Tag Archives: Damages

Supreme Court: In Copyright, Laches Cannot Preclude Actions Taken Within Three Year Statute of Limitations

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By Dennis Crouch

Petrella v. MGM (Supreme Court 2014)

Frank Petrella wrote a screenplay back in 1963 based on the life of Jake LaMotta and assigned rights to UA/MGM who made the movie Raging Bull. Under the old renewal system, renewal rights went to Petrella’s heir, Paula Petrella, who renewed the copyright in 1991 in a fashion that (seemingly) eliminates the prior license. In 1998 she informed MGM that its continued exploitation of the Raging Bull movie violated her copyright. Finally, in 2009, she did sue – alleging copyright infringement.

Copyright infringement has a three-year statute of limitations indicating that “No civil action shall be maintained under the [Act] unless it is commenced within three years after the claim accrued.” 17 U.S.C. §507(b). However, as in patent law, copyright follows a “separate-accrual rule” that sees each successive violation of a copyright as a new infringing act with its own statute of limitations. Thus, under the statute of limitations, MGM could be liable for its post-2006 actions such as copying and distributing the work.

In the lawsuit, MGM separately asserted the equitable defense of laches based upon the long and unreasonable delay in bringing suit.

In a 6-3 decision, the Supreme Court has sided with Petrella – finding that the statute of limitations does all the work on the question of liability – leaving latches only to potentially shape the remedy.

Laches, we hold, cannot be invoked to preclude adjudication of a claim for damages brought within the three-year window. As to equitable relief, in extraordinary circumstances, laches may bar at the very threshold the particular relief requested by the plaintiff. And a plaintiff’s delay can always be brought to bear at the remedial stage.

The court was clear that equitable estoppel may also apply, but that generally requires some affirmative act by the rights-holder (that leads to

In a footnote, the court draws some parallels with the six-year statute of limitations for collecting back-damages in patent law. 35 U.S.C. § 286. In a 1992 en banc decision, the Federal Circuit held that laches can be an additional bar to collecting back-damages even within the six-year limit. A. C. Aukerman Co. v. R. L. Chaides Constr. Co., 960 F. 2d 1020 (Fed. Cir. 1992) (en banc). Noting that decision, the Supreme Court here only remarked that “We have not had occasion to review the Federal Circuit’s position.”

One interesting aspect of the decision was the unusual split between the majority and dissent. Justice Ginsburg penned the majority opinion that was joined by Justices Scalia, Thomas, Alito, Sotomayor, and Kagen.  Justice Breyer dissented and was joined by Chief Justice Roberts and Justice Kennedy.

Baker Botts responsible for $40m damages to client, but claim barred by limitations

Ethics

I just read a story off law.com (subscription required) that that was the verdict in the conflict-of-interest claim brought against my old firm by a former client.  From what I’ve read, a central issue in the appeal will be whether the breach of fiduciary duty claim was properly tossed out by the trial judge under an arcane rule called the “anti-fracturing rule,” that I won’t bore you with. If that was wrong, then the claim was timely.  Stay tuned…

Interesting New York Case on Interplay between Statutory Fee Awards and Contingent Fee Agreements

Ethics

This is not a patent case, but fee agreements are state law contracts, and so the lessons learned would seem to transfer to patent litigators.

Lawyer wins a contingent fee case for his client where he’s supposed to get 33% of the award.  There’s a statute that awards attorney fees.  Does the lawyer add the fee award and the damages award, and take 33% of that, or the greater of the two, or the lesser, or…?

In Albunio v. City of New York, (N.Y. Ct. App. Apr. 3, 2014), the court adopted this approach:

“absent a contractual provision to the contrary, the trend is to calculate the contingency fee based on the amount of the judgment exclusive of the fee award, and then credit the fee award to the client as an offset against the contingency fee owed. Under this approach, the attorney should be entitled to receive either the contingent fee calculated on the amount of the damage recovery exclusive of any court-awarded fees, or the amount of the court-awarded fee, whichever is greater”

It could be that some of you need to take a look at your contingent fee agreements, especially given Octane’s new interpretation of 285…

Court to Employer: No Paper, No Assignment

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By Dennis Crouch

Peregrine Semiconductor v. RF Micro Devices (S.D. Cal. 2014) (peregrine decision)

Interesting decision here involving patent ownership. Peregrine sued RFMD for infringement of several of its patents. However, during the course of the lawsuit the parties figures out that a former Peregrine worker – Robert Benton – should have been a named inventor on the asserted patents. Rather than siding with his former bosses, Benton instead assigned his rights to the defendant RFMD. The question in the case then is whether that assignment is proper or did the patentee already hold equitable title due to Benton’s employment.

Ownership of patent rights generally begin with the notion that the inventor begins establishing patent rights at the moment of conception. “The general rule is that an individual owns the patent rights to the subject matter of which he is an inventor, even though he conceived it or reduced it to practice in the course of his employment.” Banks v. Unisys Corp., 228 F.3d 1357 (Fed.Cir.2000). At the point of conception, the right is inchoate since no patent application has been filed or patent issued. However, courts typically allow assignment of that inchoate right through a written document. That rule could be seen in contrast to the traditional rule regarding other inchoate rights, such as a possibility-of-reverter, that could not be transferred inter vivos. In the 2011 Stanford v. Roche decision, the Supreme Court reiterated the basic law of inventor’s rights and the proposition that – absent an express assignment – an employer might not own its employees inventions even if those were accomplished during the course of the employment. “In most circumstances, an inventor must expressly grant his rights in an invention to his employer if the employer is to obtain those rights.” Bd. of Trustees of Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc., 131 S.Ct. 2188 (2011) (citing United States v. Dubilier Condenser Corp., 289 U.S. 178 (1933)).

Peregrine made two arguments as to why such a transfer occurred and that it held at least equitable title to Benton’s patent rights: (1) a contractual promise to assign; and (2) the hired to invent doctrine.

No Paper à No Express Assignment: Courts have long specifically enforced contracts to assign patent rights – requiring a contracting inventor to follow through with that promise as opposed to requiring only the ordinary contract remedy of expectation damages. Peregrine’s problem is that it has no written evidence of such a contract formation. Peregrine’s business practice is to require all employees to sign an “Employment and Assignment agreement,” but Benton testified that he had no recollection of executing any such written employment agreement or assignment during his time working at Peregrine. Here, the court seemed to be swayed as well by the Patent Act’s statute of frauds that require any assignment of patent rights to be in writing.

A patent owner who seeks to assign his interest in the patent must do so in writing. 35 U.S.C. § 261; Sky Techs. LLC v. SAP AG, 576 F.3d 1374 (Fed.Cir.2009) (citing Akazawa v. Link New Tech. Int’l, Inc., 520 F.3d 1354 (Fed.Cir.2008)). Peregrine admits that it does not have any documentation of an Employment and Assignment agreement or Policy Manual signed by Benton.

Although I suspect that the court made the right decision here, the statute-of-frauds theory has some failings. First, the statute requires that assignments be in writing, but does not expressly require that contracts-promising-assignment be in writing. Further, courts can still enforce a “lost grant” despite the statute of frauds so long as there is sufficient evidence to prove that the grant existed. Here, however, that evidence appeared to be lacking.

What Exactly Was he Hired to Invent?: Peregrine also argued that Benton had a duty to assign his patent rights based upon the (Federal?) common law “hired to invent” doctrine as well as the California Labor Code § 2860. In California, the statutory provisions of § 2860 are seen as coextensive with the common law doctrine and applies when an employee is “hired to invent something or solve a particular problem.” The doctrine focuses on the specificity of the task assigned to the employee. As Don Chisum writes, “[t]he primary factor in finding an employment-to-invent is the specificity of the task assigned to the employee.” Here, the court cited a 1960s California decision distinguishing between work “narrowly directed by the employer towards the resolution of a specific problem” and work that is “generalized within a field.” With only the former creating an obligation to assign. See Banner Metals, Inc. v. Lockwood, 178 Cal.App.2d 643 (Cal.Ct.App.1960).

In this case the court found that Benton’s work appeared to be wholly within the field of semiconductor development, but generalized within that field. Importantly, the court noted that Benton worked on a variety of products during his employment and also spent time on non-inventing activities such as marketing and customer support. As such, the court ruled that Benton is unlikely to be bound by the hired-to-invent doctrine.

Hired-to-invent cases will always be somewhat squirrely since they are ordinarily raised only as a backstop when the employer’s written agreement failed and, as such, there is not likely to be written evidence particularly defining the reason why an individual was hired. This case fits that description.

Preliminary Injunction: Now, this case is only at the preliminary injunction stage. Peregrine had motioned for a preliminary injunction and that injunction was denied based upon the likelihood that Peregrine will not be able to prove its ownership. The denial also offers Peregrine the opportunity to immediately appeal this case to the Federal Circuit.

Opportunity Lost: Economic Analysis in Apple v. Motorola

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This is a Guest Post from Professor David McGowan of the University of San Diego School of Law. McGowan is co-director of USD’s Center for Intellectual Property Law & Markets.

Two years ago Judge Posner wrote an opinion in Apple v. Motorola
that caught the attention of economic experts and the lawyers who work with them. He excluded expert reports on both sides of the case, notably imagining a conversation in which one of Apple’s experts reported his methodology to a client, to be rewarded with a resounding “Dummkopf! You’re fired.”

Judge Posner made three central points, each plausibly grounded in what he saw as the requirement that economic experts employ in litigation the practices clients would demand from a business consultant. The first point was that such experts must add value; they may not simply recite contentions advanced by other experts. The second point was that economic experts may not extrapolate opinions from irrelevant comparisons. The third was that such experts must consider all economic options available to an accused infringer.

These points were sound and they implied a broader critique. Judge Posner plainly felt that customary practices in the economic analysis of patent cases are deficient and should be reformed. He rightly noted that when two opinions differ by a factor of 140, a difference present in this case and unsurprising to those who litigate such cases, something fundamental is wrong. His opinion was transparently an exercise in what he saw as swamp draining.

After an initial wave of schadenfreude rippled through the expert ranks everyone had the same question: Will this approach stick? Last Friday came the answer: No. The Federal Circuit’s opinion reversing Judge Posner sees no swamp, and that is unfortunate.

Although notionally applying regional (7th) circuit law to the Daubert questions Judge Posner decided, the court’s opinion establishes principles likely to influence future patent cases in any forum. None of these principles is compelled by Daubert or by the rules of evidence. Together they are likely to worsen economic analysis in patent cases.

The Federal Circuit’s opinion rejects each of Judge Posner’s central points. On the first point the court seemed to chide Judge Posner when it warned against a court imposing “its own preferred methodology” at the expense of plausible alternatives, an ironic comment for a field in which experts routinely slog through the Georgia Pacific factors–a test articulated by a district court. The court held “questions regarding which facts are most relevant or reliable to calculating a reasonable royalty are `for the jury.'” Such questions are a large part of what a “method” is in this context, so we may expect looser constraints on methodology in the future.

The Federal Circuit’s opinion does not explain what value an economist adds by repeating an engineer’s statement about a competitor’s costs. To add value, one would think, an economic consultant would analyze market data. In this regard Judge Posner’s literary flourish proved costly. The Federal Circuit quoted, and seemed put off by, the dummkopf passage. The court held “[t]he district court’s decision states a rule that neither exists nor is correct. Experts routinely rely upon other experts hired by the party they represent for expertise outside of their field.” Quite true. That, in part, was why Judge Posner perceived a systemic rather than an idiosyncratic problem.

The Federal Circuit’s opinion is more significant on Judge Posner’s second point and third points—extrapolations from comparisons and consideration of alternatives. Judge Posner excluded one expert’s opinion in part on the ground that his figures with respect to one phone feature (turning a page with a tap rather than a swipe) actually aimed at another feature (which interpreted an imperfectly vertical swipe as a vertical swipe), which in turn were extrapolated from the price difference between a computer mouse and a trackpad. Judge Posner held the mouse-trackpad difference “tells one nothing about what they will pay to avoid occasionally swiping unsuccessfully because their swiping finger wasn’t actually vertical to the screen,” the function that was itself a proxy for the relevant damages figure. The Federal Circuit disagreed, noting that both the trackpad and the swipe feature involve finger gestures to communicate commands and that one of the client’s engineers vouched for comparability. Imagine that.

The Federal Circuit relegated the comparability question largely to the jury:

[I]f the Trackpad is not an accurate benchmark, Motorola is free to challenge the benchmark or argue for a more accurate benchmark. But such an argument goes to evidentiary weight, not admissibility, especially when, as here, an expert has applied reliable methods to demonstrate a relationship between the benchmark and the infringed claims.

The net result? If your technical expert tells your damages expert two technologies are comparable, everything else is for the jury. This aspect of the holding exemplifies what will no doubt be the most common lesson taken from the case:
unless an expert is filmed throwing darts at numbers, even the most cogent criticisms will be held to go to weight rather than admissibility.

This aspect of the opinion threatens to bleed into the use of licenses rather than technology to derive a royalty. With respect to a separate issue the court held that “whether [asserted] licenses are sufficiently comparable such that Motorola’s calculation is a reasonable royalty goes to the weight of the evidence, not its admissibility.” Taken literally that rule could undo much of the work the Federal Circuit has been doing in cases such as Laser Dynamics, which held that “[w]hen relying on licenses to prove a reasonable royalty, alleging a loose or vague comparability between different technologies or licenses does not suffice.” Does it now suffice because it is a jury issue?

The Federal Circuit applied a similar approach to consideration of alternatives. Judge Posner’s point was that a consultant asked to minimize costs from infringement would be derelict if he or she considered only non-infringing ways to implement a function and ignored the possibility that the function could be deleted profitably. The Federal Circuit was unimpressed:

[t]hat a party may choose to pursue one course of proving damages over another does not render its expert’s damages testimony inadmissible. Nor is there a requirement that a patentee value every potential non-infringing alternative in order for its damages testimony to be admissible.

Taken as a general rule (and the trackpad discussion certainly invites such a reading), the language will encourage fanciful comparisons at the expense of economically more probable options. Litigants will draw such comparisons in an effort to anchor jurors on a high or low number. Opinions that differ by a factor of 140 will be even more common than they are now. Not good.

Are the methods of patent damages analysis really so elastic that a difference of 140x bespeaks no cause for concern? Must we tolerate in innovation policy practices no one would rely on to decide any important question in their own lives? The Federal Circuit’s decision implies that the answer is yes. Its opinion will ensure that we will see plenty more such differences. It could have been, and should have been, otherwise.

Federal Circuit: Jury Must Award Damages for Infringement

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By Dennis Crouch

Apple v. Motorola (Fed. Cir. 2014)

Sitting by designation in the smart-device battle between Apple and Google’s proxy Motorola, famed 7th Circuit jurist Richard Posner offered the bold summary judgment conclusion that neither party had offered adequate proof of damages or ongoing harm to support injunctive relief. Here, each party had asserted infringement of three patents. However, without any remedy, the case became moot and Judge Posner dismissed the case with prejudice. The foundation for this decision was built when Judge Posner considered the lack of credibility of both sets of damages expert reports and excluded almost all of that testimony under Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993).

On appeal, the Federal Circuit has – as expected – has reversed. The majority decision has several sections, but portions regarding damages are of most interest. First, the court provides a detailed analysis of damages expert analysis and finds a number of faults with Judge Posner’s exclusionary rules. However, the court goes on to hold that, even if the damages expert testimony were properly excluded, the proper calculation for damages on summary judgment is not zero.

Once a court has found that a patent is infringed and enforceable then it has a duty to award damages “in no event less than a reasonable royalty.” Here, the Federal Circuit appears to place the burden of identifying that minimum royalty on the fact finder:

Because no less than a reasonable royalty is required, the fact finder must determine what royalty is supported by the record. . . . If a patentee’s evidence fails to support its specific royalty estimate, the fact finder is still required to determine what royalty is supported by the record. . . . Indeed, if the record evidence does not fully support either party’s royalty estimate, the fact finder must still determine what constitutes a reasonable royalty from the record evidence. . . . Certainly, if the patentee’s proof is weak, the court is free to award a low, perhaps nominal, royalty, as long as that royalty is supported by the record.

Thus, a fact finder may award no damages only when the record supports a zero royalty award. For example, in a case completely lacking any evidence on which to base a damages award, the record may well support a zero royalty award. Also, a record could demonstrate that, at the time of infringement, the defendant considered the patent valueless and the patentee would have accepted no payment for the defendant’s infringement. Of course, it seems unlikely that a willing licensor and willing licensee would agree to a zero royalty payment in a hypothetical negotiation, where both infringement and validity are assumed.

The court goes on to note that it has been unable to find any case in history where the record properly supported an infringement award of zero.

The majority was penned by Judge Reyna and joined by Chief Judge Rader. However, these two Judges disagreed on one particular point – whether Motorola’s FRAND commitment for its patent removes all possibility of injunctive relief for unlicensed infringement. Judge Reyna says yes, Judge Rader says no – and that Apple’s bad behavior as an unwilling licensee should open the door for injunctive relief.

The majority opinion also vacated Judge Posner’s SJ determination that Apple was not entitled to an injunction seemingly because of a change in claim construction that now potentially creates a causal nexus between infringement and a market harm. Writing in dissent from that portion of the opinion, Judge Prost disagreed.

Fifth Circuit Affirms Summary Judgment of No Malpractice Liability

Patent

By Dennis Crouch

Sanders v. Flanders (5th Cir. 2014)

This case is an attorney malpractice lawsuit that Eric Sanders is pursuing against his Texas-based patent attorney Harold Flanders. Although the case is based on a Texas state-law claim, it enters Federal Court on grounds of diversity (Sanders is from Georgia). And, although the case involves a number of questions of patent law, those are not substantial enough to raise Federal Circuit appellate jurisdiction. See, Gunn v. Minton, 133 S.Ct. 1059 (2013) (state-law malpractice claims “rarely, if ever, arise under federal patent law.”); See also MDS (Canada) Inc. v. Rad Source Techs., Inc., 720 F.3d 833 (11th Cir. 2013). (Note, Harold Flanders is no longer on the rolls of patent attorneys).

Here, the invention in question is an “effervescent mouthwash tablet.” Over a period of nine years, Flanders prepared and filed “numerous” patent applications on behalf of Sanders. Flanders apparently did not notify Sanders of any of the office action rejections and instead allowed the applications to go abandoned. However, the district court granted summary judgment in favor of Flanders – holding that Sanders had failed to prove either causation or damages. The difficulty with patent prosecution malpractice actions is that attorney misconduct alone is generally insufficient. Rather, the allegedly injured party must also prove that the party’s outcome would have been better absent misconduct. Here, that would mean that a valuable patent would-have-issued.

On appeal, the Fifth Circuit affirmed – finding that Sanders had only presented “speculative” and “unsubstantiated” evidence of damages. (The court did not address causation because a lack of damages was sufficient to affirm).

To prevail on any of his five claims, Sanders had to demonstrate, inter alia, that Flanders’s conduct caused damages, a point he does not contest. It is well settled that damages cannot be established merely through speculation or conjecture. Granting a judgment as a matter of law with respect to damages, the district court concluded that “Sanders’s damages testimony was too speculative as to lost investors and lost profits, and unsubstantiated by competent proof as to out-of-pocket expenses and legal fees, to be recoverable.” Because we agree and affirm the district court’s grant of Flanders’s Rule 50(a) motion on this basis, we need not address whether Sanders presented sufficient evidence with respect to the element of causation—an alternative ground on which the district court granted relief.

Sanders did refile his applications in 2011 – this time with a different patent attorney. See APN 13/316,600. However, that case has also been abandoned for failure to respond to an office action rejection.

Four Opinions Defining “a Patient” and Is a Natural Phenomena an Act of God?

Patent,

By Dennis Crouch

Braintree Labs v Novel Labs (Fed. Cir. 2014)

I see this case as highlighting the most critical and problematic problem with our patent system – that patent claim scope is intentionally ambiguous and malleable. Consistent with the subject matter of the invention, this case may potentially serve as a trigger for cleaning-out the patent system.

Braintree’s U.S. Patent No. 6,946,149 (asserted claim 15) covers a “composition for inducing purgation of the colon of a patient” and is used to help prepare patients for colonoscopies. A major problem with colon cleansing is the risk of having a dramatic electrolyte shift in the body as a whole – leading to potential emergency health problems. Of course, colonoscopies have become very big business and this patent is potentially quite valuable.

Here, Braintree’s patent includes the clearly functional claim limitation of “wherein the composition does not produce any clinically significant electrolyte shifts.” The appeal is about the meaning of that the terms purgation, patient, and “clinically significant electrolyte shifts.” The panel here included Judges Dyk, Prost, and Moore. Each Judge had their own version of how the term should be construed and how that relates to infringement.

What is “a patient”: The preamble of asserted claim 15 indicates that that the invention covers a composition for inducting purgation of the colon of a patient. All parties agreed that the preamble term “a patient” should be seen as limiting since it is implicitly referenced by the later reference to electrolyte shifts. Here, both the district court and Judge Moore saw the “a patient” term as indicating “one or more patients” whereas Judges Dyk and Prost saw the term as meaning “a patient population.” This ends up being important since the plaintiffs provided evidence of a patient who had received the accused product and fit within the electrolyte shift limitation. However, the “general class of patients” interpretation would require evidence that the result is generally expected in all patients.

Judge Prost: Indeed, [the “one or more patients”] interpretation would allow a composition to meet the claims even if 99 patients out of 100 experienced clinically significant electrolyte shifts, as long as one patient did not. . . . [The] application of the claim terms “a patient” leads to the absurd result of infringement even if a composition causes clinically significant electrolyte shifts in a large percentage of patients

Judge Moore: The majority believes this to be an “absurd result” because it would allow “a composition to meet the claims even if 99 patients out of 100 experienced clinically significant electrolyte shifts, as long as one patient did not.” I understand the majority’s concern. But this is a question of damages, not infringement. . . . Infringement, whether on a large or small scale, is still infringement.

Judge Dyk: (Agreeing with Judge Prost) The sole evidence in the summary judgment record concerning the percentage of individuals experiencing such electrolyte shifts is data from two clinical studies … and those data are sufficient to show that the claim limitation was not met [since] a majority of patients experienced clinically significant electrolyte shifts.

In this case, the district court had awarded summary judgment of infringement to the patentee. On remand, the district court will need to revisit whether the patentee has proof that the patient population as a whole would react to the treatment as claimed. We’ll likely see this case again on revise-and-resubmit after the district court has redone its work. Of course, there is a chance that the Supreme Court may take this case – potentially seeing it as a subject matter sequel to Sakraida (“that cow shit case”).

= = = = =

This is a bit of an off-the-wall thought, but I might question whether an infringement finding is appropriate even under Judge Moore’s interpretation. Here, we basically have a setup where one claim limitation (no-electrolyte-shift) occurs in some patients and not in others – the cause of the difference is unknown but is likely a somewhat random operation of the laws of nature. What we know is that a particular treatment protocol will usually result in an electrolyte shift, but sometimes does not have such a result. Of course, for infringement to occur, the accused infringer must practice each and every step of the invention as claimed – here that includes the “no-electrolyte-shift” limitation. Now, although patent law does not require that the accused have intented to infringe the patent, the acts that eventually resulted in infringement must have been intentional.

My question on infringement, is whether performance of that no-electrolyte-shift element is properly attributable to a deliberate act by the accused or instead should it be seen simply as an occurrence of a natural phenomena – an Act of God as the old Lords might have said. See Tennent v. Earl of Glasgow (1864).

Proving Obvious with Post-Filing Evidence?: Yes

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Sanofi-Aventis v. Glenmark (Fed. Cir. 2014)

In a post on the Patent Ethics site, Professor Hricik highlights this case with the following headline: CAFC Affirms Adverse Inference Instruction Due to Spoliation.

Post Filing Recognition of Synergy: For patent prosecutors, an important headline from the case would also be: “Synergy” of patented combination that was only recognized after the application filing can still be used to prove non-obviousness. Here, that principle was applied by the appellate panel in affirming the jury’s decision that Glenmark had failed to prove Sanofi’s patent obvious.

Some background: Sanofi’s patent No. 5,721,244 covers the combination of both trandolapril (an ACE inhibitor) and a calcium channel blocker, combined “in amounts effective for treating hypertension.” A licensed drug covered by the patent is distributed by Abbott under the brand name Tarka. Mumbai-based manufacturer Glenmark filed an abbreviated new drug application (ANDA) with the FDA requesting permission to begin selling its generic version of the drug prior to patent expiry. In order for a generic manufacturer asking to receive permission to sell a drug that that the branded manufacturer has listed in the Orange Book as covering the product, the generic manufacturer must also submit a “Paragraph IV Certification” indicating their allegation that the patent is either invalid or will not be infringed by the generic activities. See 21 U.S.C. §355(j)(2)(A)(vii).

Under the Hatch-Waxman rules, an FDA filing with a Paragraph IV certification is a form of patent infringement and here Sanfi sued – alleging infringement. That lawsuit then triggered a 30-month stay in FDA approval of the generic product. However, once the stay concluded Glenmark launched its generic product (all while the district court case continued). Glenmark’s defense was invalidity, but the jury sided with the patentee that Glenmark’s proof was insufficient and the resulting damages were $16 million in lost profits and price erosion damages.

Patent Validity: The patented invention is a combination of two known hypertension medications. However, there was no evidence that the combination was known. The question thus, was whether the combination was obvious. The appeal of obviousness questions is tricky because obviousness itself is a question of law that must be supported by factual conclusions drawn from the evidence. A jury’s factual conclusions must be supported by “substantial evidence” (a fairly low standard), but any legal conclusions are reviewed de novo. “When the question of obviousness is tried to a jury, on appeal we ascertain whether the jury was correctly instructed on the law, whether there was substantial evidence in support of factual findings necessary to the verdict, and whether the verdict was correct on the supported facts.” Here, the jury was apparently not asked to report its particularly factual conclusions but instead only whether the claims were obvious. In these black-box scenarios, the jury verdict is difficult to overturn on appeal because the implicit factual findings are so difficult to pin-down and therefore challenge.

At the time of the invention (1986) it was apparently already known to combine ACE inhibitors with CC-blockers and Glenmark argued that the use of trandolapril was merely a substitution of one known ACE inhibitor for another. Sanofi argued that there were thousands of potential ACE inhibitors and none of the prior art suggested that the particularly claimed drug (trandolapril) was the best. In reviewing these arguments, the court sided with the patentee.

Post-Filing Recognition of Benefits: Some of the “synergistic benefits” of the drug combination were not recognized until after the patent application was already filed. In the appeal, the Federal Circuit held that those benefits were perfectly acceptable as evidence of non-obviousness. The court writes: “patentability may consider all of the characteristics possessed by the claimed invention, whenever those characteristics become manifest.”

How Many Plaintiffs to Screw in a Lightbulb? Another interesting aspect of the decision is whether the four plaintiff here had standing to sue. According to the case, Sanofi-Aventis Deutschland GmbH is the owner of the patent at issue and Aventis Pharma S.A. is the exclusive licensee of that patent. Abbott GmbH contracted with Aventis for the “irrevocable sole and exclusive right” to sell the drug product under the patent and Abbott Labs is the holder of the FDA-approved new drug application. Finally, ALI is the exclusive U.S. distributor for Abbott Labs.

Based upon this mess, Glenmark argued that only Abbott Labs held rights to sue on Hatch-Waxman claims (as holder of the FDA-filing) but that it did not have standing because it was neither owner nor exclusive licensee of the patent rights. On appeal, the Federal Circuit rejected this argument – agreeing with the district court that the relationships and agreements amongst the various plaintiffs resulted in Abbott Labs holding exclusive rights to the patent and thus having standing to sue. In addition, the court saw that it was important that “all entities in the license chain joined in the suit, such that there is no danger of multiple suits for infringement.”

Curbing Trolls by Reforming the Patent Marking Statute

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Guest Post by François deVilliers, Chief IP Counsel, Plantronics, Inc.

35 U.S.C. 287(a) provides that constructive notice of a patent may be given by marking the patented article with the patent number, and that “In the event of failure so to mark, no damages shall be recovered by the patentee in any action for infringement, except on proof that the infringer was notified of the infringement and continued to infringe thereafter, in which event damages may be recovered only for infringement occurring after such notice.”

This section is badly structured – instead of affirmatively specifying the requirements for infringement damages to accrue, the drafters addressed this issue in the negative sense only after specifying first that an article may be marked. This of course begs the question, what if there is no article to mark?

There is no duty to mark or to give notice in lieu thereof “if there is no product to mark,” as held by the Supreme Court in Wine Railway Appliance Co. v. Enterprise Railway. Equipment Co. (1936)(interpreting the predecessor statute) and by the Federal Circuit in Texas Digital Systems., Inc. v. Telegenix, Inc. Damages accrue from the moment infringement of the issued patent commences, with a six year “statute of limitations” provided in 35 U.S.C. 286.

The logic is supposedly that “[t]wo kinds of notice are specified–one to the public by a visible mark, another by actual advice to the infringer. The second becomes necessary only when the first has not been given; and the first can only be given in connection with some fabricated article. Penalty for failure implies opportunity to perform.” (Wine Railway.)

This has led to the odd situation in which a company that is vigorously engaged in the rough and tumble of commerce with its patented product, benefiting consumers, creating jobs and increasing GDP, is in a less favorable position than an entity that does nothing. What was intended to be beneficial (notice is deemed to be given by marking) has advanced the interests of the patent troll over those of the operating company.

Trolls exploit this odd situation by waiting for industries or standards to become established, or for sales to accrue, before presenting their now-inflated licensing demands. Finding a previously ignored or forgotten asset, the clichéd “Rembrandt in the attic,” is similarly rewarded. “The patent might be expiring, but we’ve got ya going back six years, buddy!”

By the time this delayed claim is presented, the alleged infringer or standards-setting body has had no opportunity to mitigate the effect of the claim by adopting different technology or taking other steps. They’re stuck with the cost and disruption of trying to resolve a claim that might not have existed, or might have existed on a much smaller scale, had they received timely notification of the patent. Dubious claims are also more intimidating, merely because of the amount at issue. The alleged infringer is penalized by the delay, while the idle or covert or brand-new patent owner benefits.

Such exploitation also contravenes a fundamental goal of the marking statue, which is to protect against innocent infringement. Nike, Inc. v. Wal-Mart Stores, Inc. (Fed Cir 1998).

But, you may say, what of the inventor in the garage, who doesn’t have the needed capital or expertise to commercialize their patent? What if a company is exploiting the patented technology in a faraway city? Shouldn’t this inventor be entitled to fair compensation? Of course. But that is what the internet and its search engines are for. Times have changed – if someone is making money off a patented product, a patentee will be able to find it and send a notice letter. At a minimum, even if the patent is not directed to a findable product, it is easy enough to identify likely infringers or companies that might be interested in licensing the patent.

The onus should be on the patent owner to assert their rights – use it or lose it. A simple patent reform could affirmatively specify that damages only accrue after actual or constructive notice, and that constructive notice can be given by marking. If it is not possible to mark, then actual notice should be required. Patent numbers for method patents can be included on products produced by the method, on devices that practice the method, in documentation accompanying software that practices the method, or on websites or in apps that practice the method. If it is really impossible to avail yourself of the benefit of constructive notice by marking, then the onus is on you to police your rights.

It is amazing that nobody has addressed this issue in current patent reform efforts directed to curbing the patent troll problem. The marking statute should protect innocent infringers and it doesn’t. Marking should benefit those who practice the patent, but the current state of the law benefits those who don’t.

 

PatCon 4: The Patent Troll Debate

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Below is my account of the Patent Troll debate at PatCon 4.  As those who were in attendance know, it was a dynamic, insightful, and interesting discussion about a very complex issue.

Resolved: That hostility to patent trolls is not well justified theoretically or empirically and will likely result in bad law.

Pro: David Schwartz, John Duffy

Con: Michael Meurer, Mark Lemley

***

John: Hostility to patent trolls unfounded as a theoretical matter.  Patent trolls rely on two fundamental features of the patent system, and that defines their business model.

1) Alienability of patent rights: this should not be changed.  This is something that should be kept, not just because of property rights theory generally, but also because of patent rights in particular.  This is because inventors are generally not people who are good at business.   So you need to allow these people to transfer their patent rights to others.

Consider AT&T research labs: better to have everything integrated into a massive corporation or to have rights spread out among lots of people.

2) Litigation costs are high.  We should generally not be happy about this generally.  We can all agree that this is a problem.  But patent trolls are more efficient at dealing with this type of litigation.  They’re more capable of asserting of asserting these rights.  Also, keep in mind that if you have relatively narrow patent rights, you’re going to need an efficient market for those narrow rights.  This is the role that patent trolls offer.  This allows for the valuation of patents.

Mike – Three observations:

1) Relatively little troll activity at the start of the 20th century

2) Small businesses have motivated Congress and the White House to pursue a variety of reforms

3) Peter Detkin thinks that there is a lot of evidence that some folks are gaming the system.

Empirical research shows that patent trolls impose a tax on innovation.  This hazard increases with R&D investment.  Other research supports this conclusion.  Patent defense imposes a cost on companies’ Research and Development.  Patent defense has a negative effect on small firm R&D persisting for up to three years.  This harm was present even if the defendant won the lawsuit.  This is particularly concerning since there’s evidence indicating that patent trolls frequently lose their lawsuits.

This produces a chilling effect, that is strongest among small, high-tech firms.  New research by Catherine Tucker showing patent troll litigation “was associated with a loss of roughly $21.8 billion of VC investment over the course of five years.”

Dave: Theory that NPEs can be good for the system because they’re specialist.  Prof. Meuer system seems to be arguing that the whole patent system doesn’t work.  Dave can’t address all that; the debate here is just over whether the specific entity that holds the patent matters.  And he’s not convinced.

Dave might be persuaded if the suits were mainly frivolous, then there might be a big problem.  But there’s not clear evidence of this.  Going to lay out some guideposts about what he thinks are the right way to think about this issue:

1) Critical issue of what a PAE is.  This definitional problem needs to be overcome first.  Anyone that doesn’t practice the patent?  Too broad; encompasses universities, individual inventors, aggregators.

2) Need to have a baseline to compare to.  If the type of entity is the problem, then it can’t just be problems endemic to the patent system that matters.

3) Need to fundamentally we as academics approach research into patent litigation.  Can’t keep all this research private.  Data needs to be publicly available, for many reasons.  For example, the definitional issue: does this change the outcome?  Very hard to have a meaningful discussion about all this when the data is proprietary and held by corporations with skin in the game.

Mark: His position is that trolls aren’t necessarily the problem with the patent system.  But while trolls themselves are not the problem, trolls are a symptom of real problems with the patent system.  They’re a symptom of long tendency times, unclear claims, incentives to write broad functional claims.  As a result of these things, anyone can easily and cheaply stand up and make a plausible claim that I’m entitle to a portion of your company’s profits.  The result is a development of the ‘bottom feeder’ model, where at least some entities are pursuing a strategy of extorting nuisance value settlements.  Trolls can make use of high discovery costs and asymmetries.

Is hostility to trolls making bad law?  Let’s look at developments:

1) eBay: you get an injunction when you’re entitled to one.

2) We got more sophisticated with our damages arguments

3) Eliminated the willfulness infringement letter game

4) Reduced the cost of addressing patent validity by inter partes review

5) Started to eliminate forum shopping

What is Congress/Courts doing?

1) Give district courts discretion to punish frivolous suit

2) Forcing patent holders to be more clear in their claims in Biosig v. Nautilus

3) Considering reducing the cost of discovery by addressing e-Discovery

4) Considering making patent holders sue the manufacturer, rather than the downstream users or mom and pop merely as a way of increasing the royalty base.

Mike: Rebuttal to Dave and John –  There are many instances of small entities – such as biotech or pharma startups – that were able to enforce their patents without the need of intermediaries.  Doesn’t see a major role for tech transfer via intermediaries in the pharma and biotech areas because there is a lot of tacit information. So very skeptical were going to facilitate much transfer of technology by facilitating PAE practices.

John:
Rebuttal to Mike’s invocation of the precautionary principle: we should welcome innovation.  The rise of patent trolls is a rise of innovation in law.  We should not be afraid of this; we should embrace it.  Also, in every other field where there are property rights, there is a robust secondary market.  Consider used car markets.  It’s an oddity that we don’t have one in patent law.

Rebuttal to Mark’s point on taking advantage of asymmetries.  But this is something that defendants do as well – defendants are perfectly willing to take advantage of independent inventors.

Rebuttal to Mike’s event studies data. [Had to talk real fast because he was running out of time so I didn’t get it, but the button line was that Mike’s studies have flaws[

Mark: John says we have to welcome innovation.  But the kind of innovation that John wants to encourage are different from the innovation that Mark wants to encourage.  The type of innovation that John wants to encourage is innovation in extracting value from the patent system; innovation in the legal models.  And this imposes a tax on the innovation in the technical areas.  John says that this is a property system, and any property system has a robust secondary market.  But this is actually an instance that shows why patent rights are not property.  Patent trolls are taking rights that are lying fallow and bringing them into the marketplace.  But is this possibility really providing the primary incentive for folks to engage in technological innovation.

Also, let’s think about the change.  We’ve moved from a world where 2% of all patents are being enforce to perhaps a world where we’re in 50-60-70% of all patents are being enforced.  That doesn’t seem like technological transfer but something else.

Dave: Going to focus just on the bottom feeder point.  He’s against suits that are frivolous.  But this is where the data is weakest.  And this is the linchpin of the argument.  Mark suggests that there are a lot of these “bottom feeder” cases.   But the main study here (Lemley, Allison & Walker, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1677785) isn’t really enough.

That study looks at the most litigated patents of all time.  And it finds that 90% of the patents that go to final judgment by NPEs do not win.  But the problem with this study is that is relatively limited, so it may just be outliers. Also, this study appears to involve independent inventor patents, which should be kept in mind.  Third, we’re equating unsuccessful with frivolous suits.  But that may not be the case.  Finally, there’s the problem of selection effects.  Only about 10% of cases reach final judgment.  There are many reasons to think that the 90% are not like the 10%.  Consider two possibilities:

1) The possibility of an injunction affects settlement negotiations.  Since post-eBay, it’s extremely likely that a non-practicing entity will be able to get an injunction (unlike practicing entities)

2) Practicing entities have other things that they can offer in settlement other than just money – such as business relations, etc.

David McGowan – moderator:

For Mark & Mike: Isn’t John right to say that whatever else you do, you don’t want patent law to have effects on efficient firm size?

For John & Dave: Hypothetically, let’s suppose that the choice that a sophisticated NPE is a patent portfolio, where the transaction isn’t really about whether a patent is infringed, but the aggregate possibility that there’s something in the portfolio that is infringed.

Mark: The right way to think about nondiscrimination is to think about whether we treat like situated people differently.  In other words, should we single you out for no other reason than you’re a NPE? No.  But that leaves a lot of room to apply rules in other ways that depend on particular characteristics or attributes of the entity.

John: Since they sort of largely agreed with me, I’m going to declare victory on a theoretical level.  No one is defending that we should treat inventors in these transactions differently depending on whether they are integrated into a large firm or not.

Dave: On the portfolio point.  Serially asserting patents against companies.  This is not unique to PAEs.  This is a general problem having to do with aggregation. In Mark’s Forest for the Trolls argument, he can see some benefits from aggregation in solving the royalty stacking problem.  There’s still potential for mischief with these portfolio structures, although there may be solutions.

John: Tremendous incentive for parties to come to an agreement on these portfolios unless all the patents are junk. And if all the patents are junk, then we have a bigger problem with the patent system.  Both plaintiffs and defendants lose value when suits are filed; so both parties have a strong incentive to settle. I’m going to continue to file suit against you and lose.  That’s not a very strong negotiating strategy.

Mike: One thing you should have told them, John, is that when a pharma company loses value when it files a lawsuit is because the shareholders realize that the patents are not as incontestable as they thought.

Basic economics of assertion by PAEs is, if we listen to John and Dave, is that they’re more efficient in enforcing patents.  The effect of this is to shift the borderline patents that are being assert to lower quality patents.  The result is that we’re going to have a marginal shift to lower quality patents.

In addition, the problem with the PAEs is that they aggravate the harms from notice failure.  Greater bargaining power of PAEs makes innovation tax bigger.  The size of problems with the patent system is exacerbated by PAEs.

David McGowan – moderator:

For John/Dave: Why did we see a spike in NPE suits from 2001-2009?

John: Innovation in patent monetization taking place.  This is good.  When people game the system, they show us new things to do.  Some we might want to adjust in response to.  But throw the entire innovation out?  No.

David: Also, a growing view that patents can be a valuable asset, combined with a larger number of firms that were willing to take patent cases on contingency fees.  But the real question is whether these are frivolous cases or cases that really are meritorious

For Mike/Mark: How are we going to get information that we can be confident in?

Mark: Going back to the study that Dave talked about.  Fair to say that for various structural reasons it’s hard to know much about the confidential settlements.  So what can we know?

We can look at cases that go to summary judgment and trial.  Invokes weak version of Priest-Klein here to respond to the selection effect point. Also, these are a substantial chunk of the cases in the system as a whole.  So when we tell you that 90% of those cases are losers for PAEs, that tells us something.  Also, consider Colleen Chien survey on payouts, which indicates that most of these case are settling for the cost of litigation. Ultimately, though, we really need to have more transparent settlement data, not just for studying it, but also for creating a thick secondary patent market.

Finally, if the way that things work is that the more innovative a firm is, the more it gets sued: there’s a real problem with our patent system and a fundamental disconnect be the way that incentives are aligned.

Oskar:  Consider this problem: let’s imagine two inventors who come up with a process patent that they’re never going to patent.  So what we hope they’re going to do is ex ante licensing.  You go around to the industry and try to get everyone to adopt it.  Another road that could be adopted is to get the patent and put it in a drawer and wait until someone else comes up with the process and then go out an sue them (i.e.: engage in ex post licensing.)

In between this distinction, we can say that the inventor who actually pushes the invention out is socially better than the inventor who engages in ex post licensing.

John: Patents don’t get put in drawers these days.  They get put on the internet.  So not really as big a concern about ex post licensing.  Also, see my recent article on the Paper Patent Doctrine in Cornell Law Review.

Mark: Oskar makes a really important point.  We want technology transfer.  Used to be a time when we got tech transfer through the patent system because diffusion was slow and patents made it faster.  But diffusion of tech as sped up and the patent system has slowed down.  The key here is a distinction between patent rights transfer and technology transfer.  But in a world in which most patent lawsuits are filed against independent inventors not against copiers.

For another take, see Prof. Tom Cotter’s summary of the debate: http://comparativepatentremedies.blogspot.com/2014/04/patcon-4-patent-troll-debate.html

 

Guest Post: Patent Remedies Should Not Depend on a Patentholder’s Business Model

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Guest Post by Prof. Ted Sichelman, University of San Diego School of Law

The standard justification for patents is that they are necessary to allow inventors to recoup R & D costs in the presence of low-cost copying. As the Supreme Court stated in Kewanee Oil, “The patent laws . . . offer[] a right of exclusion . . . as an incentive to inventors to risk the often enormous costs in terms of time, research, and development.” Yet, if patent law is designed to provide a “reward” for R & D related to the invention—rather than the commercialization of the invention—then why do these rewards depend on whether the inventor is an operating company that makes and sells the invention or a non-practicing entity (NPE) that does not?

In a recent article in the Texas Law Review (here), I argue that if patent law is truly concerned about R & D, then remedies should generally be the same for operating companies and NPEs for a given patented invention, because the “reward” necessary to induce the R & D for that invention should generally be the same regardless of the business model of the underlying inventor.

One reason commonly offered for varying awards is that commercializing entities should be provided an additional reward for bringing inventions to market as commercial products (or, conversely, NPEs should be penalized for not doing so). Although I am quite sympathetic to this view—and have argued as much several years ago (here)—this is decidedly not the reason the courts have used to distinguish between operating companies and NPEs.

Rather, the distinction arises historically from patent law’s importation of traditional tort law principles into remedies law. Like traditional tort remedies, a patentee who wins in court is typically entitled to be returned to the status quo ante—in other words, the state of the world that existed prior to when the infringement occurred. For money damages, this means that operating companies are generally entitled to “lost profits” on sales forgone from the infringement of the patented invention and NPEs are entitled to “reasonable royalties” for forgone licensing revenue (which, typically, are less than lost profits awards). For injunctive relief, the historical practice was to assume that all patentees were entitled as a matter of course to choose who could (or couldn’t) practice their patents. Yet, relying on the status quo ante principle, scholars and policymakers argued that NPEs—at least ones that license non-exclusively—should not be entitled to injunctions as a matter of course, because such an equitable remedy is unnecessary to return an NPE patentee to the status quo (and additionally generates a host of social costs). Such views ultimately influenced Justice Kennedy’s prominent concurrence in eBay, which has since led to the routine denial of injunctive relief for NPEs.

In my article (here), I argue that these hoary tort law principles do not achieve optimal incentives for engaging in innovative activity, because they differentiate among patentholders in ways that are entirely unrelated to the value of the underlying invention. Indeed, as soon as a patent is assigned from an NPE to an operating company its value increases because of patent remedies doctrine—an odd result. Rather than aiming to restore the patentee to the status quo, remedies law should instead provide those incentives necessary to induce a sufficient level of R & D in order to generate the invention in the first instance—perhaps with some modification if the patent-in-suit is shown to be integral to undertaking post-R & D commercialization activity (such as FDA clearance or unpatentable market testing).

This innovation-centric approach would lead to some immediate changes in remedies law. As an initial matter, the baseline assumption should be that remedies should be the same for operating companies and NPEs alike. This would entail rejecting the current statutory scheme for injunctive relief—and, hence, much of the reasoning in the majority and concurring opinions in eBay. Under my proposal, in some situations—like those involving multi-component products and high switching-costs—I argue that injunctions should be routinely denied both to NPEs and operating companies. In other situations, such as those involving simple mechanical inventions or discrete pharmaceutical chemical compositions, courts should typically issue injunctions to any type of patentholder.

As for money damages, the lost profits-reasonable royalty framework should be discarded entirely in favor of an approach that assesses the incremental economic value of the patented invention in relation to R & D costs actually expended by the patentees (and potentially third parties), taking into account failure rates, technological and market risk, and in some cases, commercialization and testing costs and risks, for the invention and similar types of inventions. This alternative framework would better align rewards with the actual costs and risks undertaken by the inventor. In circumstances in which a patent played an important role in the commercialization process, the remedy could be adjusted to further reward operating companies (or penalize NPEs).

I realize that implementing such an approach to remedies is not an overnight fix and could take many years to implement in a feasible manner. In the meantime, rather than attempting to restore inventors to the status quo, remedies law should generally ensure that the same invention yields the same reward. Doing so would better promote the innovation-centric aims of the patent system.

 

Ongoing Royalty against Apple: Higher than Back Damages and Willfulness a Given

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By Dennis Crouch

VirnetX and SAIC v. Apple (E.D. Tex 2014)

The VirnetX/SAIC/Leidos patents cover methods of creating virtual private networks (VPNs) and secure domain name services. Here, SAIC is the multi-billion-dollar government contractor and the patents were apparently developed as part of SAIC’s work for the CIA and NSA. SAIC spun-off several of its IP assets to VirnetX who is an independent publicly traded patent enforcer. Apparently, VirnetX’s market cap is around $1B based almost on its 80 patents and several court wins. However, the company only has 15 employees. SAIC/Leidos retain a revenue stream from patent profits as well.

A jury found that Apple infringed the VirnetX patents with its FaceTime and VPN On Demand applications. The jury awarded $368 million in past damages. However, District Court Judge Davis denied VirnetX’s motion for injunctive relief to stop ongoing infringement. Those decisions are on appeal to the Federal Circuit.

Meanwhile, Judge Davis severed the case so that he could separately consider the issue of ongoing damages. Now, Judge Davis has awarded an ongoing royalty of 0.98% for devices configured to run either FaceTime or VPN ON Demand. Breaking-down that award: 0.65% in damages and 0.33% in enhanced damages for the willfulness of the ongoing infringement.

The ongoing damage award rate is substantially higher than that awarded for back-damages. The explanation is several fold: the patents have now been adjudged valid; Apple’s ongoing infringement is now willful; and some changed circumstances. Regarding the changed circumstances – since the verdict, VirnetX licensed its patents to Siemens at a substantially higher rate than its pre-verdict licenses.

One issue that appeared to stick to Judge Davis involved Apple’s changed theories during the case. In particular, at trial, Apple had argued that the invention was rather minimal and that it would have only cost Apple $3.6 million to make a “very simple change” to its servers so that they would operate in a way that VirnetX admits would be non-infringing. Later, when VirnetX sought injunctive relief, Apple “dramatically reversed course” and argued that implementation of a design around would be incredibly expensive and disruptive. (The actual numbers of estimated costs are redacted from the filings.) Apple appeared to lose significant credibility with those arguments. Judge Davis wrote:

While Apple has taken steps to mitigate its infringement, Apple grossly misrepresented its ability to implement a non-infringing alternative to the jury. The huge disparity between Apple’s position at trial and Apple’s position post-judgment also warrants increasing the implied royalty rate.

Regarding enhanced damages for willfulness, Judge Davis suggests that post-verdict infringement should generally be considered willful and subject to enhanced damages.

= = = =

In my mind there is a minor, but million dollar issue with the decision. Judge Davis awarded a 0.65% ongoing royalty and then enhanced the damage award by an additional 50% of that. In my calculation, that would take the award to 0.975%. However, Judge Davis rounded up to 0.98%. The Judge wrote: “Considering four factors favor enhancing the implied royalty rate, the ongoing royalty rate [of 0.65%] is increased 50% to 0.98%.” Those five thousandths of a percent appear small, but will likely add to at least a million dollar difference.

= = = =

Further reading:

USITC Asks En Banc Federal Circuit for Power to Block Imports Whose Distribution Induce Infringement in the US

Inducement, ITC,

by Dennis Crouch

Suprema, Inc. and Mentalix v. US International Trade Commission and Cross Match Tech. (Fed. Cir. 2013/2014)

Image of Finger Print Scanner PatentThe US International Trade Commission (USITC) is a branch of the US Government that offers an alternative forum for patent enforcement. There are a number of benefits to pursuing an action in the USITC as well as a number of quirks. Importantly, the USITC has no authority to award damages for patent infringement — rather, the sole available award is an exclusion order that would block infringing imports.

Here, Cross Match’s asserted patent covers a fingerprint-scan methodology that includes both hardware and software.  In this case, the hardware is manufactured abroad and imported by Suprema and then, once in the US, combined by Mentalix with the software to make a product used to infringe. Of importance, the imported hardware does not – by itself – directly infringe the patent. However, the USITC found that Suprema was liable for inducing infringement under 35 U.S.C. 271(b).

On appeal, the Federal Circuit reversed – holding instead that the USITC’s power only extends to block articles that are themselves infringing at the point of importation. The result for this case is that the inducement theory of infringement could not stand because the direct infringement that is predicate for an inducement holding was not occurring until after importation. Oddly, however, the majority did find that the USITC may still have power when the cause of action is contributory infringement rather than inducement. This distinction was based upon the notion that inducement is focused on the “conduct of the inducer” and “is untied to an article.”  Judge O’Malley penned the Federal Circuit opinion and was joined by Judge Prost.

Writing in dissent, Judge Reyna argued that the majority opinion “overlooks the Congressional purpose of Section 337, the long established agency practice … of conducting unfair trade investigations based on induced patent infringement, and related precedent by [the Federal Circuit] confirming this practice.”  Judge Reyna provided a full-page long string citation of decisions where the USITC issued exclusion orders based upon an inducement theory where the direct infringement occurred post-importation.

Now, both the USITC and the patentee Cross Match have petitioned the Federal Circuit for a rehearing en banc and the Court has offered some signal that it is interested in the case (requesting briefing from the accused infringers).

In the en banc request, the US Government makes an interesting argument that the Federal Circuit precedent is contradicted by the Supreme Court’s decision in MGM v. Grokster, 545 U.S. 913 (2005) as well as the Federal Circuit’s decision in Standard Oil v. Nippon Shokubai Kagaku Kogyo, 754 F.2d 345, 348 (Fed. Cir. 1985). The Grokster case is a copyright case, but is directly applicable for a number of reasons, including the fact that the USITC statute at issue also provides jurisdiction over cases involving imports that infringe US copyrights.

The basic notion from Grokster is that inducement is infringement, and that culpability can attach well before the later direct infringement by another.  In Standard Oil, Judge Rich wrote that inducement attaches “as of the time the [inducing] acts were committed, not at some future date.”  Of course, the inducement doctrine has been significantly tightened since Judge Rich’s time. And the language of Grokster is not as direct and on-point as the US ITC suggests. Still, the government and Suprema (as discussed below) make a strong case that the original panel decision is wrong.

Suprema similarly argues that the decision is contrary to the statutory text. In particular, (1) the statute does not require a full cause-of-action for infringement at the time of importation and (2) the notion that inducement is “untied” from the actual infringing article “is fundamentally flawed.”  The first of these arguments seems to be a clear winner – since the statute particularly provides authority against “the sale within the United States after importation.”

I suspect this case will be moving forward. It will be interesting to see whether the original panel retracts its opinion or whether the en banc court is forced to act.

Files:

 

Attorney Fees: Litigation Misconduct But No Fees Awarded

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By Dennis Crouch

Oplus Technologies, Ltd. v. Sears & Vizio (C.D.Cal.2014)

In an October 2013 summary judgment decision, Judge Pfaelzer found in favor of the defendants – holding that the Oplus asserted patents were not infringed (Patent Nos. 6,239,842 and 7,271,840) and also invalid as anticipated (Patent No. 6,239,842). That final decision is pending appeal at the Federal Circuit.

Most recently, the court denied Vizio’s motion for attorney and expert witness fees “pursuant to 35 U.S.C. § 285, 28 U.S.C. § 1927, and the Court’s inherent power.” However, that denial came only as part of a decision that walks through statements by Oplus and its attorneys (the Niro firm) that “were seriously contradictory and unreasonable” and their “manner and style” that were “offensive to the Court.” Particular noted misconduct included:

  • Oplus delayed the litigation by strategically amending its claims to manufacture venue.
  • Oplus misused the discovery process to harass Vizio by ignoring necessary discovery, flouting its own obligations, and repeatedly attempting to obtain damages information to which it was not entitled.
  • Oplus used improper litigation tactics including presenting contradictory expert evidence and infringement contentions as well as misrepresenting legal and factual support.

However, the Judge Pfaelzer also found that (despite summary judgment) that Oplus’s claims were not “objectively baseless.”

Although the misconduct was serious in Judge Pfaelzer’s view one reason for not awarding attorney fees was that Vizio’s was also guilty of delay and avoidance tactics. And, the court found that the inconsistencies in Oplus position actually helped make the Summary Judgment decision easier – probably saving attorney fees.

Ray Niro submitted a letter to Judge Pfaelzer that likely helped sway her decision not to award fees. In the letter, Ray Niro’s letter Niro apologized for “the conduct of one of our young lawyers” and that “could be understood as being arrogant to and disrespectful to the Court.” Niro indicated he has “taken remedial action” and would monitor the lawyer’s conduct throughout the next year. Niro also indicated that – although not an excuse or justification – that the mother of the lawyer who had spoken harshly to the court had been critically ill on the day of the hearing and had died four days later.

The case is interesting as an added element to the ongoing debate on awarding attorney fees. Two patent law attorney fee cases are pending before the US Supreme Court and several related bills are pending in Congress. Here, Judge Pfaelzer had no problem identifying litigation misconduct but applied her discretion to rule that attorney fees were not appropriate. In essence, Pfaelzer began with the presumption that ordinarily no attorney fees should be awarded and then found that there were not sufficient reasons to move from that starting position. At least some of the congressional proposals shift the starting-position so that the ordinary rule would be an award of attorney fees unless there are sufficient reasons to not award fees. I would guess that this is one of the cases that would flip under the proposed rules.

  • Scott Graham from The Recorder has more on the story here.
  • NiroLetter
  • OrderDenyingAttorneyFees
  • As luck would have it, Vizio was sued again this week. This time by Pragmatus Telecom who alleges infringement of several patents, including U.S. Patent No. 8,438,314.

Supreme Court Reverses Federal Circuit: Holds that Patentees Always have Burden of Proving Infringement

Patent, Supreme Court, , , ,

By Dennis Crouch

Medtronic v. Mirowski, ___ U.S. ___ (2014) [CaseText]

In a unanimous opinion, the US Supreme Court has reversed the Federal Circuit – holding that the patentee has the burden of proving infringement even in declaratory judgment actions by a licensee in good standing. I had previously noted that the Federal Circuit decision here was “odd” and likely to be rejected by the Supreme Court. The case should generally be seen as further emboldening licensees to challenge their licensed patents.

Medtronic has licensed a number of implantable heart stimulator patents from Mirowski. While still paying royalties (into an escrow account) and remaining in good-standing as a licensee, Medtronic filed a declaratory judgment action asserting that its products were not covered by the patent and that it therefore owed no contract damages. Prior to 2007, the Federal Circuit had ruled that a licensee in good standing had no declaratory judgment standing. However, in MedImmune, Inc. v. Genentech, Inc., 549 U. S. 118 (2007), the Supreme Court held that Article III’s case-or-controversy requirement can be satisfied by the fact that a licensee faced the threat of suit if it ceased making payments).

The district court sided with Medtronic – finding that Mirowski failed to prove infringement. However on appeal, the Federal Circuit vacated – holding instead the ordinary burden of proving infringement shifted in declaratory judgment cases a licensee in good standing. On writ of certiorari the Supreme Court has decided that the district court’s analysis is the better course of action and now holds that:

[W]hen a licensee seeks a declaratory judgment against a patentee to establish that there is no infringement, the burden of proving infringement remains with the patentee.

The Supreme Court based its decision on three notions: (1) the Patentee ordinarily bears the burden of proving infringement; (2) the Declaratory Judgment Act is only procedural; and (3) the burden of proof is a substantive aspect of the claim. Following this triple premise, the court concluded that the filing of a declaratory judgment action could not shift the burden of proof.

= = = =

The decision is fairly short, but has a few interesting aspects.

First, the court provided a policy-based analysis that calls-to-mind the problems faced by many accused infringers who receive a demand letter or broadly written complaint alleging infringement:

[The Federal Circuit rule can] create unnecessary complexity by making it difficult for the licensee to understand upon just what theory the patentee’s infringement claim rests. A complex patent can contain many pages of claims and limitations. A patent holder is in a better position than an alleged infringer to know, and to be able to point out, just where, how, and why a product (or process) infringes a claim of that patent. Until he does so, however, the alleged infringer may have to work in the dark, seeking, in his declaratory judgment complaint, to negate every conceivable infringement theory.

It is this same sentiment that has been driving a movement to increase the pleading standards in patent cases.

Second, the court re-iterated its historic position that patent rights should be open to challenge as a mechanism for maintaining a well-balanced patent system.

The public interest, of course, favors the maintenance of a well-functioning patent system. But the “public” also has a “paramount interest in seeing that patent monopolies . . . are kept within their legitimate scope.” Precision Instrument Mfg. Co. v. Automotive Maintenance Machinery Co., 324 U. S. 806 (1945). A patentee “should not be . . . allowed to exact royalties for the use of an idea . . . that is beyond the scope of the patent monopoly granted.” Blonder-Tongue Laboratories, Inc. v. University of Ill. Foundation, 402 U. S. 313 (1971). And “[l]icensees may often be the only individuals with enough economic incentive” to litigate questions of a patent’s scope. Lear, Inc. v. Adkins, 395 U. S. 653, 670 (1969). The general public interest considerations are, at most, in balance. They do not favor a change in the ordinary rule imposing the burden of proving infringement upon the patentee.

Read the decision here: https://casetext.com/case/medtronic-v-mirowski

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Can License Terms Privately Change The Baseline Rules Set Here?: An ongoing and open question is whether the rules regarding licensee standing and burdens are hard-and-fast or instead whether they should are to be treated as default rules that can be altered by contracting parties. As an example, a licensee could agree (as part of a license agreement) not to file a declaratory judgment action challenging patent rights while in good standing or could agree that in a DJ action the licensee had the burden of proving non-infringement. The open question is whether these private contractual provisions would be deemed unenforceable on public policy grounds. Although open, the implicit suggestion from the decision is that those provisions would be unenforceable. I draw that conclusion from the court’s positive citation of Lear, Precision, and Blonder-Tongue.

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Standing: The Supreme Court began the opinion with a discussion of jurisdiction that seems to step-back somewhat from its recent decision in Minton v. Gunn. The particular question raised was whether the case was a patent lawsuit or instead merely a contract dispute. If the former, then the case is heard in Federal Court and by the Federal Circuit. If the latter, then the case would be in state court unless there the parties exhibit diversity jurisdiction and, a diversity case would have been appealed through a regional circuit court of appeals rather than to the Federal Circuit.

Subject matter jurisdiction over a declaratory judgment action is ordinarily based upon whether the complementary coercive action brought by the DJ defendant would necessarily present a federal question. Franchise Tax Bd. of Cal. v. Construction Laborers Vacation Trust for Southern Cal., 463 U. S. 1 (1983).

Here, the Supreme Court determined that the potential coercive action was patent infringement. The court based its conclusions upon its reading of the license that gave power to Mirowski to terminate the contract and sue for patent infringement if Medtronic stopped paying royalties. According to the Supreme Court, it is of no matter that Mirowski could instead sue for contract damages – a result that would have been much more likely. In its Amicus Brief, Tessera wrote:

Because there was simply no chance that the licensee suddenly would abandon the contractual dispute resolution procedure after nearly twenty years when it could resolve the very same patent issues within the contractual framework, and when both licensed patents were, in any event, set to expire within a year, a coercive patent infringement action by the licensor cannot reasonably be said to have been anticipated or threatened at the time of the initial filing.

The Supreme Court here rejected Tessera’s argument:

The relevant question concerns the nature of the threatened action in the absence of the declaratory judgment suit. Medtronic believes—and seeks to establish in this declaratory judgment suit—that it does not owe royalties because its products are noninfringing. If Medtronic were to act on that belief (by not paying royalties and not bringing a declaratory judgment action), Mirowski could terminate the license and bring an ordinary federal patent law action for infringement. Consequently this declaratory judgment action, which avoids that threatened action, also “arises under” federal patent law.

With this ruling, the Supreme Court has thrown another wrench in federal patent jurisdiction doctrine.

Patent

By Dennis Crouch

Edwards Lifesciences v. Medtronic (D. Delaware, 2014)

A Delaware jury has awarded Edwards Lifesciences almost $400 million in lost profit damages for patent infringement and has also determined that the infringement was willful – opening the door to an award of both treble damages and attorney fees.

The patents adjudged to be infringed and not-invalid are both related to prosthetic aortic valve stents. U.S. Patent Nos. 8,002,825 and 7,892,281. Edwards obtained the patent rights as part of a $125 million purchase of Percutaneous Valve Technologies. Judge Sleet has not yet determined whether to issue an injunction as well.

Related articles
Edwards Lifesciences (EW) Plans to Seek Injunction on Medtronic CoreValve (MDT)
Jury says Medtronic infringed on rival's patent, should pay $393M

Institut Pasteur: Federal Circuit Takes Hard Look at USPTO Board Factual Conclusions

Patent, , , , ,

By Dennis Crouch

Institut Pasteur v. Focarino and Precision BioSciences, Reexam No. 95,000,443 (Fed. Cir. 2013)

The French non-profit Institut Pasteur holds several patents covering site-directed insertion of genes into eukaryotic chromosomes. See U.S. Patent Nos. 7,309,605, 6,610,545, and 6,833,252. Basically, Pasteur discovered that a set of naturally occurring enzymes that could cleave chromosomal DNA at particular recognition sites and also discovered that cells will naturally repair the cleavage through homologous recombination even when an additional gene sequence is added, so long as a proper recombinatory DNA template is also added. It turns out that this sequence of events occurs in mitochondrial DNA but Pasteur was able to make it work on chromosomal DNA as well. The patents all relate to creating the enzymes and method of using those enzymes to insert DNA.

This is old stuff and all happened in the early 1990’s The three patents all expired in 2012 while the case was pending appeal to the Federal Circuit, but companies may still be on the hook for past damages for what has become a basic tool of genetic engineering.

In 2009, Precision BioSciences filed for inter partes reexamination of the three patents. The examiner found the claimed invention obvious and that decision was affirmed by the USPTO’s administrative patent appeal board. On appeal, the Federal Circuit has come-out with three interesting rulings:

Hard Deadline on Amendments: First, for the ‘605 patent, the claims were amended during the reexamination (and prior to the patent expiration date). For those claims, the court dismissed Pasteur’s appeal as moot because “[substantially] amended claims cannot be entered now that the patent has expired.” This result is obviously important for gamesmanship because it rewards delay tactics on the part of would-be infringers and also encourages patentees to work toward concluding any post-grant reviews.

No Substantial Evidence: Second, the Federal Circuit determined that the Board lacked Substantial Evidence for its factual conclusions that led to its obviousness decision of the challenged claims of the ‘545 patent. The question of obviousness is a matter of law predicated upon a set of factual conclusions. A factual conclusion must itself be based upon evidence presented to the Court. Here, after reviewing the two key prior art references (the evidence), the USPTO Board concluded that the prior art showed that the claimed enzyme “cleaved yeast chromosomal DNA when expressed in yeast cells.” On appeal, the Federal Circuit rejected that factual conclusion after failing to find such a disclosure in either reference. One factor making the Federal Circuit’s decision easier was that the Board based its conclusion upon the text of the prior art references rather than relying upon factual or expert testimony that could have offered stronger conclusory evidence.

Motivation to Combine: Finally, with regard to the ‘252 patent, the Federal Circuit found that the Board had failed to identify the “motivation, if any, a skilled artisan at the relevant time would have had to pursue the claimed invention.”

Opinion by Judge Taranto

Verdict and Settlement

Patent

By Dennis Crouch

Cassidian Communications v. microData GIS (E.D. Tex. 2013). Last week an Eastern District of Texas jury found all of Cassidian’s asserted “multiple-call-center” claims invalid. See U.S. Patent No. 6,744,858. According to Michael C. Smith, the E.D. Texas results for 2013 are “four plaintiff verdicts in fifteen infringement trials this year.”

Meanwhile, Princeton Digital Image settled another infringement case. This time with Toys R Us. PDI’s patent is US Patent No. 4,813,056 that allegedly covers “encoding image data into JPEG files for the purposes of producing JPEG images of products” for use on a website. The Patent was originally owned by GE and has now expired. PDI is in the process of collecting back-damages.

Supreme Court: The Right to a Jury Trial on Obviousness

Obviousness, Patent, , , , ,

By Dennis Crouch

Soverain v. Newegg (on petition for writ of certiorari)

After a trial on the merits, Judge Davis (E.D.Tex.) found that the accused infringer (Newegg) had presented insufficient evidence of obviousness and refused to let that issue go to the jury. Instead, the judge awarded a directed verdict for the patentee (Soverain) that the asserted claims were not invalid as obvious. The jury went on to find Newegg liable for infringement and awarded $2.5 million in damages and also found the patent not anticipated. Following trial, the district court denied Newegg's motion for new trial on obviousness grounds. On appeal, the Federal Circuit took the almost unprecedented stance of reversing the non-obviousness decision. One reason for the rarity of a full-reversal (rather than vacatur) is largely explained by the substantial factual foundation that serves as the basis of an obviousness decision. In its opinion, the Federal Circuit couched its discussion in terms of questions of law – following the Supreme Court's lead from KSR International Co., v. Teleflex, Inc., 550 U.S. 398 (2007). In that case, the Supreme Court was able to make the legal conclusion that the asserted claims were obvious because the factual underpinnings of obviousness were seemingly not in material dispute.

In its petition for writ of certiorari, Soverain focuses on the Seventh Amendment right to a jury trial and argues that the Federal Circuit's approach effectively and improperly redefines obviousness as a pure question of law.

Question Presented:

Whether the Federal Circuit's effective redefinition of obviousness as a pure question of law, allowing it to resolve disputed factual questions in the first instance on appeal, violates the Seventh Amendment and this Court's precedent.

Here, Sovarain points to a number of factual issues that the Federal Circuit identified as questions of law, including assessing credibility of the witnesses, resolving conflict between witness testimony resolving the teaching of prior art references.

The Seventh Amendment provides that:

In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved…

The Seventh Amendment "preserve[s]" the "common law" right to jury trial and, as a consequence, presents an oddball test that roughly asks whether the cause of action at issue was (or is analogous to) a common law cause of action that was tried before an English jury back in in 1791 and then whether the particular trial decision in question is one that was (or would have been) decided by a jury. See Markman v. Westview Instruments, Inc., 517 U.S. 370 (1996).

The Supreme Court has indicated that patent infringement lawsuits where the patentee is seeking damages are cases at law protected by the Seventh Amendment right to a jury trial. However, as far as I know, the Supreme Court has never held that the right to a jury particularly to an obviousness challenge or to the underlying factual conclusions that serve as the basis for an obviousness decision. 1800's cases do suggest that the factual underpinnings to the "invention" requirement are subject to a jury determination. See, for example, Battin v. Taggert, 58 U.S. (17 How.) 74 (1854); and Turrill v. Michigan S. & N. Ind. R.R. Co., 68 U.S. (1 Wall.) 491 (1864) ("[T]here was an important question of fact which should have been left to the jury, whether … any of the prior movable pressblocks … were substantially the same as the machine of the patentee."). However, the 1952 Patent Act expressly eliminated the doctrine of invention in favor of the new doctrine of obviousness. In its last foray into this area, the Supreme Court recognized in Markman that claim construction included both questions of fact and questions of law, but ultimately determined that no fundamental right to a jury trial existed for that doctrine.

An interesting inside issue here is that Judge Newman has been a strong proponent of the right to a jury trial on obviousness. See Newell Cos. v. Kenney Manufacturing Co., 864 F.2d 757 (Fed.Cir. 1988) (J. Newman dissenting from holding that ultimate question of obviousness may be decided by judge over party's objection). However, it was Newman who found Soverain's patent obvious in the present case. In the 1988 Newell case, the majority held that the patentee has no right to a jury trial on obviousness unless the factual underpinnings are in dispute.

The defendant was, of course, entitled to have a jury summoned in this case, but that right was subject to the condition, fundamental in the conduct of civil actions, that the court may withdraw a case from the jury and direct a verdict, according to the law if the evidence is uncontradicted and raises only a question of law.

Of course, Judge Nies did not walk through the weeds of history (as required by the Supreme Court) to arrive at this answer but instead only looked to the "fundamental notion" that there is no right to a jury decision regarding a question of law. See also, In re Lockwood, 50 F.3d 966 (Fed. Cir. 1995) (Nies, C.J. writing in dissent) (arguing that a patent is a public right created by Congress and "[a] constitutional jury right to determine validity of a patent does not attach to this public grant") (mandamus vacated without opinion by the Supreme Court).

Focusing back, the Soverain petition does not ask the Supreme Court to overrule Newell, but rather to merely limit courts ability to unilaterally expand take would-be factual question and then make those factual conclusions under the guise of legal determinations. Soverain writes:

The Federal Circuit's decision to take for itself questions this Court has reserved for the trier of fact has significant consequences that threaten the stability and predictability of the patent system. This decision shifts the boundary between the ultimate legal question of obviousness and the underlying factual questions. It thus paves the way for district courts and other panels to decide factual questions and undermines the role that the jury and procedural safeguards play in ensuring that hindsight bias does not skew the analysis of obviousness. By downplaying the factual component of obviousness, the Federal Circuit's decision also erodes the clear and convincing evidence standard for proving invalidity, which this Court reaffirmed in Microsoft Corp. v. i4i Limited Partnership, 131 S. Ct. 2238 (2011).

I also see this case as asking for clarification of the KSR decision in terms of what elements of the "common sense" analysis should be considered determinations rightfully before a jury. I suspect that the brief strategically avoided that issue because the Federal Circuit is a much riper target for review than a recent unanimous and popular Supreme Court opinions.

In an amicus brief supporting the petition, Professor Eileen Herlihy argues that the Federal Circuit systematically gets Seventh Amendment questions wrong and needs to be set straight by the Supreme Court. Herlihy has written two articles on how the Seventh Amendment should be applied to patent cases.