • Eligibility Challenges: Retirement Capital Access Management Company, LLC v. U.S. Bancorp, et al., No. 15-591 (Whether subject matter eligibility under 35 U.S.C. § 101 is a ground specified as a condition for patentability under 35 U.S.C. § 282(b)(2))
  • Claim Construction: Media Rights Technologies, Inc. v. Capitol One Financial Corporation, et al., No. 15-725 (Claim Construction: whether there a strong presumption against construing terms as subject to 35 U.S.C. § 112p6 that do not recite the term “means.”)
  • Patent Term Adjustment Dispute: Daiichi Sankyo Company, Ltd. v. Michelle K. Lee, No. 15-652 (Patent Term Adjustment – whether the 180 day deadline applies; could bleed into admin law issues)
  • Damages: STC, Inc. v. Global Traffic Technologies, No. 15-592 (Whether marking the packaging of a patented article with patent notification satisfies the marking provision of 35 U.S.C. § 287(a) where the patented article itself is undisputedly capable of being marked.)
  • Damages: Innovention Toys, LLC v. MGA Entertainment, Inc., et al., No. 15-635 (Stryker/Halo follow-on)
  • Soon to be Denied: Arunachalam v. JPMorgan Chase & Co., No. 15-691 (unclear)
  • Soon to be Denied: Morgan, et al. v. Global Traffic Technologies LLC, No. 15-602 (unclear)

3. Petitions for Writ of Certiorari Denied:

  • Allvoice Developments US, LLC v. Microsoft Corp., No. 15-538
  • OIP Technologies, Inc. v. Amazon.com, Inc., No. 15-642
  • Fivetech Technology Inc. v. Southco, Inc., No. 15-381
  • Tyco Healthcare Group LP, et al. v. Ethicon Endo-Surgery, Inc., No. 15-115
  • Nautilus, Inc. v. Biosig Instruments, Inc., No. 15-561
  • Chunghwa Picture Tubes, Ltd., et al. v. Eidos Display, LLC, et al., No. 15-288
  • Arthrex, Inc. v. KFx Medical Corporation, No. 15-291
  • Daiichi Sankyo, Inc., et al. v. Apotex Inc., No. 15-281
  • Mylan Pharmaceuticals Inc. v. Apotex Inc., No. 15-307
  • Luv N’ Care, Ltd. v. Munchkin, Inc., No. 15-242
  • Automated Merchandising Systems, Inc. v. Michelle K. Lee, Director, United States Patent and Trademark Office, No. 15-326
  • I/P Engine, Inc. v. AOL Inc., et al., No. 14-1358
  • Interval Licensing LLC v. AOL Inc., et al., No. 14-1362
  • Content Extraction and Transmission LLC v. Wells Fargo Bank, National Association, et al., No. 14-1473
  • W.L. Gore & Associates, Inc. v. Bard Peripheral Vascular, Inc., et al., No. 15-41
  • NetAirus Technologies, LLC v. Apple Inc., No. 14-1353
  • Muffin Faye Anderson v. Kimberly-Clark Corporation, No. 14-10337
  • MobileMedia Ideas LLC v. Apple Inc., No. 15-206

Amicus Briefs on Enhanced Damages

Patent, , , , ,

by Dennis Crouch

This term the Supreme Court is addressing one patent issue,[1] that of enhanced damages.[2] Two cases have been joined together for a single one hour hearing.  Merits briefing is ongoing. In an earlier post I briefly discussed the merits briefs that were filed in early December 2015. Now a set of friend-of-the-court briefs have also been filed either in support of the patentee-petitioners or in support of neither party. Respondent briefs as well as any briefs in support of respondent will be due in the upcoming weeks.

For the most part, the briefest stick to a model of focusing on a particular set of questions:

  • Is willfulness a prerequisite to enhanced damages under section 284?
  • Does the two-step test of Seagate create too high and too rigid of a standard?
  • Is subjective bad faith sufficient for enhanced damages award?
  • Should the District Court apply a totality of the circumstances test when determining enhanced damages?
  • What level of proof is required: preponderance of evidence or clear and convincing evidence?
  • When and enhanced damage award is appealed, what level of review should be applied?

The following is a short review of the amicus briefs that have been filed in the case.[3]

United States Government

When the United States government files and amicus brief, that brief is usually seen as the most important amicus brief in the case. Often, it is seen as the most important brief in the case – even more important than briefs filed by the parties themselves. The brief was filed in a joint effort by both the Department of Justice Solicitor’s office and the USPTO.

The government brief supports the petitioners’ position that the Federal Circuit test is too rule-based and too restrictive. “The Federal Circuit’s recent decisions, including its decisions in these cases, have imposed unwarranted restrictions on awards of enhanced damages.” In particular, the government argues that Seagate should be overruled. At the same time, the government takes pains to clarify that enhanced damages should only be awarded in cases of “unusually egregious acts of patent infringement.”  An interesting question not addressed by the brief is how “unusually egregious” corresponds to the “exceptional” requirement for attorney fees.

The government brief does particularly ask the court to limit enhanced damages only to cases involving willful infringement. In particular, the brief quotes affirmatively from Aro Mfg., that enhanced damages are available for “willful or bad-faith infringement.”[4]  Earlier courts, the brief notes, allow enhanced damages “for the infringer’s unlawful conduct was intentional, willful, flagrant, or undertaken in bad faith.”

Regarding the questions addressed above, the government brief argues that a preponderance of the evidence – the lower standard – is sufficient to prove enhanced damages and that District Court determinations regarding enhanced damages should be reviewed for abuse of discretion on appeal, not de novo.

Prof. Rantanen and Chris Seaman

Professors Rantanen and Seaman take a statutory and historical approach in their argument that willfulness is the appropriate standard for determining whether damages should be enhanced.  The historical case law they argue was bolstered by the AIA language which states that failure to obtain or introduce evidence of counsel “may not be used to prove that the accused infringer willfully infringed the patent”[5] It is clear from context that this new provision was intended to be a defense against enhanced damages under Section 284.

The professors argue that the determination of whether the infringement was willful should be accomplished through a totality of the circumstances test and reviewed on appeal for abuse of discretion as has been the law since 1836.

Mentor Graphics, Microsoft, and SAP

John Vandenberg of Klarquist Sparkman filed this brief arguing that trial courts should be given discretion to increase damages following a judgment of infringement.  Parties on this brief all have valuable patent portfolios. However, they are also subject to infringement allegations – typically from nonpracticing entities. In that framework is not surprising they argue that the behavior of the patent owner, not just the infringer, should be relevant to the willfulness inquiry. In particular the brief suggests that the court should consider whether the patentee “implemented a scientifically or commercially significant advance” and “diligently provided actual and clear notice.”  They also suggest that a patentee who, instead of suing the source of infringement, sues that infringers customers, should be less likely to receive enhanced damages.

Brief also asks the Supreme Court to make clear that enhanced damages are a question for the judge, not for a jury.

Nokia

John Haynes of Alston & Bird filed Nokia’s brief that argues for broader enhanced damages. Stating that “the Federal Circuit’s grafting of a willfulness requirement onto section 284 is contrary to the legislative history of the statute and ignores the compensatory aspect of enhanced damages.” A weakness of this argument from Nokia is that it fails to consider 19th-century Supreme Court cases on point such as Seymour v. McCormick (1854).

Prof. Mossoff

The purpose of Prof. Mossoff’s brief is to highlight his research that the current “crisis” in the patent system is nothing new rather.  Patent licensing entities have been around for more than 100 years and serve an “important role in the development of innovation”.

Licensing Executives Society

Daniel Stringfield from Steptoe and Johnson filed the LES brief is interesting because it is somewhat equivocal. The brief argues that the Seagate rule is beneficial because it appears to encourage predictable and consistent results at the same time, the brief recognizes that a more flexible approach may do a better job of deterring undesirable infringement and better protecting patented inventions.

Intellectual Property Owners Association

My former boss Paul Berghoff of MBHB filed the IPOs short brief. The brief supports Seagate and argues that enhanced damages should only be allowed based upon sufficient evidence that the infringement was subjectively willful and also objectively reckless. In general, a party that “mounted a good-faith defense against allegations of infringement” should not be punished with punitive damages even if defense was ultimately unsuccessful.

Public Knowledge, the Electronic Frontier Foundation, and Engine Advocacy

Charles Duan filed a brief for these three public interest groups acting together. In general these groups can be termed “anti-patent.”  The brief argues that the threat of enhanced damages are regularly used against small companies with “devastating results” such as practically requiring opinion letters for legitimate threat creating an incentive not to read patents. The brief also argues that lowering the bar would increase the likelihood of abusive patent demands.and C That petitioner’s policy concerns are detached from reality.

Ericsson

Mike McKool of McKool Smith filed Ericcson’s brief arguing that the Federal Circuit’s limits on enhanced damage awards are “practically insurmountable”, “too high”, and have “fostered patent holdout and diminished respect for intellectual property rights”.  Ericcson argues that the extensive body of precedent stretching back to the 1832 patent act provide sufficient standards and guidance for district courts considering enhanced damage awards.[6]  On particulars, the brief argues that there should be no objectively reckless requirement, no clear and convincing evidence requirement and no de novo review of District Court decisions regarding enhanced damages.

AIPLA

Peter Sullivan of Foley Hoag filed the AIPLA brief.  Brief argues that “willful infringement” should be read into the statute as a limit on when damages may be enhanced. For that point, the brief sites Seymour v. McCormick (1854) where the court wrote distinguished between, on the one hand, a “good faith” or ignorant infringer from a “wanton and malicious pirate.”

Of course, is not a clean dividing line between “good faith” acts and willfully bad acts. The brief does not delve into that potential middleground other than stating that proof of willful infringement should be a requirement.  However, the association does argue that the Seagate standard “goes too far, allowing blameworthy conduct to go unpunished.” The brief argues instead that proof of subjective bad faith should be sufficient.  The brief also cautions the Supreme Court to be wary of giving too much discretion to District Court judges. For instance, it argues that a totality of the circumstances test has the potential of leading to both unpredictability and imprecision in punitive damage awards.

Foreman, Morinville, and the “Small Inventors”

IP attorney Andy Baluch filed a brief on behalf of a group of self-identified “small inventors” including Lewis Foreman, Paul Morinville, and James Innes.  The brief lays out the argument that contemporary intellectual property licensing has been undermined by the rise of what is termed “efficient infringement.” In 1L contract law, budding attorneys learn of the economic concept of efficient breach that, in certain circumstances and jurisdictions, permits a contracting party to breach a contract when the harm (penalty) caused by the breach is less than the benefit associated with breach.  Manufacturers and the uses of technology are using the same concept now to continually infringe patent rights with the expectation that their benefit from infringing will be greater than any potential penalty they must pay. That balance has shifted in recent years as today the ordinary penalty is simply payment of a reasonable royalty since both injunctive relief and enhanced damages are so difficult to obtain. Brief argues that this “anti-patent climate is particularly harmful to America’s individual inventors and startups.”

Askeladden

Askeladden’s brief was filed by Kevin Colligan’s team at Goodwin Procter in New York.  Brief makes two primary conclusory arguments. First, despite the open language of section 284, enhanced damages should only be available for acts of willful infringement. That conclusion is supported by what Askeladden sees as “established” law in the patent field and “consistency” with the ordinary rules of punitive damages. Second, adjudged infringer’s should have an absolute defense to enhanced damages if the infringement occurred in good faith and based upon a reasonable belief that the patent was either invalid or not being infringed.

Innovention

James Otteson’s counsel of record for Innovention Toys. That company won an infringement action against MGA entertainment – makers of “Bratz.”  Although the district court awarded enhanced damages for willful infringement based upon strong evidence of copying, Federal Circuit reversed finding that MGA’s obviousness defense was not objectively reckless. The company has a petition for writ of certiorari pending.[7]  brief here stands with the petitioners, arguing that enhanced damages should not even require finding of willfulness but instead should be based upon the totality of the circumstances as determined by the District Court judge and only reviewed on appeal for substantial evidence/clear error.

= = = = =

[1] Certiorari has been granted on only one patent issue thus far. A number of petitions remain pending.

[2] Halo Electronics, Inc. v. Pulse Electronics, Inc., et al., Supreme Court Docket No. 14-1513 (2015) and Stryker Corporation, et al. v. Zimmer, Inc., et al., Supreme Court Docket No. 14-1520 (2015).  See, Dennis Crouch, Expanding the Framework for Enhanced Patent Damages, Patently-O (December 13, 2015).

[3] Opening  briefs by the petitioners are available on Patently-O at: https://patentlyo.com/patent/2015/12/expanding-framework-enhanced.html.

[4] Aro Mfg. Co. v. Convertible Top Replacement Co., 377 US. 476, 508 (1964).

[5] 35 U.S.C. § 298.

[6] See, for example Bott and Read.

[7] Innovention Toys, LLC v. MGA Entertainment , et al. , No. 15-635 (U.S. Nov. 10, 2015).

Samsung Electronics Co. v. Apple Inc., No 15-___ (design patent scope and damages calculation)(New Petition)

Patent,

by Dennis Crouch

Samsung Electronics Co. v. Apple Inc., No 15-___ (on petition for writ of certiorari) (Samsung Petition)

Samsung has now filed its petition for writ of certiorari challenging the $400 million that it has paid for infringing Apple’s design patents that cover the iconic curved corner iPhone and its basic display screen.[1]  Samsung writes, “[The Supreme Court] has not reviewed a design-patent case in more than 120 years.”[2] Here, Samsung raises two questions that go to the core of the power of design patent rights. In its petition, Samsung frames the issues as follows.

Design patents are limited to “any new, original and ornamental design for an article of manufacture.” 35 U.S.C. 171. A design-patent holder may elect infringer’s profits as a remedy under 35 U.S.C. 289, which provides that one who “applies the patented design … to any article of manufacture … shall be liable to the owner to the extent of his total profit, … but [the owner] shall not twice recover the profit made from the infringement.”

The Federal Circuit held that a district court need not exclude unprotected conceptual or functional features from a design patent’s protected ornamental scope. The court also held that a design-patent holder is entitled to an infringer’s entire profits from sales of any product found to contain a patented design, without any regard to the design’s contribution to that product’s value or sales. The combined effect of these two holdings is to reward design patents far beyond the value of any inventive contribution. The questions presented are:

1. Where a design patent includes unprotected non-ornamental features, should a district court be required to limit that patent to its protected ornamental scope?

2. 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?

Of course, Questions 1 and 2 are likely to impact utility patent rights as well.

The brief cites to Patently-O essays by Gary Griswold and Jason Rantanen (predicting an “explosion of design patent assertions and lawsuits”).

= = = = =

[1] U.S. Design Patent Nos. D618,677; D593,087; and D604,305.
dPat2Dpat1dPat3

[2] See Gorham Co. v. White, 81 U.S. 511 (1871);  Dobson v. Dornan, 118 U.S. 10 (1886); Smith v. Whitman Saddle Co., 148 U.S. 674 (1893); and Dunlap v. Schofield, 152 U.S. 244 (1894).

 

Pending Supreme Court Patent Cases (Update)

Patent, , , , , , ,

by Dennis Crouch

As of December 14, two petitions for certiorari have been granted — both covering the same topic of enhanced damages, a.k.a. willfulness. Another 17 petitions remain pending, a few of which have potential.

  1. Petition Granted:
  1. Petition for Writ of Certiorari Pending:
  • Design Patents: Samsung Electronics Co. v. Apple Inc., No 15-___ (design patent scope and damages calculation)(New Petition)
  • Inducement: Life Technologies Corporation, et al. v. Promega Corporation, No. 14-1538 (whether an entity can “induce itself” under 271(f)(1))(CVSG)
  • Inducement: Medtronic Sofamor Danek USA, Inc., et al. v. NuVasive, Inc., No. 15-85 (Commilre-hash – mens rea requirement for inducement)
  • Inducement: Arthrex, Inc. v. Smith & Nephew, Inc., et al., No. 15-559 (Commilre-hash – if actions were “not objectively unreasonable” can they constitute inducement?)
  • Post Grant Admin: Cuozzo Speed Technologies, LLC v. Michelle K. Lee, No. 15-446 (BRI construction in IPRs; institution decisions unreviewable)
  • Post Grant Admin: Interval Licensing LLC v. Michelle K. Lee, No. 15-716 (Can the Patent and Trademark Office appropriately apply the “broadest reasonable interpretation” standard in construing patent claims in post-grant validity challenges?)
  • Preclusion or Jurisdiction: Alexsam, Inc. v. The Gap, Inc., No. 15-736 (appellate jurisdiction over patents that were dropped from case pre-trial) (New Petition)
  • Preclusion or Jurisdiction: SpeedTrack, Inc. v. Office Depot, Inc. et al., No. 15-461 (Kesslerdoctrine – enhanced preclusion)
  • Preclusion or Jurisdiction: ePlus, Inc. v. Lawson Software, Inc., No. 15-639 (what happens with a finally-determined permanent injunction after PTO cancels the patent claim?)
  • Preclusion or Jurisdiction: Alps South, LLC v. The Ohio Willow Wood Company, No. 15-567 (If patent ownership is fixed after the filing of a complaint, can jurisdiction be cured by a supplemental complaint)
  • Preclusion or Jurisdiction: Biogen MA, Inc. v. Japanese Foundation for Cancer Research, et al., No. 15-607 (Whether AIA eliminated federal district courts’ jurisdiction over patent interference actions under 35 U.S.C. § 146.)
  • Eligibility Challenges: Retirement Capital Access Management Company, LLC v. U.S. Bancorp, et al., No. 15-591 (Whether subject matter eligibility under 35 U.S.C. § 101 is a ground specified as a condition for patentability under 35 U.S.C. § 282(b)(2))
  • Claim Construction: Media Rights Technologies, Inc. v. Capitol One Financial Corporation, et al., No. 15-725 (Claim Construction: whether there a strong presumption against construing terms as subject to 35 U.S.C. § 112p6 that do not recite the term “means.”)
  • Patent Term Adjustment Dispute: Daiichi Sankyo Company, Ltd. v. Michelle K. Lee, No. 15-652 (Patent Term Adjustment – whether the 180 day deadline applies; could bleed into admin law issues)
  • Damages: STC, Inc. v. Global Traffic Technologies, No. 15-592 (Whether marking the packaging of a patented article with patent notification satisfies the marking provision of 35 U.S.C. § 287(a) where the patented article itself is undisputedly capable of being marked.)
  • Damages: Innovention Toys, LLC v. MGA Entertainment, Inc., et al., No. 15-635 (Stryker/Halo follow-on)
  • Soon to be Denied: Arunachalam v. JPMorgan Chase & Co., No. 15-691 (unclear)
  • Soon to be Denied: Morgan, et al. v. Global Traffic Technologies LLC, No. 15-602 (unclear)

Expanding the Framework for Enhanced Patent Damages

Patent

So far this term, the Supreme Court has agreed to hear only one patent issue – enhanced damages, a.k.a. willfulness.  Two separate lawsuits have been joined together for the Supreme Court hearing: Halo[1] and Stryker[2].  An expanded one-hour has been allotted for the yet-to-be-scheduled oral arguments.

Petitioners have now filed their merit briefs.

In all likelihood, the Supreme Court will continue its decade-long path of rejecting the Federal Circuit’s penchant for patent-centric bright-line tests and instead require that the Federal Circuit simply follow the statute and general law associated with enhanced and punitive damages.  See., e.g., Octane Fitness (2014)[3], MedImmune (2007)[4], and eBay (2006).[5] In particular, the statute’s only statement on enhanced damages gives deference to the district court to act within the treble-damages limit, indicating that “the court may increase the damages up to three times the amount found or assessed.”  The most parallel case-on-point is Octane Fitness where the 2014 Supreme Court eliminated the Federal Circuit’s rigid test for attorney fee shifting under Section 285.

The question of enhanced damages is only relevant once the asserted patent is adjudged enforceable and infringed and damages awarded for the infringement.  Then, under Federal Circuit rule, enhanced damages can only be awarded upon clear-and-convincing evidence that (1) the infringer acted despite an objectively high likelihood that its conduct was infringing, and (2) the infringer knew or should have known of the risk.

Question presented in Halo:

Whether the Federal Circuit erred by applying a rigid, two-part test for enhancing patent infringement damages under 35 U.S.C. § 284, that is the same as the rigid, two-part test this Court rejected last term in Octane Fitness . . .  for imposing attorney fees under the similarly-worded 35 U.S.C. § 285.

Questions presented in Stryker:

  1. Whether the Federal Circuit has erred in imposing a rigid, two-part threshold test on the flexible text of Section 284.

  2. Whether a district court has the discretion under Section 284 to award enhanced damages for the deliberate copying of a patented invention.

Both briefs highlight the Supreme Court’s pre-1952 statements that the power to enhance damages is within the district court’s discretion.[6]  Of course, the statute at that point was perhaps more explicit that enhanced damages were “in the power of the court.”  But, the current statute is almost on point – “the court may increase the damages.”  And, in the 1983 General Motors case, the Supreme Court wrote that the 1952 Patent Act’s implementation of Section 284 was simply a codification of existing law.[7]

Briefing will continue into January with oral arguments to come after that.

= = = = =

[1] Halo Electronics, Inc. v. Pulse Electronics, Inc., et al., Supreme Court Docket No. 14-1513 (2015).

[2] Stryker Corporation, et al. v. Zimmer, Inc., et al., Supreme Court Docket No. 14-1520 (2015).

[3] Octane Fitness v. Icon Health & Fitness (2014) (fee-shifting under § 285 sits within the discretion of the district courts based upon a totality of the circumstances rather than a rigid framework involving both subjectively and objectively bad behavior.)

[4] MedImmune v. Genentech (2007) (test for declaratory judgment is more flexible than what had been allowed by the Federal Circuit).

[5] eBay v. MercExchange (2006) (traditional equitable test for a permanent injunction applies in patent cases).

[6] See Birdsall v. Coolidge, 93 U.S. 64 (1876) and Topliff v. Topliff, 145 U.S. 156 (1892).

[7] Gen. Motors v. Devex (1983) (case focused on prejudgment interest).

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

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Guest Post by Jorge L. Contreras, Associate Professor, University of Utah College of Law. 

In Commonwealth Scientific and Industrial Research Organisation v. Cisco Systems, Inc. (Fed. Cir., Dec. 1, 2015), the Federal Circuit established important new guidelines for the calculation of “reasonable royalty” damages for standards-essential patents (SEPs), even in the absence of the patent holder’s commitment to license on reasonable and nondiscriminatory (RAND) terms. Chief Judge Prost, writing for a panel that also included Judges Dyk and Hughes, found that Chief Judge Leonard Davis of the Eastern District of Texas erred by failing, among other things, to account for the “standard-essential status” of a Commonwealth Scientific (CSIRO) patent infringed by Cisco. The decision signals another important step toward the convergence of “reasonable royalty” damages in RAND and other patent cases.

Background

CSIRO is a leading Australian governmental research organization. In 1996 CSIRO obtained U.S. Patent 5,487,069, claiming techniques for addressing “multipath” problems in wireless signal processing. These techniques were later incorporated into IEEE’s 802.11a (“Wi-Fi”) standard, first published in 1999. In connection with the approval of 802.11a, IEEE requested, and CSIRO provided, a Letter of Assurance under which CSIRO committed to license the ‘069 patent to manufacturers of 802.11a-compliant products on “reasonable and nondiscriminatory” (RAND) terms. When later versions of 802.11 were developed, IEEE again requested that CSIRO commit to license the ‘069 patent on RAND terms. CSIRO, however, refused to issue such additional assurances.

In 2001, Cisco acquired Radiata, Inc., a company founded by a former CSIRO scientist to manufacture wireless chips. Radiata had entered into a Technology License Agreement (TLA) with CSIRO in 1998, under which Radiata paid CSIRO royalties for use of the ‘069 patent based on a percentage of Radiata’s chip sale prices. These royalties ranged from 1% to 5% of the chip price, depending on sales volume. When Cisco acquired Radiata, it inherited the TLA and paid CSIRO approximately $900,000 in royalties over the next several years. Cisco stopped paying royalties under the TLA in 2007, when it discontinued the use of Radiata chips in its products. Cisco and CSIRO negotiated for several years regarding an ongoing license for the ‘069 patent, but could not reach agreement and CSIRO sued Cisco for infringement in 2011.

After a four-day bench trial, the District Court determined that the “reasonable” range for royalties for the ‘069 patent was between $0.90 (based on an “informal suggestion” made by Cisco’s chief patent counsel during negotiations in 2005) and $1.90 (based on the maximum rate that CSIRO offered to potential licensees in 2003). CSIRO v. Cisco, 2014 WL 3805817 (E.D. Tex. 2014). (The Court made a slightly different calculation with respect to products sold by Cisco’s Linksys subsidiary, but we will not consider that here). With these ranges in mind, the District Court developed a volume-based royalty table and assessed damages of approximately $16 million against Cisco. Cisco appealed, arguing that the District Court erred in three major regards: (1) by failing to begin its royalty analysis with the price of a Wi-Fi enabled chip, representing the smallest salable patent-practicing unit (SSPPU) in Cisco’s Wi-Fi enabled products, (2) by failing to adjust its reasonable royalty analysis to account for the essentiality of the ‘069 patent to the 802.11 standard, and (3) by basing its royalty determination on the parties’ negotiation positions rather than the TLA. The Federal Circuit found that the District Court erred as to points (2) and (3), vacating the decision below and remanding for recalculation of the damages award.

Apportionment and the Smallest Saleable Patent-Practicing Unit (SSPPU)

In CSIRO, the Federal Circuit reiterated the century-old rule, now embodied in Section 284 of the Patent Act, that patent infringement damages “must reflect the value attributable to the infringing features of the product, and no more.” Ericsson, Inc. v. D-Link Sys., Inc., 773 F.3d 1201, 1226 (Fed. Cir. 2014). It went on to explain that “[t]his principle—apportionment—is the governing rule where multi-component products are involved” (slip op. at 10, internal quotations omitted). The Court noted, however, that the rule of apportionment may be supplemented by additional tools to help determine the incremental value of the patented invention. One of these tools is the SSPPU model: when “a damages model apportions from a royalty base, the model should use the smallest salable patent-practicing unit as the base” (slip op. at 12).

Cisco argued that the District Court erred by beginning its reasonable royalty analysis using rates derived from inter-party negotiations rather than the SSPPU. The Federal Circuit disagreed, holding that the SSPPU model was inapplicable in the case, as the District Court did not determine a royalty “base” (i.e., the price that is multiplied by a royalty expressed in percentage terms) at all. Instead, the Court used so-called per-unit royalties (i.e., a specific dollar amount per end product). As such, there was no call for use of the SSPPU model, and the District Court did not err by avoiding its use.

Comparable Licenses

As noted above, the District Court determined the applicable range of royalties on the ‘069 patent to be between $0.90 and $1.90 based on figures introduced by the parties at different stages during their licensing negotiations. Cisco argued, however, that the appropriate royalty range should be based on the rates set forth in the TLA entered into by Radiata and CSIRO, as to which Cisco later succeeded. Under the TLA, the royalty rates for Cisco products would have been $0.03 to $0.33 (rates for Linksys products would have been slightly different, but I will disregard these for the sake of simplicity).

The District Court rejected any application of the TLA in its reasonable royalty analysis, reasoning, among other things, that (a) the TLA was a related-party agreement between CSIRO and one of its former scientists, rendering it not comparable to the proposed arm’s length agreement between Cisco and CSIRO, (b) the TLA was entered in 1998, long before any hypothetical negotiation between Cisco and CSIRO, and (c) the TLA royalty rates were based on the price of chips sold by Radiata rather than the value of the invention embodied by the ‘069 patent. To this last point, the District Court reasoned that “[b]asing a royalty solely on chip price is like valuing a copyrighted book based only on the costs of the binding, paper, and ink needed to actually produce the physical product. While such a calculation captures the cost of the physical product, it provides no indication of its actual value” (CSIRO, 2014 WL 3805817 at *11).

The Federal Circuit rejected most of the District Court’s reasoning regarding the TLA, largely because Cisco and CSIRO renegotiated numerous terms of the TLA following Cisco’s acquisition of Radiata. This renegotiation demonstrated both that the TLA did not embody a “special relationship” between CSIRO and the licensee (as Cisco presumably negotiated at arm’s length) and the timing of the amendments coincided with any hypothetical negotiation that would have been conducted between Cisco and CSIRO. As for the District Court’s discomfort with the TLA’s use of chip prices as the base upon which royalties would be calculated, the Federal Circuit quoted its recent decision in Ericsson, 773 F.3d at 1228,

in which it held that a comparable license may not be excluded from the fact finder’s consideration “solely because of its chosen royalty base.” Given this reasoning, the Federal Circuit held that the District Court erred by excluding the TLA from its analysis and directed the Court on remand to “reevaluate the relevance of the as-amended TLA in its damages analysis” (slip op. at 22).

Interestingly, this case represents the second appellate decision this year in which the admissibility of comparable license agreements has been challenged in RAND royalty determinations. In the prior case, Microsoft v. Motorola, 795 F.3d 1024 (9th Cir. 2015), the Ninth Circuit was more deferential to the District Court’s exclusion of potentially comparable license agreements. In Microsoft, the Circuit Court upheld the District Court’s exclusion of three arm’s length license agreements to which Motorola was a party for reasons including the fact that some agreements were entered into to settle or forestall litigation, they included patents other than the patents at issue, they included cross-licenses and they included royalty caps. It will be interesting to see how the Circuits reconcile their interpretations of this key evidentiary standard in future cases.

Impact of Standardization

Perhaps the most far-reaching implication of CSIRO arises from the Federal Circuit’s holding regarding the impact of standardization on a patent. In the case, the District Court determined a “reasonable royalty” using the well-known framework established in Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970). Cisco argued that the District Court erred by failing to modify the Georgia-Pacific factors to account for the fact that the ‘069 patent was essential to the 802.11 standard. In particular, the Court failed to disregard any additional compensation that CSIRO might have been able to extract in a hypothetical negotiation solely as a result of the ‘069 patent’s essentiality to the 802.11 standard. This additional compensation, Cisco argued, is not indicative of the incremental value of the patented technology, but of the significant costs that manufacturers would have to incur if forced to switch to an alternative technology (so-called “switching costs”). For this reason, such adjustments to the Georgia-Pacific factors were made by prior courts determining reasonable royalty rates for standards-essential patents (e.g., Microsoft, Ericsson, and In re Innovatio IP Ventures, LLC, 956 F.Supp.2d 925 (N.D.Ill. 2013)).

But CSIRO pointed to a significant distinction with these prior cases. As noted above, CSIRO agreed to license the ‘069 patent on RAND terms to manufacturers of 802.11a-compliant products. But by the time of CSIRO’s suit, 802.11a was largely obsolete and represented only 0.03% of Cisco’s accused products (slip op. at 8). Thus, CSIRO argued and the District Court agreed that CSIRO had no obligation to offer RAND terms to Cisco with respect to its products implementing later versions of 802.11. And because no RAND obligation was implicated, no adjustment to the Georgia-Pacific factors was warranted.

The Federal Circuit disagreed, holding that the incremental value of a standard-essential patent (SEP) should be determined independently of manufacturer switching costs, whether or not the SEP was RAND-encumbered (slip op. at 17). Citing Ericsson, the Court reasoned that “damages awards for SEPs must be premised on methodologies that attempt to capture the asserted patent’s value resulting not from the value added by the standard’s widespread adoption, but only from the technology’s superiority” (id.) The Federal Circuit thus found that the District Court erred by failing to consider the extent to which the value of standardization may have impacted the calculated compensation range for the ‘069 patent, and remanded for further consideration of this issue.

Implications for RAND and Standards

The Federal Circuit’s analysis of the third factor in CSIRO is sensible, but does raise some interesting questions about standards and SEPs. In rejecting CSIRO’s argument that the royalty damages analysis should not be adjusted because the ‘069 patent was not RAND-encumbered, the Federal Circuit noted first that Ericsson distinguished between RAND-encumbered SEPs and SEPs generally (slip op. at 17). On this basis, the court reasoned that even though the ‘069 patent might not be encumbered by a RAND commitment, the court’s reasonable royalty analysis must take into account the fact that the patent was a SEP (and thus correct for excess compensation that could be extracted based on broad industry adoption of the standard).

If this is the case, then what is the difference in the royalty payable with respect to a RAND-encumbered SEP and the royalty payable with respect to an unencumbered SEP? The result in CSIRO suggests that there is no difference at all. In the case of RAND-encumbered SEPs, the patent holder agrees to charge a “reasonable royalty”, which the courts have calculated using a modified version of the Georgia-Pacific framework. But Section 284 of the Patent Act establishes a “reasonable royalty” as the baseline measure of damages for all patents. Accordingly, a similar reasonable royalty calculation, also using the Georgia-Pacific framework should be used for unencumbered SEPs. And, as held by the Federal Circuit in CSIRO, that calculation must avoid the inclusion of switching costs in the “reasonable” royalty.

In a recent paper, A Unified Framework for RAND and other Reasonable Royalties, 30 Berkeley Tech. L.J. 1447-1499 (2015), Richard Gilbert and I predict this result: namely, the convergence of reasonable royalty damages for RAND-encumbered and unencumbered patents. As we have written, and as the Federal Circuit has repeatedly confirmed, the appropriate measure of damages in patent cases, whether or not involving SEPs, is the incremental value of the patented invention to the product in which it is incorporated.

But if royalty rates for RAND-encumbered SEPs are no lower than royalty rates for unencumbered SEPs, then what is the point of making a RAND commitment? Does it have any effect at all? Professor Gilbert and I argue that RAND commitments are meaningful even without this royalty differential. Most importantly, a SEP holder that makes a RAND commitment severely limits its ability to obtain an injunction to prevent infringement by manufacturers of standardized products. Holders of unencumbered SEPs, on the other hand, have not committed to license their patents, and may not face the same hurdles to obtaining injunctive relief. Then, as predicted by Farrell, Lemley, Shapiro and others, they could use the leverage conferred by the threat of an injunction to extract a higher (unreasonable?) royalty from manufacturers of standardized products without having to resort to a judicial damages determination (which, as we have seen, will be limited to a “reasonable” royalty). This possibility has significant implications, particularly given the increasing acquisition and assertion of SEPs by patent assertion entities that do not make RAND commitments, a complex topic well beyond the scope of this note, but which I have written about here. For these and other reasons, RAND commitments, and the encouragement of RAND commitments by SSOs and market participants, will continue to play an important role in fostering standardization and innovation.

Pending Supreme Court Patent Cases

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by Dennis Crouch

1.   Petition Granted:

2.   Petition for Writ of Certiorari Pending:

  • Life Technologies Corporation, et al. v. Promega Corporation, No. 14-1538 (Can an entity “induce itself” under 271(f)(1)?)(CVSG)
  • Allvoice Developments US, LLC v. Microsoft Corp., No. 15-538 (“Do patent claims addressed directly to software that is inherently in a computer-readable medium qualify as a ‘manufacture’ under 35 U.S.C. § 101 without express recitation of the medium?”)
  • OIP Technologies, Inc. v. Amazon.com, Inc., No. 15-642 (Do the rules of civil procedure apply when defendant raises a Section 101 eligibility “defense” in a motion-to-dismiss for failure to state a claim upon which relief can be granted?)
  • Fivetech Technology Inc. v. Southco, Inc., No. 15-381 (What is the proper role of intrinsic evidence in claim construction?)
  • Medtronic Sofamor Danek USA, Inc., et al. v. NuVasive, Inc., No. 15-85 (Commil re-hash – mens rea requirement for inducement)
  • SpeedTrack, Inc. v. Office Depot, Inc. et al., No. 15-461 (Kessler doctrine – enhanced preclusion)
  • Cuozzo Speed Technologies, LLC v. Michelle K. Lee, No. 15-446 (BRI construction in IPRs; institution decisions unreviewable).
  • Arthrex, Inc. v. Smith & Nephew, Inc., et al., No. 15-559 (Commil re-hash – if actions were “not objectively unreasonable” can they constitute inducement?)
  • Alps South, LLC v. The Ohio Willow Wood Company, No. 15-567 (If patent ownership is fixed after the filing of a complaint, can jurisdiction be cured by a supplemental complaint)
  • STC, Inc. v. Global Traffic Technologies, No. 15-592 (Whether marking the packaging of a patented article with patent notification satisfies the marking provision of 35 U.S.C. § 287(a) where the patented article itself is undisputedly capable of being marked.)
  • Retirement Capital Access Management Company, LLC v. U.S. Bancorp, et al., No. 15-591 (Whether subject matter eligibility under 35 U.S.C. § 101 is a ground specified as a condition for patentability under 35 U.S.C. § 282(b)(2))
  • Biogen MA, Inc. v. Japanese Foundation for Cancer Research, et al., No. 15-607 (Whether AIA eliminated federal district courts’ jurisdiction over patent interference actions under 35 U.S.C. § 146.)
  • ePlus, Inc. v. Lawson Software, Inc., No. 15-639 (what happens with a finally-determined permanent injunction after PTO cancels the patent claim?)
  • Interval Licensing LLC v. Michelle K. Lee, No. 15-716 (Can the Patent and Trademark Office appropriately apply the “broadest reasonable interpretation” standard in construing patent claims in post-grant validity challenges?)
  • Media Rights Technologies, Inc. v. Capitol One Financial Corporation, et al., No. 15-725 (Claim Construction: whether there a strong presumption against construing terms as subject to 35 U.S.C. § 112p6 that do not recite the term “means.”)
  • Daiichi Sankyo Company, Ltd. v. Michelle K. Lee, No. 15-652 (Patent Term Adjustment – whether the 180 day deadline applies)
  • Innovention Toys, LLC v. MGA Entertainment, Inc., et al., No. 15-635 (Stryker/Halo follow-on)
  • Morgan, et al. v. Global Traffic Technologies LLC, No. 15-602 (unclear)
  • Arunachalam v. JPMorgan Chase & Co., No. 15-691 (unclear)